<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
MULTI-MARKET RADIO, INC.
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(Name of Issuer)
MULTI-MARKET RADIO, INC.
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(Name of Person(s) Filing Statement)
Class B Warrants
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(Title of Class of Securities)
625432125
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(CUSIP Number of Class of Securities)
Michael G. Ferrel
Multi-Market Radio, Inc.
President, Chief Executive Officer and Chief Operating Officer
150 East 58th Street, 19th Floor
New York, New York 10155
(212) 407-9150
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(Name, Address and Telephone Number
of Person Authorized to Receive
Notices and Communications on Behalf
of the Person(s) Filing Statement)
Copies to:
Howard M. Berkower, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022
(212) 751-5700
October 8, 1996
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Date Tender Offer First Published,
Sent of Given to Security Holders
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee*
$4,710,400 $942.08
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*The transaction valuation and filing fee were computed in accordance with Rule
0-11(a)(4) and were calculated based on the market value of the 1,840,000
outstanding Class B Warrants, as determined by the average of the high and low
prices reported on The Nasdaq Stock Market, Inc.'s National Market System on
October 4, 1996.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount Previously Paid: n/a
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Form or Registration No.: n/a
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Filing Party: n/a
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Date Filed: n/a
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ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer and the address of its
principal executive office is:
Multi-Market Radio, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Certain information concerning the executive officers,
directors, and controlling persons of Multi-Market Radio, Inc. ("MMR") is set
forth on Annex A attached hereto. Any disclosure made herein (including on
Annex A) with respect to persons other than MMR is made on information and
belief.
(b) The securities being sought are all of the Class B
Warrants expiring March 22, 1999 of MMR (the "MMR Class B Warrants"). As of
October 3, 1996, 1,840,000 MMR Class B Warrants were outstanding.
Each MMR Class B Warrant entitles the registered holder to
purchase one share of Class A Common Stock, par value $.01 per share, of MMR
(the "MMR Class A Shares") at a price of $11.50 per share, subject to
adjustment in certain circumstances, at any time commencing on March 23, 1994
and ending at 5:00 p.m., New York City time, on March 22, 1999, at which time
the MMR Class B Warrants will expire.
MMR is seeking to exchange an aggregate of 368,000 MMR Class
A Shares for all of the 1,840,000 MMR Class B Warrants which are outstanding
(the "Exchange Offer"). Each holder of MMR Class B Warrants who elects to
participate in the Exchange Offer will receive one MMR Class A Share in
exchange for five (5) MMR Class B Warrants, in each case upon the terms and
subject to the conditions set forth in the Offering Circular, dated October 4,
1996 (the "Offering Circular"), a copy of which is attached hereto as Exhibit
9(a)(i), and in the related Letter of Transmittal, a copy of which is attached
hereto as Exhibit 9(a)(ii). MMR will not issue fractional MMR Class A Shares
but will pay cash in lieu of issuing fractional MMR Class A Shares.
To the knowledge of MMR, no officer, director or affiliate of
MMR owns any MMR Class B Warrants.
(c) The information set forth in the section entitled
"Summary--Comparative Market Price Data" of the Joint Proxy
Statement/Prospectus included as Annex 1 to the Offering Circular is
incorporated herein by reference.
(d) MMR is filing this statement.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration offered by MMR to induce the exchange
of the MMR Class B Warrants consists solely of MMR Class A Shares except that
MMR will not issue fractional MMR Class A Shares but will pay cash in lieu of
issuing fractional MMR Class A Shares. If the Exchange Offer is accepted by the
holders of all of the MMR Class B Warrants, MMR will issue 368,000 MMR Class A
Shares in exchange for all outstanding MMR Class B Warrants. Other than the
expenses of the Exchange Offer, MMR will incur no monetary obligations in
connection with the Exchange Offer.
Such expenses shall be paid by MMR from its working capital.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER
OR AFFILIATE.
The Exchange Offer is being undertaken by MMR pursuant to its
obligations under the Amended and Restated Agreement and Plan of Merger, dated
as of April 15, 1996, as amended (the "Merger Agreement"), among SFX
Broadcasting, Inc. ("SFX"), SFX Merger Company, a wholly-owned subsidiary of
SFX ("Acquisition Sub"), and MMR, pursuant to which Acquisition Sub will merge
with and into MMR (the "Merger") and MMR will become a wholly-owned subsidiary
of SFX. The Merger Agreement provides that MMR shall use its commercially
reasonable best efforts
<PAGE>
to commence an offer to exchange MMR Class A Shares for MMR Class B Warrants,
which offer shall not be greater than two- tenths (.2) of an MMR Class A Share
per MMR Class B Warrant. The Merger Agreement further provides that, in the
event that MMR is unsuccessful in obtaining the exchange of at least 50% of the
outstanding MMR Class B Warrants at the ratio set forth above on or prior to
the fifth trading day preceding the effective time (the "Effective Time") of
the Merger, then the ratio of shares of Class A Common Stock, par value $.01
per share, of SFX (the "SFX Class A Shares") and Class B Common Stock, par
value $.01 per share, of SFX (the "SFX Class B Shares") to be issued to the
holders of the various common and preferred shares of MMR shall be adjusted
downward to the extent necessary to reduce the total dollar value of the SFX
Class A Shares and SFX Class B Shares that would have otherwise been received
by MMR security holders at the Effective Time (in each case calculated with
reference to the SFX Class A Common Stock Price, which is defined as the
average of the last reported bid and asked prices of an SFX Class A Share on
The Nasdaq Stock Market, Inc's National Market System for the twenty (20)
consecutive trading day ending on the fifth (5th) trading day prior to the
Effective Time) by a dollar amount equal to the product of $2.50 times the
number of MMR Class B Warrants outstanding immediately after such exchange in
excess of 920,000. In the event that no MMR Class B Warrants are exchanged in
the Exchange Offer, the consideration to be received by MMR security holders
would be reduced by approximately $0.39 per MMR Share.
(a) The information set forth in the sections entitled
"Summary--The Merger--The Merger Agreement," "The Merger Agreement--The Merger"
and "--The Exchange Ratio" in the Joint Proxy Statement/Prospectus included as
Annex 1 to the Offering Circular are incorporated herein by reference.
(b) The information set forth in the sections entitled
"Summary--The Merger," "Proposals 1 and A--The Merger" and "The Merger
Agreement" in the Joint Proxy Statement/Prospectus included as Annex 1 to the
Offering Circular are incorporated herein by references.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth in the sections entitled
"Summary--The Merger--The Merger Agreement" and "The Merger Agreement--The
Merger" in the Joint Proxy Statement/Prospectus included as Annex 1 to the
Offering Circular are incorporated herein by references.
(f) Not applicable.
(g) Not applicable.
(h) The information set forth in the sections of the Offering
Circular entitled "Offering Circular Summary --The Exchange Offer--Effects of
the Exchange Offer on Non-Exchanging Holders of MMR Class B Warrants," "Risk
Factors Relating to MMR--Possible Delisting of MMR Class B Warrants from the
Nasdaq National Market" and "Purpose and Effects of the Exchange Offer" are
incorporated herein by reference.
(i) The MMR Class B Warrants may be eligible for termination
of registration pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended, depending on the number of MMR Class B Warrants that remain
outstanding upon the termination of the Exchange Offer.
(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Not applicable.
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ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
See "Item 3 - Purpose of the Tender Offer and Plans or
Proposals of the Issuer or Affiliate" which is incorporated by reference
herein.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Not applicable.
ITEM 7. FINANCIAL INFORMATION.
(a)(1) The audited financial statements of MMR for the fiscal
years ended December 31, 1994 and December 31, 1995 included in the section
entitled "Index to Financial Statements" of the Joint Proxy
Statement/Prospectus included as Annex 1 to the Offering Circular are
incorporated herein by reference.
(a)(2) The unaudited balance sheet of MMR as of June 30, 1996
and unaudited comparative year-to-date income statements, earnings per share
and statements of cash flows for MMR for the six months ended June 30, 1995 and
June 30, 1996 included in the section entitled "Index to Financial Statements"
of the Joint Proxy Statement/Prospectus included as Annex 1 to the Offering
Circular are incorporated herein by reference.
(a)(3) The ratio of earnings to fixed charges for the years
ended December 31, 1994 and 1995 and the six months ended June 30, 1996
included in the Offering Circular under the caption "Risk Factors Relating to
MMR--Substantial Leverage; Inability to Service Indebtedness" is incorporated
herein by reference.
(a)(4) The book value per MMR share as of December 31, 1995
and as of June 30, 1996 included in the Offering Circular under the caption
"Offering Circular Summary--Pro Forma Effect of the Exchange Offer" is
incorporated herein by reference.
(b) The pro forma financial data relating to earnings per
share and book value per share included in Offering Circular under the caption
"Summary - Effect of the Exchange Offer" are incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) There are no applicable regulatory requirements which
must be complied with or approvals which must be obtained in connection with
the Exchange Offer except that (i) approval to list additional MMR Class A
Shares on The Nasdaq Stock Market Inc.'s National Market System must be
obtained and (ii) Blue Sky securities qualification for the Exchange Offer in
various jurisdictions must be obtained.
(c) The MMR Class B Warrants are not marginable securities.
(d) There are no material pending legal proceedings relating
to the Exchange Offer.
(e) The Offering Circular, including the Joint Proxy
Statement/Prospectus attached thereto as Annex 1, which is an integral part
thereof, should be read in its entirety and is incorporated herein by
reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(i) Offering Circular, dated October 4, 1996.
(a)(ii) Letter of Transmittal to be used by warrantholders to
tender MMR Class B Warrants pursuant to the Exchange Offer.
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<PAGE>
(a)(iii) Letter to Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(iv) Form of Letter to Clients from Securities Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(a)(v) Guaranteed Delivery Form.
(a)(vi) Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(vii) Letter from MMR to warrantholders.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
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SIGNATURE
After due inquiry and to the best of the undersigned's
knowledge and belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
MULTI-MARKET RADIO, INC.
By: /s/ Michael G. Ferrel
----------------------------------------
Name: Michael G. Ferrel
Title: President, Chief Executive Officer
and Chief Operating Officer
Date: October 8, 1996
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<PAGE>
ANNEX A
INFORMATION REGARDING EXECUTIVE OFFICERS, DIRECTORS
AND CONTROLLING PERSONS OF MMR
A. BRUCE MORROW (CHAIRMAN OF THE BOARD OF DIRECTORS)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Morrow has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E- 4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
B. MICHAEL G. FERREL (CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF OPERATING
OFFICER AND DIRECTOR)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger and as set forth in the next paragraph, Mr. Ferrel has no plans
or proposals that relate to or would result in any of the actions
specified in paragraphs (a) through (j) of Item 2 of Schedule 13E-4.
MMR's Restated Certificate of Incorporation provides that on or after
July 29, 1998, or earlier in the event of such default or failure
after May 15, 1996, the holders of the MMR Original Preferred Shares
(which includes Mr. Ferrel) were permitted to convert such non-voting
(except as required by law) shares into an equal number of
ten-votes-per-share MMR Class B Shares. The loan agreement between MMR
and Finova (the "Finova Loan Agreement") and MMR's agreement governing
the MMR Senior Subordinated Debentures contain covenants which limit
MMR's annual corporate overhead expenditures. MMR has been in default
of this covenant in the Finova Loan Agreement in each of the last two
years, in part due to the expansion of MMR through acquisitions
consummated subsequent to entering into the Finova Loan Agreement, and
has received waivers of such default from Finova. In the third quarter
of 1996 MMR again exceeded the limitation on annual corporate overhead
expenditures contained in the Finova Loan Agreement and also exceeded
the limitation on annual corporate overhead expenditures contained in
the agreement governing the MMR Senior Subordinated Debentures.
Because of such defaults, Mr. Ferrel was permitted to convert his MMR
Original Preferred Shares into MMR Class B Shares. Mr. Ferrel has
informed MMR that, in the event that the Merger is consummated shortly
after the MMR Special Meeting, he does not intend to exercise his
conversion rights with respect to the MMR Original Preferred Shares
owned by him. MMR obtained a waiver of its default under the Finova
Loan
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<PAGE>
Agreement with respect to exceeding its corporate overhead limit
and entering into the SFX Loan for a payment of $10,000, and also
obtained a waiver of its default under the agreement governing the MMR
Senior Subordinated Debentures. The MMR Original Preferred Shares held
by Mr.Ferrel were placed in escrow pursuant to which, in the event that
such shares were or are converted into MMR Class B Shares, Mr. Ferrel
may vote such shares but is prohibited from transferring such shares
prior to July 29, 1998.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
C. RICHARD HEIDEMAN (SENIOR VICE PRESIDENT AND DIRECTOR)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Heideman has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E-4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
D. MANUEL RODRIGUEZ (SENIOR VICE PRESIDENT)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Rodriguez has no plans or proposals that relate to or
would result in any of the actions specified in paragraphs (a) through
(j) of Item 3 of Schedule 13E-4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
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<PAGE>
E. JERRY D. EMLET (CHIEF FINANCIAL OFFICER)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Emlet has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E- 4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
F. KENNETH J. HARMONAY (DIRECTOR)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Harmonay has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E-4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
G. MYLES W. SCHUMER (DIRECTOR)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Schumer has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E-4.
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<PAGE>
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
H. EDWARD L. SIMON (DIRECTOR)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger, Mr. Simon has no plans or proposals that relate to or would
result in any of the actions specified in paragraphs (a) through (j)
of Item 3 of Schedule 13E- 4.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
I. ROBERT F. X. SILLERMAN (CONTROLLING PERSON BY VIRTUE OF HIS SHARE
OWNERSHIP)
Item 2. Source and Amount of Funds or Other Consideration.
Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
Other than the exchange of securities of MMR owned by him in the
Merger and as set forth in the next paragraph, Mr. Sillerman has no
plans or proposals that relate to or would result in any of the
actions specified in paragraphs (a) through (j) of Item 3 of Schedule
13E-4.
MMR's Restated Certificate of Incorporation provides that the holders
of the MMR Class C Shares (which includes Mr. Sillerman) to convert
such non-voting (except as required by law) shares into an equal
number of one-voteper-share MMR Class A Shares, or on or after July
29, 1998, or earlier after May 15, 1996 in the event that MMR is in
default under any obligation for borrowed money, into an equal number
of MMR Class B Shares, which generally have ten votes per share. On or
after July 29, 1998, or earlier in the event of such default or
failure after May 15, 1996, the holders of the MMR Original Preferred
Shares (which includes Mr. Sillerman) were permitted to convert such
non-voting (except as required by law) shares into an equal number of
ten-votes-per-share MMR Class B Shares. The loan agreement between MMR
and Finova (the "Finova Loan Agreement") and MMR's agreement governing
the MMR Senior Subordinated Debentures contain covenants which limit
MMR's annual corporate overhead expenditures. MMR has been in default
of this covenant in the Finova Loan Agreement in each of the last two
years, in part due to the expansion of MMR through acquisitions
consummated subsequent to entering into the Finova Loan Agreement, and
has received waivers of such default from Finova. In the third quarter
of 1996 MMR again exceeded the limitation on annual corporate overhead
expenditures contained in the Finova Loan Agreement and also exceeded
the limitation
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<PAGE>
on annual corporate overhead expenditures contained in the agreement
governing the MMR Senior Subordinated Debentures.
Because of such defaults, Mr. Sillerman was permitted to convert his
MMR Class C Shares and MMR Original Preferred Shares into MMR Class B
Shares and on August 28, 1996 Mr. Sillerman exercised his right to
convert his MMR Class C Shares and MMR Original Preferred Shares into
MMR Class B Shares on a share for share basis. As a result of such
conversion, Mr. Sillerman's beneficial ownership of the stock of MMR
consists of 227,000 MMR Class A Shares, 493,334 MMR Class B Shares and
120,000 MMR Series B Preferred Shares. MMR obtained a waiver of its
default under the Finova Loan Agreement with respect to exceeding its
corporate overhead limit and entering into the SFX Loan for a payment
of $10,000, and also obtained a waiver of its default under the
agreement governing the MMR Senior Subordinated Debentures. Such
conversion will not affect the number or class of the SFX Shares to be
received by Mr. Sillerman in the Merger nor will it permit him to
control the outcome of the stockholder vote on the Merger. Prior to the
conversion, the MMR Original Preferred Shares held by Mr. Sillerman
were placed in escrow pursuant to which, in the event that such shares
were or are converted into MMR Class B Shares, Mr. Sillerman may vote
such shares but is prohibited from transferring such shares prior to
July 29, 1998. As a result of the conversion of his MMR Class C Shares
and MMR Original Preferred Shares into MMR Class B Shares, Mr.
Sillerman may be deemed to beneficially own shares representing 15.4%
of the outstanding combined voting power of MMR with respect to the
Merger, 50.1% of the outstanding combined voting power of MMR with
respect to certain amendments to MMR's Restated Certificate of
Incorporation (and 5.0% and 77.9% of the votes in the MMR Class A Share
and MMR Class B Share class votes, respectively, of the vote with
respect to certain amendments to MMR's Restated Certificate of
Incorporation) and 50.1% with respect to most other matters, giving Mr.
Sillerman control over almost all matters to be voted on by MMR
Stockholders (including, without limitation, the election of a majority
of directors).
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
Not applicable.
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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9(a)(i) Offering Circular, dated October 4, 1996.
9(a)(ii) Letter of Transmittal to be used by warrantholders to
tender MMR Class B Warrants pursuant to the Exchange Offer.
9(a)(iii) Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
9(a)(iv) Form of Letter to Clients from Securities Dealer,
Commercial Banks, Trust Companies and Other Nominees.
9(a)(v) Guaranteed Delivery Form.
9(a)(vi) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
9(a)(vii) Letter from MMR to warrantholders.
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<PAGE>
OFFERING CIRCULAR
[GRAPHIC OMITTED]
OFFER TO EXCHANGE SHARES OF ITS CLASS A COMMON STOCK
FOR ANY AND ALL OF ITS REDEEMABLE CLASS B WARRANTS
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON NOVEMBER 6,
1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). WARRANTS NOT PREVIOUSLY ACCEPTED
FOR EXCHANGE MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Multi-Market Radio, Inc. ("MMR") hereby offers, upon the terms and
subject to the conditions set forth in this Offering Circular and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), an aggregate
of 368,000 shares of its Class A Common Stock, par value $.01 per share (the
"MMR Class A Shares"), in exchange for all of the issued and outstanding
redeemable Class B Warrants (the "MMR Class B Warrants") to purchase MMR Class
A Shares (the "Exchange Offer"). MMR will issue one MMR Class A Share in
exchange for each five (5) MMR Class B Warrants properly tendered and accepted
by MMR for exchange in the Exchange Offer.
The Exchange Offer is not conditioned upon a minimum number of MMR
Class B Warrants being tendered. Holders of MMR Class B Warrants who desire to
tender in the Exchange Offer must tender all the MMR Class B Warrants held by
them. No partial tenders of Warrants will be accepted. In addition, no
fractional shares of MMR Class A Shares will be issued in the Exchange Offer
and any holder entitled to receive a fractional share will be entitled to
receive only cash in lieu thereof. See "The Exchange Offer."
Each MMR Class B Warrant entitles the holder thereof to purchase one
share of MMR Class A Share at a price of $11.50, subject to adjustment, from
the date of issuance until March 22, 1999, unless redeemed earlier. The MMR
Class B Warrants are subject to redemption by MMR at $.01 per warrant on 30
days prior written notice provided the closing bid price of the MMR Class A
Shares exceeds $16.00 for 20 consecutive trading days ending within five days
of the notice. See "Description of MMR Class B Warrants."
The closing sales price of the MMR Class A Shares and the MMR Class B
Warrants reported on The Nasdaq Stock Market, Inc.'s National Market System
(the "Nasdaq National Market") on October 3, 1996 was $12 11/16 per share and
$2 19/32 per share, respectively. The MMR Class A Shares and the MMR Class B
Warrants are quoted under the symbols RDIOA and RDIOZ, respectively.
Application will be made to quote the shares of MMR Class A Shares offered
hereby on the Nasdaq National Market.
The Exchange Agent for the Exchange Offer is American Stock Transfer &
Trust Company, New York, New York and the Information Agent for the Exchange
Offer is Georgeson & Company Inc., New York, New York.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE MMR
CLASS A SHARES OFFERED HEREBY.
(cover page continued on next page)
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS OFFERING CIRCULAR. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Offering Circular is October 4, 1996.
<PAGE>
(continued from previous page)
On or about the date of this Offering Circular, MMR and SFX
Broadcasting, Inc. ("SFX") are transmitting to the holders of all outstanding
classes of their common stock a Joint Proxy Statement/Prospectus (the "Joint
Proxy Statement/Prospectus") attached hereto as Annex 1. The Joint Proxy
Statement/Prospectus is being transmitted in connection with (i) the
solicitation of proxies by the Board of Directors of SFX (the "SFX Board") for
use at the Annual Meeting of Stockholders of SFX (the "SFX Annual Meeting") and
(ii) the solicitation of proxies by the Board of Directors of MMR (the "MMR
Board") for use at a Special Meeting of Stockholders of MMR (the "MMR Special
Meeting" and, together with the SFX Annual Meeting, the "Meetings"). At the
Meetings, the stockholders of SFX and MMR will vote on, among other things, a
proposal to approve the Amended and Restated Agreement and Plan of Merger,
dated as of April 15, 1996, as amended (the "Merger Agreement"), among SFX, MMR
and SFX Merger Company, a wholly-owned subsidiary of SFX ("Acquisition Sub"),
pursuant to which Acquisition Sub will merge with and into MMR (the "Merger")
and whereby MMR will become a wholly-owned subsidiary of SFX.
On the date and time of the filing of a Certificate of Merger with the
Secretary of State of Delaware or as specified in the Certificate of Merger
(the "Effective Time"), each issued and outstanding MMR Class A Share will be
converted into the right to receive that number of SFX Class A Shares equal to
the Exchange Ratio. The Exchange Ratio is determined by dividing $12.50 by the
average of the last reported bid and asked prices of a share of Class A Common
Stock of SFX, par value $.01 per share (the "SFX Class A Shares"), on the
Nasdaq National Market for the twenty (20) consecutive trading days ending on
the fifth trading day prior to the Effective Time (the "SFX Class A Stock
Price"), subject to adjustment in the event that the SFX Class A Stock Price
exceeds $44.00 or is less than $32.00 during such period. The adjustments to be
made to the Exchange Ratio in the event that the SFX Class A Stock Price is
less than $32.00 or more than $44.00 are described in "The Merger
Agreement--The Exchange Ratio" in the Joint Proxy Statement/Prospectus included
as part of this Offering Circular as Annex 1. Pursuant to the Merger Agreement,
if MMR is unable to obtain the exchange of at least one-half of the outstanding
MMR Class B Warrants in the Exchange Offer, the Exchange Ratio shall be
adjusted downward to the extent necessary to reduce the total value of the SFX
Class A Shares and the Class B Common Stock of SFX, par value $.01 per share
(the "SFX Class B Shares" and together with the SFX Class A Shares, the "SFX
Shares"), that would have otherwise been received by MMR security holders at
the Effective Time (in each case calculated with reference to the SFX Class A
Common Stock Price) by a dollar amount equal to the product of $2.50 times the
number of MMR Class B Warrants outstanding immediately after the Expiration
Date in excess of such 50% number. In the event that the average of the last
reported bid and asked prices of the SFX Class A Shares is less than $27.33 for
any seven consecutive trading days, the Merger Agreement may be terminated by
MMR; provided that SFX may avoid such termination by increasing the
compensation to the holders of MMR Class A Shares, MMR's shares of Class B
Common Stock, par value $.01 per share (the "MMR Class B Shares" and together
with the MMR Class A Shares, the "MMR Shares"), MMR's Original Preferred Stock,
par value $.01 per share (the "MMR Original Preferred Shares"), and MMR's
Series B Convertible Preferred Stock, par value $.01 per share (the "MMR Series
B Shares" and together with the MMR Original Preferred Shares, the "MMR
Preferred Shares"), subject to certain conditions and the right of SFX to
terminate if the price of SFX Class A Shares declines further. The Exchange
Ratio, calculated as if the Merger was consummated on October 1, 1996 would
have been 0.2842. For a more detailed description of the Merger Agreement, see
"The Merger Agreement" in the Joint Proxy Statement/Prospectus.
If the Merger is consummated, (i) holders of MMR Class B Warrants who
exchange such warrants for MMR Class A Shares in the Exchange Offer will
receive SFX Class A Shares in the Merger in respect of their MMR Class A Shares
and (ii) SFX will assume all MMR Class B Warrants which are not exchanged for
MMR Class A Shares in the Exchange Offer and each holder of an MMR Class B
Warrant will be entitled to acquire SFX Class A Shares upon exercise of such
warrants, with appropriate adjustments to the number of SFX Class A shares
purchasable thereunder and the exercise price in respect thereof. Assuming that
the Merger takes place on October 1, 1996 with an Exchange Ratio of 0.2842,
each MMR Class B Warrant would be exercisable for $11.50 into 0.2842 of a SFX
Class A Share, or 3.5186 MMR Class B Warrants would be exercisable for $40.46
into one SFX Class A Share. See "Purpose and Effects of the Exchange Offer."
The MMR Board has fixed October 1, 1996 as the record date for
determining holders of MMR Shares who will be entitled to receive notice of and
vote at the MMR Special Meeting (the "Record Date"). ACCORDINGLY, SINCE THE
EXPIRATION DATE OF THE EXCHANGE OFFER IS SUBSEQUENT TO THE RECORD DATE, HOLDERS
OF MMR CLASS B WARRANTS WHO EXCHANGE THEIR WARRANTS FOR MMR CLASS A SHARES IN
THE EXCHANGE OFFER WILL NOT BE ENTITLED TO VOTE AT THE MMR SPECIAL MEETING, OR
ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, ON, AMONG OTHER THINGS, THE PROPOSAL
TO APPROVE THE MERGER AGREEMENT, AS WELL AS ANY OTHER MATTERS THAT PROPERLY
COME BEFORE THE MMR SPECIAL MEETING AND ON WHICH HOLDERS OF MMR CLASS A SHARES
MAY VOTE.
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<PAGE>
(continued from previous page)
The Exchange Offer is being made by MMR in reliance on the exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), afforded by Section 3(a)(9) thereof. MMR therefore,
will not pay any commission or other remuneration to any broker, dealer,
salesman or other person for soliciting tenders of the MMR Class B Warrants for
the MMR Class A Shares. Regular employees of MMR, who will not receive
additional compensation therefor, may provide information concerning the
Exchange Offer.
MMR has made no arrangements for and has no understanding with any
dealer, salesman or other person regarding the solicitation of tenders
hereunder, and no person other than Georgeson & Co., the Information Agent, has
been authorized by MMR to give any information or to make any representations
in connection with the Exchange Offer other than those contained herein and, if
given or made, such other information or representations must not be relied
upon as having been authorized. The delivery of this Offering Circular shall
not, under any circumstances, create any implication that the information
herein is correct as of any time subsequent to the date hereof.
The Exchange Offer is not being made to, nor will MMR accept tenders
from, holders of the MMR Class B Warrants in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
The Joint Proxy Statement/Prospectus is included as Annex 1 and
constitutes an integral part of this Offering Circular. The Joint Proxy
Statement/Prospectus includes certain important information, including
financial information, about MMR and SFX.
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<PAGE>
AVAILABLE INFORMATION
MMR is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by MMR with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at
prescribed rates. In addition, material filed by MMR can be inspected at the
offices of The Nasdaq Stock Market, Inc., Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006. MMR is an electronic filer under EDGAR (Electronic Data
Gathering, Analysis and Retrieval) system maintained by the Commission. The
Commission maintains a Web site (http://www.sec.gov) on the Internet that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
MMR has filed a Schedule 13E-4 (the "Schedule 13E-4") under the
Exchange Act with the Commission in connection with the Exchange Offer. For
further information with respect to MMR, the MMR Class A Shares and the
Exchange Offer, reference is made to the Schedule 13E-4, including the exhibits
thereto. The Schedule 13E-4 may be inspected by anyone without charge at the
principal office of the Commission in Washington, D.C., and copies of all or
part of either of them may be obtained from the Commission upon payment of the
prescribed fees.
THIS OFFERING CIRCULAR (INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS
INCLUDED AS A PART OF THIS OFFERING CIRCULAR) INCORPORATES DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
ARE AVAILABLE UPON REQUEST FROM MULTI-MARKET RADIO, INC., 150 EAST 58TH STREET,
19TH FLOOR, NEW YORK, NEW YORK 10155, ATTENTION: CYNTHIA A. BOND, DIRECTOR OF
INVESTOR RELATIONS; TELEPHONE NUMBER (212) 407-9191. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY OCTOBER 29, 1996,
WHICH IS FIVE (5) BUSINESS DAYS BEFORE THE EXPIRATION DATE.
<PAGE>
OFFERING CIRCULAR SUMMARY
This summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere (including in the Joint Proxy
Statement/Prospectus attached hereto as Annex 1, which is an integral part
hereof) in this Offering Circular. Certain capitalized terms used herein have
the meanings assigned to them in the Glossary attached to the Joint Proxy
Statement/Prospectus as Annex A. Statements regarding numbers, percentages and
the combined voting power of the SFX Shares and the MMR Shares are subject to
the assumptions set forth under the caption "Certain Assumptions" in the Joint
Proxy Statement/Prospectus. Holders of MMR Class B Warrants should consider
carefully the information set forth under "Risk Factors Relating to MMR."
MMR
MMR ............... MMR is a radio broadcasting company which will own and
operate or provide programming to or sell advertising on
behalf of eight FM radio stations and one AM radio station
(after giving effect to the MMR Little Rock Disposition,
the MMR Myrtle Beach Disposition and the termination of
certain agreements) located in five markets: Hartford,
Connecticut; Springfield/Northampton, Massachusetts; New
Haven, Connecticut; Daytona Beach, Florida; and Biloxi,
Mississippi. MMR was organized in 1992 by Robert F.X.
Sillerman, a significant stockholder of MMR and the
Chairman of the Board and Chief Executive Officer of SFX,
Bruce Morrow, the Chairman of the Board of MMR, Michael G.
Ferrel, the Chief Executive Officer, President, Chief
Operating Officer and a Director of MMR, and Howard J.
Tytel, Executive Vice President, General Counsel and a
Director of Sillerman Communications Management Corporation
("SCMC"), MMR's financial advisor, and Executive Vice
President, Secretary and a Director of SFX. Messrs.
Sillerman, Morrow and Ferrel own a substantial equity
interest in MMR which will be exchanged for SFX Shares upon
the consummation of the Merger. Upon the consummation of
the Merger, it is anticipated that Mr. Ferrel will become
the Chief Executive Officer and a Director of SFX. Pursuant
to the Merger Agreement, Mr. Ferrel currently serves as a
consultant to SFX. The principal executive offices of MMR
are located at 150 East 58th Street, 19th Floor, New York,
New York 10155 and its telephone number is (212) 407-9150.
For more information regarding MMR, see "Business of MMR,"
"Management of MMR", "Comparative Market Price Data,"
"MMR's Management's Discussion and Analysis of Financial
Condition and Results of Operations" and financial
information of MMR in the Joint Proxy Statement/Prospectus.
THE EXCHANGE OFFER
The Offer.......... MMR is offering to exchange one MMR Class A Share for each
five (5) MMR Class B Warrants currently outstanding that
are properly tendered and accepted by MMR for exchange in
the Exchange Offer. Each MMR Class B Warrant currently
entitles the holder thereof to purchase one MMR Class A
Share for $11.50, subject to adjustment upon the occurrence
of certain dilutive events. Holders of MMR Class B Warrants
who desire to tender in the Exchange Offer must tender all
the MMR Class B Warrants held by them. No partial tenders
will be accepted. In addition, no
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<PAGE>
fractional shares of MMR Class A Shares will be issued in
the Exchange Offer and any holder entitled to receive a
fractional share will be entitled to receive cash in lieu
thereof. See "The Exchange Offer."
Expiration Date.... 5:00 p.m., New York City time, on November 6, 1996, unless
extended. See "The Exchange Offer--Expiration Date;
Extensions; Termination; Amendments."
Purpose of
Exchange Offer.... The Exchange Offer is being undertaken by MMR pursuant to
its obligations under the Merger Agreement. The Merger
Agreement provides that MMR shall use its commercially
reasonable best efforts to commence an offer to exchange
MMR Class A Shares for MMR Class B Warrants, which offer
shall not be greater than two-tenths (.2) of an MMR Class
A Share per MMR Class B Warrant. The Merger Agreement
further provides that, in the event that MMR is
unsuccessful in obtaining the exchange of at least 50% of
the outstanding MMR Class B Warrants at the ratio set forth
above on or prior to the fifth trading day prior to the
Effective Time (the "Determination Date"), the Exchange
Ratio shall be adjusted downward to the extent necessary to
reduce the total dollar value of the SFX Class A Shares and
SFX Class B Shares that would have otherwise been received
by MMR security holders at the Effective Time (in each case
calculated with reference to the SFX Class A Common Stock
Price) by a dollar amount equal to the product of $2.50
times the number of MMR Class B Warrants outstanding
immediately after such exchange in excess of 920,000. In
the event that no MMR Class B Warrants are exchanged in the
Exchange Offer, the consideration to be received by MMR
security holders would be reduced by approximately $0.39
per MMR Share. See "Purpose and Effects of the Exchange
Offer."
Effects of the
Exchange Offer
on MMR........... In the absence of the Exchange Offer, 1,840,000 MMR Class A
Shares could be issued if all of the currently outstanding
MMR Class B Warrants were exercised. Assuming 100%
participation in the Exchange Offer, 368,000 MMR Class A
Shares will be issued and all of the outstanding MMR Class
B Warrants will be extinguished. The Exchange Offer will
have no effect on MMR's total shareholders' equity (other
than transaction costs). In the event that MMR has net
income, the Exchange Offer may have a dilutive effect on
MMR's earnings per share of common stock. See "Purpose and
Effects of the Exchange Offer" and "Unaudited Pro Forma
Condensed Combined Financial Statements of MMR" in the
Joint Proxy Statement/Prospectus.
Effects of the
Exchange Offer
on Exchanging
Holders of MMR
Class B Warrants.. Each holder of MMR Class B Warrants who properly tenders
such MMR Class B Warrants and whose MMR Class B Warrants
are accepted by MMR in the Exchange Offer will: (i) be
deemed the owner of that whole number of MMR Class A Shares
calculated in accordance with the terms of the Exchange
Offer without any cash payment by such holder; (ii) if the
Merger is consummated, receive SFX Class A Shares in
exchange for the holder's MMR Class A Shares without any
cash payment by such holder; (iii) receive
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<PAGE>
dividends, if any, when declared by MMR on the MMR Class A
Shares (MMR has never paid any dividends and the Merger
Agreement contains a prohibition on MMR paying any
dividends prior to the consummation of the Merger); (iv) be
entitled to vote on all matters, if any, that may come
before the holders of the MMR Class A Shares; provided,
however, that, since the Expiration Date will be subsequent
to the Record Date for the MMR Special Meeting, holders of
MMR Class B Warrants who participate in the Exchange Offer
and acquire MMR Class A Shares as a result thereof will not
be able to vote at the MMR Special Meeting; (v) be entitled
to participate in the proceeds from the liquidation of MMR
in exchange for the holder's MMR Class A Shares after
creditors and preferred stockholders are paid, in the event
that the Merger is not consummated and MMR is thereafter
liquidated; and (vi) be entitled to participate in the
proceeds from the liquidation of SFX in exchange for the
holder's SFX Class A Shares after creditors and preferred
stockholders are paid, in the event that the Merger is
consummated and SFX is thereafter liquidated. Exchanging
holders of MMR Class B Warrants will no longer have (i) the
right to purchase an MMR Class A Share for an exercise
price of $11.50, subject to adjustment upon the occurrence
of certain dilutive events, per MMR Class B Warrant in the
event that the Merger is not consummated and (ii) the right
to receive a warrant exercisable for SFX Class A Shares in
the event that the Merger is consummated, as detailed below
under "--Effects of the Exchange Offer on Non-Exchanging
Holders of MMR Class B Warrants." The MMR Class B Warrants
expire on March 22, 1999, unless redeemed earlier. See
"Description of MMR Class B Warrants."
Effects of the
Exchange Offer on
Non-Exchanging
Holders of MMR
Class B Warrants.. In the event that the Merger is not consummated, holders of
MMR Class B Warrants who do not participate in the Exchange
Offer will retain the right to purchase an MMR Class A
Share for $11.50 per MMR Class B Warrant until the MMR
Class B Warrants expire on March 22, 1999, unless redeemed
earlier. Depending upon the extent to which holders of MMR
Class B Warrants participate in the Exchange Offer, the
trading market for, and the liquidity of, the MMR Class B
Warrants remaining outstanding will be reduced. In
addition, such MMR Class B Warrants may no longer be quoted
on the Nasdaq National Market and may no longer be
registered securities pursuant to the Exchange Act. The
Exchange Offer will not cause an anti-dilution adjustment
to the exercise price of MMR Class B Warrants which are not
exchanged by holders thereof in the Exchange Offer.
In the event that the Merger is consummated, SFX will
assume all MMR Class B Warrants which are not exchanged for
MMR Class A Shares in the Exchange Offer and each holder of
an MMR Class B Warrant will be entitled to acquire SFX
Class A Shares upon the exercise of such warrants until
March 22, 1999, unless redeemed earlier. Holders of MMR
Class B Warrants will be entitled to acquire the number of
SFX Class A Shares equal to the product of the number of
MMR Class A Shares covered by the MMR Class B Warrants
multiplied by the Exchange Ratio at an exercise price
- 5 -
<PAGE>
equal to the quotient determined by dividing $11.50 by the
Exchange Ratio, rounded down to the nearest whole cent.
Assuming that the Merger takes place on October 1, 1996
with an Exchange Ratio of 0.2842, each MMR Class B Warrant
would be exercisable into 0.2842 of a SFX Class A Share, or
3.5186 MMR Class B Warrants would be exercisable for $40.46
into one SFX Class A Share. In the event that the Merger is
consummated, SFX will also assume all other rights and
obligations of MMR relating to the MMR Class B Warrants, as
set forth in the certificates evidencing the MMR Class B
Warrants and the Warrant Agreements (as such term is
hereinafter defined). See "Purpose and Effects of the
Exchange Offer." SFX will not issue replacement
certificates evidencing the MMR Class B Warrants which were
not tendered in the Exchange Offer.
MMR Class A
Shares............ As of October 1, 1996 there are 15,000,000 authorized and
4,000,563 outstanding MMR Class A Shares, respectively.
Upon redemption of the issued outstanding redeemable Class
A Warrants (the "MMR Class A Warrants"), an additional
1,055,437 MMR Class A Shares will be outstanding.
Application will be made for quotation on the Nasdaq
National Market of the MMR Class A Shares to be issued
pursuant to the Exchange Offer. See "Description of MMR
Shares" and "Description of MMR Class B Warrants." The
closing sales price of MMR Class A Shares reported on the
Nasdaq National Market on October 3, 1996 was $12 11/16.
SFX Class A
Shares............ As of October 1, 1996 there are 10,000,000 authorized and
6,431,897 outstanding SFX Class A Shares. The holders of
the SFX Shares will vote at the SFX Annual Meeting on a
proposal to increase the authorized number of SFX Class A
Shares to 100,000,000. Application has been made for
quotation on the Nasdaq National Market of the SFX Class A
Shares to be issued in the Merger, including the SFX Class
A Shares to be issued to holders of MMR Class A Shares who
exchanged MMR Class B Warrants in the Exchange Offer. The
closing sales price of SFX Class A Common Stock reported on
the Nasdaq National Market on October 3, 1996 was $45.
MMR Class B
Warrants.......... As of October 1, 1996 there are 1,840,000 MMR Class B
Warrants outstanding. MMR believes that as of October 1,
1996, there are approximately 300 holders of record of the
MMR Class B Warrants. Each MMR Class B Warrant currently
entitles the holder thereof to purchase one MMR Class A
Share for $11.50, subject to adjustment upon the occurrence
of certain dilutive events. MMR Class B Warrants may be
exercised at any time until March 22, 1999, unless redeemed
earlier. The closing sales price of MMR Class B Warrants
reported on the Nasdaq National Market on October 3, 1996
was $2 19/32. See "Description of MMR Class B Warrants."
Withdrawal of
Tenders........... Tenders of MMR Class B Warrants may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Withdrawal
Rights."
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<PAGE>
Acceptance of
Warrants and
Delivery of MMR
Class A Shares.... Subject to the terms and conditions of the Exchange Offer,
MMR will accept, promptly after the Expiration Date, all
MMR Class B Warrants properly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration
Date and will issue and deliver one MMR Class A Share for
each five (5) MMR Class B Warrants accepted promptly
following the Expiration Date, provided, however, that only
cash in lieu of fractional shares of MMR Class A Shares
will be issued in the Exchange Offer. See "The Exchange
Offer--Acceptance of MMR Class B Warrants for Exchange;
Delivery of MMR Class A Shares."
Conditions of the
Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, any or all of which may be waived by MMR. See
"The Exchange Offer--Conditions of the Offer."
Procedures for
Tendering MMR
Class B Warrants.. Each holder of MMR Class B Warrants who wishes to tender
such MMR Class B Warrants must deliver the following
documents prior to 5:00 p.m., New York City time, on the
Expiration Date to the Exchange Agent at the address set
forth herein: (i) certificates representing MMR Class B
Warrants together with a Letter of Transmittal properly
completed and duly executed by the holder of such MMR Class
B Warrants and all other documents required by the Letter
of Transmittal, or (ii) if such holder wishes to tender by
guaranteed delivery, a properly completed and duly executed
Guaranteed Delivery Form. Any holder of MMR Class B
Warrants whose MMR Class B Warrants are registered in the
name of brokers, dealers, commercial banks, trust companies
or nominees are urged to contact such registered holders
promptly if such holder wishes to accept the Exchange
Offer. MMR Class B Warrants should not be sent to MMR. See
"The Exchange Offer--Procedure for Tendering" and
"--Guaranteed Delivery Procedure."
Certain Federal
Income Tax
Considerations.... The exchange of MMR Class A Shares for MMR Class B Warrants
will be treated as a taxable transaction for federal income
tax purposes. Holders of MMR Class B Warrants who do not
participate in the Exchange Offer will recognize taxable
gain or loss in the event the Merger is consummated. For a
discussion of certain of the federal income tax
considerations of the exchange of the MMR Class B Warrants,
see "Certain Federal Income Tax Considerations."
Exchange Agent..... American Stock Transfer & Trust Company, telephone number
(212) 936-5100.
Information Agent.. Georgeson & Company Inc., telephone number (800) 223-2064.
THE MERGER
The Merger
Agreement......... Upon consummation of the Merger at the effective time (i)
Acquisition Sub will be merged with and into MMR, which
will be the surviving corporation and thereby become a
wholly-owned subsidiary of SFX, and (ii) each issued and
outstanding MMR
- 7 -
<PAGE>
Share and MMR Preferred Share will be converted into the
right to receive that number of SFX Class A Shares (in the
case of MMR Class A Shares and MMR Series B Preferred
Shares) or SFX Class B Shares (in the case of MMR Class B
Shares and MMR Original Preferred Shares) equal to the
Exchange Ratio. The Exchange Ratio is determined by
dividing $12.50 by the average of the last reported bid and
asked prices of an SFX Class A Share on the Nasdaq National
Market for the twenty (20) consecutive trading days ending
on the Determination Date, subject to adjustment, among
other things, in the event that the SFX Class A Stock Price
exceeds $44.00 or is less than $32.00 during such time
period. The Exchange Ratio will be rounded to four decimal
points. Fractional SFX Shares will not be issued in the
Merger and, in lieu thereof, holders of MMR Shares and MMR
Preferred Shares otherwise entitled thereto will be paid
the value of such fraction, based on the SFX Class A Stock
Price, in cash. If the MMR security holders do not approve
the amendment to MMR's Restated Certificate of
Incorporation, SFX Class A Shares will be issued to all
stockholders of MMR in lieu of SFX Class B Shares.
The Merger Agreement provides that, in the event that MMR
is unsuccessful in obtaining, on or prior to the
Determination Date, the exchange of at least 50% of the
1,840,000 outstanding MMR Class B Warrants in the Exchange
Offer, then the Exchange Ratio shall be adjusted downward
to the extent necessary to reduce the total dollar value of
the SFX Class A Shares and SFX Class B Shares that would
have otherwise been received by MMR security holders at the
Effective Time (in each case calculated with reference to
the SFX Class A Stock Price) by a dollar amount equal to
the product of $2.50 times the number of MMR Class B
Warrants outstanding immediately after such exchange in
excess of 920,000. In the event that no MMR Class B
Warrants are exchanged in the Exchange Offer, the
consideration to be received by MMR security holders would
be reduced by approximately $0.39 per MMR Share.
The Merger Agreement provides that it may be terminated and
the transactions contemplated thereby abandoned by the MMR
Board or the committee of independent members of the MMR
Board (the "MMR Independent Committee"), among other
reasons, in the event that (i) the average of the last
reported bid and asked prices of the SFX Class A Shares
(the "Reported Price") for any seven consecutive trading
days (the "Average Price") during the period commencing
June 17, 1996 and ending on the Determination Date is less
than $27.33 and (ii) the MMR Board or the MMR Independent
Committee shall have delivered written notice to SFX of its
intention to terminate the Merger Agreement (the "Price
Termination Notice") within 48 hours following the date on
which the Average Price is less than $27.33; provided,
however, that SFX, upon the recommendation of the committee
of independent members of the SFX Board (the "SFX
Independent Committee") has the right, but not the
obligation, to deliver, within 48 hours after the receipt
of the Price Termination Notice, a written notice (the
"Make Whole Notice") pursuant to which it agrees that the
MMR security holders shall receive no less than the Minimum
Per Share Amount (as defined below), and provided, further,
that SFX,
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<PAGE>
upon the recommendation of the SFX Independent Committee,
has the right to rescind such Make Whole Notice (the "Make
Whole Rescission Notice") in the event that the Average
Price at any time following the delivery of the Make Whole
Notice is at least an additional $0.25 less than the
Average Price as set forth in, and which triggered, the
Price Termination Notice. In the event that SFX delivers
the Make Whole Notice to MMR and does not deliver a Make
Whole Rescission Notice, the Exchange Ratio (x) shall be
determined as set forth above if the SFX Class A Stock
Price equals or exceeds $27.33, and (y) if the SFX Class A
Stock Price is less than $27.33, shall be increased such
that, on the Determination Date, the product of the (a)
Exchange Ratio as so adjusted, multiplied by (b) the SFX
Class A Stock Price shall be an amount equal to $10.25
(such amount being referred to as the "Minimum Per Share
Amount"). See "The Merger Agreement" in the Joint Proxy
Statement/Prospectus.
PRO FORMA EFFECT OF THE EXCHANGE OFFER
The following table presents (i) the historical earnings per MMR Share
for the year ended December 31, 1995 and the six months ended June 30, 1996,
(ii) the historical book value per MMR Share as of December 31, 1995 and June
30, 1996, and (iii) the pro forma effect thereon of the issuance of MMR Class A
Shares pursuant to the Exchange Offer, assuming 50% and 100% of the MMR Class B
Warrants are exchanged and all of the outstanding MMR Class A Warrants are
exercised prior to the redemption of the Warrants. Pro forma earnings per share
amounts assume that the issuance of MMR Class A shares pursuant to the Exchange
Offer occurred on January 1, 1995.
EARNINGS PER MMR SHARE
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30,1996
----------------- ----------------
<S> <C> <C>
Historical............................................. $(.48) $(1.89)
Pro Forma
Assuming 50% of MMR Class B Warrants are exchanged... $(.30) $(1.20)
Assuming 100% of MMR Class B Warrants are exchanged.. $(.29) $(1.16)
BOOK VALUE PER MMR SHARE
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
Historical............................................. $4.24 $ 2.40
Pro Forma
Assuming 50% of MMR Class B Warrants are exchanged... $2.69 $ 1.52
Assuming 100% of MMR Class B Warrants are exchanged.. $2.60 $ 1.47
</TABLE>
RISK FACTORS RELATING TO MMR
An investment in the MMR Class A Shares offered hereby involves a high
degree of risk. The following factors should be considered carefully by holders
of the MMR Class B Warrants in determining whether to participate in the
Exchange Offer and thereby invest in MMR Class A Shares. Many of the statements
included in the risks stated below are forward-looking in nature and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. Actual results could differ materially from those set forth in
or implied in any forward-looking statements. Factors that could cause or
contribute to such differences include, without limitation, intense
competition, risks related to the continued popularity of radio as a broadcast
and advertising medium and risks related to the federal regulation to radio
stations.
HOLDERS OF MMR CLASS B WARRANTS PARTICIPATING IN THE EXCHANGE OFFER
WILL RECEIVE MMR CLASS A SHARES. IF THE MERGER IS CONSUMMATED, HOLDERS OF MMR
CLASS A SHARES WILL RECEIVE SFX CLASS A SHARES IN THE MERGER. ACCORDINGLY,
HOLDERS OF MMR CLASS B WARRANTS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
IN "RISK FACTORS" IN
- 9 -
<PAGE>
THE JOINT PROXY STATEMENT/PROSPECTUS (WHICH IS AN INTEGRAL PART OF THIS
OFFERING CIRCULAR) PRIOR TO PARTICIPATING IN THE EXCHANGE OFFER.
POSSIBLE DELISTING OF MMR CLASS B WARRANTS FROM THE NASDAQ NATIONAL MARKET
The exchange of MMR Class B Warrants pursuant to the Exchange Offer
will reduce the number of outstanding MMR Class B Warrants and the trading
market for such warrants and may adversely affect their liquidity and market
price. If the number of MMR Class B Warrants is significantly reduced pursuant
to the Exchange Offer, the MMR Class B Warrants may no longer meet Nasdaq
National Market quotation guidelines, may no longer be quoted on the Nasdaq
National Market and may no longer be registered securities pursuant to the
Exchange Act.
WARRANTS OF SFX MAY NOT BE QUOTED ON THE NASDAQ NATIONAL MARKET
SFX has informed MMR that it intends to file an application for
quotation on the Nasdaq National Market for the MMR Class B Warrants assumed by
SFX in the Merger and held by holders of MMR Class B Warrants who do not
participate in the Exchange Offer; provided, however, that, in the event that
as a result of the Exchange Offer Merger, there are fewer MMR Class B Warrants
than are permitted to be initially quoted on the Nasdaq National Market, SFX
may be unable to file such an application. In addition, because each MMR Class
B Warrant will convert in the Merger into a fraction of a warrant of SFX, the
liquidity of the market for such warrants of SFX may be less than the liquidity
of the market for the MMR Class B Warrants, if such a market develops at all.
As a result, holders of warrants of SFX may find it difficult to dispose of
their warrants in a timely manner or at all.
LOSS OF LEVERAGE FOR WARRANTHOLDERS WHO PARTICIPATE IN THE EXCHANGE OFFER
As a derivative security, the value of an MMR Class B Warrant is
directly related to the trading price of the shares or other consideration into
which it is exercisable (the "Underlying Shares"). An MMR Class B Warrant
currently entitles the holder to purchase one MMR Class A Share for a cash
purchase price of $11.50. In the event that the Merger is consummated, an MMR
Class B Warrant will become a right to purchase for a cash purchase price of
$11.50 a fraction of an SFX Class A Share equal to the Exchange Ratio. Assuming
that the Merger was consummated on October 1, 1996 with an Exchange Ratio of
0.2842, each MMR Class B Warrant would become a right to purchase for $11.50,
0.2842 of a SFX Class A Share, or 3.5186 MMR Class B Warrants would be
exercisable for $40.46 into one SFX Class A Share. In the event that the
Underlying Shares (whether an MMR Class A Share, or a fraction of an SFX Class
A Share, in the event the Merger is consummated) do not have a value of at
least $11.50 on March 22, 1999, unless the Class B Warrants were exercised
prior to such date, the MMR Class B Warrant will expire worthless. The Exchange
Offer affords holders of the MMR Class B Warrants with the opportunity to
exchange such warrants for MMR Class A Shares (which in the event that the
Merger is consummated would become SFX Class A Shares) without having to pay
any cash. However, in the event that the value of the Underlying Shares
(whether an MMR Class A Share, or a fraction of an SFX Class A Share, in the
event the Merger is consummated) appreciates further, the value of five (5) MMR
Class B Warrants would likely exceed the value of one MMR Class A Share or a
fraction of an SFX Class A Share, in the event the Merger is consummated. There
can be no assurance that the trading prices of the MMR Class A Shares or the
SFX Class A Shares, in the event the Merger is consummated, will increase or
that the MMR Class B Warrants will not expire worthless.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE INDEBTEDNESS
As of June 30, 1996, the aggregate principal amount of MMR's debt
outstanding was $40.8 million and its debt-to-equity ratio was approximately
489%. MMR's consolidated earnings would were insufficient to cover its
consolidated fixed charges by approximately $1.4 million, $.8 and $6.6 million
for the fiscal years ended December 31, 1995 and 1994 and for the six months
ended June 30, 1996, respectively. Substantial amounts of depreciation and
amortization expense and non-cash compensation charges are expected to continue
to contribute to the net losses experienced by MMR. These expenses, however, do
not result in an outflow of cash by MMR.
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<PAGE>
The degree to which MMR is leveraged could have material consequences
to MMR and the holders of MMR's securities, including, but not limited to, the
following: (i) MMR's ability to obtain additional financing in the future for
working capital, capital expenditures or general corporate or other purposes
may be impaired, (ii) a substantial portion of MMR's cash flow from operations
will be dedicated to the payment of the principal and interest on its debt and
will not be available for other purposes, (iii) certain of MMR's borrowings may
be at variable rates of interest, which could result in higher interest expense
in the event of increases in interest rates and (iv) the agreements governing
MMR's long-term debt contain restrictive financial and operating covenants, and
the failure by MMR to comply with such covenants could result in an event of
default under the applicable instruments, which could permit acceleration of
the debt under such instrument and in some cases acceleration of debt under
other instruments that contain cross-default or cross-acceleration provisions.
MMR's ability to make scheduled payments of principal of, or to pay
interest on or to refinance, its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. There can be no assurance that MMR's business will generate sufficient
cash flow from operations, that anticipated improvements in operating results
will be achieved or that future working capital borrowings will be available in
an amount sufficient to enable MMR to service its debt or to make necessary
capital or other expenditures. There can be no assurance that MMR will be able
to raise additional capital through the sale of securities, the disposition of
radio stations or otherwise for any such refinancing. See "MMR's Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in the Joint Proxy
Statement/Prospectus.
HISTORY OF LOSSES
For the fiscal years ended December 31, 1993, 1994 and 1995, MMR
incurred net losses of $854,595, $765,782 and $1,659,930, respectively. For the
six months ended June 30, 1995 and 1996, MMR incurred net losses of $1,358,883
and $6,591,091, respectively. The Original Preferred Shares which were issued
to Messrs. Ferrel and Sillerman have become convertible pursuant to their terms
and on August 28, 1996, Mr. Sillerman's, but not Mr. Ferrel's, Original
Preferred Shares were converted. The Original Preferred Shares of Mr. Ferrel
and the Class B Common Stock issued to Mr. Sillerman upon conversion of the
Original Preferred Shares are subject to an escrow agreement until on July 28,
1998. In connection with these securities, MMR will experience non-cash charges
to earnings of approximately $65,000 per quarter through July 1998. Non-cash
charges associated with the Original Preferred Shares totaled $364,933 and
$281,247 for the years ended December 31, 1994 and 1995, respectively, and
$353,400 and $130,000 for the six months ended June 30, 1995 and 1996,
respectively. Furthermore, in connection with the issuance in July 1996, of
200,000 MMR Series A Preferred Shares and 200,000 MMR Series B Preferred
Shares, MMR recognized a non-cash charge to earnings of approximately $200,000
in the third quarter of 1996. Future losses may adversely impact the price of
MMR's securities. See "MMR's Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Joint Proxy Statement/Prospectus.
SECURITY HOLDINGS OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Management of MMR, including Messrs. Morrow and Ferrel, may be deemed
to beneficially own 109,000 MMR Class A Shares and 140,000 MMR Class B Shares,
which (exclusive of stock options and warrants) represent 14.6% of the
outstanding combined voting power of MMR in those instances in which the MMR
Class B Shares exercise their ten-votesper-share voting rights. Management of
MMR together with Mr. Sillerman may be deemed to beneficially own 336,000 MMR
Class A Shares and 633,334 MMR Class B Shares, which (exclusive of stock
options and warrants) represent 63.7% of the outstanding combined voting power
of MMR in those instances in which the MMR Class B Shares exercise their
tenvotes-per-share voting rights, giving Mr. Sillerman control over almost all
matters to be voted on by holders of MMR Shares, including without limitation,
the election of directors. See "Security Ownership of Management and Principal
Stockholders of MMR" in the Joint Proxy Statement/Prospectus.
Mr. Sillerman also has a right of first refusal to purchase 130,000 of
the MMR Class B Shares held by Mr. Morrow, 80,000 shares of which have been
pledged to Mr. Sillerman. Control by management or others may have the effect
of discouraging certain types of "change of control" transactions, including
transactions in which the holders of the MMR Class A Shares might otherwise
receive a premium for their shares over then-current market prices. Such
"change of control" transactions are subject to the prior approval of the FCC.
- 11 -
<PAGE>
POTENTIAL CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
Messrs. Sillerman and Tytel have direct and indirect investments and
interests in entities other than MMR that own and operate radio stations. Mr.
Sillerman is the Chief Executive Officer, Chairman and the controlling
shareholder of, and Mr. Tytel is the Executive Vice President and a director
of, SFX. Messrs. Sillerman and Tytel participated in the formation of Triathlon
Broadcasting Company ("Triathlon"), a publicly-traded company engaged in the
business of acquiring, developing and operating radio stations in small and
medium-sized markets in the Midwest and Western regions of the United States.
MMR does not intend, except in limited instances, to pursue acquisitions in
either the large markets that SFX primarily focuses on or in the small and
medium-sized markets in the Midwest and Western regions of the United States
that Triathlon primarily focuses on. Mr. Sillerman also has investments in
other entities that own and operate radio stations. These investments (and any
similar investments in the future) may give rise to certain conflicts of
interest as well as to potential attribution under FCC rules, which could
restrict MMR's ability to acquire radio stations in certain markets. See
"--Impact of Regulation."
In addition, SCMC which is controlled by Mr. Sillerman, and of which
Mr. Sillerman and Howard J. Tytel are officers and directors has been MMR's
financial advisor since MMR's inception pursuant to a financial consulting and
marketing agreement with SCMC (the "SCMC Agreement"). On April 15, 1996, SCMC
and SFX entered into the SCMC Termination Agreement pursuant to which SCMC
assigned its right to receive fees for consulting and marketing services
payable by each of MMR and Triathlon, except for fees relating to certain
transactions pending at the date of such agreement, and SFX and SCMC terminated
the arrangement pursuant to which SCMC performed financial consulting services
for SFX. Pursuant to such agreement, SCMC provides marketing and financial
consulting services and makes office space available to MMR for an annual fee
of $500,000. The SCMC Agreement provides that in connection with investment
banking services, the Board of Directors of MMR shall consider the
appropriateness of retaining SCMC, and in that regard, whether SCMC's services
are comparable to other services available to MMR and the fairness of the fees
to be charged by SCMC. In addition, MMR is required to reimburse SCMC for all
reasonable out-of-pocket disbursements made in connection with services
rendered for MMR, including travel and entertainment expenses and legal and
accounting fees. See "Certain Relationships and Related Transactions" in the
Joint Proxy Statement/Prospectus.
SCMC acts or may act in similar capacities for broadcast entities
other than MMR, some of which may compete with MMR. These competitors may seek
to participate in business opportunities which may be suitable for MMR. SCMC
and Messrs. Sillerman and Tytel have agreed that they will offer first to MMR
all opportunities to acquire, or enter into LMAs or joint ventures with, radio
stations that come to their attention in medium-sized markets in certain
Northeastern and Southeastern states. See "Certain Relationships and Related
Transactions--Relationship of MMR with SCMC" in the Joint Proxy
Statement/Prospectus.
DEPENDENCE ON KEY PERSONNEL
MMR's success is dependent in part upon the performance of several key
individuals, including Mr. Ferrel, the Chief Executive Officer, President and
Chief Operating Officer of MMR, Manuel Rodriguez, a Senior Vice President of
MMR, and Messrs. Sillerman and Tytel, executive officers of SCMC. Mr. Ferrel
currently provides consulting services to SFX. In the event the Merger is not
consummated, Mr. Ferrel will not provide any consulting services to SFX.
Although Messrs. Sillerman and Tytel, by virtue of their positions with SCMC,
contribute materially to the development and implementation of MMR's business
strategies, they will not spend a substantial amount of time performing
services for MMR. The loss by MMR of the services of any of such persons could
have a material adverse effect on MMR. MMR has obtained a $1.0 million key man
life insurance policy on the life of each of Messrs. Ferrel and Rodriguez. MMR
currently does not have or intend to obtain key man life insurance policies on
any of its other employees. See "Management of MMR" in the Joint Proxy
Statement/Prospectus.
EXPANSION STRATEGY AND NEED FOR ADDITIONAL FUNDS
In the event that the Merger is not consummated, it is expected that a
principal component of MMR's strategy will be to acquire radio stations in
medium-sized markets in the eastern United States. MMR currently has no
agreements with respect to any acquisition. In the event the Merger is not
consummated, there can be no assurance that MMR will be able
- 12 -
<PAGE>
to identify additional stations to acquire at attractive prices, or at all. MMR
will require substantial additional funds to acquire additional radio stations.
Certain of MMR's debt instruments limit the ability of MMR to incur additional
indebtedness. There can be no assurance that MMR will obtain additional
financing on terms acceptable to MMR or its creditors. Failure to obtain such
additional funds may adversely affect the growth of MMR. There can be no
assurance that any future acquisitions, if any, will be successfully integrated
into MMR's operations, that MMR will be able to improve the operating results
of any stations that it acquires or that such acquisitions will not have a
material adverse effect on MMR's financial condition and results of operations.
See "MMR's Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" in the Joint Proxy
Statement/Prospectus.
IMPACT OF REGULATION
The radio broadcasting industry is subject to extensive regulation by
the FCC. In particular, MMR's business is dependent upon its continuing to hold
and, in connection with acquisitions of radio stations, upon obtaining
assignments or transfers of broadcasting station operating licenses issued by
the FCC. Radio broadcasting licenses may be granted for maximum terms of seven
(7) years, although the FCC has proposed a recent rulemaking raising the
maximum term to eight (8) years, as permitted by the recently enacted
Telecommunications Act of 1996 ("Recent Legislation"). There can be no
assurance that MMR's licenses will be renewed, especially if third parties
challenge MMR's renewal applications. Failure to obtain the renewal of any of
MMR's broadcast licenses or to obtain FCC approval for an assignment or
transfer to MMR of a license in connection with a radio station acquisition may
have a material adverse effect on MMR's business and operations. In addition,
the number and locations of radio stations that MMR may acquire is limited by
FCC rules and will vary depending upon whether the interests in other radio
stations or certain other media properties of certain individuals affiliated
with MMR are attributable to those individuals. Moreover, the number of radio
stations MMR may acquire may be affected by, among other things, whether the
stations owned by MMR are attributable to such individuals. The FCC is
currently examining through outstanding rule making and adjudicatory
proceedings whether to change the criteria for considering an interest to be
attributable. Some commentators on the rule making proceedings have urged that
the test for attribution should not be voting power but rather influence over
the licensee. Moreover, under the FCC's cross-interest policy, the FCC in
certain instances may prohibit one party from acquiring an attributable
interest in one media outlet and a substantial non-attributable economic
interest in another media outlet in the same market, thereby prohibiting a
particular acquisition by MMR. Also, the activities of persons who would be
deemed by the FCC to control MMR could adversely affect MMR's ability to obtain
license renewals and to acquire additional radio stations. The issuance of MMR
Class A Shares pursuant to the exercise of MMR Class A Warrants has reduced Mr.
Sillerman's voting interest in MMR as of October 1, 1996 from 50.1% to 49.5%.
MMR has filed appropriate pro forma applications with the FCC with respect to
such reduction in Mr. Sillerman's voting interest and MMR believes that such
application will be granted. In addition, in the event the Merger is not
consummated, Mr. Sillerman's voting power of MMR would have an attributable
interest in SFX for purposes of the FCC's local ownership rules. This could
adversely affect MMR's ability to acquire or to hold interests in radio
stations in particular markets, depending upon the other media interests of
those stockholders. See "Business of MMR--Federal Regulation of Radio
Broadcasting" in the Joint Proxy Statement/Prospectus.
There can be no assurance that there will not be changes in the
current regulatory scheme, the imposition of additional regulations or the
creation of new regulatory agencies, which changes would restrict or curtail
the ability of MMR to acquire, operate and dispose of stations or, in general,
to compete profitably with other operators of radio and other media properties.
Moreover, there can be no assurance that there will not be other regulatory
changes, including aspects of deregulation, that will result in a decline in
the value of broadcasting licenses held by MMR or adversely affect MMR's
competitive position. See "Business of MMR--Federal Regulation of Radio
Broadcasting" in the Joint Proxy Statement/Prospectus.
COMPETITION
The radio broadcasting industry is highly competitive. The financial
results of each of MMR's stations is dependent to a significant degree upon its
audience ratings and its share of the overall advertising revenue within the
station's geographic market. Each of MMR's stations competes for audience share
and advertising revenue directly with other FM and AM radio stations, as well
as with other media, within their respective markets. MMR's audience ratings
and market share are subject to change, and any adverse change in audience
share and advertising ratings in any particular market could have a material
and adverse effect on MMR's net revenues. The Recent Legislation will permit
other radio broadcasting
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<PAGE>
companies to enter the markets in which MMR operates or may operate in the
future, some of which may be larger and have more financial resources than MMR.
MMR's stations also compete with other advertising media such as newspapers,
television, magazines, billboard advertising, transit advertising and direct
mail advertising. Radio broadcasting is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems or the introduction of digital
audio broadcasting. Competition within the radio broadcasting industry occurs
primarily in individual markets, so that a station in one market does not
generally compete directly with stations in other markets. Although MMR
believes that each of its stations is able to compete effectively in its
market, there can be no assurance that any of MMR's stations will be able to
maintain or increase current audience ratings and advertising revenue market
share. See "Business of MMR--Competition" in the Joint Proxy
Statement/Prospectus.
DEPENDENCE ON ECONOMIC FACTORS
Because MMR will derive substantially all of its revenue from the sale
of advertising time, revenues may be adversely affected by economic conditions
which impact advertisers. In particular, because approximately 90% of MMR's
revenues have historically been derived from local advertisers, operating
results in individual geographic markets will be adversely affected by local or
regional economic downturns. Such economic downturns might have an adverse
impact on MMR's financial condition and results of operations. In addition,
revenues of radio stations may be adversely affected by many other factors
including: (i) the popularity of programming, (ii) regulatory restrictions on
types of programming or advertising (such as beer, wine, liquor and cigarette
advertising), (iii) competition within national, regional or local markets from
programming on other stations or from other media, (iv) loss of market share to
other technologies and (v) challenges to license renewals. See "MMR's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business of MMR--Federal Regulation of Radio Broadcasting" in
the Joint Proxy Statement/Prospectus.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
MMR has not paid any dividends since its inception in 1992 and does
not anticipate that it will pay any dividends in respect of its common stock in
the foreseeable future. MMR must pay equal dividends per share on the MMR Class
A Shares and the MMR Class B Shares, if any dividends are paid. Earnings, if
any, will be retained by MMR to fund its growth. Certain of MMR's debt
instruments include covenants restricting MMR's ability to pay dividends or to
make certain other distributions to stockholders. MMR is a holding company,
substantially all of the operations of which are conducted through
subsidiaries. The ability of such subsidiaries to pay dividends is subject to
applicable state law and certain other restrictions.
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
As of October 1, 1996, there were 4,000,563 MMR Class A Shares which
were outstanding and freely transferable without restriction (unless purchased
by an affiliate, as such term is defined in the Securities Act, of MMR). An
additional 2,895,437 MMR Class A Shares were reserved for issuance upon
exercise of the MMR Class A Warrants and the MMR Class B Warrants. Each MMR
Class A Warrant entitles the holder thereof to purchase one MMR Class A Share
at an exercise price of $7.75. On October 3, 1996 the last reported sales price
for the MMR Class A Shares was 12 11/16. Upon completion of the Exchange Offer,
assuming that all of the outstanding MMR Class B Warrants are exchanged for MMR
Class A Shares, MMR would have an additional 368,000 MMR Class A Shares
outstanding, which would be freely transferable without restriction (unless
issued to affiliates of MMR). In addition, it is anticipated that in connection
with MMR's call for redemption of the MMR Class A Warrants, an additional
1,055,437 MMR Class A Shares will be issued upon exercise of such MMR Class A
Warrants. All of the outstanding 633,334 MMR Class B Shares and 200,000 MMR
Preferred Shares and 66,666 Original Preferred Shares are "restricted
securities" (as defined in Rule 144 promulgated under the Securities Act ("Rule
144")). MMR Class B Shares and MMR Original Preferred Shares may be
automatically converted into an equal number of MMR Class A Shares upon their
sale or transfer to a third party. The MMR Class A Shares issuable upon
conversion of the MMR Class B Shares and MMR Series B Preferred Shares may,
under certain circumstances, be sold in limited quantities (generally equal to
the greater of 1% of the outstanding MMR Class A Shares or the average weekly
reported volume for a four-week period), in which event they will automatically
convert into freely transferable MMR Class A Shares, without registration under
the Securities Act pursuant to Rule 144. MMR also has issued and outstanding
options and warrants (other than the MMR Class A Warrants and the MMR Class B
Warrants) to purchase up to 1,581,202 MMR Class A Shares. The holders of
certain of these securities have demand and piggyback registration rights with
respect to the underlying securities. The sale, or availability for sale, of a
substantial amount of MMR Class A Shares in the public market
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<PAGE>
pursuant to Rule 144 or otherwise could adversely affect the prevailing market
price of the MMR Class A Shares and could impair MMR's ability to raise
additional capital through the sale of equity securities.
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF MMR'S SECURITIES DUE TO THE
INVESTIGATION OF D.H. BLAIR BY THE SECURITIES AND EXCHANGE COMMISSION
MMR has been advised by D.H. Blair Investment Banking Corp. and D.H.
Blair & Co., Inc. (collectively "Blair") that the Commission is conducting an
investigation concerning various business activities of Blair. D.H. Blair &
Co., Inc. ("Blair & Co.") currently acts as one of two market makers in MMR's
securities. The investigation appears to be broad in scope, involving numerous
aspects of Blair's compliance with the Federal securities laws and compliance
with the Federal securities laws by issuers whose securities were underwritten
by Blair or in which Blair make over-the-counter markets, persons associated
with Blair, such issuers and other persons. MMR has been advised by Blair that
the investigation has been ongoing since at least 1989 and that Blair is
cooperating with the investigation. Blair cannot predict whether this
investigation will ever result in any type of formal enforcement action against
Blair or, if so, whether any such action might have an adverse effect on Blair
or MMR's securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting Blair's ability to continue to
make a market in MMR's securities, which could affect the liquidity or price of
such securities.
POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN MMR'S SECURITIES
Blair and Americorp Securities, Inc. ("Americorp") currently make a
market in MMR's securities. Rule 10b-6 under the Exchange Act may prohibit
Blair & Co. and Americorp from engaging in any market-making activities with
regard to MMR's securities for certain periods of time prior to any
solicitation by Blair and Americorp of the exercise of MMR Class A Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that Blair & Co. and
Americorp may have to receive a fee for the exercise of MMR Class A Warrants
following such solicitation. As a result, Blair and Americorp may be unable to
provide a market for MMR's securities during certain periods while the MMR
Class A Warrants are exercisable. Any temporary cessation of such market-making
activities could have an adverse effect on the market price of MMR's
securities.
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<PAGE>
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Exchange Offer is being undertaken by MMR pursuant to its
obligations under the Merger Agreement. The Merger Agreement provides that MMR
shall use its commercially reasonable best efforts to commence an offer to
exchange MMR Class A Shares for MMR Class B Warrants, which offer shall not be
greater than two-tenths (.2) of an MMR Class A Share per MMR Class B Warrant.
The Merger Agreement further provides that, in the event that MMR is
unsuccessful in obtaining the exchange of at least 50% of the outstanding MMR
Class B Warrants at the ratio set forth above on or prior to the Determination
Date, the Exchange Ratio shall be adjusted downward to the extent necessary to
reduce the total dollar value of the SFX Class A Shares and SFX Class B Shares
that would have otherwise been received by MMR security holders at the
Effective Time (in each case calculated with reference to the SFX Class A
Common Stock Price) by a dollar amount equal to the product of $2.50 times the
number of MMR Class B Warrants outstanding immediately after such exchange in
excess of 920,000. In the event that no MMR Class B Warrants are exchanged in
the Exchange Offer, the consideration to be received by MMR security holders
would be reduced by approximately $0.39 per MMR Share. In calculating the total
value of SFX Class A Shares and SFX Class B Shares received by MMR security
holders, each SFX Class B Share shall be deemed to have the same value as an
SFX Class A Share.
In the absence of the Exchange Offer, 1,840,000 MMR Class A Shares
could be issued if all of the currently outstanding MMR Class B Warrants were
exercised. Assuming 100% participation in the Exchange Offer, 368,000 MMR Class
A Shares will be issued pursuant to the Exchange Offer and all of the
outstanding MMR Class B Warrants will be extinguished. The Exchange Offer will
have no effect on MMR's total shareholders' equity (other than transaction
costs). In the event that MMR has net income, the Exchange Offer may have a
dilutive effect on MMR's earnings per share of common stock. See "Unaudited Pro
Forma Condensed Combined Financial Statements of MMR" in the Joint Proxy
Statement/Prospectus.
Each holder of MMR Class B Warrants who properly tenders such MMR
Class B Warrants and whose MMR Class B Warrants are accepted by MMR in the
Exchange Offer will: (i) be deemed the owner of that whole number of MMR Class
A Shares calculated in accordance with the terms of the Exchange Offer without
any cash payment by such holder; (ii) if the Merger is consummated, receive SFX
Class A Shares in exchange for the holder's MMR Class A Shares without any cash
payment by such holder; (iii) receive dividends, if any, when declared by MMR
on the MMR Class A Shares (MMR has never paid any dividends and the Merger
Agreement contains a prohibition on MMR paying any dividends prior to the
consummation of the Merger; (iv) be entitled to vote on all matters, if any,
that may come before the holders of the MMR Class A Shares; provided, however,
that, since the Expiration Date will be subsequent to the Record Date for the
MMR Special Meeting, holders of MMR Class B Warrants who participate in the
Exchange Offer and acquire MMR Class A Shares as a result thereof will not be
able to vote at the MMR Special Meeting; (v) be entitled to participate in the
proceeds from the liquidation of MMR in exchange for the holder's MMR Class A
Shares after creditors and preferred stockholders are paid, in the event that
the Merger is not consummated and MMR is thereafter liquidated; and (vi) be
entitled to participate in the proceeds from the liquidation of SFX in exchange
for the holder's SFX Class A Shares after creditors and preferred stockholders
are paid, in the event that the Merger is consummated and SFX is thereafter
liquidated. Exchanging holders of MMR Class B Warrants will lose (i) the right
to purchase an MMR Class A Share for the exercise price of $11.50, subject to
adjustment upon the occurrence of certain dilutive events, per MMR Class B
Warrant in the event that the Merger is not consummated and (ii) the right to
receive a warrant exercisable for SFX Class A Shares in the event that the
Merger is consummated, as detailed below. The MMR Class B Warrants expire on
March 22, 1999, unless redeemed earlier.
In the event that the Merger is not consummated, holders of MMR Class
B Warrants who do not participate in the Exchange Offer will retain the right
to purchase an MMR Class A Share for $11.50 per MMR Class B Warrant until the
MMR Class B Warrants expire on March 22, 1999, unless redeemed earlier.
Depending upon the extent to which holders of MMR Class B Warrants participate
in the Exchange Offer, the trading market for, and the liquidity of, the MMR
Class B Warrants remaining outstanding will be reduced. In addition, such MMR
Class B Warrants may no longer be quoted on the Nasdaq National Market and may
no longer be registered securities pursuant to the Exchange Act. The Exchange
Offer will not cause an anti-dilution adjustment to the exercise price of MMR
Class B Warrants which are not exchanged by holders thereof in the Exchange
Offer.
In the event that the Merger is consummated, SFX will assume all MMR
Class B Warrants which are not exchanged for MMR Class A Shares in the Exchange
Offer and each holder of an MMR Class B Warrant will be entitled to acquire SFX
Class A Shares upon the exercise of such warrants until March 22, 1999, unless
redeemed earlier. Holders
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of MMR Class B Warrants will be entitled to acquire the number of SFX Class A
Shares equal to the product of the number of MMR Class A Shares covered by the
MMR Class B Warrants multiplied by the Exchange Ratio at an exercise price
equal to the quotient determined by dividing the $11.50 by the Exchange Ratio,
rounded down to the nearest whole cent. Assuming that the Merger takes place on
October 1, 1996 with an Exchange Ratio of 0.2842, each MMR Class B Warrant
would be exercisable for $11.50 into 0.2842 of a SFX Class A Share or 3.5186
MMR Class B Warrants would be exercisable for $40.46 into one SFX Class A
Share. In the event that the Merger is consummated, SFX will also assume all
other rights and obligations of MMR relating to the MMR Class B Warrants, as
set forth in the certificates evidencing the MMR Class B Warrants and the
Warrant Agreement. Pursuant to such assumption, SFX will, among other things,
be obligated to adjust the exercise price and the number of SFX Class A Shares
issuable upon the exercise of the warrants upon the occurrence of certain
dilutive events, will be permitted to redeem the warrants in accordance with
the terms of the Warrant Agreement, and will not be obligated to deliver any
SFX Class A Shares pursuant to the exercise of the warrants unless a
registration statement with respect to such shares has been declared effective
by the Commission. SFX has informed MMR that, in the event the Merger is
consummated, it intends to file a registration statement relating to the SFX
Class A Shares issuable upon exercise of the Warrants as soon as practicable.
SFX will not issue replacement certificates evidencing the MMR Class B Warrants
which were not tendered in the Exchange Offer.
SFX has informed MMR that it intends to file an application for
quotation on the Nasdaq National Market for the warrants to be assumed by SFX
in the Merger of holders of MMR Class B Warrants who do not participate in the
Exchange Offer; provided, however, that, in the event that as a result of the
Exchange Offer, there are fewer MMR Class B Warrants than are permitted to be
initially quoted on the Nasdaq National Market, SFX may be unable to file such
an application. In addition, because each MMR Class B Warrant will convert in
the Merger into a fraction of a warrant of SFX, the liquidity of the market for
such warrants of SFX may be less than the liquidity of the market for the MMR
Class B Warrants, if such a market develops at all. As a result, holders of
warrants of SFX may find it difficult to dispose of their warrants in a timely
manner or at all.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
MMR hereby offers, upon the terms and subject to the conditions set
forth in this Offering Circular and in the accompanying Letter of Transmittal,
an aggregate of 368,000 MMR Class A Shares in exchange for all of the issued
and outstanding MMR Class B Warrants to purchase MMR Class A Shares. MMR will
issue one MMR Class A Share in exchange for each five (5) MMR Class B Warrants
tendered and accepted by MMR for exchange in the Exchange Offer.
The Exchange Offer is not conditioned upon a minimum number of MMR
Class B Warrants being tendered. Holders of MMR Class B Warrants who desire to
tender in the Exchange Offer must tender all the MMR Class B Warrants held by
them. No partial tenders of Warrants will be accepted. In addition, no
fractional shares of MMR Class A Shares will be issued in the Exchange Offer
and any holder entitled to receive a fractional share will be entitled and
receive only cash in lieu thereof, which payment will be an amount equal to the
value of such fractional interest based on the average closing price of a MMR
Class A Share for the ten trading days ending on and including the Expiration
Date.
If MMR should change the consideration offered in exchange for the MMR
Class B Warrants in the Exchange Offer, such changed consideration would be
paid with regard to all MMR Class B Warrants accepted in the Exchange Offer. If
the consideration is so changed, the Exchange Offer will remain open at least
ten (10) business days from the date MMR first gives notice, by public
announcement or otherwise, of such increase.
As of October 1, 1996, 1,840,000 MMR Class B Warrants were
outstanding. This Offering Circular and the Letter of Transmittal are being
sent to all registered holders of the outstanding MMR Class B Warrants.
Although MMR has no plan or intention to do so, it reserves the right
in its sole discretion to purchase or make offers for any MMR Class B Warrants
that remain outstanding subsequent to the Expiration Date is subject to
compliance with applicable securities laws. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
Tendering holders of MMR Class B Warrants will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of MMR Class B
Warrants pursuant to the Exchange Offer. MMR will pay all charges and expenses,
other than certain taxes specified in the Letter of Transmittal, in connection
with the Exchange Offer. See "--Payment of Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 6, 1996, subject to extension by MMR by notice to American Stock
Transfer & Trust Company (the "Exchange Agent") and public announcement as
herein provided. MMR reserves the right to so extend the Exchange Offer at its
discretion, in which event the term "Expiration Date" shall mean the time and
date on which the Exchange Offer as so extended shall expire. MMR will notify
the Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 A.M., New York City time, on
the next business day after the previously scheduled Expiration Date.
MMR reserves the right (i) to delay accepting any MMR Class B Warrants
for exchange or to extend or terminate the Exchange Offer and not accept for
exchange any MMR Class B Warrants if any of the events set forth below under
the caption "Conditions of the Exchange Offer" shall have occurred and shall
not have been waived by MMR by giving oral or written notice of such delay or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance for exchange, extension or
amendment will be followed as promptly as practicable by public announcement
thereof. If the Exchange Offer is amended in a manner determined by MMR to
constitute a material change, MMR will promptly disclose such amendment in a
manner reasonably calculated to inform the holder of MMR Class B Warrants of
such amendment and MMR will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to the holders of the MMR Class B Warrants, if the
Exchange Offer would otherwise expire during such five to 10 business-day
period. The rights reserved
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by MMR in this paragraph are in addition to MMR's rights set forth below under
the caption "--Conditions of the Exchange Offer."
PROCEDURE FOR TENDERING
The acceptance of the Exchange Offer by holders of the MMR Class B
Warrants pursuant to the procedure set forth below will constitute an agreement
between such holder and MMR in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
To be tendered effectively, the MMR Class B Warrants, together with
the properly completed Letter of Transmittal (or facsimile thereof), executed
by the registered holder thereof, and any other documents required by the
Letter of Transmittal, must be received by the Exchange Agent at the address
set forth below prior to 5:00 p.m., New York City time, on the Expiration Date,
except as otherwise provided below under the caption "Guaranteed Delivery
Procedure." LETTERS OF TRANSMITTAL AND MMR CLASS B WARRANTS SHOULD NOT BE SENT
TO MMR.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the MMR Class B Warrants tendered
pursuant thereto are tendered (i) by a registered holder of MMR Class B
Warrants who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a financial institution (a
commercial bank, savings and loan association, credit union or brokerage house)
that is a participant in the Security Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (an "Eligible Institution").
THE METHOD OF DELIVERY OF MMR CLASS B WARRANTS AND OTHER DOCUMENTS TO
THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH
DELIVERY IS BY MAIL IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT BEFORE
THE EXPIRATION DATE.
If the Letter of Transmittal is signed by a person other than a
registered holder of any certificates representing MMR Class B Warrants listed
thereon, such MMR Class B Warrants must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on such MMR Class B Warrants.
If the Letter of Transmittal or the Guaranteed Delivery Form or any
certificates representing MMR Class B Warrants or stock powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by MMR, proper
evidence satisfactory to MMR of their authority to so act must be so submitted.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered MMR Class B Warrants will be
resolved by MMR, whose determination will be final and binding. MMR reserves
the absolute right to reject any or all tenders that are not in proper form or
the acceptance of which would, in the opinion of counsel for MMR, be unlawful.
MMR also reserves the right to waive any irregularities or conditions of tender
as to particular MMR Class B Warrants. MMR's interpretation of the terms and
conditions of the Exchange Offer (including, but not limited to, the
instructions in the Letter of Transmittal) will be final and binding. Unless
waived, any irregularities in connection with tenders must be cured within such
time as MMR shall determine. Neither MMR nor the Exchange Agent shall be under
any duty to give notification of defects in such tenders or shall incur
liabilities for failure to give such notification. Tenders of MMR Class B
Warrants will not be deemed to have been made until such irregularities have
been cured or waived. Any MMR Class B Warrants received by the Exchange Agent
that are not properly tendered and as to which the irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holder,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
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<PAGE>
GUARANTEED DELIVERY PROCEDURE
If a holder of MMR Class B Warrants desires to tender the holder's MMR
Class B Warrants and certificate(s) representing such MMR Class B Warrants are
not immediately available, or time will not permit such holder's certificate(s)
or any other required documents to reach the Exchange Agent before 5:00 p.m.,
New York City time, on the Expiration Date, a tender may be effected if:
(a) The tender is made by or through an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the Expiration Date,
the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Guaranteed Delivery Form (by facsimile
transmission, mail or hand delivery), setting forth the name and
address of such holder and the number of MMR Class B Warrants
tendered, stating that the tender is being made thereby and
guaranteeing that, within five (5) New York Stock Exchange ("NYSE")
trading days after the Expiration Date, the certificate(s)
representing such MMR Class B Warrants, accompanied by a properly
completed and duly executed Letter of Transmittal and all other
documents required by this Offering Circular and the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) The certificate(s) for all tendered MMR Class B Warrants, as well
as a properly completed and duly executed Letter of Transmittal and
all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the
Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, MMR will not be
required to accept for exchange any MMR Class B Warrants tendered and may
terminate or amend the Exchange Offer as provided herein before the acceptance
of such MMR Class B Warrants, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency or regulatory
authority with respect to the Exchange Offer which, in the sole
judgment of MMR, might materially impair the ability of MMR to proceed
with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to MMR; or
(b) there shall have been proposed, adopted or enacted any
law, statute, rule or regulation which, in the sole judgment of MMR,
might materially impair the ability of MMR to proceed with the
Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to MMR; or
(c) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in
securities on the NYSE, any other securities exchange located in the
United States or the Nasdaq National Market (whether or not
mandatory), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state
authorities in the United States (whether or not mandatory), (iii) a
commencement of a war, armed hostilities or other international or
national crisis directly or indirectly involving the United States,
(iv) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending
institutions in the United States, or (v) in the case of any of the
foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof; or
(d) the MMR Class A Shares issuable in exchange for the MMR
Class B Warrants shall not have been quoted, other than subject to
official notice of issuance, on the Nasdaq National Market.
The foregoing conditions are for the sole benefit of MMR and may be
asserted by MMR regardless of the circumstances giving rise to such conditions
or may be waived by MMR in whole or in part at any time and from time to time
in its sole discretion. If MMR waives or amends the foregoing conditions, MMR
will, if required by applicable law, extend
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the Exchange Offer for a minimum of five (5) business days from the date that
MMR first gives notice, by public announcement or otherwise, of such waiver or
amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by MMR concerning the events described
above will be final and binding upon all parties.
ACCEPTANCE OF MMR CLASS B WARRANTS FOR EXCHANGE; DELIVERY OF MMR CLASS A SHARES
Subject to the terms and subject to the conditions of the Exchange
Offer, MMR will accept, promptly after the Expiration Date, all MMR Class B
Warrants properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date and will issue and deliver one MMR Class A Share
for each five (5) MMR Class B Warrants accepted promptly following the
Expiration Date, provided, however, that no fractional MMR Class A Shares will
be issued in the Exchange Offer.
For purposes of the Exchange Offer, MMR shall be deemed to have
accepted validly tendered MMR Class B Warrants when, as and if MMR has given
oral or written notice thereof to the Exchange Agent. The Exchange Agent will
act as agent for the tendering holders of MMR Class B Warrants for the purposes
of receiving the MMR Class A Shares pursuant to the Exchange Offer from MMR.
Under no circumstances will interest be paid by MMR by reason of any delay in
delivering such MMR Class A Shares or of any delay in payment for the
fractional shares.
If any tendered MMR Class B Warrants are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted MMR Class B Warrants
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Any holder of MMR Class B Warrants who has tendered MMR Class B
Warrants may withdraw the tender at any time prior to 5:00 p.m., New York City
time, on the Expiration Date, by delivery of a written notice of withdrawal to
the Exchange Agent.
To be effective, a written notice of withdrawal (sent by hand,
telegraph or facsimile transmission) must (a) be timely received by the
Exchange Agent at the address set forth herein, (b) specify the name of the
person having tendered the MMR Class B Warrants to be withdrawn, (c) indicate
the certificate number or numbers of the MMR Class B Warrants to which the
withdrawal relates, (d) specify the number of MMR Class B Warrants so
withdrawn, and (e) be (i) signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including a guarantee of
signature, if required) or (ii) accompanied by evidence satisfactory to MMR
that the holder withdrawing such tender has succeeded to beneficial ownership
of such MMR Class B Warrants. Withdrawals of tenders of MMR Class B Warrants
may not be rescinded, and any MMR Class B Warrants withdrawn will thereafter be
deemed not validly tendered for purposes of the Exchange Offer; provided,
however, that withdrawn MMR Class B Warrants may be retendered by again
following one of the procedures described herein at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
All questions as to the validity (including time of receipt) of
notices of withdrawal will be determined by MMR, whose determination will be
final and binding. Neither MMR, the Exchange Agent, nor any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. All correspondence in connection with the
Exchange Offer and delivery of the Letter of Transmittal should be addressed to
the Exchange Agent, as follows:
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AMERICAN STOCK TRANSFER & TRUST COMPANY
By Facsimile: By Mail, By Hand and Confirm by Telephone:
Overnight Courier:
(718) 921-8334 American Stock Transfer and Trust (212) 936-5100
Company
40 Wall Street
46th Floor
New York, NY 10005
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
INFORMATION AGENT
Georgeson & Company nas been appointed as Information Agent for the
Exchange Offer. Any questions or requests for assistance or additional copies
of this Offering Circular, the Letter of Transmittal or any other document
relating to this Exchange Offer may be directed to the Information Agent at its
telephone number and address et forth below. You may also contact your broker,
dealer, commercial bank or trust company or other nominee for assistance
concerning the Exchange Offer.
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Telephone:
(800) 223-2064
Telephone (Banks/Brokers):
(212) 440-9800
PAYMENT OF EXPENSES
MMR will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. MMR, however, will pay the
Exchange Agent and Information Agent reasonable and customary fees for their
services and will reimburse them for their reasonable out-of-pocket expenses in
connection therewith. MMR will also pay broker dealers and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Offering Circular and related documents to the
beneficial owners of the MMR Class B Warrants, and in handling or forwarding
tenders for their customers.
The estimated cash expenses to be incurred by MMR in connection with
the Exchange Offer are estimated in the aggregate to be $63,500 and include,
fees and expenses of the Information Agent of $5,000, listing fees of $1,000,
printing and miscellaneous expenses of $7,500 and accounting and legal fees of
$50,000.
MMR will pay all transfer taxes, if any, applicable to the transfer of
MMR Class B Warrants to it or its order pursuant to the Exchange Offer. If,
however, MMR Class A Shares issued pursuant to the Exchange Offer or substitute
certificates evidencing MMR Class B Warrants not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the MMR Class B Warrants tendered, or if tendered
certificates
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representing MMR Class B Warrants are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the transfer and sale of MMR Class B
Warrants to MMR or its order pursuant to the Exchange Offer, the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
DESCRIPTION OF MMR SHARES
GENERAL
MMR's authorized capital stock consists of 16,900,000 MMR Shares. The
authorized MMR Shares consist of 15,000,000 MMR Class A Shares, 1,200,000 MMR
Class B Shares and 700,000 Class C MMR Shares. In addition, MMR has 1,200,000
shares of Preferred Stock authorized. As of October 1, 1996 there were
outstanding 4,000,563 MMR Class A Shares, 633,334 MMR Class B Shares (which
were held of record by two stockholders), and 200,000 MMR Preferred Shares.
Conversions of certain of MMR's securities are subject to compliance with
applicable laws, including the Federal Communications Act of 1934, as amended
(the "Communications Act"), and the rules, regulations and policies of the FCC
promulgated or adopted thereunder. The following description of the MMR Shares
is a summary and is qualified in its entirety by the provisions of MMR's
Restated Certificate of Incorporation.
The securities offered hereby in exchange for the MMR Class B Warrants
are MMR Class A Shares.
THE MMR SHARES
Dividends. Holders of shares of MMR Shares are entitled to receive
such dividends as may be declared by the Board of Directors out of funds
legally available for such purpose. In the case of any stock dividend, holders
of MMR Class A Shares are entitled to receive the same percentage dividend
(payable in MMR Class A Shares) as the holders of MMR Class B Shares (payable
in MMR Class B Shares) and the holders of Class C Common Stock (payable in MMR
Class C Shares). The payment of dividends is limited by the terms of MMR's
credit agreement with FINOVA Capital Corporation (the "Finova Loan Agreement")
and of the debentures MMR issued to The Huff Alternative Income Fund, L.P.
("Huff").
Voting Rights. Holders of MMR Class A Shares and MMR Class B Shares
vote as a single class on all matters submitted to a vote of MMR's
stockholders, with each MMR Class A Share entitled to one (1) vote and each MMR
Class B Share entitled to ten (10) votes, except (i) directors are elected as
set forth below, (ii) with respect to any "going private" transaction, as
defined in Rule 13e-3 under the Exchange Act, between MMR and any of Messrs.
Morrow, Sillerman and Tytel or SCMC or any of their respective affiliates, the
MMR Class A Shares and the MMR Class B Shares vote as a single class, with each
MMR Class A Share and each MMR Class B Share entitled to one vote per share and
(iii) as otherwise provided by law. The holders of MMR Class C Shares do not
have voting rights other than those required by applicable law.
In the election of directors, the holders of MMR Class A Shares,
voting as a separate class, are entitled to elect two directors. The holders of
MMR Class A Shares and MMR Class B Shares, voting as a single class with each
MMR Class A Share entitled to one (1) vote and each MMR Class B Share entitled
to ten (10) votes, are entitled to elect the remaining directors. Holders of
MMR Class A Shares and MMR Class B Shares are not entitled to cumulative voting
in the election of directors. The MMR Board is empowered to fill any vacancies
thereon created by the resignation, removal or death of a director, except that
any director appointed to fill a vacancy created by the resignation, removal or
death of a director elected by the holders of MMR Class A Shares shall be an
MMR Independent Director. The remaining MMR Independent Director shall fill any
vacancy of a directorship previously occupied by an Independent Director.
Under the Delaware General Corporation Law (the "DGCL"), the
affirmative vote of the holders of a majority of the outstanding shares of any
class of MMR Shares is required to approve, among other things, a change in the
designations, preferences or limitations of the shares of such class.
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Liquidation Rights. Upon liquidation, dissolution, or winding-up of
MMR, the holders of MMR Class A Shares are entitled to share ratably with the
holders of MMR Class B Shares and the MMR Class C Shares in all assets
available for distribution after payment in full of creditors.
Other Provisions. Holders of MMR Shares do not have subscription or
redemption rights, nor do they have any preemptive rights.
The Exchange Agent is the transfer agent for the MMR Class A Shares.
CONVERSION OF STOCK BY MESSRS. SILLERMAN AND FERREL
Immediately prior to the conversion of stock on August 28, 1996
described in the next paragraph, Mr. Sillerman's beneficial ownership of the
stock of MMR consisted of 227,000 MMR Class A Shares, 360,000 MMR Class C
Shares, 133,334 MMR Original Preferred Shares and 120,000 MMR Series B
Preferred Shares. MMR's Restated Certificate of Incorporation permitted the
holders of the MMR Class C Shares to convert such non-voting (except as
required by law) shares into an equal number of one-vote-per-share MMR Class A
Shares, or on or after July 29, 1998, or earlier after May 15, 1996 in the
event that MMR is in default under any obligation for borrowed money, into an
equal number of MMR Class B Shares, which generally have ten votes per share.
On or after July 29, 1998, or earlier in the event of such default or failure
after May 15, 1996, the holders of the MMR Original Preferred Shares were
permitted to convert such non-voting (except as required by law) shares into an
equal number of ten-votes-per-share MMR Class B Shares. The Finova Loan
Agreement and MMR's agreement with Huff governing the MMR Senior Subordinated
Debentures contain covenants which limit MMR's annual corporate overhead
expenditures. MMR has been in default of this covenant in the Finova Loan
Agreement in each of the last two years, in part due to the expansion of MMR
through acquisitions consummated subsequent to entering into the Finova Loan
Agreement, and has received waivers of such default from Finova. In the third
quarter of 1996 MMR again exceeded the limitation on annual corporate overhead
expenditures contained in the Finova Loan Agreement and also exceeded the
limitation on annual corporate overhead expenditures contained in the agreement
governing the MMR Senior Subordinated Debentures.
Because of such defaults, Messrs. Sillerman and Ferrel were permitted
to convert their MMR Class C Shares and MMR Original Preferred Shares into MMR
Class B Shares and on August 28, 1996 Mr. Sillerman exercised his right to
convert his MMR Class C Shares and MMR Original Preferred Shares into MMR Class
B Shares on a share for share basis. As a result of such conversion, Mr.
Sillerman's beneficial ownership of the stock of MMR consists of 227,000 MMR
Class A Shares, 493,334 MMR Class B Shares and 120,000 MMR Series B Preferred
Shares. (Mr. Ferrel has informed MMR that, in the event that the Merger is
consummated shortly after the MMR Special Meeting, he does not intend to
exercise his conversion rights with respect to the MMR Original Preferred
Shares owned by him.) MMR obtained a waiver of its default under the Finova
Loan Agreement with respect to exceeding its corporate overhead limit and
entering into the SFX Loan for a payment of $10,000, and also obtained a waiver
of its default under the agreement governing the MMR Senior Subordinated
Debentures. Such conversion will not affect the number or class of the SFX
Shares to be received by Mr. Sillerman in the Merger nor will it permit him to
control the outcome of the stockholder vote on the Merger. Prior to the
conversion, the MMR Original Preferred Shares held by Messrs. Sillerman and
Ferrel were placed in escrow pursuant to which, in the event that such shares
were or are converted into MMR Class B Shares, Messrs. Sillerman and Ferrel may
vote such shares but are prohibited from transferring such shares prior to July
29, 1998. As a result of the conversion of his MMR Class C Shares and MMR
Original Preferred Shares into MMR Class B Shares, Mr. Sillerman may be deemed
to beneficially own shares representing 14.7% of the outstanding combined
voting power of MMR with respect to the Merger, 49.5% of the outstanding
combined voting power of MMR with respect to certain amendments to MMR's
Restated Certificate of Incorporation (and 4.7% and 77.9% of the votes in the
MMR Class A Share and MMR Class B Share class votes, respectively, of the vote
with respect to certain amendments to MMR's Restated Certificate of
Incorporation) and 49.5% with respect to most other matters, giving Mr.
Sillerman control over almost all matters to be voted on by MMR security
holders (including, without limitation, the election of a majority of
directors). See "Remuneration of Management of SFX--Employment Agreements" in
the Joint Proxy Statement/Prospectus for a discussion of circumstances in which
Mr. Ferrel's shares may be released from escrow upon the consummation of the
Merger.
Mr. Sillerman's conversion of his MMR Class C Shares and MMR Original
Preferred Shares into MMR Class B Shares constituted a change of control of MMR
under the Communications Act and the rules and regulations promulgated
thereunder. Prior to his conversion, Mr. Sillerman obtained the approval of the
FCC and the Antitrust Agencies to such
- 24 -
<PAGE>
action. Mr. Sillerman's ability to assume voting control of MMR under the
statutes and regulations regulating the ownership of radio stations was made
possible as a result of the passage of the Recent Legislation, which eliminated
the limits on the number of radio stations one person or entity may own
nationally and liberalized the limits on the number of radio stations one
person or entity may own locally.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
MMR's Restated Certificate of Incorporation provides that MMR shall
indemnify to the fullest extent permitted by Section 145 of the DGCL any person
whom it may indemnify thereunder. The By-laws of MMR provide that
indemnification shall be made by MMR only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination upon receipt of an undertaking by the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified
by MMR. In addition, MMR's Restated Certificate of Incorporation provides for
the limitation to the extent permitted by the DGCL of personal liability of
directors to MMR and its stockholders for monetary damages for breach of
fiduciary duty as directors of MMR.
MMR has obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and reimburses MMR for such loss for which MMR has lawfully
indemnified its directors and officers. The policy contains various exclusions,
none of which will relate to the Exchange Offer.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed int he Act and is, therefore, unenforceable.
FOREIGN OWNERSHIP
MMR's Certificate of Incorporation restricts the ownership, voting and
transfer of MMR's capital stock, including the MMR Class A Shares, in
accordance with the Communications Act and the rules of the FCC, to prohibit
ownership of more than 25% of MMR's outstanding capital stock, or more than 25%
of the voting rights it represents (such percentage, however, is 20% in the
case of those MMR subsidiaries, which will be the direct holders of the FCC
licenses), by or for the account of non-U.S. citizens or their representatives
or a foreign government or a representative thereof or a corporation organized
under the laws of a foreign country ("Aliens") or corporations otherwise
subject to domination or control by Aliens. The Certificate of Incorporation
also prohibits any transfer of MMR's capital stock that would cause the MMR to
violate this prohibition.
In addition, the Certificate of Incorporation authorizes the Board of
Directors of MMR to adopt such provisions as it deems necessary to enforce
these prohibitions. MMR has established certain procedures and controls
designed to implement the aforesaid prohibition.
DESCRIPTION OF MMR CLASS B WARRANTS
The MMR Class B Warrants were issued in March 1994 as part of the
public offering by MMR of 1,840,000 Units (the "Units") through Blair and
Americorp (collectively, the "Underwriters") at $5.00 per Unit for total gross
offering proceeds of $9,200,000. Each Unit consists of one MMR Class A Share,
one MMR Class A Warrant and one MMR Class B Warrant. The components of the
Units are separately transferable.
The MMR Class A Warrants and the MMR Class B Warrants were issued
pursuant to a Warrant Agreement (the "Warrant Agreement"), dated as of March
23, 1994, among MMR, American Stock Transfer & Trust Company, as warrant agent,
the Underwriters and several other entities and individuals. There were
1,055,437 MMR Class A Warrants and 1,840,000 MMR Class B Warrants outstanding
as of October 1, 1996. Pursuant to its underwriting agreement with the
- 25 -
<PAGE>
Underwriters, MMR issued MMR Unit Purchase Options (the "UPOs") to the
Underwriters or their designees. The MMR UPOs entitle the holders thereof to
purchase up to an additional 160,000 Units. To date, pursuant to the terms of
the UPOs, none of the MMR UPOs have been exercised.
Each MMR Class A Warrant entitles the registered holder to purchase
one (1) MMR Class A Share at an exercise price of $7.75 per share, subject to
adjustment as described below, until March 22, 1999, unless redeemed earlier.
Pursuant to the Warrant Agreement, MMR has the right to call for the redemption
of the MMR Class A Warrants, at a redemption price of $.01 per warrant, since
the "Market Price" of the MMR Class A Shares exceeded $10.75. The "Market
Price" means (i) the average closing bid price for twenty (20) consecutive
business days (or such other period as the Underwriters may consent to), ending
with the date of the notice of redemption, as reported by the Nasdaq National
Market or (ii) the last reported sale price for twenty (20) consecutive
business days (or such other period as the Underwriters may consent to), ending
with the date of the notice of redemption, on the primary exchange on which the
MMR Class A Shares are quoted, including the Nasdaq National Market. The notice
of redemption in connection with MMR's redemption of the MMR Class A Warrants
was mailed simultaneously herewith and all MMR Class A Warrants not exercised
prior to 5:00 PM on November 7, 1996 (the "Redemption Date"), will be redeemed.
It is anticipated that substantially all of the holders of the MMR Class A
Warrants will exercise prior to the Redemption Date. Upon redemption of the MMR
Class A Warrants, the MMR Class A Warrants and the UPOs will be deregistered
under the Exchange Act and not quoted on the Nasdaq Stock Market.
Each MMR Class B Warrant entitles the registered holder to purchase
one (1) MMR Class A Share at an exercise price of $11.50, subject to adjustment
as described below, until March 22, 1999, unless redeemed earlier. The exercise
price is payable by cash or by check. The Warrant Agreement does not provide
for the "cashless" exercise of the MMR Class A Warrants or the MMR Class B
Warrants. Under certain circumstances, the Underwriters are entitled to receive
four percent (4%) of the exercise price in respect of the MMR Class A Warrants
and the MMR Class B Warrants. MMR is not obligated to deliver the MMR Class A
Shares underlying the MMR Class A Warrants or the MMR Class B Warrants unless a
registration statement under the Act, as amended, with respect to such MMR
Class A Shares is effective.
The MMR Class B Warrants are subject to redemption by MMR, on not less
than thirty (30) days' written notice, at a redemption price of $.01 per
warrant, if the "Market Price" of the MMR Class A Shares exceeds $16.00
(subject to adjustment in the event of stock splits or reverse stock splits).
The notice of redemption must be mailed within five (5) days of the date of
such notice. All of the outstanding MMR Class B Warrants must be redeemed if
any portion of that class are to be redeemed; provided, however, that the MMR
Class B Warrants underlying the MMR UPOs may only be redeemed in compliance
with and subject to the terms and conditions of the MMR UPOs.
The Warrant Agreement contains provisions that protect the holders of
the MMR Class B Warrants against dilution by adjustment of the exercise price
and shares issuable upon exercise thereof in certain events, such as stock
dividends, stock splits, and sales of MMR Class A Shares at below Market Price.
To date, neither the exercise price nor the number of MMR Class B Warrants have
been adjusted for any such events. The Warrant Agreement also contains
provisions that provide that, upon any consolidation or merger of MMR with or
into another corporation (other than a consolidation or merger in which MMR is
the surviving corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding MMR Shares), MMR shall
cause effective provision to be made so that each holder of an MMR Class B
Warrant then outstanding shall have the right thereafter, by exercising such
warrant, to purchase the kind and number of shares of stock receivable upon
such consolidation and merger by a holder of the number of MMR Class A Shares
that might have been purchased upon exercise of such warrant immediately prior
to such consolidation or merger. The Merger Agreement provides that, upon the
consummation of the Merger, each outstanding MMR Class B Warrant shall be
assumed by SFX and that holders of the MMR Class B Warrants shall continue to
have, and be subject to, the same terms and conditions set forth in such MMR
Class B Warrants, except that (i) such MMR Class B Warrants shall be
exercisable for that number of SFX Class A Shares equal to the product of the
number of MMR Class A Shares covered by such MMR Class B Warrant immediately
prior to the consummation of the Merger multiplied by the Exchange Ratio and
(ii) the per share exercise price for the SFX Class A Shares issuable upon the
exercise of each MMR Class B Warrant shall be equal to the quotient obtained by
dividing the exercise price per MMR Class A Share specified in such MMR Class B
Warrant immediately prior to the consummation of the Merger by the Exchange
Ratio and rounding the resulting price down to the nearest whole cent.
- 26 -
<PAGE>
MMR is not required to issue fractional MMR Class B Warrants upon
adjustment or fractional MMR Class A Shares upon exercise of the MMR Class B
Warrants. In lieu thereof, an amount of cash equal to the same fraction of the
then current market value of a share of MMR Class A Shares or a MMR Class B
Warrant, as the case may be, will be paid. No adjustment as to dividends will
be made upon any exercise of MMR Class B Warrants. The ownership of a MMR Class
B Warrant does not entitle the holder thereof to any of the rights of holders
of shares of Class A Shares or of any other class of common stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material Federal income tax
consequences to holders of MMR Class B Warrants tendering their MMR Class B
Warrants pursuant to the Exchange Offer. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
administrative pronouncements and judicial decisions, all as in effect and
existing on the date hereof and all of which are subject to change, possibly
with retroactive effect.
This summary applies only to those holders who have held MMR Class B
Warrants and will hold the MMR Class A Shares received in exchange therefor as
capital assets pursuant to Section 1221 of the Code, and does not address the
Federal income tax consequences to holders who are subject to special rules
(such as insurance companies, financial institutions, tax-exempt organizations,
foreign holders and broker-dealers) or special rules with respect to integrated
transactions (such as certain hedging transactions) or certain "straddle" or
"wash sale" transactions.
Gain or loss will be recognized for Federal income tax purposes by a
holder of MMR Class B Warrants on the exchange of such MMR Class B Warrants for
MMR Class A Shares or cash in lieu of fractional shares pursuant to the
Exchange Offer. The amount of such gain or loss will be equal to the difference
between (a) the sum of the fair market value of the MMR Class A Shares and the
amount of cash received in the Exchange Offer on the date of the exchange and
(b) the holder's tax basis in the MMR Class B Warrants exchanged therefor. Such
gain or loss will be capital gain or loss, and will be long-term capital gain
or loss if the MMR Class B Warrants have been held for more than one year. The
MMR Class A Shares will have a tax basis in the hands of an exchanging holder
equal to their fair market value on the date of the exchange and will have a
holding period that begins on the day following the date of the consummation of
the exchange.
The Exchange Offer will not affect the Federal income tax treatment of
holders of MMR Class B Warrants who do not participate in the Exchange Offer,
however, a holder of MMR Class B Warrants who does not tender its MMR Class B
Warrants pursuant to the Exchange Offer will recognize taxable gain or loss in
the event the Merger is consummated.
ALL HOLDERS OF MMR CLASS B WARRANTS ARE ADVISED TO CONSULT THEIR TAX
ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THEIR PARTICIPATION IN THE EXCHANGE OFFER.
LEGAL MATTERS
Certain matters have been passed upon by Baker & McKenzie in
connection with the Exchange Offer. Mr. Tytel, who has an equity interest in
and is an executive officer of SCMC and SFX, is Of Counsel to Baker & McKenzie.
Baker & McKenzie also represents SFX. Mr. Tytel holds (i) options to purchase
10,000 MMR Class A Shares at an exercise price of $8.66 per share, 5,000 of
which are exercisable within 60 days of this Offering Circular and (ii) options
to purchase 5,000 MMR Class A Shares at an exercise price of $5.00 per share,
1,000 of which are exercisable within 60 days of this Offering Circular. In
addition, Mr. Tytel owns 20,000 MMR Class A Shares and 20,000 MMR Series B
Shares which are held in escrow but in respect of which Mr. Tytel retains the
power to vote. See "Management of MMR," "Principal Stockholders of MMR" and
"Certain Relationships and Related Transactions" in the Joint Proxy
Statement/Prospectus. Fisher Wayland Cooper Leader & Zaragoza LLP, Washington,
D.C., has represented MMR with respect to legal matters under the
Communications Act and the rules and regulations promulgated thereunder by the
FCC.
- 27 -
<PAGE>
ANNEX 1
JOINT PROXY STATEMENT/PROSPECTUS
OF
SFX BROADCASTING, INC.
AND
MULTI-MARKET RADIO, INC.
<PAGE>
<TABLE>
<S> <C>
SFX Broadcasting, Inc. [LOGO] MMR
Multi-Market Radio, Inc.
[LOGO]
---------------------------------------------------------------
PROXY STATEMENT AND PROSPECTUS PROXY STATEMENT
ANNUAL MEETING TO BE HELD ON NOVEMBER 22, 1996 SPECIAL MEETING TO BE HELD ON NOVEMBER 22, 1996
</TABLE>
SFX Broadcasting, Inc., a Delaware corporation ("SFX"), is
furnishing this Joint Proxy Statement/Prospectus (this "Joint Proxy
Statement/Prospectus") to the holders of its Class A Common Stock, par value
$0.01 per share ("SFX Class A Shares"), and Class B Common Stock, par value
$0.01 per share ("SFX Class B Shares" and, together with the SFX Class A
Shares, "SFX Shares"), in connection with the solicitation of proxies by the
Board of Directors of SFX (the "SFX Board") for use at the 1996 Annual Meeting
of Stockholders (the "SFX Annual Meeting") to be held at 10:00 a.m., local
time, on Friday, November 22, 1996, at the offices of Baker & McKenzie, 805
Third Avenue, 23rd Floor, New York, New York 10022, and at any adjournments or
postponements thereof.
Multi-Market Radio, Inc., a Delaware corporation ("MMR"), is
furnishing this Joint Proxy Statement/Prospectus to the holders of its Class A
Common Stock, par value $0.01 per share ("MMR Class A Shares"), and Class B
Common Stock, par value $0.01 per share ("MMR Class B Shares" and, together
with the MMR Class A Shares, "MMR Shares"), in connection with the solicitation
of proxies by the Board of Directors of MMR (the "MMR Board") for use at the
Special Meeting of Stockholders (the "MMR Special Meeting") to be held at 9:00
a.m., local time, on Friday, November 22, 1996, at the offices of Baker &
McKenzie, 805 Third Avenue, 23rd Floor, New York, New York 10022, and at any
adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus
of SFX with respect to SFX Class A Shares and SFX Class B Shares to be issued
to the holders of MMR Shares, shares of Original Preferred Stock, par value
$0.01 per share, of MMR ("MMR Original Preferred Shares"), shares of Series B
Convertible Preferred Stock, par value $0.01 per share, of MMR ("MMR Series B
Preferred Shares" and, together with the MMR Original Preferred Shares, "MMR
Preferred Shares") and MMR warrants and options in connection with the Merger
(as defined herein). Utilizing an Exchange Ratio (as defined herein) of 0.2842,
calculated as if the Merger had been consummated on October 1, 1996 and
assuming that Proposal B (as defined herein) is approved and no MMR Class B
Warrants (as defined herein) are tendered pursuant to the MMR Exchange Offer
(as defined herein), SFX would issue up to 2,466,060 SFX Class A Shares and
198,940 SFX Class B Shares, which would represent, as of October 1, 1996, 27.7%
and 18.9% of the total outstanding SFX Class A Shares and SFX Class B Shares,
respectively. See "Proposals 1 and A--The Merger" and "The Merger Agreement."
At the SFX Annual Meeting, holders of record of SFX Shares as of
the close of business on October 1, 1996, will be asked:
(i) to approve the Amended and Restated Agreement and Plan of
Merger, dated as of April 15, 1996, as amended on May 6, 1996, July 30, 1996
and September 30, 1996 (the "Merger Agreement"), among SFX, SFX Merger
Company, a wholly-owned subsidiary of SFX ("Acquisition Sub"), and MMR, and
the merger of Acquisition Sub with and into MMR (the "Merger") whereby MMR
will become a wholly-owned subsidiary of SFX ("Proposal 1");
(ii) to approve an amendment to SFX's Restated Certificate of
Incorporation to increase the number of authorized SFX Class A Shares from
10,000,000 to 100,000,000 ("Proposal 2");
(cover page continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF SFX AND MMR.
------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of
proxy are first being mailed to stockholders of SFX and MMR on or about
October 7, 1996.
The date of this Joint Proxy
Statement/Prospectus is October 4, 1996.
<PAGE>
(continued from previous page)
(iii) to approve an amendment to SFX's Restated Certificate of
Incorporation to increase the number of authorized SFX Class B Shares from
1,000,000 to 10,000,000 ("Proposal 3");
(iv) to approve the issuance to Sillerman Communications Management
Corporation ("SCMC") of warrants to purchase 300,000 SFX Class A Shares, which
will be immediately exercisable upon approval by the stockholders of SFX, at
an initial purchase price of $33.75 per share (the market price at the time
the financial consulting arrangement was terminated), as partial consideration
for SCMC terminating its financial consulting arrangement with SFX and
assigning to SFX its rights to receive fees for consulting and marketing
services payable by MMR and another publicly-held radio broadcasting company
over the next eight years ("Proposal 4");
(v) to elect eight directors to the SFX Board ("Proposal 5");
(vi) to approve SFX's 1996 Stock Option Plan and the performance
goal included therein ("Proposal 6");
(vii) to ratify the appointment of Ernst & Young LLP as independent
auditors of SFX for the fiscal year ending December 31, 1996 ("Proposal 7");
and
(viii) to transact such other business as may properly come before
the SFX Annual Meeting or any adjournments or postponements thereof.
The approval of both Proposals 2 and 3 is necessary in order for SFX
to have a sufficient number of authorized SFX Class A Shares and SFX Class B
Shares to issue in the Merger and so that SFX will comply with its obligations
to reserve SFX Class A Shares for issuance upon the conversion of certain
securities, exercise of outstanding options and warrants, and upon the
assumption by SFX of certain warrants and options of MMR in connection with the
Merger. In addition, the SFX Board is considering a possible stock split.
Failure to approve Proposal 2 will prevent the consummation of the Merger.
Robert F.X. Sillerman, the Chairman of the Board, Chief Executive
Officer and a Director of SFX, may be deemed to be the beneficial owner of
approximately 5.9% of the outstanding SFX Class A Shares and 100% of the
outstanding SFX Class B Shares, which (excluding options and warrants to
acquire SFX Shares) represent approximately 12.4% of the outstanding SFX Shares
and approximately 57.4% of the combined voting power of the outstanding SFX
Shares. Accordingly, Mr. Sillerman is generally able to control the outcome of
all matters upon which he votes and will be able to control the outcome of the
proposals to be voted on at the SFX Annual Meeting (other than Proposal 2
(which must be approved in order to consummate the Merger) and the election of
three directors by the holders of SFX Class A Shares).
At the MMR Special Meeting, holders of record of MMR Shares as of the
close of business on October 1, 1996 will be asked:
(i) to approve the Merger Agreement and the Merger
contemplated thereby, as a result of which MMR will become a wholly-owned
subsidiary of SFX ("Proposal A");
(ii) to approve an amendment to MMR's Restated Certificate of
Incorporation providing that, in any merger, consolidation or business
combination in which holders of capital stock of MMR are to be issued shares of
common stock, all classes and series of capital stock of MMR shall receive the
same consideration, except that the holders of any class or series of capital
stock of MMR which is generally entitled to ten votes per share, or which is
convertible into such a class or series, may receive shares which have ten
votes per share ("Proposal B"); and
(iii) to transact such other business as may properly come
before the MMR Special Meeting or any adjournments or postponements thereof.
The approval of Proposal B is not necessary for the Merger to occur.
In the event that Proposal B is not approved, all holders of MMR Class B Shares
and MMR Original Preferred Shares will receive in the Merger that number of SFX
Class A Shares equal to the number of SFX Class B Shares such holders would
otherwise have received had the amendment been approved.
Management of MMR, including Bruce Morrow and Michael Ferrel, together
with Mr. Sillerman may be deemed to beneficially own 336,000 MMR Class A Shares
and 633,334 MMR Class B Shares, which (exclusive of stock options and
warrants), represent 19.0% of the outstanding combined voting power of MMR with
respect to Proposal A and 63.7% of the outstanding combined voting power with
respect to Proposal B (and 6.2% and 100.0% of the votes in the MMR Class
- ii -
<PAGE>
(continued from previous page)
A Share and MMR Class B Share class votes, respectively, for Proposal B). See
"Security Ownership of Management and Principal Stockholders of MMR." All
members of management of MMR and Mr. Sillerman have informed MMR that they
intend to vote their MMR Shares in favor of Proposals A and B. In addition,
certain institutional stockholders owning an aggregate of approximately 7.2% of
the MMR Class A Shares have agreed to vote any shares held by them on the
record date, subject to certain conditions, for the MMR Special Meeting in
favor of Proposals A and B. Accordingly, Mr. Sillerman, together with
management and certain institutional stockholders, may control up to
approximately 26.2% of the combined vote with respect to Proposal A and 13.4%
of the class vote of the Class A Shares with respect to Proposal B.
On the date and time of the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware or as specified in the Certificate
of Merger (the "Effective Time"), each issued and outstanding MMR Class A Share
and MMR Series B Preferred Share will be converted into the right to receive
that number of SFX Class A Shares, and each issued and outstanding MMR Class B
Share and MMR Original Preferred Share will be converted into the right to
receive that number of SFX Class B Shares, equal to the Exchange Ratio. If the
holders of MMR Shares (the "MMR Stockholders") do not approve Proposal B, SFX
Class A Shares will be issued to all holders of all classes of MMR stock. The
Exchange Ratio is determined by dividing $12.50 by the average of the last
reported bid and asked prices of an SFX Class A Share on The Nasdaq Stock
Market Inc.'s National Market System (the "Nasdaq National Market") for the 20
consecutive trading days ending on the fifth trading day prior to the Effective
Time (the "Determination Date") (the "SFX Class A Stock Price"), subject to
adjustment in the event that the SFX Class A Stock Price exceeds $44.00 or is
less than $32.00 during such period. In the event that the SFX Class A Stock
Price is less than $32, the Exchange Ratio will be 0.3750 (implying a value of
less than $12 per MMR Share), subject to further adjustment. The adjustments to
be made to the Exchange Ratio in the event that the SFX Class A Stock Price is
less than $32.00 or more than $44.00 are described in "The Merger
Agreement--The Exchange Ratio." In the event that the average of the last
reported bid and asked prices of the SFX Class A Shares is less than $27.33 for
any seven consecutive trading days, the Merger Agreement may be terminated by
MMR; provided that SFX may avoid such termination by increasing the
compensation to the holders of MMR Shares and MMR Preferred Shares, subject to
certain conditions and the right of SFX to terminate if the price of SFX Class
A Shares declines further. The Exchange Ratio will be rounded to four decimal
places. The Exchange Ratio, calculated as if the Merger was consummated on
October 1, 1996, would have been 0.2842. A copy of the Merger Agreement is
attached to this Joint Proxy Statement/Prospectus as Annex B. The closing
prices of an SFX Class A Share and MMR Class A Share as reported on the Nasdaq
National Market on October 3, 1996 were $45 and $12 11/16, respectively.
On or about the date of this Joint Proxy Statement/Prospectus, MMR
commenced (i) an offer to exchange, the 1,840,000 outstanding Class B Warrants
of MMR, each exercisable to purchase one MMR Class A Share at $11.50 per share
("MMR Class B Warrants"), for MMR Class A Shares at a ratio of two-tenths (.2)
of an MMR Class A Share per MMR Class B Warrant (the "MMR Exchange Offer") and
(ii) a call for redemption (the "MMR Warrant Redemption") of the
then-outstanding Class A Warrants of MMR, each exercisable to purchase one MMR
Class A Share at $7.75 per share, and each redeemable at $0.01 (the "MMR Class
A Warrants"). It is expected that substantially all of the holders of MMR Class
A Warrants will exercise such warrants to acquire MMR Class A Shares prior to
the redemption date, which is anticipated to be November 8, 1996. The MMR Class
A Shares issued after October 1, 1996 in the MMR Exchange Offer and prior to
the MMR Warrant Redemption will not be eligible to vote at the MMR Special
Meeting.
The Exchange Ratio is subject to adjustment if MMR is unable to obtain
the exchange of one-half of the outstanding MMR Class B Warrants in the MMR
Exchange Offer. There can be no assurance that the holders of one-half of the
MMR Class B Warrants will exchange their MMR Class B Warrants in the MMR
Exchange Offer. The last sale price of an MMR Class B Warrant as reported by
the Nasdaq National Market on September 30, 1996 was $2 19/32. See "The Merger
Agreement."
The Exchange Ratio is expected to be determined on the fifth trading
day prior to the SFX Annual Meeting and the MMR Special Meeting (collectively
the "Meetings"). Accordingly, within five trading days of the Meetings, the
stockholders of SFX and MMR can call Georgeson & Company Inc., the proxy
solicitor for SFX, at (800) 223-2064 for the anticipated SFX Class A Stock
Price and the Exchange Ratio.
SFX's 1995 Annual Report accompanies this Joint Proxy
Statement/Prospectus. All information contained or incorporated by reference in
this Joint Proxy Statement/Prospectus relating to SFX has been supplied by SFX,
and all information relating to MMR has been supplied by MMR.
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AVAILABLE INFORMATION
SFX and MMR are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by SFX and MMR with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material also can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Both SFX and MMR are electronic filers under the EDGAR (Electronic Data
Gathering, Analysis and Retrieval) system maintained by the Commission. The
Commission maintains a Web Site (http://www.sec.gov) on the Internet that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the Commission. In addition,
material filed by SFX and MMR can be inspected at the offices of The Nasdaq
Stock Market, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
SFX has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities to be issued pursuant to the Merger
Agreement. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other documents filed as an exhibit to the Registration
Statement, each such statement being qualified by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by SFX with the Commission
under the Exchange Act are incorporated herein by reference:
(i) SFX's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 1995 (the "SFX Form 10-K");
(ii) SFX's Quarterly Report on Form 10-Q, as amended, for the
quarter ended March 31, 1996 and SFX's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 (collectively, the "SFX Forms
10-Q");
(iii) SFX's Current Reports on Form 8-K dated April 18, 1996,
May 8, 1996, May 9, 1996, May 16, 1996, May 29, 1996, June 21, 1996,
July 10, 1996 (as amended), August 8, 1996 and October 3, 1996
(collectively, with the SFX Form 10-K and the SFX Forms 10-Q, the "SFX
Reports"); and
(iv) The description of the SFX Class A Shares contained in
Exhibit (a) to SFX's Registration Statement on Form 8-A filed with the
Commission on September 27, 1993.
All documents filed by SFX pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the SFX Annual Meeting shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be
a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof
except as so modified or superseded.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
- 2 -
<PAGE>
SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE,
UPON ORAL OR WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, FROM SFX BROADCASTING, INC., 150 EAST
58TH STREET, 19TH FLOOR, NEW YORK, NEW YORK 10155, ATTENTION: CYNTHIA A. BOND,
DIRECTOR OF INVESTOR RELATIONS; TELEPHONE NUMBER (212) 407-9191. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETINGS, ANY SUCH REQUEST
SHOULD BE MADE BY NOVEMBER 15, 1996.
CERTAIN ASSUMPTIONS
Unless otherwise stated, all numbers and percentages in this Joint
Proxy Statement/Prospectus relating to the number and percentage of SFX Class A
Shares and SFX Class B Shares to be issued to and held by the stockholders of
MMR after the Merger assume that (i) the Exchange Ratio is 0.2842, which ratio
has been calculated assuming that the date of the Effective Time of the Merger
contemplated by the Merger Agreement was October 1, 1996, (ii) each outstanding
MMR Class B Warrant shall have been exchanged for two-tenths (.2) of an MMR
Class A Share pursuant to the MMR Exchange Offer, (iii) each outstanding MMR
Class A Warrant is exercised to purchase one MMR Class A Share prior to the
consummation of the MMR Warrant Redemption, (iv) the MMR Stockholders approve
Proposal B, and (v) neither SFX nor MMR issue any shares of stock or securities
convertible into stock between the date hereof and the consummation of the
Merger. All numbers relating to the ownership of shares of SFX and MMR and the
number of outstanding securities of SFX and MMR are given as of the close of
business on October 1, 1996 and do not reflect the results of the MMR Warrant
Redemption and the MMR Exchange Offer. Unless otherwise stated, all numbers and
percentages in this Joint Proxy Statement/Prospectus relating to the number and
percentage of SFX Shares beneficially owned by Robert F.X. Sillerman, the
Chairman of the Board and Chief Executive Officer of SFX and a significant
stockholder of both SFX and MMR, assume that the holders of SFX Shares (the
"SFX Stockholders") approve Proposal 4. Unless otherwise stated, all statements
as to the combined voting power of the SFX Shares and the combined voting power
of the MMR Shares assume that the SFX Class B Shares and the MMR Class B
Shares, respectively, have ten votes per share. See "Security Ownership of
Management and Principal Stockholders of MMR." There can be no assurance that
any of these assumptions will prove to be accurate.
CERTAIN MARKET AND INDUSTRY DATA
Unless otherwise indicated herein, data with respect to (i) market
rank, station revenue rank, combined market revenue share and total number of
stations in a market have been prepared by BIA Publications, Inc. based upon
estimates derived from surveys of radio station general managers and owners,
(ii) station rank among target demographics have been derived from surveys of
persons in the target demographic cited listening Monday through Sunday, 6 a.m.
to 12 midnight, based upon The Arbitron Company's Spring 1996 Radio Market
Report as provided by The Arbitron Company and (iii) audience share and
combined market audience share have been derived from surveys of persons over
the age of 12 listening Monday through Sunday, 6 a.m. to 12 midnight, based
upon The Arbitron Company's Spring 1996 Radio Market Report as provided by The
Arbitron Company.
------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SFX, MMR OR
ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SFX OR MMR SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
SUMMARY...........................................................................................6
The Companies.................................................................................6
The Meetings..................................................................................7
The Merger....................................................................................9
Summary Consolidated Financial Data of SFX...................................................16
Summary Consolidated Financial Data of MMR...................................................19
Comparative Per Share Data...................................................................21
Comparative Market Price Data................................................................22
RISK FACTORS.....................................................................................23
Uncertainty of the Exchange Ratio............................................................23
Consequences of Failure of SFX Stockholders to Increase
Authorized Number of SFX Class A Shares....................................................23
Risks Related to the Merger and the Pending Acquisitions and
Dispositions...............................................................................24
Litigation Relating to the Merger............................................................24
Risks Associated with Integration of the Stations to Be
Acquired...................................................................................25
Substantial Leverage; Inability to Service Obligations.......................................25
Historical Losses............................................................................26
Expansion Strategy; Need for Additional Funds................................................26
Control by Management........................................................................26
Potential Conflicts of Interest; Transactions with Affiliates................................27
Reliance on Key Personnel....................................................................28
Dependence on Economic Factors...............................................................28
Extensive Regulation of the Radio Broadcasting Business......................................29
No Transfer of Common Stock to Aliens........................................................30
Competition..................................................................................31
Dividend Policy; Restrictions on Payment of Dividends........................................31
Market Risk with Respect to Common Stock; Certain Investment
Limitations................................................................................31
Shares Eligible for Future Sale and Possible Adverse Effect
Thereof....................................................................................31
Possible Adverse Impact of Authorized but Unissued Shares of
Capital Stock and Delaware Law.............................................................32
THE MEETINGS.....................................................................................33
General......................................................................................33
Matters to Be Considered at the Meetings.....................................................33
Recommendations of Boards of Directors and Independent
Committees.................................................................................33
Record Dates; Quorum; Voting at the Meetings.................................................34
Proxies......................................................................................36
PROPOSALS 1 AND A - THE MERGER...................................................................38
Background of the Merger.....................................................................38
Effects of and Reasons for the Merger; Recommendations of the
Boards of Directors........................................................................47
Opinions of Financial Advisors...............................................................50
Interests of Certain Persons in the Merger...................................................60
Accounting Treatment.........................................................................61
Certain Federal Income Tax Consequences......................................................62
Regulatory Matters...........................................................................62
Federal Securities Law Consequences..........................................................63
Nasdaq National Market Quotation.............................................................63
Appraisal Rights.............................................................................64
Certain Legal Proceedings....................................................................64
THE MERGER AGREEMENT.............................................................................64
The Merger...................................................................................64
The Exchange Ratio...........................................................................65
Repayment of Certain Indebtedness............................................................66
Representations and Warranties...............................................................67
Covenants....................................................................................67
Non-Solicitation.............................................................................68
Conditions...................................................................................68
Termination; Fees and Expenses...............................................................69
Other Provisions.............................................................................70
PROPOSALS 2 AND 3 - AMENDMENTS TO SFX'S RESTATED
CERTIFICATE OF INCORPORATION.................................................................72
PROPOSAL 4 - APPROVAL OF ISSUANCE OF A WARRANT TO SCMC
TO PURCHASE 300,000 SFX CLASS A SHARES.......................................................73
PROPOSAL 5 - ELECTION OF DIRECTORS OF SFX........................................................74
Nominees.....................................................................................75
Certain Information Concerning Directors and Executive Officers..............................76
Board Meetings and Committees; Compensation Committee
Interlocks and Insider Participation.......................................................77
Remuneration of Directors....................................................................77
PROPOSAL 6 - APPROVAL OF SFX'S 1996 STOCK OPTION PLAN AND
THE PERFORMANCE GOAL INCLUDED THEREIN........................................................79
Federal Income Tax Consequences to SFX and the Participant...................................80
New Plan Benefits............................................................................81
PROPOSAL 7 - APPOINTMENT OF INDEPENDENT AUDITORS
OF SFX.......................................................................................83
PROPOSAL B - AMENDMENT TO MMR'S RESTATED CERTIFICATE
OF INCORPORATION.............................................................................84
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF SFX..................................................................85
BUSINESS OF SFX.................................................................................102
The SFX Stations............................................................................103
Recently Completed Acquisitions and Dispositions............................................105
Pending Acquisitions and Dispositions.......................................................106
Other Recent Transactions...................................................................107
REMUNERATION OF MANAGEMENT OF SFX...............................................................109
Employment Agreements.......................................................................110
Stock Option Plans..........................................................................112
Option/SAR Grants in the Last Fiscal Year...................................................112
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values................................................................113
Report of the SFX Board and Its Committee on Executive
Compensation..............................................................................114
SFX PERFORMANCE GRAPH...........................................................................116
SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF SFX...............................................................117
SELECTED CONSOLIDATED FINANCIAL DATA OF MMR.....................................................120
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF MMR.................................................................122
MMR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................................127
Introduction................................................................................127
General.....................................................................................127
Results of Operations of MMR................................................................127
Liquidity and Capital Resources.............................................................131
BUSINESS OF MMR.................................................................................136
General.....................................................................................136
MMR Strategy................................................................................136
MMR History.................................................................................137
Change of Control of MMR....................................................................137
Recent Acquisitions, Dispositions and Other Transactions....................................138
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The MMR Stations............................................................................139
Advertising.................................................................................140
Competition.................................................................................140
Employees...................................................................................141
Federal Regulation of Radio Broadcasting....................................................141
Properties..................................................................................145
Legal Proceedings...........................................................................146
MANAGEMENT OF MMR...............................................................................147
Directors and Executive Officers............................................................147
Principal Executive Officers of SCMC........................................................148
Remuneration of Directors...................................................................148
Executive Compensation......................................................................149
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values...........................................................149
Employment Agreements.......................................................................150
Preferred Stock Issuance....................................................................150
SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF MMR...............................................................152
Stockholders' Agreement.....................................................................155
Conversion of Stock by Mr. Sillerman........................................................155
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................157
Material Contacts Between SFX and MMR.......................................................157
Relationship of SFX with SCMC...............................................................158
Agreements with Armstrong and Hicks.........................................................159
Issuance of Options to Ferrel...............................................................159
Relationship Between SFX and Edward F. Dugan................................................159
Transactions Related to the Formation of MMR................................................159
Relationship of MMR with SCMC...............................................................160
Additional Arrangements with SCMC, Mr. Sillerman and
Mr. Tytel.................................................................................161
Agreement Between Messrs. Morrow and Sillerman..............................................162
Agreement Between MMR and Triathlon.........................................................162
Agreement Between SFX and Triathlon.........................................................162
Relationship with Huff......................................................................162
Certain Payments to D.H. Blair and Americorp................................................162
COMPARISON OF STOCKHOLDERS' RIGHTS..............................................................163
Election of Directors.......................................................................163
Consideration Received in a Business Combination............................................163
Participation of Non-Citizens...............................................................163
Committees..................................................................................164
Conversion of Class B Common Stock..........................................................164
STOCKHOLDER PROPOSALS...........................................................................164
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE........................................................................164
OTHER MATTERS...................................................................................164
LEGAL MATTERS...................................................................................165
EXPERTS.........................................................................................165
Glossary....................................................................................Annex A
Merger Agreement............................................................................Annex B
Proposed Amendments to SFX's Restated Certificate of
Incorporation...........................................................................Annex C
Proposed Amendments to MMR's Restated Certificate
of Incorporation........................................................................Annex D
SFX's 1996 Stock Option Plan................................................................Annex E
Opinion of Furman Selz LLC with respect to the Merger.......................................Annex F
Opinion of Oppenheimer & Co., Inc. with respect to the Merger...............................Annex G
Opinion of Furman Selz LLC with respect
to the SCMC Termination Agreement.......................................................Annex H
</TABLE>
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information, including the Annexes
attached hereto, and financial statements, including the notes thereto,
contained elsewhere in this Joint Proxy Statement/Prospectus. Certain
capitalized terms used herein have the meanings assigned to them in the
Glossary attached to this Joint Proxy Statement/Prospectus as Annex A.
Statements regarding numbers, percentages, and the combined voting power of the
SFX Shares and the MMR Shares are subject to the assumptions previously set
forth under the caption "Certain Assumptions." Unless otherwise stated, all
numbers relating to the ownership of shares of SFX and MMR and the number of
outstanding securities of SFX and MMR are given as of the close of business on
October 1, 1996 and do not reflect the results of the MMR Warrant Redemption and
the MMR Exchange Offer. The timing and completion of the Pending Acquisitions
(as defined herein) and Pending Disposition (as defined herein) are subject to a
number of conditions, certain of which are beyond SFX's and MMR's control, and
there can be no assurance that such transactions will be approved by the Federal
Communications Commission (the "FCC") or the Antitrust Agencies (as defined
herein) or completed on the terms described herein or at all. Stockholders of
SFX and MMR should consider carefully the information set forth under "Risk
Factors."
THE COMPANIES
SFX. SFX currently owns and operates or provides programming to or
sells advertising on behalf of 55 radio stations in 19 markets. Upon
consummation of the Pending Acquisitions (including the Merger) and the Pending
Disposition, SFX will own and operate or provide programming to or sell
advertising on behalf of 67 radio stations (52 FM and 15 AM stations) and will
be one of the largest companies in terms of the number of stations in the
United States exclusively devoted to radio broadcasting. SFX is, and will
continue to be, diverse in terms of format and geographic markets, will operate
in 20 markets and will own and operate or provide programming to or sell
advertising on behalf of two or more stations in 18 of these markets. SFX was
organized in 1992 by Mr. Sillerman, the Chairman of the Board, Chief Executive
Officer and the controlling stockholder of SFX, along with others. The
principal executive offices of SFX are located at 150 East 58th Street, 19th
Floor, New York, New York 10155 and its telephone number is (212) 407-9191. See
"Business of SFX."
MMR. MMR is a radio broadcasting company which will own and operate
or provide programming to or sell advertising on behalf of eight FM radio
stations and one AM radio station (after giving effect to the MMR Little Rock
Disposition (as defined herein), the MMR Myrtle Beach Disposition (as defined
herein) and the termination of certain agreements) located in five markets:
Hartford, Connecticut; Springfield/Northampton, Massachusetts; New Haven,
Connecticut; Daytona Beach, Florida; and Biloxi, Mississippi. MMR was organized
in 1992 by Mr. Sillerman, Bruce Morrow, the Chairman of the Board of MMR,
Michael G. Ferrel, the Chief Executive Officer, President and Chief Operating
Officer of MMR, and Howard J. Tytel, Executive Vice President, General Counsel
and a Director of SCMC and Executive Vice President, Secretary and a Director
of SFX. Messrs. Sillerman, Morrow and Ferrel own a substantial equity interest
in MMR which will be exchanged for SFX Shares upon the consummation of the
Merger. See "Business of MMR." Upon the consummation of the Merger, it is
anticipated that Mr. Ferrel will become the Chief Executive Officer and a
Director of SFX. Pursuant to the Merger Agreement, Mr. Ferrel currently serves
as a consultant to SFX. See "Proposal 5--Election of Directors of SFX--
Nominees."
In August 1996, pursuant to MMR's Restated Certificate of
Incorporation, Mr. Sillerman converted his non-voting shares of MMR into MMR
Class B Shares, which generally have ten votes per share. As a result of such
conversion, Mr. Sillerman may be deemed to beneficially own (excluding options
and warrants) approximately 49.5% of the outstanding combined voting power of
MMR with respect to most matters to be voted on by the MMR Stockholders
(including, without limitation, the election of a majority of directors). Such
conversion will not affect the number or class of the SFX Shares to be received
by Mr. Sillerman in the Merger nor will it permit him to control the outcome of
the vote on Proposal A or Proposal B. See "Business of MMR--Change of Control
of MMR."
The principal executive offices of MMR are located at 150 East 58th
Street, 19th Floor, New York, New York 10155 and its telephone number is (212)
407-9150.
ACQUISITION SUB. Acquisition Sub is a wholly-owned subsidiary of SFX
formed solely for the purpose of the Merger which has engaged in no business
other than business related to the Merger. The principal executive offices of
Acquisition Sub are located at 150 East 58th Street, 19th Floor, New York, New
York 10155 and its telephone number is (212) 407-9191.
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THE MEETINGS
TIME, DATE AND PLACE
SFX. The SFX Annual Meeting will be held at 10:00 a.m., local time,
on Friday, November 22, 1996, at the offices of Baker & McKenzie, 805 Third
Avenue, 23rd Floor, New York, New York 10022.
MMR. The MMR Special Meeting will be held at 9:00 a.m., local time,
on Friday, November 22, 1996, at the offices of Baker & McKenzie, 805 Third
Avenue, 23rd Floor, New York, New York 10022.
PURPOSES OF THE MEETINGS
SFX. At the SFX Annual Meeting, the SFX Stockholders will be asked
(i) to approve the Merger Agreement and the Merger (Proposal 1), (ii) to
approve an amendment to SFX's Restated Certificate of Incorporation to increase
the number of authorized SFX Class A Shares from 10,000,000 to 100,000,000
(Proposal 2), (iii) to approve an amendment to SFX's Restated Certificate of
Incorporation to increase the number of authorized SFX Class B Shares from
1,000,000 to 10,000,000 (Proposal 3), (iv) to approve the issuance to SCMC of
warrants to purchase 300,000 SFX Class A Shares, which will be immediately
exercisable upon approval by the SFX Stockholders, at an initial purchase price
of $33.75 per share (the market price at the time the financial consulting
arrangement was terminated), as partial consideration for, among other things,
SCMC terminating its financial consulting arrangement with SFX and assigning to
SFX its rights to receive fees for consulting and marketing services payable to
SCMC by MMR and another publicly-held radio broadcasting company (Proposal 4),
(v) to elect eight directors to the SFX Board (Proposal 5), (vi) to approve
SFX's 1996 Stock Option Plan and the performance goal included therein
(Proposal 6), (vii) to ratify the appointment of Ernst & Young LLP as
independent auditors of SFX for the fiscal year ending December 31, 1996
(Proposal 7), and (viii) to transact such other business as may properly come
before the SFX Annual Meeting or any adjournments or postponements thereof. THE
SFX BOARD UNANIMOUSLY RECOMMENDS THAT SFX STOCKHOLDERS VOTE FOR PROPOSALS 1
THROUGH 7. See "The Meetings--Matters to Be Considered at the Meetings."
MMR. At the MMR Special Meeting, the MMR Stockholders will be asked
(i) to approve the Merger Agreement and the Merger (Proposal A), (ii) to
approve an amendment to MMR's Restated Certificate of Incorporation providing
that, in any merger, consolidation or business combination in which holders of
capital stock of MMR are to be issued shares of common stock, all classes and
series of capital stock of MMR shall receive the same consideration, except
that the holders of any class or series of capital stock of MMR which is
generally entitled to ten votes per share, or which is convertible into such a
class or series, may receive shares which have ten votes per share (Proposal
B), and (iii) to transact such other business as may properly come before the
MMR Special Meeting or any adjournments or postponements thereof. The effect of
the amendment to MMR's Restated Certificate of Incorporation is to permit
holders of MMR Class B Shares and MMR Original Preferred Shares (currently
Messrs. Sillerman, Ferrel and Morrow) to receive SFX Class B Shares in the
Merger. THE MMR BOARD RECOMMENDS THAT MMR STOCKHOLDERS VOTE FOR PROPOSALS A AND
B. See "The Meetings--Matters to Be Considered at the Meetings."
RECORD DATES; SHARES OUTSTANDING; QUORUM REQUIRED
SFX. Holders of record of SFX Shares at the close of business on
October 1, 1996 are entitled to notice of and to vote at the SFX Annual
Meeting. As of the close of business on such date there were 6,431,897 SFX
Class A Shares and 856,126 SFX Class B Shares outstanding. The presence in
person or by proxy of holders of a majority of the combined voting power of the
SFX Shares shall constitute a quorum at the SFX Annual Meeting. See "The
Meetings--Record Dates; Quorum; Voting at the Meetings."
MMR. Holders of record of MMR Shares at the close of business on
October 1, 1996 are entitled to notice of and to vote at the MMR Special
Meeting. As of the close of business on such date there were 4,000,563 MMR
Class A Shares and 633,334 MMR Class B Shares outstanding. The presence in
person or by proxy of holders of a majority of the combined voting power of the
MMR Class A Shares and the MMR Class B Shares shall constitute a quorum at the
MMR Special Meeting. See "The Meetings--Record Dates; Quorum; Voting at the
Meetings."
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<PAGE>
VOTES REQUIRED
SFX. The affirmative vote of a majority of the combined voting power
of the outstanding SFX Shares represented in person or by proxy at the SFX
Annual Meeting (at which a quorum is present) and voting on the proposal is
necessary to approve Proposal 1.
The affirmative vote of a majority of the combined voting power of
the outstanding SFX Shares, and the affirmative vote of a majority of the
outstanding SFX Class A Shares, voting separately, is necessary to approve
Proposal 2. Failure to approve Proposal 2 will prevent the consummation of the
Merger.
The affirmative vote of a majority of the combined voting power of
the outstanding SFX Shares, and the affirmative vote of a majority of the
outstanding SFX Class B Shares, voting separately, is necessary to approve
Proposal 3.
The affirmative vote of a majority of the combined voting power of
the SFX Shares represented in person or by proxy at the SFX Annual Meeting (at
which a quorum is present) and voting on the proposal is necessary to approve
Proposals 4 and 6.
The affirmative vote of a plurality of the votes cast at the SFX
Annual Meeting (at which a quorum is present) by the holders of the SFX Class A
Shares, voting separately, is necessary to elect the three directors to be
chosen by the holders of the SFX Class A Shares. The affirmative vote of a
plurality of the votes cast at the SFX Annual Meeting (at which a quorum is
present) by the holders of the SFX Shares is necessary to elect the remaining
five directors (Proposal 5).
The affirmative vote of a majority of the combined voting power of
the SFX Shares represented in person or by proxy at the SFX Annual Meeting (at
which a quorum is present) is necessary to ratify Proposal 7. See "The
Meetings--Record Dates; Quorum; Voting at the Meetings."
Mr. Sillerman will be able to control the outcome of the proposals
to be voted on at the SFX Annual Meeting (other than Proposal 2 (which must be
approved in order to consummate the Merger) and the election of three directors
by the holders of SFX Class A Shares). See "--The Merger--Security Ownership
and Voting of Management and Certain Other Persons" for a description of the
voting power held by SFX's directors and executive officers.
MMR. The affirmative vote of a majority of the combined voting power
of the outstanding MMR Class A Shares and MMR Class B Shares, voting together
(with each class entitled to one-vote-per-share), is necessary to approve
Proposal A.
The affirmative vote of a majority of the combined voting power of
the outstanding MMR Class A Shares and MMR Class B Shares, voting together, and
the affirmative vote of a majority of the outstanding MMR Class A Shares and
MMR Class B Shares, each voting separately as a class, is necessary to approve
Proposal B. See "The Meetings--Record Dates; Quorum; Voting at the Meetings."
Mr. Sillerman together with management will control approximately
19.0% of the combined vote with respect to Proposal A and 6.2% of the MMR Class
A Common Stock vote with respect to Proposal B. Mr. Sillerman, together with
management and certain institutional stockholders who have agreed, under
certain circumstances, to vote any shares held by them on the record date in
favor of Proposals A and B, may control up to approximately 26.2% of the
combined vote with respect to Proposal A and 13.4% of the class vote of the MMR
Class A Shares with respect to Proposal B. See "--The Merger--Security Ownership
and Voting of Management and Certain Other Persons" for a description of the
voting power held by MMR's directors and executive officers.
VOTES PER SHARE
SFX. Each SFX Class A Share will be entitled to one vote and each
SFX Class B Share will be entitled to ten votes in any matter scheduled to be
voted upon by both classes at the SFX Annual Meeting or any adjournments or
postponements thereof (except that, with respect to the class vote required to
approve Proposal 2 and Proposal 3, each SFX Share will be entitled to one
vote). See "The Meetings--Record Dates; Quorum; Voting at the Meetings."
MMR. Each MMR Class A Share will be entitled to one vote in any
matter scheduled to be voted upon at the MMR Special Meeting or any
adjournments or postponements thereof.
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Each MMR Class B Share will be entitled to one vote on Proposal A
because the Merger is a going-private transaction with an affiliate of Mr.
Sillerman in respect of which the MMR Class B Shares are entitled to one vote
per share pursuant to MMR's Restated Certificate of Incorporation. Each MMR
Class B Share will be entitled to ten votes per share on Proposal B (except
that, with respect to the MMR Class B Share class vote required to approve
Proposal B, each MMR Class B Share will be entitled to one vote).
THE MERGER
THE MERGER AGREEMENT
Upon consummation of the Merger at the Effective Time (i)
Acquisition Sub will be merged with and into MMR, which will be the surviving
corporation and thereby become a wholly-owned subsidiary of SFX, and (ii) each
issued and outstanding MMR Share and MMR Preferred Share (other than shares
held in the treasury of MMR or by SFX or any subsidiary of SFX, all of which
will be canceled) will be converted into the right to receive that number of
SFX Class A Shares (in the case of MMR Class A Shares and MMR Series B
Preferred Shares) or SFX Class B Shares (in the case of MMR Class B Shares and
MMR Original Preferred Shares) equal to the Exchange Ratio. The Exchange Ratio
is determined by dividing $12.50 by the average of the last reported bid and
asked prices of an SFX Class A Share on the Nasdaq National Market for the 20
consecutive trading days ending on the Determination Date, subject to
adjustment, among other things, in the event that the SFX Class A Stock Price
exceeds $44.00 or is less than $32.00 during such time period. In the event
that the SFX Class A Stock Price is less than $32.00 the Exchange Ratio will be
0.3750 (implying a value of less than $12.00 per MMR Share), subject to further
adjustment. The adjustments to be made to the Exchange Ratio in the event that
the SFX Class A Stock Price is less than $32.00 or more than $44.00 are
described in "The Merger Agreement--The Exchange Ratio." The Exchange Ratio
will be rounded to four decimal points. Fractional SFX Shares will not be
issued in the Merger and, in lieu thereof, holders of MMR Shares and MMR
Preferred Shares otherwise entitled thereto will be paid the value of such
fraction, based on the SFX Class A Stock Price, in cash. If the MMR
Stockholders do not approve Proposal B, SFX Class A Shares will be issued to
all stockholders of MMR in lieu of SFX Class B Shares. See "The Merger
Agreement--The Merger."
The Merger Agreement provides that, in the event that MMR is
unsuccessful in obtaining, on or prior to the Determination Date, the exchange
of at least 50% of the 1,840,000 outstanding MMR Class B Warrants in the MMR
Exchange Offer, then the Exchange Ratio shall be adjusted downward to the
extent necessary to reduce the total dollar value of the SFX Class A Shares and
SFX Class B Shares that would have otherwise been received by MMR security
holders at the Effective Time (in each case calculated with reference to the
SFX Class A Common Stock Price) by a dollar amount equal to the product of $2.50
times the number of MMR Class B Warrants outstanding immediately after such
exchange in excess of 920,000. In the event that no MMR Class B Warrants are
exchanged in the MMR Exchange Offer, the consideration to be received by MMR
security holders would be reduced by approximately $0.39 per share. See "The
Merger Agreement--The Exchange Ratio."
The Merger Agreement provides that it may be terminated and the
transactions contemplated thereby abandoned by MMR or the committee of the
independent members of the MMR Board (the "MMR Independent Committee"), among
other reasons, in the event that (i) the average of the last reported bid and
asked prices for the SFX Class A Shares (the "Reported Price") for any seven
consecutive trading days (the "Average Price") during the period commencing
June 17, 1996 and ending on the Determination Date is less than $27.33 and (ii)
the MMR Board or the MMR Independent Committee has delivered written notice to
SFX of its intention to terminate the Merger Agreement (the "Price Termination
Notice") within 48 hours following the date on which the Average Price is less
than $27.33; provided, however, that SFX, upon the recommendation of the
committee of independent members of the SFX Board (the "SFX Independent
Committee"), has the right, but not the obligation, to deliver, within 48 hours
after the receipt of the Price Termination Notice, a written notice (the "Make
Whole Notice") pursuant to which it agrees that the stockholders of MMR shall
receive no less than the Minimum Per Share Amount (as defined below), and
provided, further, that SFX, upon the recommendation of the SFX Independent
Committee, has the right to rescind such Make Whole Notice (the "Make Whole
Rescission Notice") in the event that the Average Price at any time following
the delivery of the Make Whole Notice is at least an additional $0.25 less than
the Average Price as set forth in, and which triggered, the Price Termination
Notice. In the event that SFX delivers the Make Whole Notice to MMR and does
not deliver a Make Whole Rescission Notice, the Exchange Ratio (x) shall be
determined as set forth above if the SFX Class A Stock Price equals or exceeds
$27.33, and (y) if the SFX Class A Stock Price is less than $27.33, shall be
increased such that, on the Determination Date, the product of the (a) Exchange
Ratio as so adjusted, multiplied by (b) the SFX Class A Stock Price shall be an
amount equal to $10.25 (such amount being referred to as the "Minimum Per Share
Amount"). See "The Merger Agreement--Termination; Fees and Expenses."
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<PAGE>
Based upon the shares of SFX and MMR outstanding on October 1, 1966
and assuming that the SFX Class A Stock Price was $43.9875 (the value
calculated as if October 1, 1996 was the Effective Time), resulting in an
Exchange Ratio of 0.2842, (i) the MMR Stockholders would receive approximately
2,466,000 SFX Class A Shares (including SFX Class A Shares issuable upon the
exercise of options and warrants) and approximately 198,940 SFX Class B Shares
in the Merger, representing approximately 29.3% of the total number of SFX
Shares and approximately 24.0% of the combined voting power of the SFX Shares,
and (ii) the MMR Stockholders (other than Messrs. Morrow, Ferrel and Sillerman)
would receive approximately 2,328,730 SFX Class A Shares and no SFX Class B
Shares in the Merger, representing approximately 25.6% of the total number of
SFX Shares and approximately 12.5% of the combined voting power of the SFX
Shares. See "The Merger Agreement--The Merger."
Warrants and options of MMR exercisable for an aggregate of
4,476,639 MMR Class A Shares are outstanding, which would represent the right
to acquire approximately 1,272,261 SFX Class A Shares after the Merger. In
addition, pursuant to the terms of the Consent Agreement (the "Huff Consent
Agreement") between SFX, MMR and The Huff Alternative Income Fund, L.L.P.
("Huff"), SFX will issue to Huff a warrant exercisable for SFX Class A Shares
equal to 175,000 multiplied by the Exchange Ratio. Of the outstanding warrants
and options of MMR, 1,055,437 MMR Class A Shares are issuable upon the exercise
of MMR Class A Warrants which MMR commenced calling for redemption on or about
the date of this Joint Proxy Statement/Prospectus at a redemption price of
$0.01 per warrant. It is expected that substantially all of the holders of the
MMR Class A Warrants will exercise such warrants and acquire MMR Class A
Shares. See "The Merger Agreement--The Merger." In addition, 1,840,000 MMR
Class A Shares are issuable upon the exercise of MMR Class B Warrants. If all
outstanding MMR Class B Warrants are exchanged in the MMR Exchange Offer, MMR
will issue 368,000 MMR Class A Shares.
The Merger Agreement provides that, on or prior to the Effective
Time, MMR shall use its best efforts to repay all amounts due under the Senior
Subordinated Debentures due 2001 of MMR (the "MMR Senior Subordinated
Debentures") and redeem all shares of its Senior Cumulative Preferred Shares,
par value $0.01 per share, of MMR ("MMR Senior Cumulative Preferred Shares").
All of the MMR Senior Subordinated Debentures and all of the MMR Senior
Cumulative Preferred Shares are held by Huff. Pursuant to the Huff Consent
Agreement, MMR has agreed to repay and redeem in full, at or immediately prior
to the Effective Time, the MMR Senior Subordinated Debentures and the MMR
Senior Cumulative Preferred Shares for an aggregate purchase price of $21.0
million plus accrued and unpaid interest and dividends through the date of
repayment and redemption. In the Huff Consent Agreement, SFX agreed, among
other things, at the Effective Time, to issue to Huff additional warrants to
acquire that number of SFX Class A Shares equal to 175,000 multiplied by the
Exchange Ratio. The Huff Consent Agreement contains Huff's consent to the
Merger on the terms and conditions set forth therein. In addition, on or prior
to the Effective Time, MMR must have repaid or provided for the repayment of
all amounts outstanding under the loan agreement (the "Finova Loan"), with
Finova Capital Corporation ("Finova"). As of September 30, 1996 there was
approximately $21.7 million outstanding under the Finova Loan. Simultaneously
with the consummation of the Merger, it is anticipated that SFX will pay for
the redemption of the MMR Senior Subordinated Debentures and the MMR Senior
Cumulative Preferred Shares and the repayment of the Finova Loan. See "The
Merger Agreement--The Merger."
INDEPENDENT COMMITTEES
The SFX Board appointed the two members of the SFX Board who were
elected by the holders of the SFX Class A Shares and are considered
"independent directors" within the meaning of the rules of the National
Association of Securities Dealers, Inc. (the "NASD") and SFX's Restated
Certificate of Incorporation, to the SFX Independent Committee to evaluate the
Merger Agreement on behalf of SFX. Likewise, the MMR Board appointed the two
members of the MMR Board who were elected by the holders of the MMR Class A
Shares and are considered "independent directors" within the meaning of the
rules of NASD and MMR's Restated Certificate of Incorporation, to the MMR
Independent Committee to evaluate the Merger Agreement on behalf of MMR.
REASONS FOR THE MERGER; INDEPENDENT COMMITTEE AND
BOARD RECOMMENDATIONS
SFX. In reaching its conclusions to enter into the Merger Agreement
and to recommend approval and adoption of the Merger Agreement by the SFX
Stockholders, the SFX Independent Committee and the SFX Board considered a
number of factors, including, without limitation, the following: the
complementary business strategies of the companies; an analysis of the
opportunities for cost savings and operational synergies; and the opportunity
to eliminate potential conflicts of interests and artificial operating
constraints.
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<PAGE>
The SFX Board and the SFX Independent Committee each believes that
the terms of the Merger, and the related stock issuance, are fair to, and in
the best interests of, SFX and its stockholders. Accordingly, each of the SFX
Board and the SFX Independent Committee has unanimously approved the issuance
of SFX Shares pursuant to the Merger Agreement and has recommended the approval
by the SFX Stockholders of the issuance of such shares. The SFX Board and the
SFX Independent Committee believe that the acquisition of MMR will further
SFX's long-term strategic objective to remain a major competitor in the radio
broadcasting business.
MMR. The MMR Board and the MMR Independent Committee each believes
that the Merger will enable the MMR Stockholders, on a tax free basis, to
become stockholders in a significantly larger company that will be better
positioned than MMR to compete effectively in the changing radio industry. The
MMR Board and the MMR Independent Committee each believes that the Merger with
SFX is in the best interests of MMR and the MMR Stockholders and that the
Merger will allow MMR to more fully avail itself of the expertise of Mr.
Sillerman, SCMC and their affiliates beyond the limited financial assistance
provided for in MMR's consulting agreement with SCMC. Accordingly, the MMR
Board (with the one Director representing one of MMR's debt holders abstaining
due to a potential conflict of interest) and the MMR Independent Committee
unanimously approved the Merger Agreement and the Merger and recommend that the
MMR Stockholders vote in favor of Proposal A. The MMR Board (with one member
abstaining due to a potential conflict of interest) unanimously recommends that
the MMR Stockholders vote in favor of Proposal B.
For a discussion of the factors considered by the respective
Independent Committees and Boards of Directors in reaching their decisions with
respect to the Merger, see "Proposals 1 and A--The Merger--Effects of and
Reasons for the Merger; Recommendations of the Boards of Directors."
RISK FACTORS
In considering their votes to approve and adopt the Merger,
stockholders should consider, among others, the following risk factors: a
variable Exchange Ratio, risks related to the Merger and the Pending
Acquisitions and Dispositions (as defined herein), litigation regarding the
Merger, risks associated with the integration of the stations to be acquired by
SFX in the Merger, risks related to regulatory matters, SFX's substantial
leverage and inability to service obligations, SFX's historical losses, SFX's
expansion strategy and need for additional funds, the control by management of
SFX, potential conflicts of interest, SFX's dependence upon key personnel,
SFX's dependence on economic factors, and others. See "Risk Factors."
SECURITY OWNERSHIP AND VOTING OF MANAGEMENT AND CERTAIN
OTHER PERSONS
SFX. Mr. Sillerman, the Chairman of the Board and Chief Executive
Officer of SFX, may be deemed to be the beneficial owner of approximately 5.9%
of the outstanding SFX Class A Shares and 100.0% of the outstanding SFX Class B
Shares, which (excluding options and warrants to acquire SFX Shares) represent
approximately 12.4% of the outstanding SFX Shares and approximately 57.4% of
the combined voting power of the outstanding SFX Shares. Directors and
executive officers of SFX (including Mr. Sillerman) may be deemed to be the
beneficial owners of approximately 6.9% of the outstanding SFX Class A Shares
and 100.0% of the outstanding SFX Class B Shares, which (excluding options and
warrants to acquire SFX Shares) represent approximately 12.5% of the
outstanding SFX Shares and approximately 57.5% of the combined voting power of
the outstanding SFX Shares. Mr. Sillerman and each of the other directors and
executive officers of SFX have indicated that they intend to vote or direct the
vote of all the outstanding SFX Shares over which they have voting control in
favor of Proposals 1 through 4, the nominees for director set forth herein with
respect to Proposal 5, and Proposals 6 and 7; provided, however, that Mr.
Sillerman will refrain from voting SFX Class A Shares which may be beneficially
owned by him with respect to the election of the three directors to be elected
by the holders of SFX Class A Shares. Accordingly, Mr. Sillerman alone and with
the other directors and executive officers of SFX, is expected to be able to
control the outcome of all matters upon which he votes, including the proposals
to be voted on at the SFX Annual Meeting (other than Proposal 2 (which must be
approved in order to consummate the Merger) and the election of three directors
by the holders of SFX Class A Shares).
MMR. Management of MMR including Bruce Morrow and Michael Ferrel,
together with Mr. Sillerman may be deemed to beneficially own 336,000 MMR Class
A Shares and 633,334 MMR Class B Shares, which (exclusive of stock options and
warrants) represent 19.0% of the outstanding combined voting power of MMR with
respect to Proposal A and 63.7% of the outstanding combined voting power with
respect to Proposal B (and 6.2% and 100.0% of the votes in the MMR Class A
Share and MMR Class B Share class votes, respectively, for Proposal B). See
"Security Ownership of Management and Principal Stockholders of MMR." All
members of management of MMR and
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Mr. Sillerman have informed MMR that they intend to vote their MMR Shares in
favor of Proposals A and B. Each of Messrs. Morrow, Ferrel, and Sillerman has
executed a letter of voting intent that was delivered to the MMR Independent
Committee prior to the execution of the Merger Agreement which stated that he
intended to vote for the Merger and against any competing transaction. In
addition, certain institutional stockholders owning an aggregate of 7.2% of the
MMR Class A Shares have agreed, under certain circumstances, to vote any shares
held by them on the record date for the MMR Special Meeting in favor of
Proposals A and B. Accordingly, Mr. Sillerman, together with management, and
certain institutional stockholders, may control up to approximately 26.2% of
the combined vote with respect to Proposal A and 13.4% of the MMR Class A
Common Stock vote with respect to Proposal B.
OPINIONS OF FINANCIAL ADVISORS
SFX. Furman Selz LLC ("Furman Selz") has been retained by the SFX
Independent Committee to act as its financial advisor. On September 30, 1996,
Furman Selz delivered its opinion to the SFX Independent Committee that as of
such date the Exchange Ratio to be offered in the Merger was fair, from a
financial point of view, to the SFX Stockholders (other than Mr. Sillerman and
his affiliates). Such opinion was subsequently reaffirmed on the date of this
Joint Proxy Statement/Prospectus.
A copy of the opinion of Furman Selz is attached to this Joint Proxy
Statement/Prospectus as Annex F. Such opinion sets forth the assumptions made
and matters considered by, and scope of review of, Furman Selz and should be
read in its entirety.
MMR. Oppenheimer & Co., Inc. ("Oppenheimer") has been retained by
the MMR Independent Committee to act as its financial advisor. On September 30,
1996, Oppenheimer delivered its opinion to the MMR Independent Committee that
as of such date the Exchange Ratio with respect to the MMR Class A Shares was
fair, from a financial point of view, to the holders of the MMR Class A Shares
(excluding for the purposes of such opinion Messrs. Morrow, Ferrel and
Sillerman). Such opinion was subsequently reaffirmed on the date of this Joint
Proxy Statement/Prospectus.
A copy of the opinion of Oppenheimer is attached to this Joint Proxy
Statement/Prospectus as Annex G. Such opinion sets forth the assumptions made
and matters considered by, and scope of review of, Oppenheimer and should be
read in its entirety.
See "Proposals 1 and A--The Merger--Opinions of Financial Advisors,"
for a discussion of Furman Selz's and Oppenheimer's opinions. Such section also
contains a discussion of the fees to be paid to Furman Selz and Oppenheimer for
serving as financial advisor to the SFX Independent Committee and the MMR
Independent Committee, respectively.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the SFX Board and the MMR
Board, stockholders should be aware that certain members of SFX's and MMR's
management and Boards of Directors have certain interests in the Merger that
may be construed to differ from the interests of the MMR Stockholders and SFX
Stockholders generally.
While in the Merger all MMR Stockholders are to receive the same
economic consideration, the holders of MMR Class A Common Stock are to receive
SFX Class A Shares, which have one vote per share, Messrs. Sillerman, Ferrel and
Morrow, as the holders of MMR Class B Shares and MMR Original Preferred Shares,
will receive SFX Class B Shares which has ten votes per share on most matters,
assuming Proposal B is approved. Mr. Sillerman, the Chairman of the Board and
Chief Executive Officer of SFX, and a significant stockholder of MMR, may be
deemed to be the beneficial owner of approximately 12.4% and 14.7% of the
outstanding SFX Shares and the MMR Shares, respectively, which (excluding
options and warrants to acquire SFX Shares or MMR Shares) represent
approximately 57.4% and 49.5% of the combined voting power of the outstanding
SFX Shares and the MMR Shares, respectively. If the Merger is approved by the
holders of the SFX Shares and the MMR Shares, Mr. Sillerman may be deemed to be
the beneficial owner (excluding options and warrants) of approximately 54.5% of
the combined voting power of the SFX Shares after the Merger, assuming that
Proposal B is approved, or approximately 52.6% if Proposal B is not approved. In
addition, (i) Mr. Sillerman is the principal stockholder of SCMC, which received
a $2.0 million non-refundable payment for providing investment banking services
to MMR in connection with the Merger (which payment was made by SFX on behalf of
MMR), and (ii) SFX has agreed to forgive, upon consummation of the Merger, a
$2.0 million loan to SCMC plus accrued and unpaid interest thereon and has
issued warrants to SCMC to purchase up to 600,000 SFX Class A Shares at an
initial exercise price of $33.75 per share (the market price at the time the
financial consulting arrangement was terminated), of which warrants to purchase
300,000 shares are immediately exercisable and the exercise of the remaining
warrants are subject to the approval of Proposal 4. Mr. Howard Tytel, the
Executive Vice President, Secretary and a Director of SFX, is an officer and
director of SCMC. See "Certain Relationships and Related Transactions."
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Kenneth Harmonay, a Director of MMR who abstained from voting on the
Merger, is an employee of, and was selected for nomination by, Huff. The
approval of Huff, as the holder of certain debt securities of MMR, is required
to consummate the Merger. Pursuant to the Huff Consent, at or prior to the
Effective Time, the MMR Senior Subordinated Debentures and the MMR Senior
Cumulative Preferred Shares held by Huff are to be redeemed for $21.0 million,
representing a substantial premium. In addition, SFX agreed to issue certain
additional warrants to Huff.
See "The Merger Agreement--Repayment of Certain Indebtedness."
Upon the consummation of the Merger, it is anticipated that Mr.
Ferrel, the President, Chief Operating Officer and Chief Executive Officer and
a Director of MMR, will become the Chief Executive Officer and a Director of
SFX and, in anticipation of such employment and for serving as a consultant to
SFX, Mr. Ferrel has received stock options from SFX to purchase 50,000 SFX
Class A Shares. Pursuant to the terms of the Merger Agreement, Mr. Ferrel
currently serves as a consultant to SFX. SFX and Mr. Ferrel are negotiating the
terms of his employment agreement with SFX, the terms of which may provide him
with substantial benefits even if the Merger does not occur. See "Remuneration
of Management of SFX--Employment Agreements."
In connection with the Merger, each of Paul Kramer and James F.
O'Grady, Jr. (the "SFX Independent Directors") served as the members of the SFX
Independent Committee, evaluated the terms of the Merger and the SCMC
Termination Agreement (as defined herein) and received a one-time fee of
$50,000. Such fee was payable regardless of whether or not a Proposal was made
and whether or not the Merger was or is approved by the SFX Independent
Committee, the SFX Board or the SFX Stockholders. In connection with the Merger,
each of Edward Simon and Myles Schumer (the "MMR Independent Directors"), served
as members of the MMR Independent Committee, evaluated the terms of the Merger
and received a one-time fee of $20,000. Such fee was payable regardless of
whether or not a Proposal was made and whether or not the Merger was or is
approved by the MMR Independent Committee, the MMR Board or the MMR
Stockholders.
In the Merger, the holders of MMR Series B Preferred Shares, which
are convertible into MMR Class A Shares only if a certain test of Broadcast
Cash Flow (as defined herein) is met in 1997 and which can be redeemed by MMR
for $0.01 per share if such test is not met, will receive SFX Class A Shares.
Such SFX Class A Shares will not be subject to any Broadcast Cash Flow or other
test nor will they be subject to redemption by SFX. The holders of the MMR
Series B Preferred Shares are directors or officers of MMR or SCMC. See
"Management of MMR--Preferred Stock Issuance."
See, in general, "Proposals 1 and A--The Merger--Background of the
Merger" and "--Interests of Certain Persons in the Merger." See "Proposals 1
and A--The Merger--Opinions of Financial Advisors" for a discussion of the fees
to be paid to Furman Selz and Oppenheimer for serving as financial advisor to
the SFX Independent Committee and the MMR Independent Committee, respectively.
EFFECTIVE TIME OF THE MERGER; REGULATORY MATTERS
It is anticipated that the Merger will become effective as promptly
as practicable after the requisite stockholder approvals have been obtained and
all other conditions to the Merger have been satisfied or waived. See "The
Merger Agreement--Conditions."
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT;
ALTERNATE PROPOSAL FEE AND OTHER TERMINATION FEES
The obligations of SFX and MMR to consummate the Merger are subject
to the satisfaction of certain conditions, including, without limitation,
obtaining requisite stockholder approvals and FCC approval, the expiration or
termination of any relevant waiting period under the HSR Act, the absence of
any injunction prohibiting consummation of the Merger, and the receipt of
certain legal opinions to the effect that the Merger will qualify as a tax-free
reorganization for federal income tax purposes. See "Proposals 1 and A--The
Merger--Certain Federal Income Tax Consequences," "--Regulatory Matters" and
"The Merger Agreement--Conditions."
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<PAGE>
The Merger Agreement is subject to termination by mutual consent of
the SFX Board and the MMR Board (including the Independent Committees thereof)
or at the option of either SFX or MMR if the Merger is not consummated before
December 31, 1997, subject to extension in certain instances (unless the
failure to consummate the Merger by such date is due to the action or failure
of the party seeking to terminate), or by either SFX or MMR (i) if the
stockholders of the other party shall have failed to approve the Merger
Agreement and the Merger, or (ii) in the event of any breach of the Merger
Agreement by the other party, unless such party is using its best efforts to
cure such breach. See "The Merger Agreement--Termination; Fees and Expenses."
The Merger Agreement further provides that it may be terminated and
the transactions contemplated thereby abandoned by the MMR Board or the MMR
Independent Committee in certain circumstances if the Average Price declines to
less than $27.33. See "The Merger Agreement--Termination; Fees and Expenses."
The Merger Agreement provides that MMR shall pay SFX a fee of $3.5
million (the "Alternate Proposal Fee"), which amount is inclusive of certain
expenses, in the event that the Merger Agreement is terminated as a consequence
of (i) MMR accepting a Competing Transaction, (ii) the MMR Board or the MMR
Independent Committee (a) having failed to recommend, withdrawing or materially
modifying its recommendation of the Merger and the Merger Agreement (other than
due to a decrease in the price of the SFX Class A Shares, a breach of a
representation by SFX, failure of the SFX Board or the SFX Independent
Committee to recommend or the SFX Board or SFX Independent Committee
withdrawing or materially modifying the recommendation of the Merger and the
Merger Agreement, or withdrawal of Oppenheimer's fairness opinion), or (b)
recommending or failing to recommend against accepting a Competing Transaction,
(iii) any party (other than SFX, Acquisition Sub or their affiliates) acquires
beneficial ownership of 30% or more of any class of MMR's capital stock, or
(iv) the MMR Stockholders having failed to approve the Merger, a proposal for a
Competing Transaction shall have been made prior to such termination and any
Competing Transaction is consummated within one year of such termination. See
"The Merger Agreement--Termination; Fees and Expenses."
The Merger Agreement further provides that SFX shall pay MMR a fee
of $1.0 million, which amount is inclusive of certain expenses, in the event
that a majority of the combined voting power of SFX votes with respect to, but
does not vote in favor of, the Merger. Except in connection with a termination
pursuant to which the Alternate Proposal Fee would otherwise be due and owing,
MMR shall pay SFX a fee of $1.0 million, which amount is inclusive of certain
expenses, if a majority of the combined voting power of MMR votes with respect
to, but does not vote in favor of, the Merger. See "The Merger
Agreement--Termination; Fees and Expenses."
In the event that the Merger Agreement is terminated pursuant to
certain provisions thereof, MMR will have the right but not the obligation,
subject to the receipt of prior FCC approval and the receipt of any required
consents from Finova and Huff, to acquire from SFX radio stations WHCN-FM, WMRQ-
FM and WPOP-AM, each operating in Hartford, Connecticut, WSNE-FM, WHJY-FM and
WHJJ-AM, each operating in Providence, Rhode Island, WMXB-FM, operating in
Richmond, Virginia and WGNA-FM, WGNA-AM, WPYX-FM, WTRY-AM and SFX's interest in
a joint sales agreement ("JSA") with respect to WYSR-FM, each operating in the
Albany, New York (collectively, the "MMR Liberty Stations") for $100.0 million,
in which event SFX will be subject to a substantial tax liability. In the event
the Merger Agreement is terminated pursuant to certain provisions thereof, SFX
will have the right to structure an exchange of certain of MMR's stations for
the MMR Liberty Stations, subject to any necessary prior FCC approval, in a
transaction which is intended to qualify as a like-kind exchange under Section
1031 of the Code. See "Certain Relationships and Related Transactions--Material
Contacts Between SFX and MMR." In the event that the Merger Agreement is
terminated MMR may be required to prepay a portion of the MMR Senior
Subordinated Debentures. In such event, there can be no assurance that MMR will
have the funds necessary to do so or that SFX will be able to structure a tax-
free exchange. See "MMR's Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
NO SOLICITATION
The Merger Agreement provides that MMR may not solicit, initiate or
encourage (including by way of furnishing information) any person, entity or
group concerning any Competing Transaction, provided that MMR may participate
in negotiations with or furnish information to a third party if the MMR Board,
after consultation with independent legal counsel and its investment banker,
determines that such action is required by the MMR Board to comply with its
fiduciary duties under applicable law. The Merger Agreement provides that MMR
shall promptly notify SFX of any such proposals or inquiries. See "The Merger
Agreement--Non-Solicitation."
- 14 -
<PAGE>
APPRAISAL RIGHTS
Holders of MMR Class A Shares are not entitled to dissenters'
appraisal rights under the Delaware General Corporation Law (the "DGCL") in
connection with the Merger. Holders of MMR Class B Shares, MMR Original
Preferred Shares and MMR Series B Preferred Shares will be entitled to exercise
dissenters' appraisal rights by following the procedures set forth in Section
262 of the DGCL. However, MMR believes that no such holders (all of whom are
currently executive officers and/or directors of MMR or SCMC) will exercise
dissenters' appraisal rights. Holders of SFX Shares are not entitled to
dissenters' appraisal rights under the DGCL in connection with the Merger. See
"Proposals 1 and A--The Merger--Appraisal Rights."
CERTAIN LEGAL PROCEEDINGS
See "Risk Factors--Litigation Relating to the Merger" and "Proposals
1 and A--The Merger--Certain Legal Proceedings" for a description of a
litigation brought by an alleged MMR Stockholder seeking to enjoin the Merger
or, in the alternative, monetary damages.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Merger so qualifies, no gain or loss will be recognized by SFX or MMR and no
gain or loss will be recognized by MMR Stockholders upon their receipt of SFX
Shares upon the conversion of their MMR Shares or MMR Preferred Shares, except
in respect of cash received in lieu of fractional shares. Each of SFX and MMR
has received an opinion of counsel to the effect that, subject to the existence
of certain facts and representations, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. Consummation
of the Merger is conditioned upon the receipt of a similar opinion dated as of
the date of the Merger.
See "Proposals 1 and A--The Merger--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles
("GAAP"). Under the purchase method of accounting, the purchase price of MMR,
including direct costs of the Merger, will be allocated to the assets acquired
and the liabilities assumed based upon their estimated relative fair value,
with the excess purchase consideration allocated to goodwill. See "Proposals 1
and A--The Merger--Accounting Treatment."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Stockholders' Rights" for a description of the
material differences between the rights of holders of SFX Shares and MMR
Shares.
- 15 -
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of SFX and predecessors include the
historical financial statements of Capstar Communications, Inc., a predecessor
of SFX ("Capstar"), and the historical financial statements of SFX since its
formation on February 26, 1992. The Summary Consolidated Financial Data as of
June 30, 1996 and for the six months ended June 30, 1996 and 1995 have been
derived from the unaudited consolidated financial statements and notes thereto
of SFX which are incorporated herein by reference. The pro forma summary data
as of June 30, 1996 and for the year ended December 31, 1995 and the six months
ended June 30, 1996 are derived from the unaudited pro forma condensed combined
financial statements which, in the opinion of SFX, reflect all adjustments
necessary for a fair presentation of the transactions for which such pro forma
financial information is given. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be achieved for
the fiscal year ending December 31, 1996. The historical consolidated financial
results for SFX are not comparable from year to year because of the acquisition
and disposition of various radio stations by SFX during the periods covered.
See "Unaudited Pro Forma Condensed Combined Financial Statements of SFX."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenues(1) ............................ $ 13,442 $ 15,003 $ 34,233 $ 55,556 $ 76,830
Station operating expenses ................. 9,105 9,624 21,555 33,956 51,039
Depreciation, amortization, duopoly
integration costs and acquisition related
costs(2) ................................ 3,726 3,208 4,475 5,873 9,137
Corporate expenses ......................... 726 769 1,808 2,964 3,797
Corporate expenses-non-recurring
charge(3) ............................... -- -- 13,980 -- --
Write down of broadcast rights
agreement and other(4) .................. -- -- -- -- 5,000
-------- ------- ------- -------- --------
Operating income (loss) .................... (115) 1,402 (7,585) 12,763 7,857
Other (income) loss/net .................... (124) (17) 121 (650)
Interest expense, including
amortization of deferred
financing costs ......................... 4,241 3,610 7,351 9,332 12,903
Minority Interest ......................... -- -- -- -- --
-------- ------- ------- -------- --------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of a change in accounting principle ..... (4,232) (2,208) (14,919) 3,310 (4,396)
Income tax expense (benefit) ............... -- -- 1,015 1,474 --
Extraordinary loss on debt retirement ...... -- -- 1,665 -- --
Cumulative effect of a change
in accounting principle ................. -- -- 182 -- --
-------- ------- ------- -------- --------
Net income (loss) .......................... (4,232) (2,208) (17,781) 1,836 (4,396)
Redeemable preferred stock dividends and
accretion(5) ............................. 302 385 557 348 291
-------- ------- ------- -------- --------
Net income (loss) applicable to
common stock ............................ $ (4,534) $ (2,593) $(18,338) $ 1,488 $ (4,687)
======== ======= ======= ======== ========
Net income (loss) per share ................ $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71)
======== ======= ======= ======== ========
Weighted average common
shares outstanding ...................... 1,179 1,179 2,589 5,792 6,596
======== ======= ======= ======== ========
OTHER OPERATING DATA:
Broadcast Cash Flow(6) ..................... $ 4,337 $ 5,379 $ 12,678 $ 21,600 $ 25,791
EBITDA (6) ................................. 3,611 4,610 10,870 18,636 21,994
[TABLE RESTUBBED FROM ABOVE]
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
- -------------------------------- -------------------------------------------------------------
PRO FORMA FOR PRO FORMA FOR
THE RECENT THE RECENT
ACQUISITIONS PRO FORMA FOR ACQUISITIONS PRO FORMA FOR
AND THE THE RECENT AND THE THE RECENT
TRANSACTIONS ACQUISITIONS TRANSACTIONS ACQUISITIONS
(OTHER THAN THE AND THE (OTHER THAN THE AND THE
MERGER) (7) TRANSACTIONS(7) MERGER) (8) TRANSACTIONS (8)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1995 1995 1995 1996 1996 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 184,770 $ 207,752 $ 34,441 $ 47,554 $ 96,548 $ 108,057
122,328 135,392 23,381 33,177 62,084 68,706
28,273 32,103 3,684 4,648 13,350 15,001
5,097 6,350 1,779 2,790 3,418 4,044
-- -- -- --
-- 1,114 5,000 27,489 25,889 26,435
- --------- --------- --------- --------- --------- ---------
29,072 32,793 597 (20,550) (8,193) (6,129)
(707) (707) (99) (2,298) (2,318) (2,318)
55,673 55,673 6,067 9,588 27,835 27,835
3 3 -- -- (10) (10)
- --------- --------- --------- --------- --------- ---------
(25,897) (22,176) (5,371) (27,840) (33,700) (31,636)
-- -- (2,300) -- -- --
-- -- -- 15,219 -- --
-- -- -- -- -- --
- --------- --------- --------- --------- --------- ---------
(25,897) (22,176) (3,071) (43,059) (33,700) (31,636)
9,956 9,956 144 967 4,959 4,959
- --------- --------- --------- --------- --------- ---------
$ (35,853) $ (32,132) $ (3,215) $ (44,026) $ (38,659) $ (36,595)
========= ========= ========= ========= ========= =========
$ (4.81) $ (3.48) $ (0.54) $ (5.91) $ (5.19) $ (3.96)
========= ========= ========= ========= ========= =========
7,448 9,238 5,946 7,448 7,448 9,238
========= ========= ========= ========= ========= =========
$ 62,442 $ 72,360 $ 11,060 $ 14,377 $ 34,464 $ 39,351
57,345 66,010 9,281 11,587 31,046 35,307
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
------------------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
$ 11,89
Cash and cash equivalents. $ 96 $ 657 $ 10,287 $ 3,194 3
Current assets............ 3,065 4,515 31,273 28,367 32,505
Total assets.............. 37,367 36,127 152,871 145,808 187,337
Long-term debt............ 38,828 39,011 81,627 81,516 81,850
Redeemable preferred stock:
Series A Preferred Stock 2,839 3,892 917 -- --
Series B Preferred Stock 133 -- 2,784 2,466 1,735
Series C Preferred Stock -- -- -- -- 1,550
Series D Cumulative
Convertible
Preferred Stock. -- -- -- -- --
Stockholders' equity...... (6,951) (9,411) 48,598 48,856 83,061
<CAPTION>
[TABLE RESTUBBED FROM ABOVE]
JUNE 30, 1996
-------------------------------------------------------------------------------------
PRO FORMA FOR THE PENDING
TRANSACTIONS AS OF JUNE 30, 1996 PRO FORMA FOR THE PENDING
(OTHER THAN THE MERGER) (8) TRANSACTIONS AS OF JUNE 30, 1996(8)
ACTUAL (UNAUDITED) (UNAUDITED)
-------------------------------------------------------------------------------------
<S> <C> <C>
$378,794 $50,189 $2,396
405,381 88,575 45,330
661,452 759,457 862,121
451,170 508,369 508,369
-- -- --
1,836 1,836 1,836
1,592 -- --
149,500 149,500 149,500
29,907 29,784 116,909
</TABLE>
- ----------------
(1) Net revenues on a pro forma basis includes $3,584,000 and
$2,770,000 of fees from Triathlon Broadcasting Company ("Triathlon") for the
year ended December 31, 1995 and six months ended June 30, 1996, respectively,
that would have been received by SFX had the SCMC Termination Agreement been
in effect as of January 1, 1995. Future fees may be lesser or greater based
upon future acquisition and financing activities of Triathlon.
(2) Includes $1,400,000 of duopoly integration costs during the
year ended December 31, 1995.
(3) Represents the 1993 non-cash non-recurring charge related to
the valuation of the common stock issued to SFX's founders at SFX's initial
public offering in September 1993 and certain pooling costs related to the
merger of Capstar with and into a subsidiary of SFX.
(4) Amounts for the six months ended June 30, 1996 reflect
non-recurring charges related to the Hicks Agreement, Armstrong Agreement and
the SCMC Termination Agreement.
(5) Includes dividends on preferred stock which SFX redeemed in
1993, accretion on outstanding redeemable preferred stock and assumed
dividends on the SFX Series D Preferred Shares (as defined herein).
(6) Broadcast Cash Flow means net revenues (including, where
applicable, fees earned on a pro forma basis by SFX pursuant to the SCMC
Termination Agreement) less station operating expenses. EBITDA means net
income (loss) before (i) extraordinary items, (ii) provisions for income
taxes, (iii) interest (income) expense, (iv) other (income) expense, (v)
cumulative effects of changes in accounting principles, (vi) depreciation,
amortization, duopoly integration costs and acquisition related costs, and
(vii) non-recurring charges. The difference between Broadcast Cash Flow and
EBITDA is that EBITDA includes corporate expenses. Although Broadcast Cash
Flow and EBITDA are not measures of performance calculated in accordance with
GAAP, SFX believes that Broadcast Cash Flow and EBITDA are accepted by the
broadcasting industry as generally recognized measures of performance and are
used by analysts who report publicly on the performance of broadcasting
companies. In addition, EBITDA is the basis for determining compliance with
several covenants in certain of SFX's debt instruments. Nevertheless, these
measures should not be considered in isolation or as a substitute for
operating income, net income, net cash provided by operating activities or any
other measure for determining SFX's operating performance or liquidity which
is calculated in accordance with GAAP.
(7) The Unaudited Pro Forma Statement of Operations Data for the
six months ended June 30, 1996 and the year ended December 31, 1995 are
presented as if SFX had completed the Recent Acquisitions and the Transactions
as of January 1, 1995. The terms "Recent Acquisitions" and "Transactions"
are defined in the Glossary attached as Annex A to this Joint Proxy
Statement/Prospectus.
- 17 -
<PAGE>
(8) The Unaudited Pro Forma Balance Sheet Data at June 30, 1996 is
presented as if SFX had completed as of June 30, 1996 the Pending Transactions
As Of June 30, 1996. The term "Pending Transactions As Of June 30, 1996" is
defined in "Unaudited Pro Forma Condensed Combined Financial Statements of SFX"
and in the Glossary attached as Annex A to this Joint Proxy
Statement/Prospectus.
- 18 -
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF MMR
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Summary Consolidated Financial Data of MMR presented below should
be read in conjunction with the information set forth in "Selected Financial
Information of MMR," "Unaudited Pro Forma Condensed Combined Financial
Statements of MMR" and the notes thereto, "MMR's Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of MMR and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus. The Summary Consolidated Financial Data of MMR have been
derived from the audited and unaudited historical financial statements of MMR
and of the prior owners of the radio stations acquired by MMR in July 1993. The
pro forma summary data as of June 30, 1996 and for the year ended December 31,
1995 and the six months ended June 30, 1996 are derived from the unaudited pro
forma condensed combined financial statements of MMR which, in the opinion of
MMR, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given. Operating
results for the six months ended June 30, 1996 are not necessarily indicative
of the results that may be achieved for the fiscal year ending December 31,
1996. The historical consolidated financial results for MMR are not comparable
from period to period because of the acquisitions and dispositions of various
radio stations by MMR during the periods covered. The Summary Consolidated
Financial Data as of June 30, 1996 and for the six months ended June 30, 1995
and 1996 have been derived from the unaudited combined financial statements of
MMR included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PREDECESSORS YEAR ENDED DECEMBER 31,
FIVE MONTHS ---------------------------------------
SEVEN MONTHS ENDED (UNAUDITED)
ENDED DECEMBER 31, PRO FORMA
JULY 29, 1993 1993 1994 1995 1995 (1)
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenues (2) ................ $ 2,608 $ 2,203 $ 7,117 $ 18,288 $ 22,982
Station operating expenses ...... 1,580 1,300 4,807 11,026 13,928
Depreciation and amortization ... 182 397 1,146 1,750 2,337
Corporate, general and
administrative expenses ...... 80 299 775 1,666 1,666
Non-cash compensation charge (3) -- 790 365 281 1,114
-------- -------- -------- -------- --------
Operating income (loss) ......... 766 (583) 24 3,565 3,937
Interest expense, net(4) ........ 181 264 766 4,966 7,366
Provision for loss on pending
sale of WRXR .............. -- -- -- -- --
Costs relating to the Merger .... -- -- -- --
Write-off of pending acquisition
and financing costs .......... -- -- -- --
Other expense (income) .......... 14 (3) 9 (11) (25)
Income tax expense (benefit) .... -- 10 15 (59) (59)
Extraordinary loss .............. -- -- -- 329 --
-------- -------- -------- -------- --------
Net income (loss) ............... $ 571 $ (854) $ (766) $ (1,660) $ (3,345)
======== ======== ======== ======== ========
Net loss per common share ....... $ (0.52) $ (0.25) $ (0.48) $ (0.59)
Weighted average common shares
outstanding .................. 1,629 3,036 3,490 5,699
SUPPLEMENTAL OPERATING DATA:
Broadcast Cash Flow(5) .......... $ 1,028 $ 903 $ 2,310 $ 7,262 $ 9,054
EBITDA(5) ....................... 948 604 1,535 5,596 7,388
<CAPTION>
[TABLE RESTUBBED FROM ABOVE]
SIX MONTHS ENDED JUNE 30,
- ----------------------------------------
(UNAUDITED)
(UNAUDITED) (UNAUDITED) PRO FORMA
1995 1996 1996 (1)
- ----------------------------------------
<S> <C> <C>
$ 7,250 $ 10,144 $ 11,510
4,414 6,254 7,054
966 810 974
623 1,275 1,275
354 130 546
- -------- -------- --------
893 1,675 1,661
1,850 2,609 3,809
-- 1,596 1,596
-- 3,348 0
-- 709 0
-- 4 (8)
73 -- --
329 -- --
- -------- -------- --------
$ (1,359) $ (6,591) $ (3,736)
======== ======== ========
$ (0.39) $ (1.89) $ (0.66)
3,490 3,491 5,699
$ 2,836 $ 3,890 $ 4,456
2,213 2,615 3,181
<CAPTION>
DECEMBER 31, AT JUNE 30, 1996
--------------------------- ------------------------
(UNAUDITED) (UNAUDITED)
1993 1994 1995 ACTUAL PRO FORMA(6)
--------------------------- ------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Current Assets ..... $ 2,101 $ 3,010 $ 5,920 $ 5,470 $25,270
Total Assets ....... 16,316 23,328 66,465 64,809 94,509
Current liabilities 1,255 1,636 4,568 6,691 4,843
Long-term debt ..... 7,203 6,609 41,482 40,849 60,849
Stockholders' equity 8,561 15,517 14,815 8,376 21,576
</TABLE>
- 19 -
<PAGE>
- ----------------------------
(1) The Pro Forma Statements of Operations Data for the year ended
December 31, 1995 and for the six months ended June 30, 1996 give effect to
the following transactions as if they had occurred on January 1, 1995: (i) the
Southern Starr Acquisition (as defined herein), (ii) the MMR Hartford
Acquisition (as defined herein), (iii) the MMR B Dispositions (as defined
herein), (iv) the exercise of all outstanding MMR Class A Warrants and the
exchange of all outstanding MMR Class B Warrants in the MMR Exchange Offer and
(v) the receipt of approximately $20.0 million pursuant to the SFX Loan (as
defined herein). See "Unaudited Pro Forma Condensed Combined Financial
Statements of MMR" and "Certain Relationships and Related Transactions."
(2) Revenues, net of agency commissions.
(3) Non-cash compensation charge relates to the issuance of MMR
Original Preferred Shares to Messrs. Sillerman and Ferrel which became
convertible into MMR Class A Shares in 1994 and the issuance of MMR Series A
and Series B Preferred Stock in July 1996.
(4) Pro forma interest expense on the $20.0 million received
pursuant to the SFX Loan is based on an assumed interest rate of 12%. A change
in the interest rate of 0.25% would change pro forma interest expense by
approximately $152,000 per annum.
(5) Broadcast Cash Flow means net revenues less station operating
expenses. EBITDA means net income (loss) before (i) extraordinary items, (ii)
provisions for income taxes, (iii) interest (income) expense, (iv) other
(income) expense, (v) cumulative effects of changes in accounting principles,
(vi) depreciation, amortization, duopoly integration costs and acquisition
related costs, and (vii) non-recurring charges. The difference between
Broadcast Cash Flow and EBITDA is that EBITDA includes corporate expenses.
Although Broadcast Cash Flow and EBITDA are not measures of performance
calculated in accordance with GAAP, MMR believes that Broadcast Cash Flow and
EBITDA are accepted by the broadcasting industry as generally recognized
measures of performance and are used by securities research analysts who
report publicly on the performance of broadcasting companies. Nevertheless,
these measures should not be considered in isolation or as a substitute for
operating income, net income, net cash provided by operating activities or any
other measure for determining MMR's operating performance or liquidity which
is calculated in accordance with GAAP.
(6) Gives effect to the following transactions as if they had
occurred on June 30, 1996: (i) the MMR Hartford Acquisition, (ii) the MMR A
Dispositions (as defined herein), (iii) the exercise of all outstanding MMR
Class A Warrants and the exchange of all outstanding MMR Class B Warrants in the
MMR Exchange Offer and (iv) the receipt of approximately $20.0 million pursuant
to the SFX Loan.
- 20 -
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data and
combined per share data for the SFX Shares and the MMR Shares on an unaudited
pro forma basis after giving effect to the Merger as a purchase, assuming that
the Exchange Ratio is 0.2842 (the ratio calculated as if the SFX Class A Stock
Price was $43.9875 per share) and that approximately 1,790,000 SFX Class A
Shares and SFX Class B Shares are issued in the Merger. The issuance of
1,790,000 shares is based on the assumption that all MMR Class A Warrants are
exercised prior to the Merger and that all MMR Class B Warrants are exchanged
for MMR Class A Shares prior to the Merger. The economic rights of the
different classes of the SFX Shares are identical and the economic rights of
the different classes of the MMR Shares are identical. This data should be read
in conjunction with the selected historical financial data, the supplementary
financial information regarding MMR, the pro forma financial statements and the
separate historical financial statements of SFX and MMR and notes thereto,
included elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transaction been in effect as of the beginning of the periods presented
and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
SFX MMR
------------------------ ----------------------
PRO FORMA
FOR THE EQUIVALENT
HISTORICAL TRANSACTIONS HISTORICAL PRO FORMA
------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) per share outstanding
for the year ended December 31, 1995 $ (0.71) $ (3.48) $ (0.48) $ (0.99)
Net income (loss) per share outstanding
for the six months ended
June 30, 1996 ...................... (5.91) (3.96) (1.89) (1.13)
Book value per common share
as of June 30, 1996 ................ 4.10 12.88 2.40 3.66
</TABLE>
- 21 -
<PAGE>
COMPARATIVE MARKET PRICE DATA
The SFX Class A Shares, the MMR Class A Shares, the MMR Class A
Warrants and the MMR Class B Warrants are quoted on the Nasdaq National Market.
Each MMR Unit consists of one MMR Class A Share, one MMR Class A Warrant and
one MMR Class B Warrant and is quoted on The Nasdaq Stock Market, Inc.'s
SmallCap Market (the "Nasdaq SmallCap Market"). No other securities of either
SFX or MMR are quoted on Nasdaq or listed on a securities exchange. Upon the
consummation of the MMR Warrant Redemption, the MMR Class A Warrants and the
MMR Units will cease to be quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market, respectively, and public trading of such securities will
cease. Upon the consummation of the Merger, MMR Class A Shares and the MMR
Class B Warrants will cease to be quoted on the Nasdaq National Market, and the
public trading of such securities will cease.
The table below sets forth, for the calendar quarters indicated, the
high and low bids for the SFX Class A Shares, the MMR Class A Shares, the MMR
Class A Warrants and the MMR Class B Warrants, as reported on the Nasdaq
National Market, and the MMR Units, as reported by the Nasdaq SmallCap Market.
Neither SFX nor MMR has declared or paid any dividends on the SFX Shares or the
MMR Shares, respectively, during such periods. The Merger Agreement contains a
prohibition on MMR and SFX declaring any dividends prior to the Effective Time,
and SFX does not presently intend to declare any dividends on the SFX Shares
for the foreseeable future. In addition, SFX anticipates that its New Credit
Agreement (as defined herein) will prohibit the payment of dividends.
<TABLE>
<CAPTION>
MMR MMR
SFX CLASS A SHARES MMR CLASS A SHARES CLASS A WARRANTS CLASS B WARRANTS MMR UNITS
------------------- --------------------- ------------------ ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---------------------------------------------------------------------------------------------------
CALENDAR 1994:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter....... $ 14 3/4 $ 11 $ 8 1/8 $ 4 5/8 $ 3/4 $ 3/8 $ 1/2 $ 1/4 $ 5 3/4 $ 5
Second Quarter...... 14 3/4 11 1/4 5 4 1/8 1 3/8 3/4 1/4 6 1/4 5
Third Quarter....... 17 1/4 13 7 1/4 4 5/8 2 7/8 15/16 11/16 10 1/4 6 1/8
Fourth Quarter...... 18 15 7 1/8 5 7/8 15/16 1 9/16 15/16 3/4 10 8 1/2
CALENDAR 1995:
First Quarter....... $ 26 $ 17 $ 8 7/8 $ 6 1/8 $ 2 1/4 $ 1 9/16 $1 5/16 $ 3/4 $11 3/4 $ 8 1/2
Second Quarter...... 26 1/4 20 1/2 10 1/2 7 1/2 3 1/16 1 7/8 2 1/4 1 15 1/4 10 1/2
Third Quarter....... 29 3/4 24 3/4 10 7 3/4 2 3/4 2 2 1/4 1 7/16 14 1/2 11 3/4
Fourth Quarter...... 30 1/4 24 10 5/8 8 3 1/4 2 2 1 1/8 15 1/2 11 3/8
CALENDAR 1996:
First Quarter....... $ 34 1/2 $ 25 1/2 $ 11 3/8 $ 9 $ 3 3/4 $ 2 1/2 $2 5/8 $ 1 7/16 $17 $ 13
Second Quarter...... 39 31 1/2 11 3/8 9 3/8 3 7/8 2 1/4 2 1/2 1 1/2 16 1/2 13 1/4
Third Quarter....... 47 3/4 37 1/2 13 1/2 10 1/2 5 3/8 2 3/4 2 11/16 1 15/16 20 1/8 15
Fourth Quarter
(through October 3,
1996)............... 46 1/2 44 3/4 12 3/4 12 5/8 5 5 2 19/32 2 1/2 19 1/2 19 1/2
</TABLE>
On April 12, 1996, the last full trading day prior to the execution
and delivery of the Merger Agreement and the public announcement thereof, the
closing sale prices on the Nasdaq National Market were $33.875 for the SFX
Class A Shares, $11.25 for the MMR Class A Shares, $3.625 for the MMR Class A
Warrants and $2.50 for the MMR Class B Warrants, and the last reported bid
price for the MMR Units on the Nasdaq SmallCap Market was $16.50. Assuming the
SFX Class A Stock Price was $33.875, the Exchange Ratio would have been 0.3690.
On October 3, 1996, the most recent practicable date prior to the
printing of this Joint Proxy Statement/Prospectus, the closing sale prices on
the Nasdaq National Market were $45 for the SFX Class A Shares and $12 11/16
for the MMR Class A Shares. As of that date, there were approximately 1,100
holders of record of MMR Class A Shares, three holders of record of MMR Class B
Shares and no holders of record of MMR Class C Shares. The Exchange Ratio would
have been .2842 if the Merger had been consummated on October 1, 1996.
Because the market price of SFX Shares is subject to fluctuation,
the Exchange Ratio, and thus the market value of the SFX Shares that holders of
MMR Shares and MMR Preferred Shares will receive in the Merger, may increase or
decrease prior to the Merger. SFX AND MMR STOCKHOLDERS ARE URGED TO OBTAIN A
CURRENT MARKET QUOTATION FOR THEIR SFX CLASS A SHARES AND MMR CLASS A SHARES.
Within five trading days of the Meetings, the stockholders of SFX and MMR can
call Georgeson & Company Inc., the proxy solicitor for SFX, at (800) 223-2064
for the anticipated SFX Class A Stock Price and the Exchange Ratio.
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<PAGE>
RISK FACTORS
The following risk factors should be considered carefully by SFX
Stockholders and MMR Stockholders before voting at a Meeting or submitting a
proxy. Many of the statements included or incorporated by reference in this
Joint Proxy Statement/Prospectus are forward-looking in nature and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. The actual results that SFX achieves may differ materially from
any forward-looking statements included or incorporated by reference in this
Joint Proxy Statement/Prospectus. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below and
those contained in Management's Discussion and Analysis of Financial Condition
and Results of Operations, Business and other information which are
incorporated by reference herein from the SFX Reports, as well as those
discussed elsewhere in this Joint Proxy Statement/Prospectus. An investment in
the SFX Shares involves a high degree of risk.
UNCERTAINTY OF THE EXCHANGE RATIO
Although, pursuant to Amendment No. 3 to the Merger Agreement
("Amendment No. 3"), each MMR Share is to be exchanged for $12.50 in value of
SFX Shares, provided that the SFX Class A Stock Price is at least $32 per share,
the Exchange Ratio for the conversion of MMR Shares and MMR
Preferred Shares into SFX Shares may vary substantially depending on the
fluctuations in the market price of the SFX Class A Shares. In addition, the
value attributed to the MMR Shares used in calculating the Exchange Ratio will
vary if the SFX Class A Stock Price decreases below $32.00 per share or
increases above $44.00 per share. Subject to certain adjustments as described
below, the Exchange Ratio will vary from 0.3750 SFX Shares per MMR Share or MMR
Preferred Share (if the SFX Class A Stock Price is less than $32.00, thereby
imputing a value of less than $12.00 per MMR Share) to 0.2841 (if the SFX Class
A Stock Price is $44.00). The Exchange Ratio will be adjusted as described in
"The Merger Agreement--The Exchange Ratio" if such price is greater than
$44.00.
The Merger Agreement provides that, in the event that MMR is
unsuccessful in obtaining, on or prior to the Determination Date, the exchange
of at least 50% of the 1,840,000 outstanding MMR Class B Warrants pursuant to
the MMR Exchange Offer, then the Exchange Ratio shall be adjusted downward. In
the event that no MMR Class B Warrants are exchanged in the MMR Exchange Offer,
the consideration to be received by the MMR security holders would be reduced by
approximately $0.39 per share. See "The Merger Agreement--The Exchange Ratio."
There can be no assurance that the holders of at least 920,000 MMR Class B
Warrants will accept the MMR Exchange Offer.
The Merger Agreement may be terminated and the transactions
contemplated thereby abandoned by MMR or the MMR Independent Committee in the
event the Average Price during the period commencing June 17, 1996 and ending
on the Determination Date shall be less than $27.33 (thereby imputing a value
of $10.25 per MMR Share) unless the SFX Board agrees to increase the Exchange
Ratio. By approving the Merger Agreement, the MMR Stockholders will be
permitting the MMR Board and the MMR Independent Committee to determine, in the
exercise of its fiduciary duties, to proceed with the Merger even though the
consideration per MMR Share or MMR Preferred Share is as low as $10.25 because
the Average Price was below $27.33. By approving the Merger Agreement, the SFX
Stockholders will be permitting the SFX Board and the SFX Independent Committee
to determine, in the exercise of their fiduciary duties, to proceed with the
Merger even though the Exchange Ratio would be increased over 0.3750 and,
accordingly, the SFX Stockholders will suffer greater dilution in their
ownership of SFX as a result of the Merger. See "The Merger
Agreement--Termination; Fees and Expenses."
The Exchange Ratio will be determined on the Determination Date
(which is expected to be approximately five trading days before the date of the
Meetings). Accordingly, within five trading days of the Meetings, the SFX
Stockholders and the MMR Stockholders can call Georgeson & Company Inc., the
proxy solicitor for SFX, at (800) 223- 2064 for the anticipated SFX Class A
Stock Price and the Exchange Ratio. See "The Meetings--Proxies--Revocation of
Proxies."
CONSEQUENCES OF FAILURE OF SFX STOCKHOLDERS TO INCREASE AUTHORIZED
NUMBER OF SFX CLASS A SHARES
The SFX Board is seeking to increase the authorized number of SFX
Class A Shares so that SFX will have a sufficient number of SFX Class A Shares
to issue in the Merger and so that SFX will comply with its obligations to
reserve SFX Class A Shares for issuance upon conversion of the 6.5% Series D
Cumulative Convertible Exchangeable Preferred Stock due May 31, 2007, par value
$0.01 per share, of SFX (the "SFX Series D Preferred Shares") and the Exchange
Notes issuable upon the exchange thereof, pursuant to existing stock option
plans and other outstanding options and warrants, and upon the assumption by
SFX of certain warrants and options of MMR in connection with the
- 23 -
<PAGE>
Merger. In addition, the SFX Board is considering a possible stock split. Four
of the executive officers and directors of SFX have agreed not to exercise any
of their rights, options or warrants to acquire approximately 692,900 SFX Class
A Shares until the stockholders of SFX have approved the increase in the number
of authorized SFX Class A Shares sufficient to insure the availability of SFX
Class A Shares issuable upon conversion of the SFX Series D Preferred Shares,
or the Exchange Notes issuable upon the exchange thereof, and all options,
rights and warrants to purchase SFX Class A Shares. Even with such forbearance,
SFX does not currently have a sufficient number of SFX Class A Shares
authorized to meet all of its existing obligations to reserve shares, including
sufficient SFX Class A Shares to convert approximately 3,000 of the 2,990,000
outstanding SFX Series D Preferred Shares.
Failure to approve the amendment to increase the authorized number
of SFX Class A Shares will prevent the consummation of the Merger. In addition,
in the event that an insufficient number of SFX Class A Shares are available
for issuance upon conversion of any SFX Series D Preferred Shares, SFX will be
required to pay in cash to the holder of each SFX Series D Preferred Share
seeking to convert such share an amount per SFX Class A Share equal to 110% of
the market price of an SFX Class A Share as of the date of such conversion.
RISKS RELATED TO THE MERGER AND THE PENDING ACQUISITIONS AND DISPOSITIONS
Consummation of each of the Pending Acquisitions (including the
Merger) and the Pending Disposition is subject to a number of closing
conditions, certain of which are beyond SFX's and MMR's control. In particular,
consummation of each of the Pending Acquisitions and the Pending Disposition is
dependent upon the prior approval by the FCC of the assignments or transfers of
control of operating licenses issued by the FCC and the continued operating
performance of the stations to be acquired or disposed such that there is no
material adverse change in such stations that would prevent consummation of any
such transactions. Furthermore, as a result of the elimination of the national
ownership limits and the liberalization of the local ownership limits effected
by the Recent Legislation, certain of the Pending Acquisitions and the Pending
Disposition may be subject to antitrust review by the Federal Trade Commission
and the U.S. Department of Justice, Antitrust Division (the "Antitrust
Agencies"), even if approved by the FCC, and there can be no assurance that the
Antitrust Agencies will approve such Pending Acquisitions and Pending
Disposition. In addition, the consummation of the Merger is also dependent upon
the transaction being approved by the stockholders of each of SFX and MMR and
also requires the approval of the holders of certain indebtedness of MMR and
the approval of the Antitrust Agencies. The failure to satisfy such conditions
would permit the parties thereto to refuse to consummate the respective Pending
Acquisitions and Pending Disposition. Copies of the agreements have been filed
as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. See "Proposals 1 and A--The Merger--Regulatory
Matters."
As a result of the foregoing, there can be no assurance as to when
the Pending Acquisitions or the Pending Disposition will be consummated or that
they will be consummated on the terms described herein or at all. Furthermore,
SFX cannot predict whether the consummation of the Pending Acquisitions or the
Pending Disposition will conform to the assumptions used in the preparation of
the Unaudited Pro Forma Condensed Combined Financial Statements included
herein. In analyzing the Unaudited Pro Forma Condensed Combined Financial
Statements and information, prospective investors should consider that the
Pending Acquisitions or the Pending Disposition may not be consummated at all
or on the terms described herein, and that the Pending Acquisitions or the
Pending Disposition, if consummated, may be subject to substantial delay.
LITIGATION RELATING TO THE MERGER
In a complaint (Index No. 602056/96) dated April 18, 1996, Paul
Pops, who purports to be a stockholder of MMR, brought suit in the Supreme
Court of the State of New York against MMR, each of the directors of MMR, SFX
and Mr. Sillerman seeking to enjoin the Merger, or, in the alternative, seeking
monetary damages. The suit alleges that the consideration to be paid to the MMR
Stockholders in the Merger is unfair and grossly inadequate. The suit also
alleges that in connection with entering into the Merger Agreement, the
directors of MMR violated their fiduciary duties
- 24 -
<PAGE>
to MMR and its stockholders and that SFX aided and abetted such violation. The
complaint also alleges that the action should be certified as a class action
representing the interests of the stockholders of MMR. The defendants filed a
motion to dismiss the complaint for failure to state a cause of action. On
September 25, 1996, the parties entered into a Memorandum of Understanding,
pursuant to which the parties have reached an agreement in principle providing
for the settlement of the action (the "Settlement"). Pursuant to the
Settlement, the plaintiff has agreed that the Exchange Ratio as set forth in
Amendment No. 3 is fair to the public shareholders of MMR. The Settlement
provides for SFX to pay plaintiff's counsel's fees as approved by the Court. It
is anticipated that SFX will pay any such amounts awarded by the Court. The
Settlement is conditioned upon the (i) consummation of the Merger, (ii)
completion of certain confirmatory discovery, and (iii) approval of the Court.
Pursuant to the Settlement, the defendants have denied, and continue to deny,
that they committed any violations of law or have acted in bad faith. There can
be no assurance that the Court will approve the Settlement on the terms and
conditions provided for therein, or at all. See "The Merger Agreement--
Conditions."
RISKS ASSOCIATED WITH INTEGRATION OF THE STATIONS TO BE ACQUIRED
SFX's plans with respect to the radio stations acquired or to be
acquired in the Acquisitions (as defined herein), including the Merger,
involve, to a substantial degree, strategies to increase net revenue while at
the same time reducing operating expenses, as well as the implementation of a
new regional management structure and a modified senior management team.
Although SFX believes that its strategies are reasonable, there can be no
assurance that it will be able to implement its plans without delay or that,
when implemented, its efforts will result in the increased Broadcast Cash Flow
or other benefits currently anticipated by SFX. The MMR radio stations to be
acquired in the Merger are generally in smaller markets than the markets SFX
currently operates in. In addition, there can be no assurance that SFX will not
encounter unanticipated problems or liabilities in connection with the
implementation of the new management changes or the operation of the radio
stations acquired or to be acquired in the Acquisitions. The integration of
such stations into SFX will require substantial attention from members of SFX's
senior management, which will limit the amount of time such members have
available to devote to SFX's existing operations.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE OBLIGATIONS
In connection with the Acquisitions, SFX has incurred and will incur
significant amounts of indebtedness. As of June 30, 1996, SFX's consolidated
indebtedness would have been approximately $508 million on a pro forma basis
after giving effect to the Transactions (as defined herein) (including the
Merger). In addition, subject to the restrictions in the debt instruments to
which it is a party and the Certificate of Designations (as defined herein),
Preferences and Relative, Participating, Optional and other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions thereof
relating to the SFX Series D Preferred Shares (the "Certificate of
Designations"), SFX may incur additional indebtedness from time to time to
finance acquisitions, for capital expenditures or for other purposes. See
"--Expansion Strategy; Need for Additional Funds." For the year ended December
31, 1995 and the six months ended June 30, 1996, on a pro forma basis after
giving effect to the Recent Acquisitions and the Transactions (other than the
Merger), as if all such transactions had occurred on January 1, 1995, SFX's
earnings (defined as earnings before income taxes and fixed charges) would have
been insufficient to cover its fixed charges (defined as interest on all
indebtedness and amortization of deferred financing costs) by $25.9 million and
$33.7 million, respectively, and would have been insufficient to cover its
combined fixed charges and preferred stock dividends by $35.9 million and $38.7
million, respectively. In addition, for the year ended December 31, 1995 and
the six months ended June 30, 1996, on a pro forma basis after giving effect to
the Recent Acquisitions and the Transactions (including the Merger), as if such
transactions had occurred on January 1, 1995, SFX's earnings would have been
insufficient to cover its fixed charges by $22.2 million and $31.6 million,
respectively, and would have been insufficient to cover its combined fixed
charges and preferred stock dividends by $32.1 million and $36.6 million,
respectively.
The degree to which SFX is leveraged could have material
consequences to SFX and the holders of the SFX Shares, including, but not
limited to, the following: (i) SFX's ability to obtain additional financing in
the future for acquisitions, working capital, capital expenditures, general
corporate or other purposes may be impaired, (ii) a substantial portion of
SFX's cash flow from operations will be dedicated to the payment of the
principal and interest on its debt and dividends on the SFX Series D Preferred
Shares and will not be available for other purposes, (iii) certain of SFX's
borrowings may be at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates and (iv) the
agreements governing SFX's long-term debt contain restrictive financial and
operating covenants, and the failure by SFX to comply with such covenants could
result in an event of default under
- 25 -
<PAGE>
the applicable instruments, which could permit acceleration of the debt under
such instrument and in some cases acceleration of debt under other instruments
that contain cross-default or cross-acceleration provisions. Certain of SFX's
competitors operate on a less leveraged basis, and have significantly greater
operating and financial flexibility, than SFX.
HISTORICAL LOSSES
Although SFX had net income of $1.8 million for the year ended
December 31, 1994, SFX had net losses of $43.1 million, $4.4 million (including
a charge of $5.0 million relating to the write-down of the Texas Rangers
broadcast rights) and $17.8 million (including a non-recurring charge of
approximately $14.0 million, substantially all of which was non-cash) for the
six months ended June 30, 1996 and the years ended December 31, 1995 and 1993,
respectively. On a pro forma basis, after giving effect to the Recent
Acquisitions and the Transactions, as if such transactions had occurred on
January 1, 1995, for the year ended December 31, 1995 and the six months ended
June 30, 1996, SFX would have had a net loss of approximately $22.2 million and
$31.6 million, respectively. In connection with the SCMC Termination Agreement,
SFX has agreed to the cancellation of $2.0 million of indebtedness plus accrued
interest thereon owing from SCMC to SFX and SFX has issued warrants to SCMC to
purchase up to 600,000 shares of SFX Class A Shares at an initial exercise price
of $33.75 per share (the market price at the time the financial consulting
arrangement was terminated) of which warrants to purchase up to 300,000 shares
are immediately exercisable and the exercise of the remaining warrants is
subject to the approval of Proposal 4. In connection with such agreement, SFX
recognized a charge to earnings of approximately $5.6 million during the three-
month period ended June 30, 1996. Pursuant to certain agreements with such
individuals, SFX paid an aggregate of $23.2 million to R. Steven Hicks, the
former President and Chief Executive Officer and a Director of SFX, and D.
Geoffrey Armstrong, the current Chief Operating Officer, Chief Financial
Officer, Executive Vice President and Treasurer and a Director of SFX. In
connection with such payments, SFX recognized a charge to earnings of
approximately $19.4 million during the three-month period ended June 30, 1996.
In addition, SFX recognized an extraordinary loss of approximately $15.2
million relating to the write-off of deferred financing costs of a certain
credit agreement and the costs of its tender offer (the "Tender Offer") for its
11.375% Senior Subordinated Notes due 2000 (the "Old Notes") during the
three-month period ended June 30, 1996. Depreciation and amortization relating
to past acquisitions and future acquisitions, interest expenses under SFX's
debt and dividend payments on the SFX Series D Preferred Shares will continue
to affect SFX's net income (loss) in the future. See "Unaudited Pro Forma
Condensed Combined Financial Statements of SFX," "Remuneration of Management of
SFX--Employment Agreements" and "Certain Relationships and Related
Transactions--Agreements with Armstrong and Hicks."
EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS
SFX's principal growth strategy is to operate and acquire
highly-ranked radio stations with attractive audience demographics in major and
medium-sized markets located throughout the United States. SFX regularly
explores acquisition opportunities; however, with the exception of the Pending
Acquisitions, SFX has no agreements or understandings regarding such possible
future acquisitions. There can be no assurance that SFX will consummate all of
the Pending Acquisitions or be able to identify stations to acquire in the
future. Each acquisition will be subject to the prior approval of the FCC and
of the lenders under debt instruments to which SFX is a party. Furthermore, as
a result of the Recent Legislation, future acquisitions may be subject to
antitrust review by the Antitrust Agencies, even if approved by the FCC. In
addition, SFX may require additional debt or equity financing to finance
properties it may seek to acquire in the future. The availability of additional
acquisition financing cannot be assured, and depending on the terms of proposed
acquisitions and financings, could be restricted by the terms of debt
instruments to which SFX is a party. There can be no assurance that any future
acquisitions will be successfully integrated into SFX's operations or that such
acquisitions will not have a material adverse effect on SFX's financial
condition and results of operations.
CONTROL BY MANAGEMENT
Mr. Sillerman may be deemed to be the beneficial owner of
approximately 5.9% of the outstanding SFX Class A Shares and 100.0% of the
outstanding SFX Class B Shares, which (excluding options and warrants to
acquire SFX Shares) represents approximately 12.4% of the outstanding SFX
Shares and approximately 57.4% of the combined voting power of the outstanding
SFX Shares. Mr. Sillerman and other members of SFX's management may be deemed
to be the beneficial owners of approximately 6.9% of the outstanding SFX Class
A Shares and 100.0% of the
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<PAGE>
outstanding SFX Class B Shares, which (excluding options and warrants to
acquire SFX Shares) represent approximately 12.5% of the outstanding SFX Shares
and approximately 57.5% of the combined voting power of the outstanding SFX
Shares. Mr. Sillerman may be deemed to be the beneficial owner of approximately
1.8% of the outstanding SFX Class A Shares and 94.4% of the outstanding SFX
Class B Shares immediately after the Merger (excluding options and warrants to
acquire SFX Shares) which (excluding options and warrants to acquire SFX
Shares) would represent approximately 12.5% of the then outstanding SFX Shares
and approximately 54.3% of the combined voting power of the then outstanding
SFX Shares (3.3%, 100.0%, 12.5% and 52.6%, respectively, in the event that the
MMR Stockholders do not approve Proposal B). Mr. Sillerman and other members of
SFX's management (including Mr. Ferrel) may be deemed to be the beneficial
owners of 2.8% of the outstanding SFX Class A Shares and 96.5% of the
outstanding SFX Class B Shares immediately after the Merger, which (excluding
options and warrants to acquire SFX Shares) would represent approximately 13.2%
of the then outstanding SFX Shares and approximately 55.9% of the combined
voting power of the then outstanding SFX Shares (3.7%, 100.0%, 13.2% and 53.1%
respectively, in the event that the MMR Stockholders do not approve Proposal
B). See "Security Ownership of Management and Principal Stockholders of SFX."
The SFX Class A Shares have one vote per share on all matters,
whereas the SFX Class B Shares have ten votes per share except in certain
matters. Accordingly, management currently is, and following the Merger will
be, able to control the vote on all matters except (i) in the election of
directors, with respect to which the holders of the SFX Class A Shares will be
entitled to elect, by a class vote, two-sevenths (2/7ths) of SFX's directors
(or if such number of directors is not a whole number, the next higher whole
number), (ii) in connection with any proposed "going private" transaction
between SFX and Mr. Sillerman or his affiliates, with respect to which the
holders of the SFX Class A Shares and the SFX Class B Shares vote as a single
class, with each SFX Class A Share and SFX Class B Share entitled to one vote
per share and (iii) as otherwise provided by law. In addition, in the event
dividends on the SFX Series D Preferred Shares are unpaid in an aggregate
amount equal to six full quarterly dividends and in certain other
circumstances, the holders of the SFX Series D Preferred Shares (voting
separately as a class) will be entitled to elect two additional members of the
SFX Board.
POTENTIAL CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
Mr. Sillerman and other members of SFX's management have direct and
indirect investments and interests in entities that own and operate radio
stations, including radio stations that are in certain of the same markets as
SFX's existing or proposed radio stations. These investments and interests (and
any similar investments and interests in the future) may give rise to certain
conflicts of interest as well as to potential attribution under FCC rules or
invocation of the FCC's cross-interest policy, which could restrict SFX's
ability to acquire radio stations in certain markets. See "--Extensive
Regulation of the Radio Broadcasting Business." SFX has entered into an LMA
with Triathlon with respect to such stations. See "Certain Relationships and
Related Transactions--Agreement Between SFX and Triathlon."
SCMC, Mr. Sillerman and Howard J. Tytel, a Director and Executive
Vice President of SFX, have interests in entities that own and operate radio
stations other than SFX. Messrs. Sillerman and Tytel and their affiliates
(including SCMC) hold a substantial equity interest in, and are parties to
consulting and marketing agreements with, each of MMR and Triathlon, a
publicly-traded radio company operating in small and medium markets in the
Midwest and the West. Pursuant to the consulting and marketing agreements, SCMC
is obligated to offer to such companies any radio broadcasting opportunities
that come to their attention in medium and small markets (defined in such
agreements as those markets ranked 71st and smaller out of the radio markets
summarized by Duncan's Radio Market Guide (1995 ed.)). SFX does not intend to
pursue acquisitions in the medium-sized markets in the eastern United States
that MMR primarily focuses on until the consummation of the Merger or in the
small and medium-sized markets in the Midwest and Western regions of the United
States that Triathlon primarily focuses on, except that, as a result of the
acquisition of substantially all of the assets of Prism Radio Partners, L.P.
("Prism") used in the operation of ten FM and six AM radio stations located in
five markets (Louisville, Kentucky; Jacksonville, Florida; Raleigh, North
Carolina; Tucson, Arizona; and Wichita, Kansas) (the "Prism Acquisition"),
SFX owns three radio stations in the Wichita, Kansas market, a market in which
Triathlon has radio station ownership interests. SFX has entered into an LMA
with Triathlon with respect to such stations. See "Certain Relationships and
Related Transactions--Agreement Between SFX and Triathlon."
SCMC has acted from time to time as SFX's financial advisor since
SFX's inception. SCMC is controlled by Mr. Sillerman, and Messrs. Sillerman
and Tytel are officers and directors of SCMC. SCMC acts in similar capacities
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<PAGE>
for each of MMR and Triathlon. These companies may seek to participate in
business opportunities which may be suitable for SFX.
On April 15, 1996, SFX and SCMC entered into an agreement (the "SCMC
Termination Agreement") pursuant to which SCMC assigned to SFX its rights to
receive fees for consulting and marketing services payable by each of MMR and
Triathlon, except for fees relating to certain transactions pending at the date
of such agreement, and SFX and SCMC terminated the arrangement pursuant to
which SCMC performed financial consulting services for SFX. In consideration
therefor, SFX issued to SCMC warrants to purchase up to 600,000 SFX Class A
Shares at an initial exercise price of $33.75 per share (the market price at
the time the financial consulting arrangement was terminated) of which warrants
to purchase up to 300,000 shares are immediately exercisable and the exercise
of the remaining warrants are subject to the approval of Proposal 4, and SFX
will forgive, upon the consummation of the Merger, a $2.0 million loan made to
SCMC plus accrued and unpaid interest thereon. Subsequent to the termination of
its current relationship with SCMC, SFX intends to perform internally the
functions previously performed by SCMC. See "Certain Relationships and Related
Transactions--Relationship of SFX with SCMC."
SCMC has acted as an investment advisor to SFX with respect to the
Acquisitions and to MMR in connection with the Merger. SCMC received a fee of
approximately $2.0 million from MMR, which fee was paid by SFX on behalf of MMR
and represents a portion of the SFX Loan. Such $2.0 million payment is
nonrefundable even if the Merger is not consummated. See "Certain Relationships
and Related Transactions--Relationship of MMR with SCMC."
For a discussion of the interests of certain persons that differ
from shareholders in general see "Proposal 1 and A-The Merger--Interests of
Certain Persons in the Merger."
RELIANCE ON KEY PERSONNEL
Following consummation of the Merger, SFX's business will be
dependent to a significant extent upon the performance of certain key
individuals, including Messrs. Sillerman, Ferrel and Armstrong. Mr. Ferrel,
Chief Executive Officer, President and Chief Operating Officer of MMR, has
agreed to become the Chief Executive Officer of SFX upon consummation of the
Merger and currently serves as a consultant to SFX pursuant to the Merger
Agreement. SFX has entered into a five-year employment agreement with each of
Messrs. Sillerman and Armstrong, effective as of April 1, 1995. In addition,
SFX anticipates entering into an employment agreement with Mr. Ferrel, to be
effective upon the consummation of the Merger. Mr. Ferrel currently serves as a
consultant to SFX pursuant to the Merger Agreement, which provides that MMR
shall make Mr. Ferrel available to SFX for consulting services until the
consummation or termination of the Merger. There can be no assurance that the
services of Messrs. Sillerman, Ferrel or Armstrong will continue to be provided
for the term of such agreements. Pursuant to Mr. Armstrong's employment
agreement, he has the right to terminate such employment agreement during the
one-month period commencing on the first anniversary of the Effective Time. In
such event, Mr. Armstrong will receive substantial payments. See "Remuneration
of Management of SFX--Employment Agreements." Messrs. Sillerman's and
Armstrong's employment agreements require, and Mr. Ferrel's employment
agreement will require, that they devote substantially all of their business
time to the business and affairs of SFX, except that Mr. Sillerman's agreement
permits him to fulfill his obligations as a director and officer of companies
in which he currently serves in such capacities and to devote a portion of his
business time to personal, non-broadcast investments or commitments or to
certain broadcast investments. It is anticipated that in the event that the
Merger is not consummated, the services of Mr. Ferrel will not be available to
SFX and Mr. Sillerman will continue to serve as the Chief Executive Officer of
SFX. The loss of the services of Messrs. Sillerman, Armstrong or Ferrel could
have a material adverse effect on SFX. See "Proposal 5--Election of Directors
of SFX" and "Remuneration of Management of SFX."
In addition, SFX has entered into employment agreements with several
high-profile on-air personalities. However, there can be no assurance that SFX
will be able to retain any of such employees or prevent them from competing
with SFX in the event of their departure.
DEPENDENCE ON ECONOMIC FACTORS
Because SFX derives substantially all of its revenue from the sale
of advertising time, its revenues may be adversely affected by economic
conditions which affect advertisers. In particular, because approximately 75%
of SFX's
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revenue has generally been derived from local advertisers, operating results in
individual geographic markets will be adversely affected by local or regional
economic downturns. Such economic downturns might have an adverse impact on
SFX's financial condition and results of operations. In addition, revenues of
radio stations may be affected by many other factors including: (i) the
popularity of programming, including programming such as sports programming
where SFX makes long-term commitments; (ii) regulatory restrictions on types of
programming or advertising (such as beer and wine advertising); (iii)
competition within national, regional or local markets from programming on
other stations or from other media; (iv) loss of market share to other
technologies; and (v) challenges to license renewals.
EXTENSIVE REGULATION OF THE RADIO BROADCASTING BUSINESS
The radio broadcasting industry is subject to extensive regulation
by the FCC. In particular, SFX's business depends on its continuing to hold,
and, in connection with acquisitions of radio stations, on obtaining prior FCC
consent to assignments or transfers of control of, broadcasting station
operating licenses issued by the FCC. Radio broadcasting licenses may be
granted for maximum terms of seven years, although the FCC has proposed in a
recent rulemaking raising the maximum term to eight years, as permitted by the
Recent Legislation. There can be no assurance that SFX's licenses will be
renewed or that the FCC will approve the Pending Acquisitions or Pending
Disposition, especially if third parties challenge SFX's renewal, acquisition
or disposition applications. Third parties have challenged certain FCC
applications of SFX or the radio stations involved in the Pending Acquisitions.
Failure to obtain the renewal of any of SFX's principal broadcast licenses or
to obtain FCC approval for an assignment or transfer of control to SFX of a
license in connection with a station acquisition could have a material adverse
effect on SFX's business and operations. In addition, the number and locations
of radio stations SFX may acquire is limited by FCC rules and will vary
depending upon whether the interests in other radio stations or certain other
media properties of certain individuals affiliated with SFX are attributable to
those individuals. Moreover, under the FCC's cross-interest policy, the FCC in
certain instances may prohibit one party from acquiring an attributable
interest in one media outlet and a substantial non-attributable economic
interest in another media outlet in the same market, thereby prohibiting a
particular acquisition by SFX. Also, the activities of persons who are deemed
by the FCC to control SFX could adversely affect SFX's ability to obtain
license renewals and to acquire radio stations.
The issuance of SFX Class A Shares upon the consummation of the
Merger, including those issuable upon conversion or exercise of the MMR Class A
Warrants, MMR Class B Warrants, the unit purchase options issued by MMR in
connection with its public offering (the "MMR UPOs"), the warrants issued by
MMR to the underwriters of MMR's initial public offering (the "MMR IPO
Warrants"), the warrants issued by MMR to Huff (the "Huff Warrants"), SFX
Series D Preferred Shares or the Exchange Notes issuable upon the exchange
thereof, and all other rights, options or warrants to purchase SFX Class A
Shares that would cause Robert F.X. Sillerman not to hold directly voting stock
of SFX representing more than 50% of the total voting power of SFX, would
require SFX to seek and obtain the consent of the FCC. SFX intends to
seek such consent at such time as it may be required. Presently, due to the
single majority stockholder exemption, stockholders holding 5% or more of the
total voting power of SFX do not have an attributable interest in SFX because
Mr. Sillerman owns more than 50% of the voting power of SFX. In the event that
Mr. Sillerman's voting power in SFX dropped to 50% or less, all stockholders
holding 5% or more of the total voting power of SFX would have an attributable
interest in SFX for purposes of the FCC's local ownership rules, which could
adversely affect SFX's ability to acquire or to hold interests in radio
stations in particular markets, depending upon the other media interests of
those stockholders. The FCC has outstanding a notice of proposed rulemaking
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) restricting the availability of the single majority
stockholder exemption and (ii) attributing under certain circumstances certain
interests such as non-voting stock or debt. SFX cannot predict the outcome of
this proceeding or how it will affect SFX's business.
The issuance of MMR Class A Shares pursuant to the exercise of MMR
Class A Warrants has reduced Mr. Sillerman's voting interest in MMR as of
October 1, 1996 from 50.1% to 49.5%. MMR has filed appropriate pro forma
applications with the FCC with respect to such reduction in Mr. Sillerman's
voting interest and MMR believes that such application will be granted.
As a result of the elimination of the national ownership limits and
the liberalization of the local ownership limits effected by the Recent
Legislation, radio station acquisitions may be subject to antitrust review by
the Antitrust Agencies even if approved by the FCC. The Antitrust Agencies have
not articulated the standard that may be applied in an antitrust review in the
radio broadcasting industry. There can be no assurance that the Antitrust
Agencies will
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approve the Merger or any of the Pending Acquisitions or Pending Disposition
and the transfer of certain stations from MMR to SFX or that such antitrust
review will not otherwise affect SFX's business or its strategy.
The Congress and/or the FCC have under consideration, and in the
future may consider and adopt, new laws, regulations and policies regarding a
wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of SFX's radio broadcast stations,
result in the loss of audience share and advertising revenues for SFX's radio
broadcast stations, and affect the ability of SFX to acquire additional radio
broadcast stations or finance such acquisitions. Such matters may include:
changes to the license renewal process; spectrum use or other fees on FCC
licensees; revisions to the FCC's equal employment opportunity rules and other
matters relating to minority and female involvement in the broadcasting
industry; proposals to change rules relating to political broadcasting;
technical and frequency allocation matters; proposals to permit expanded use of
FM translator stations; proposals to restrict or prohibit the advertising of
beer, wine and other alcoholic beverages on radio; changes in the FCC's
cross-interest, multiple ownership and cross-ownership policies; changes to
broadcast technical requirements; delivery by telephone companies of audio and
video programming to the home through existing phone lines; proposals to limit
the tax deductibility of advertising expenses by advertisers; and proposals to
auction the right to use the radio broadcast spectrum to the highest bidder.
The FCC is currently considering whether to authorize the use of a
new technology, digital audio broadcasting, to deliver audio programming.
Digital audio broadcasting may provide a medium for the delivery by satellite
or terrestrial means of multiple new audio programming formats to local and
national audiences. It is not presently known precisely how in the future this
technology may be used by existing radio broadcast stations either on existing
or alternate broadcasting frequencies.
There can be no assurance that there will not be changes in the
current regulatory requirements, the imposition of additional regulations or
the creation of new regulatory agencies, which changes would restrict or
curtail the ability of SFX to acquire, operate and dispose of stations or, in
general, to compete profitably with other operators of radio and other media
properties. Moreover, there can be no assurance that there will not be other
regulatory changes, including aspects of deregulation, that will result in a
decline in the value of broadcasting licenses held by SFX or adversely affect
SFX's business, competitive position or results of operations. See "Business of
MMR--Federal Regulation of Radio Broadcasting."
NO TRANSFER OF COMMON STOCK TO ALIENS
SFX's Restated Certificate of Incorporation restricts the ownership,
voting and transfer of SFX's capital stock in accordance with the Federal
Communications Act of 1934, as amended (the "Communications Act"), and the
rules of the FCC to prohibit ownership of more than 25% of SFX's outstanding
capital stock, or more than 25% of the voting rights it represents (such
percentage, however, is 20% in the case of those subsidiaries of SFX that are
direct holders of FCC licenses), by or for the account of non-U.S. citizens or
their representatives or a foreign government or a representative thereof or a
corporation organized under the laws of a foreign country ("Aliens") or
corporations otherwise subject to domination or control by Aliens. Based upon
reports filed with the Commission, SFX believes that there are 1,071,429 SFX
Class A Shares held by Nomura Holdings America, Inc. ("Nomura"), representing
16.7% of the outstanding SFX Class A Shares and 7.1% of the combined voting
power of SFX before the Merger and 13.3% and 5.8% respectively, after the
Merger. Because a substantial portion of the common stock of Nomura is owned
and voted by Aliens, SFX, in order to comply with the requirements of the
Communications Act and the rules and regulations of the FCC promulgated
thereunder, may decide not to permit or recognize any issuance or transfer of
its common stock to an Alien. Failure to comply with such rules and regulations
could result in the imposition of penalties on SFX. This restriction on
transfers to Aliens may adversely affect the market for SFX's securities,
including SFX Class A Shares. In addition, SFX's Restated Certificate of
Incorporation provides that shares of capital stock of SFX determined by the
SFX Board to be owned beneficially by an Alien shall always be subject to
redemption by SFX by action of the SFX Board to the extent necessary, in the
judgment of the SFX Board, to comply with the alien ownership restrictions of
the Communications Act and the FCC rules and regulations.
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COMPETITION
The radio broadcasting industry is highly competitive. The financial
results of each of SFX's stations are dependent to a significant degree upon
its audience ratings and its share of the overall advertising revenue within
the station's geographic market. Each of SFX's stations competes for audience
share and advertising revenue directly with other FM and AM radio stations, as
well as with other media, within their respective markets. SFX's audience
ratings and market share are subject to change and any adverse change in
audience share and advertising ratings in any particular market could have a
material and adverse effect on SFX's net revenues. The Recent Legislation will
permit other radio broadcasting companies to enter the markets in which SFX
operates or may operate in the future, some of which may be larger and have
more financial resources than SFX. SFX's stations also compete with other
advertising media such as newspapers, television, magazines, billboard
advertising, transit advertising and direct mail advertising. Radio
broadcasting is also subject to competition from new media technologies that
are being developed or introduced, such as the delivery of audio programming by
cable television systems or the introduction of digital audio broadcasting.
Competition within the radio broadcasting industry occurs primarily in
individual markets, so that a station in one market does not generally compete
directly with stations in other markets. Although SFX believes that each of its
stations is able to compete effectively in its market, there can be no
assurance that any of SFX's stations will be able to maintain or increase
current audience ratings and advertising revenue market share.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
SFX has not paid any dividends since its inception in 1992 and does
not anticipate that it will pay any dividends on the SFX Class A Shares or the
SFX Class B Shares in the foreseeable future. Earnings, if any, will be
retained by SFX to fund its growth. Certain of SFX's debt instruments include
covenants restricting SFX's ability to pay dividends or to make certain other
distributions to stockholders. SFX is a holding company, substantially all of
the operations of which are conducted through subsidiaries. The ability of such
subsidiaries to pay dividends is subject to applicable state law and certain
other restrictions.
MARKET RISK WITH RESPECT TO COMMON STOCK; CERTAIN INVESTMENT LIMITATIONS
The SFX Class A Shares are quoted on the Nasdaq National Market.
However, the prices at which the SFX Class A Shares trade may depend upon many
factors, including markets for similar securities, industry conditions, and the
performance of, and investor expectations for, SFX. No assurance can be given
that a holder of the SFX Class A Shares will be able to sell such shares at any
particular price. Certain institutional investors may invest only in
dividend-paying equity securities or may operate under other restrictions that
may prohibit or limit their ability to invest in the SFX Class A Shares.
SHARES ELIGIBLE FOR FUTURE SALE AND POSSIBLE ADVERSE EFFECT THEREOF
There are 6,431,897 SFX Class A Shares and 856,126 SFX Class B
Shares issued and outstanding. Of these outstanding shares, 1,281,897 SFX Class
A Shares and all of the SFX Class B Shares are "Restricted Securities," as that
term is defined in Rule 144 ("Rule 144") promulgated under the Securities Act.
Of such shares, 210,468 SFX Class A Shares and the 856,126 SFX Class A Shares
issuable upon conversion of the SFX Class B Shares are currently eligible for
sale in the open market under Rule 144 (subject to the limitations set forth
herein). SFX believes that the remaining 1,071,429 SFX Class A Shares (which
were transferred to Nomura in December 1994) may not be able to be sold in the
open market under Rule 144 until December 8, 1996. In addition, the SFX Class A
Shares held by Nomura have one demand and certain piggy-back registration
rights which expire on October 7, 2000 with respect thereto. 95,491 SFX Class A
Shares (including SFX Class A Shares issuable upon the exercise of options and
warrants) and 198,840 SFX Class B Shares issued in the Merger will be
"Restricted Securities." Such SFX Shares may be sold pursuant to Rule 145. See
"Proposals 1 and A--The Merger--Federal Securities Law Consequences." In
addition, each of the 2,990,000 outstanding SFX Series D Preferred Share is
convertible at the option of the holder thereof into 1.0987 SFX Class A Shares
(subject to adjustments in certain events) at any time prior to the close of
business on May 31, 2007, the maturity date of the SFX Series D Preferred
Shares. SFX has filed a registration statement with the Commission with respect
to the resale by the holders thereof of the SFX Series D Preferred Shares, the
SFX Class A Shares issuable upon conversion thereof and the Exchange Notes
issuable upon the exchange thereof. Such registration statement was declared
effective in July 1996. The sale, or availability for sale, of substantial
amounts of SFX Shares in the public
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<PAGE>
market pursuant to Rule 145, Rule 144 or otherwise could adversely affect the
prevailing market price of the shares of SFX Class A Shares and could impair
SFX's ability to raise additional capital through the sale of equity
securities.
Warrants and options of MMR exercisable for an aggregate of
4,476,639 MMR Class A Shares are outstanding, which represent the right to
acquire approximately 1,272,261 SFX Class A Shares after the Merger. In
addition, pursuant to the terms of the Huff Consent Agreement, SFX will issue
to Huff a warrant exercisable for SFX Class A Shares equal to 175,000
multiplied by the Exchange Ratio. Of the outstanding warrants and options of
MMR, 1,055,437 MMR Class A Shares are issuable upon the exercise of MMR Class A
Warrants which MMR is calling for redemption in the MMR Warrant Redemption. It
is expected that substantially all of the holders of the MMR Class A Warrants
will exercise such warrants and acquire MMR Class A Shares. See "The Merger
Agreement--The Merger." In addition, 1,840,000 MMR Class A Shares are issuable
upon the exercise of MMR Class B Warrants. If all outstanding MMR Class B
Warrants are exchanged in the MMR Exchange Offer, MMR will issue 368,000 MMR
Class A Shares.
Additionally, MMR UPOs exercisable for 160,000 MMR Units are
outstanding. Although the MMR UPOs are not otherwise exercisable before March
23, 1997, at the time of the Merger, the holders of the MMR UPOs will have the
right to exercise their MMR UPOs and the warrants included therein and receive
the kind and amount of securities receivable by a holder of MMR Class A Shares
in the Merger.
POSSIBLE ADVERSE IMPACT OF AUTHORIZED BUT UNISSUED SHARES OF CAPITAL STOCK AND
DELAWARE LAW
Assuming Proposals 2 and 3 are approved by the SFX Stockholders, SFX
will have 100,000,000 SFX Class A Shares, 10,000,000 SFX Class B Shares,
1,200,000 shares of Class C Common Stock, par value $0.01 share (the "SFX Class
C Shares"), and 10,010,000 shares of preferred stock, par value $0.01 per share
(the "SFX Preferred Shares"), authorized, of which approximately 8,030,238 SFX
Class A Shares, 1,055,066 SFX Class B Shares, 16,784 SFX Class C Shares and
3,000 SFX Preferred Shares will be outstanding after the Merger. Pursuant to
SFX's Restated Certificate of Incorporation, the unissued SFX Preferred Shares
shall have such designations rights and preferences as may be determined from
time to time by the SFX Board. Accordingly, the SFX Board is empowered, without
stockholder approval, to issue SFX Preferred Shares with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of the SFX Shares. In addition, the SFX Board may
authorize the issuance of substantial amounts of SFX Shares or SFX Class C
Shares, as a financing technique or otherwise, the effect of which would be to
dilute the economic and voting rights of existing stockholders and might
adversely affect the prices at which the SFX Class A Shares trade. The SFX Board
could use the issuance of additional shares of capital stock of SFX as a method
of discouraging, delaying or preventing a change in control of SFX.
SFX is subject to the "business combination" statute of Section 203
of the DGCL. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," with certain specified
exceptions. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within three years, owned) 15% or more of
the corporation's voting stock. The effect of Section 203 of the DGCL may be to
make it more difficult to effect a change in control of SFX.
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THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the SFX
Stockholders in connection with the solicitation of proxies by the SFX Board
for use at the SFX Annual Meeting to be held at 10:00 a.m., local time, on
Friday, November 22, 1996, at the offices of Baker & McKenzie, 805 Third
Avenue, 23rd Floor, New York, New York 10022, and at any adjournments or
postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
MMR Stockholders in connection with the solicitation of proxies by the MMR
Board for use at the MMR Special Meeting to be held at 9:00 a.m., local time,
on Friday, November 22, 1996, at the offices of Baker & McKenzie, 805 Third
Avenue, 23rd Floor, New York, New York 10022, and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETINGS
SFX. At the SFX Annual Meeting, the SFX Stockholders will be asked
(i) to approve the Merger Agreement and the Merger (Proposal 1), (ii) to
approve an amendment to SFX's Restated Certificate of Incorporation to increase
the number of authorized SFX Class A Shares from 10,000,000 to 100,000,000
(Proposal 2), (iii) to approve an amendment to SFX's Restated Certificate of
Incorporation to increase the number of authorized SFX Class B Shares from
1,000,000 to 10,000,000 (Proposal 3), (iv) to approve the issuance to SCMC of
warrants, which will be immediately exercisable, to purchase 300,000 SFX Class
A Shares, at an initial purchase price of $33.75 per share (Proposal 4), (v) to
elect eight directors to the SFX Board (Proposal 5), (vi) to approve SFX's 1996
Stock Option Plan and the performance goal included therein (Proposal 6), (vii)
to ratify the appointment of Ernst & Young LLP as independent auditors of SFX
for the fiscal year ending December 31, 1996 (Proposal 7), and (viii) to
transact such other business as may properly come before the SFX Annual Meeting
or any adjournments or postponements thereof.
MMR. At the MMR Special Meeting, the MMR Stockholders will be asked
(i) to approve the Merger Agreement and the Merger (Proposal A), (ii) to
approve an amendment to MMR's Restated Certificate of Incorporation providing
that, in any merger, consolidation or business combination in which holders of
capital stock of MMR are to be issued shares of common stock, holders of all
classes and series of capital stock of MMR shall receive the same
consideration, except that the holders of any class or series of capital stock
of MMR which is generally entitled to ten votes per share, or which is
convertible into such a class or series, may receive shares which have ten
votes per share (Proposal B), and (iii) to transact such other business as may
properly come before the MMR Special Meeting or any adjournments or
postponements thereof. The effect of the amendment to MMR's Restated
Certificate of Incorporation is to permit holders of MMR Class B Shares and MMR
Original Preferred Shares (currently Messrs. Sillerman, Ferrel and Morrow) to
receive SFX Class B Shares in the Merger.
RECOMMENDATIONS OF BOARDS OF DIRECTORS AND INDEPENDENT COMMITTEES
The SFX Board and the SFX Independent Committee have unanimously
approved the Merger Agreement and the Merger and recommend a vote FOR Proposal
1 by the SFX Stockholders. The SFX Board has unanimously approved the amendment
to SFX's Restated Certificate of Incorporation and recommends a vote FOR
Proposals 2 and 3. The SFX Board and the SFX Independent Committee have
unanimously approved the issuance to SCMC of warrants to purchase 300,000 SFX
Class A Shares and recommend a vote FOR Proposal 4. The SFX Board recommends a
vote FOR the director nominees set forth in this Joint Proxy
Statement/Prospectus pursuant to Proposal 5, FOR Proposal 6 and FOR Proposal 7.
The MMR Board (with one member abstaining due to a potential
conflict of interest) and the MMR Independent Committee have unanimously
approved the Merger Agreement and the Merger and recommend a vote FOR Proposal
A by the MMR Stockholders. The MMR Board (with one member abstaining due to a
potential conflict of interest) has unanimously approved the amendment to MMR's
Restated Certificate of Incorporation and recommends a vote FOR Proposal B.
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RECORD DATES; QUORUM; VOTING AT THE MEETINGS
SFX. The SFX Board has fixed the close of business on October 1,
1996 as the record date for the determination of the SFX Stockholders entitled
to notice of and to vote at the SFX Annual Meeting. Only holders of record of
SFX Shares on the record date will be entitled to notice of, and to vote at,
the SFX Annual Meeting. As of the close of business on October 1, 1996 there
were 6,431,897 SFX Class A Shares and 856,126 SFX Class B Shares issued and
outstanding and entitled to vote at the SFX Annual Meeting. In addition, as of
the close of business on October 1, 1996 there were 2,000 Series B Redeemable
Preferred Stock, par value $0.01 per share, of SFX (the "SFX Series B Preferred
Shares"), 2,000 Series C Redeemable Convertible Preferred Stock, par value
$0.01 per share, of SFX (the "SFX Series C Preferred Shares") and 2,990,000 SFX
Series D Preferred Shares issued and outstanding but not entitled to vote at
the SFX Annual Meeting.
A quorum is necessary to transact business at the SFX Annual
Meeting. The presence in person or by proxy of the holders of record of a
majority of the combined voting power of the outstanding shares entitled to
vote at the SFX Annual Meeting shall constitute a quorum. Abstentions (i.e.,
votes withheld by stockholders who are present and entitled to vote) and broker
non-votes (i.e., shares held by a broker for its customers that are not voted
because the broker does not receive instructions from the customer or because
the broker does not have discretionary voting power with respect to the item
under consideration) will be counted as present for purposes of determining
whether there is a quorum for the transaction of business.
SFX's Restated Certificate of Incorporation provides that, in the
election of directors, the holders of SFX Class A Shares are entitled by class
vote, exclusive of all other stockholders, to elect two-sevenths (2/7ths) (or
if such number of directors is not a whole number, the next higher number) of
SFX's directors, with each SFX Class A Share entitled to one vote. With respect
to the election of the other directors and the other matters submitted for a
vote at the SFX Annual Meeting (other than the proposals to amend SFX's
Restated Certificate of Incorporation), the holders of SFX Class A Shares and
SFX Class B Shares shall vote as a single class, with each SFX Class A Share
entitled to one vote and each SFX Class B Share entitled to ten votes, in
accordance with SFX's Restated Certificate of Incorporation. The holders of SFX
Shares are not entitled to cumulative voting in the election of directors. In
addition, with respect to Proposals 2 and 3, the SFX Class A Shares and the SFX
Class B Shares will vote together on each proposal and each class will vote
separately with respect to the proposal to increase the authorized number of
shares of such class.
With respect to the proposals to be voted on at the SFX Annual
Meeting: (i) the affirmative vote of a majority of the combined voting power of
the outstanding SFX Shares represented in person or by proxy at the SFX Annual
Meeting (at which a quorum is present) and voting on the proposal is necessary
to approve Proposal 1, (ii) the affirmative vote of a majority of the combined
voting power of the outstanding SFX Shares and the affirmative vote of a
majority of the outstanding SFX Class A Shares, voting separately, is necessary
to approve Proposal 2, (iii) the affirmative vote of a majority of the combined
voting power of the outstanding SFX Shares and the affirmative vote of a
majority of the outstanding SFX Class B Shares, voting separately, is necessary
to approve Proposal 3, (iv) the affirmative vote of a majority of the combined
voting power of the SFX Shares represented in person or by proxy at the SFX
Annual Meeting (at which a quorum is present) and voting on the proposal is
necessary to approve Proposals 4 and 6, (v) the affirmative vote of a plurality
of the votes cast at the SFX Annual Meeting (at which a quorum is present) by
holders of the SFX Class A Shares, voting separately, is necessary to elect the
three directors to be chosen by the holders of the SFX Class A Shares and the
affirmative vote of a plurality of the votes cast at the SFX Annual Meeting (at
which a quorum is present) by the holders of the SFX Shares, voting together,
is necessary to elect the remaining directors, and (vi) the affirmative vote of
a majority of the combined voting power of the SFX Shares represented in person
or by proxy at the SFX Annual Meeting (at which a quorum is present) is
necessary to ratify Proposal 7.
Under the DGCL, although abstaining votes and broker non-votes are
deemed to be present for purposes of determining whether a quorum is present at
a meeting, abstaining votes and broker non-votes are not deemed to be a vote
cast. With respect to matters requiring the affirmative vote of a majority of
the outstanding shares, abstentions and broker non-votes have the effect of
votes in opposition (Proposals 1, 2 and B), and, with respect to matters
requiring the affirmative vote of a majority of the shares represented in
person or by proxy, abstentions have the effect of votes in opposition and
broker non-votes do not have the effect of votes in opposition (Proposals 4, 5,
6 and 7).
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<PAGE>
SFX will appoint one or more inspectors, who may be employees of
SFX, to determine, among other things, the number of SFX Shares represented at
the SFX Annual Meeting and the validity of the proxies submitted for voting at
the SFX Annual Meeting. SFX has retained ChaseMellon Shareholder Services, LLC,
its transfer agent, as proxy tabulator to assist the inspectors in the
performance of their duties.
Mr. Robert Sillerman, the Chairman of the Board and Chief Executive
Officer of SFX, may be deemed to be a beneficial owner of approximately 5.9% of
the outstanding SFX Class A Shares and 100.0% of the outstanding SFX Class B
Shares, which represent approximately 12.4% of the outstanding SFX Shares and
approximately 57.4% of the combined voting power of the outstanding SFX Shares.
The directors and executive officers of SFX (including Mr. Sillerman) may be
deemed to be the beneficial owners of approximately 6.9% of the outstanding SFX
Class A Shares and 100.0% of the outstanding SFX Class B Shares, which
(excluding options and warrants to acquire SFX Shares) represent approximately
12.5% of the outstanding SFX Shares and approximately 57.5% of the combined
voting power of the SFX Shares. Accordingly, Mr. Sillerman, alone and with the
other directors and executive officers of SFX, is generally able to control the
outcome of all matters upon which he votes, and will be able to control the
outcome of the proposals to be voted on at the SFX Annual Meeting (other than
Proposal 2 (which must be approved in order to consummate the Merger) and the
election of three directors by the holders of SFX Class A Shares.)
As of the date of this Joint Proxy Statement/Prospectus, neither MMR
nor any of its subsidiaries owned any SFX Shares.
MMR. The MMR Board has fixed the close of business on October 1,
1996 as the record date for the determination of the MMR Stockholders entitled
to notice of and to vote at the MMR Special Meeting. Only holders of record of
MMR Shares on the record date will be entitled to notice of, and to vote at,
the MMR Special Meeting. As of the close of business on October 1, 1996 there
were 4,000,563 MMR Class A Shares and 633,334 MMR Class B Shares issued and
outstanding and entitled to vote at the MMR Special Meeting. In addition, as of
the close of business on October 1, 1996 there were 66,666 MMR Original
Preferred Shares and 200,000 MMR Series B Preferred Shares issued and
outstanding but not entitled to vote at the MMR Special Meeting.
The MMR Class A Shares issued after October 1, 1996 in the MMR
Exchange Offer and prior to the MMR Warrant Redemption will not be eligible to
vote at the MMR Special Meeting.
A quorum is necessary to transact business at the MMR Special
Meeting. The presence in person or by proxy of the holders of record of a
majority of the combined voting power of the outstanding shares entitled to
vote at the MMR Special Meeting shall constitute a quorum. Abstentions and
broker non-votes will be counted as present for purposes of determining whether
there is a quorum for the transaction of business.
MMR's Restated Certificate of Incorporation provides that the
holders of MMR Class A Shares and MMR Class B Shares shall vote as a single
class, with each MMR Class A Share and each MMR Class B Share entitled to one
vote, on Proposal A. With respect to Proposal B, the MMR Class A Shares and MMR
Class B Shares will vote together with each MMR Class A Share entitled to one
vote and each MMR Class B Share entitled to ten votes, and each such class will
also vote separately, as required by the DGCL.
With respect to the proposals to be voted on at the MMR Special
Meeting: (i) the affirmative vote of a majority of the combined voting power of
the outstanding MMR Class A Shares and MMR Class B Shares (with each class
entitled to one vote per share) is necessary to approve Proposal A, and (ii)
the affirmative vote of the holders of a majority of the combined voting power
of the outstanding MMR Class A Shares and MMR Class B Shares, voting together,
and the affirmative vote of the holders of a majority of the outstanding MMR
Class A Shares and the MMR Class B Shares, each voting separately as a class,
is necessary to approve Proposal B.
Under the DGCL, although abstaining votes and broker non-votes are
deemed to be present for purposes of determining whether a quorum is present at
a meeting, abstaining votes and broker non-votes are not deemed to be a vote
cast. With respect to matters requiring the affirmative vote of a majority of
the outstanding shares (such as the two proposals scheduled to be acted upon at
the MMR Special Meeting), abstentions and broker non-votes have the effect of
votes in opposition.
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<PAGE>
MMR will appoint one or more inspectors, who may be employees of
MMR, to determine among other things, the number of MMR Shares represented at
the MMR Special Meeting and the validity of the proxies submitted for voting at
the MMR Special Meeting. MMR has retained American Stock Transfer and Trust
Company, its transfer agent, as proxy tabulator to assist the inspectors in the
performance of their duties.
Management of MMR, including Bruce Morrow and Michael Ferrel,
together with Mr. Sillerman may be deemed to beneficially own 336,000 MMR Class
A Shares and 633,334 MMR Class B Shares, which (exclusive of stock options and
warrants) represents 19.0% of the outstanding combined voting power of MMR with
respect to Proposal A and 63.7% of the outstanding combined voting power with
respect to Proposal B (and 6.2% and 100.0% of the votes in the MMR Class A
Share and MMR Class B Share class votes, respectively, for Proposal B). See
"Security Ownership of Management and Principal Stockholders of MMR." All
members of management of MMR and Mr. Sillerman have informed MMR that they
intend to vote their MMR Shares in favor of Proposals A and B.
In addition, J. Morton Davis and D.H. Blair Investment Banking
Corp., Gabriel Capital, L.P., and Ariel Fund Limited, and Chilton Investment
Partners, L.P. and Richard L. Chilton, Jr., who collectively own an aggregate
of 7.2% of the MMR Class A Shares, have agreed to vote any shares held by them
on the record date of the MMR Special Meeting, in favor of Proposals A and B;
provided that there are no pending competing offers. Mr. Sillerman, together
with management and these stockholders (assuming that no shares are disposed
of), may be deemed to control up to approximately 26.2% of the combined vote
with respect to Proposal A and 13.4% of the class vote of the MMR Class A Shares
with respect to Proposal B.
As of the date of this Joint Proxy Statement/Prospectus, neither SFX
nor any of its subsidiaries hold any MMR Shares.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to SFX
Stockholders and MMR Stockholders in connection with the solicitation of
proxies by and on behalf of the SFX Board and the MMR Board for use at the SFX
Annual Meeting and the MMR Special Meeting, respectively.
VOTING OF PROXIES
All SFX Shares and MMR Shares which are entitled to vote and are
represented at the relevant Meeting by properly executed proxies received prior
to or at the relevant Meeting, and not duly and timely revoked, will be voted
at such Meeting in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such proxies will be voted:
<TABLE>
<S> <C>
(i) in the case of the SFX Annual Meeting,
FOR approval of Proposals 1 through 4,
FOR the election to the SFX Board of Robert F.X. Sillerman, D. Geoffrey Armstrong,
Howard J. Tytel, Richard A. Liese and Thomas P. Benson by the holders of all SFX Shares
and the election of James F. O'Grady, Jr., Paul Kramer and Edward F. Dugan by the holders
of SFX Class A Shares (Proposal 5),
FOR approval of Proposal 6, and
FOR the ratification of Proposal 7, and
(ii) in the case of the MMR Special Meeting,
FOR approval of Proposals A and B.
</TABLE>
If any other matters are properly presented for consideration at
either Meeting, including, among other things, consideration of a motion to
adjourn or postpone either Meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), Michael
G. Ferrel and Bruce Morrow, the case of MMR, and Robert F.X. Sillerman and
Howard J. Tytel, in the case of SFX, the persons named in the enclosed forms of
proxies and acting thereunder, will have discretion to vote on such matters in
accordance with their best judgment.
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<PAGE>
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of SFX or MMR, as the case may be, at or before the
taking of the vote at the relevant Meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later dated proxy
relating to the same shares and delivering it to the Secretary of SFX or MMR,
as the case may be, before the taking of the vote at the relevant Meeting or
(iii) attending the relevant Meeting and voting in person (although attendance
at the relevant Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered, in the case of SFX Stockholders, to ChaseMellon Shareholder
Services, LLC, the transfer agent and proxy tabulator for SFX, at 600 Willow
Tree Road, Leonia, New Jersey 07605, Telecopier No. 201-296-4142, Attention:
Norma Cianfaglione, and in the case of MMR, to American Stock Transfer & Trust
Company, the transfer agent and proxy tabulator for MMR, at 40 Wall Street,
46th Floor, New York, New York 10005, Telecopier No. 718-921-8334, Attention:
Isaac Kagan.
Stockholders of record may revoke a proxy via facsimile at the
numbers set forth above. Any beneficial owner whose shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to revoke should contact such registered holder promptly and
instruct such registered holder to revoke on his behalf. There is no guarantee
that there will be sufficient time prior to the Meetings for the registered
holder to deliver a revocation upon instruction by the beneficial owner.
SOLICITATION OF PROXIES
Each of SFX and MMR will pay its own expenses incurred in connection
with this Joint Proxy Statement/Prospectus and the relevant Meeting, including
the disbursements of legal counsel and accountants, except that each shall pay
one-half of the printing expenses incurred in connection with this Joint Proxy
Statement/Prospectus. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of SFX and MMR in person
or by telephone, telegram or other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. SFX has retained Georgeson & Company Inc., at an estimated cost
of $17,000, to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. MMR has also retained Georgeson & Company Inc.,
at an estimated cost of $12,000, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and SFX and MMR will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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<PAGE>
PROPOSALS 1 AND A
THE MERGER
BACKGROUND OF THE MERGER
In 1992, Robert F.X. Sillerman, along with others, founded SFX and
MMR to own, operate and acquire radio stations. SFX's principal strategy at
that time was to acquire radio stations in major markets while MMR's principal
strategy at that time was to acquire radio stations in small and medium-sized
markets located in the eastern United States. At that time, the Communications
Laws limited the number of radio stations which any entity or person could own
to 12 FM and 12 AM stations. Those ownership limits were based on
"attributable" interests, which, for a corporation, included the interests of
officers, directors and those who, directly or indirectly, had the right to
vote 5% or more of the corporation's stock.
To maximize the expansion opportunities for each of MMR and SFX, the
companies were organized and structured so that Mr. Sillerman's investment
would not cause SFX's stations to be attributable to MMR or MMR's stations to
be attributable to SFX. Mr. Sillerman has, by virtue of his direct and indirect
holdings of SFX Class B Shares, controlled a majority of the voting interest of
SFX since its inception. Upon completion of SFX's initial public offering of
equity in 1993, Mr. Sillerman controlled approximately 62% of the voting
interest of SFX. Mr. Sillerman currently beneficially owns SFX stock
representing approximately 57% of the voting interest and 12% of the economic
interest. Since SFX's inception, Mr. Sillerman has been a director and a
principal executive officer of SFX and is currently SFX's Chairman of the Board
and Chief Executive Officer.
Mr. Sillerman has never been an officer or director of MMR. Until
August 1996, Mr. Sillerman's ownership interest in MMR consisted primarily of
non-voting equity securities. Upon completion of MMR's initial public offering
of equity in 1993, Mr. Sillerman's non-voting interest in MMR was convertible
into voting securities representing approximately 62% of the voting interest.
Mr. Sillerman currently beneficially owns MMR stock representing approximately
15% of the economic interest and, as a result of the stock conversion in August
1996 described elsewhere herein (see "Business of MMR--Change of Control of
MMR"), beneficially owns approximately 50% of the voting interest. Although Mr.
Sillerman has not been an officer or director of MMR, he has provided
substantial business and financial advice to the company since its inception.
After the completion of their initial public offerings, SFX pursued
radio station acquisitions in major markets (generally the top 50 markets),
such as Dallas, Texas; Houston, Texas; San Diego, California and Charlotte,
North Carolina, while MMR pursued opportunities principally in smaller markets
(generally markets outside the top 100 markets). In the first quarter of 1995,
MMR acquired Southern Starr Broadcasting Group, Inc. ("Southern Starr"), which
operated radio stations in small-sized markets such as Daytona Beach, Florida
and Biloxi, Mississippi. The acquisition of Southern Starr (the "Southern Starr
Acquisition"), which was financed principally with debt, greatly increased the
size of MMR. Upon completion of the Southern Starr Acquisition, the number of
stations that MMR operated or for which MMR provided programming increased from
eight to fifteen. As a result, MMR's net revenues for 1995 increased 157% to
$18.3 million from $7.1 million in 1994.
As a larger company with increased access to the capital markets,
MMR began to consider shifting its strategy to explore acquiring radio stations
in medium-sized markets (ranked generally 50 to 100). SFX, which had particular
success operating stations in medium-sized markets such as Nashville, Tennessee
and Greenville-Spartanburg, South Carolina, was also pursuing opportunities in
similar medium-sized markets. Focusing on medium-sized markets became an
increasingly important strategy for SFX as: (i) liberalized ownership rules
enabled SFX to develop clusters of stations in smaller markets and (ii) radio
stations in medium-sized markets were available for purchase at more attractive
prices than stations in major markets since the purchase price of stations in
large markets increased more than stations in medium and smaller markets. This
development appeared to create the possibility of potential conflicts between
MMR and SFX, as both companies explored expansion opportunities.
In the fall of 1995, both SFX and MMR sought to capitalize on the
anticipated consolidation that would likely result from certain regulatory
developments in the industry. In anticipation of the enactment of pending
legislation that
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<PAGE>
would liberalize the national and local ownership limitations applicable to
radio stations, each of SFX and MMR sought to accelerate its acquisition
program.
In October 1995, Liberty Broadcasting, a privately-held company that
owned and operated or provided programming to or sold advertising on behalf of
20 radio stations serving six markets, became available for purchase. Due to
tax and other considerations, the owners of Liberty Broadcasting were only
interested in selling their Liberty Broadcasting stock and not the underlying
assets of Liberty Broadcasting. Certain of the Liberty Broadcasting stations
were in markets that, in terms of size and geographic location, were more
attractive to MMR than SFX, but would be suitable for both companies. In
November 1995, SFX entered into an agreement to acquire Liberty Broadcasting
for $236 million, subject to adjustment, and SFX and MMR simultaneously
therewith entered into an Exchange Agreement (the "Exchange Agreement"),
pursuant to which MMR would acquire 11 of the Liberty Broadcasting stations,
and assume a JSA for the sale of advertising with respect to one of the Liberty
Broadcasting stations, serving Hartford, Connecticut; Providence, Rhode Island;
Albany, New York and Richmond, Virginia by exchanging (the "Exchange") ten
stations serving Greensboro, North Carolina; Greenville, South Carolina;
Houston, Texas; Jackson, Mississippi; and Raleigh, North Carolina, which MMR
had agreed to acquire from third parties (the "Third Party Stations"). The
Exchange was structured as a like-kind exchange that was intended to be
substantially tax-free. MMR's consummation of the Exchange would have doubled
its revenues.
To finance its acquisitions and to restructure its debt, MMR planned
to sell in public offerings 5,000,000 MMR Class A Shares and $110 million of
its Senior Subordinated Notes due 2006. Registration statements for such public
offerings were filed with the Commission in late February and early March 1996.
MMR also anticipated that up to approximately $14 million of additional funding
would be available as a result of its ability to call for redemption its Class
A Warrants in the event that the MMR Class A Shares closed at least $10.75 per
share for twenty consecutive days which would effectively compel the exercise
of the MMR Class A Warrants. In the meantime, SFX entered into an agreement to
acquire from Prism, for approximately $105 million, all of the assets used in
the operation of 10 FM and 6 AM stations serving five markets: Louisville,
Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson, Arizona and
Wichita, Kansas. At that time, SFX was evaluating plans to access the capital
markets to finance its pending acquisitions.
The Recent Legislation was enacted into law in February 1996. The
Recent Legislation, as expected by MMR and SFX, eliminated the limit on the
number of radio stations that an individual or entity may own nationally and
liberalized the number of radio stations that an individual or entity may own
locally. The Recent Legislation removed the regulatory bar to merging Mr.
Sillerman's broadcast interests and his becoming the attributable owner of both
SFX and MMR.
In early March 1996, Mr. Sillerman met with Goldman Sachs & Co.
("Goldman Sachs"), one of SFX's investment bankers, to discuss, in light of the
Recent Legislation, the structure and timing of the offerings that SFX was
contemplating. At that time, Goldman Sachs noted that a combination of SFX and
MMR could also serve as a basis for simplifying each company's complicated
capital structure and bring clarity to the relationships among SFX, MMR, Mr.
Sillerman and SCMC, and might result in financing being available on more
attractive terms than each of SFX and MMR would obtain as stand alone
companies. Mr. Sillerman also informally discussed the idea of combining the
companies with certain directors of SFX and MMR including R. Steven Hicks, D.
Geoffrey Armstrong, Paul Kramer and James O'Grady of SFX and Michael G. Ferrel
of MMR.
At a meeting of the MMR Board on the morning of March 25, 1996,
which Messrs. Sillerman and Tytel were invited to attend, Mr. Sillerman
discussed with the MMR Board the concept of an SFX-MMR combination. No specific
proposal was made at that time. Rather, Mr. Sillerman stated that the SFX Board
would be meeting later that day to discuss the matter. After Mr. Sillerman's
presentation, the MMR Board reconvened to discuss informally the potential
benefits of an SFX-MMR combination. It was noted that MMR's publicly-traded
securities did not appear to benefit as much as other radio companies from the
increased interest in the radio industry since the enactment of the Recent
Legislation. The MMR Board also considered that its contemplated public
offerings would not likely be sufficient to finance its pending acquisitions
and refinance its outstanding debt unless the price of the MMR Class A Shares
significantly increased from its then current levels. Furthermore, unless the
price of the MMR Class A Shares increased, MMR would not be able to cause the
exercise of its Class A Warrants. It was the view of MMR's investment bankers,
that, as a result of the likelihood that the public offering per share price
would not be as high as hoped for, more shares
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<PAGE>
would have to be sold to finance the pending acquisitions and to refinance
MMR's outstanding debt, thereby impacting the ability of the MMR Class A Shares
to increase significantly in the short-term.
The MMR Board preliminarily believed that a possible combination
should be evaluated, because, among other reasons, (i) it might enable the
combined company to obtain financing on terms more favorable than the terms
available to MMR alone, (ii) a combined company would be better positioned than
MMR to compete as the radio industry continued to consolidate, (iii) it would
enable MMR to obtain the services of Mr. Sillerman and SCMC without having to
pay continuing cash fees, (iv) both companies shared similar management
philosophies, (v) both companies were pursuing complementary business
strategies, (vi) a combination would likely promote business efficiencies and
operational synergies and (vii) a combination would likely eliminate potential
conflicts of interest and artificial operating constraints under which the two
companies were operating. It was also noted that the management teams of SFX
and MMR might prove to be particularly compatible and that it was likely that a
transaction could be structured as a tax-free exchange allowing shareholders of
MMR to retain an equity interest in a larger, combined company without
incurring any tax liability. The MMR Board was of the view that the Recent
Legislation would result in significant consolidation in the radio industry and
companies of MMR's size might not be in the best position to compete
effectively in such an environment.
In light of a number of factors, including that one director, Ken
Harmonay, represented the interests of Huff, which owned certain subordinated
debt and equity securities of MMR, and another director, Michael G. Ferrel,
MMR's President, would likely be considered for an executive position in the
combined entity should a merger transaction be pursued, the MMR Board
determined to establish the MMR Independent Committee, consisting of Myles W.
Schumer and Edward L. Simon. Mr. Schumer and Mr. Simon had been elected solely
by the holders of MMR's Class A Shares and neither Mr. Schumer nor Mr. Simon is
or was an officer or employee of MMR or a director, officer or employee of
SCMC. The MMR Independent Committee was authorized to (i) consider and evaluate
any proposal that SFX might make, (ii) negotiate, on behalf of the MMR Board,
the terms of any merger transaction and (iii) engage counsel and financial
advisors and other consultants deemed necessary by the MMR Independent
Committee to assist in the exercise of its authority.
The SFX Board formally considered the concept of an SFX - MMR
combination at a meeting in the afternoon of March 25, 1996. At that meeting
the SFX Board recognized that, as a result of the Recent Legislation, there no
longer existed a regulatory barrier in combining SFX and MMR and, over time
both companies' acquisition strategy had become similar and both companies were
exploring acquisition opportunities in similar markets. The SFX Board was of
the preliminary view that a combination of SFX and MMR would be desirable
particularly since (i) capital markets and investors would likely react
favorably to a simplification of the companies' current complicated structure
and relationships, resulting in a lower combined cost of capital, (ii) the
combination would result in a larger company which would be better positioned
to benefit from the expansion opportunities expected to result from the Recent
Legislation, (iii) both companies shared similar management philosophies and
strategies, (iv) a combination would promote business efficiencies and
operational synergies and (v) a combination would eliminate potential conflicts
of interest and artificial operating constraints under which the two companies
were operating. The SFX Board was also of the view that, as a result of the
Recent Legislation, there would be greater opportunity for potential conflicts
of interest to arise in the future, as SFX and MMR accelerated their strategy
of expanding through acquisition, and that by combining the companies
management could focus its attention on acquiring radio stations without regard
to market size or geographic location.
Mr. Sillerman informed the SFX Board that SCMC would be willing to
restructure its arrangements with SFX and MMR to facilitate such a combination.
In discussions with the SFX Board, Mr. Sillerman indicated that SCMC would be
willing to terminate its regular cash fee arrangement with MMR and restructure
its anticipated fee with respect to SFX's and MMR's pending acquisitions
including any potential combination of SFX and MMR, in return for compensation
substantially in the form of warrants, exercisable at the current market price
and, therefore, only of value to the extent that SFX stock increased in the
future. See "Certain Relationships and Related Transactions."
The SFX Board decided at the March 25 meeting to explore an
acquisition proposal with financial advisors and outside counsel. At the
suggestion of Mr. Sillerman and Howard J. Tytel, Executive Vice President and a
Director of SFX and General Counsel and Director of SCMC, the SFX Board
concluded that, in light of a number of factors, including the significant
ownership interests of Mr. Sillerman and his affiliates in both SFX and MMR,
and certain
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<PAGE>
contractual and other relationships of Mr. Sillerman and his
affiliates with MMR, it was appropriate to appoint the SFX Independent
Committee.
The SFX Independent Committee, consisting of James F. O'Grady, Jr.
and Paul Kramer, who was designated as Chairman, was convened. Neither Mr.
O'Grady nor Mr. Kramer is or was an officer or employee of SFX or a director,
officer or employee of SCMC. Messrs. Kramer and O'Grady had been elected to the
SFX Board by the holders of SFX Class A Shares, excluding any SFX Class A
Shares owned by Mr. Sillerman or his affiliates. The SFX Independent Committee
was authorized to (i) determine whether to make a proposal ("Proposal")
requiring approval of the SFX Board with respect to any merger transaction with
MMR (a "Merger Transaction"), (ii) negotiate on behalf of the SFX Board the
terms of any Merger Transaction and (iii) engage counsel and financial advisors
and other consultants deemed necessary by the SFX Independent Committee to
assist it in the exercise of its authority. Since any proposed Merger
Transaction would likely be futile without the support of Mr. Sillerman, as the
holder of a majority of the voting power of the SFX Shares, the SFX Board
believed that it would be desirable for Mr. Sillerman to consult with the
advisors to be retained by the SFX Independent Committee in the formulation of
a Proposal. The advisors were to present to the SFX Independent Committee for
its review, a transaction that Mr. Sillerman could support and which was fair
to the stockholders of SFX, other than Mr. Sillerman and his affiliates. It
was, however, recognized that only the SFX Board, upon the recommendation of
the SFX Independent Committee, could commit SFX to a Merger Transaction.
On March 27, 1996, Baker & McKenzie was retained by SFX to assist in
the drafting of the Merger Agreement and ancillary documentation in the event
that the Proposal progressed.
On March 28, 1996, the SFX Independent Committee met with
representatives of and retained Furman Selz as its financial advisor to advise
and assist the SFX Independent Committee in its consideration of, and
negotiations with respect to, the financial terms of a Merger Transaction and
to issue an opinion as to the fairness, from a financial point of view, of a
Merger Transaction if one was ultimately agreed to by both parties. Furman Selz
was selected, among other reasons, because while it was familiar with SFX's
business, having previously performed various investment banking services for
SFX, including acting as a managing underwriter for SFX's initial public
offering of stock and its 1995 public offering of stock, it was not then
performing any investment banking services for SFX. Furman Selz was engaged
with the understanding that it would not participate in raising financing for
either SFX's or MMR's pending acquisitions whether or not a Merger Transaction
was pursued. After due deliberations, Furman Selz was instructed to formulate a
Proposal of a Merger Transaction to be reviewed by the SFX Independent
Committee and then presented to the MMR Independent Committee. The SFX
Independent Committee instructed Furman Selz to seek the input of Mr. Sillerman
as necessary in formulating a Proposal. Later that day, the SFX Independent
Committee met with representatives of, and retained, the law firm of Dewey
Ballantine, as special counsel to the SFX Independent Committee. The SFX
Independent Committee discussed with Dewey Ballantine the SFX Independent
Committee's role generally in a Merger Transaction and the fiduciary
obligations of the SFX Independent Committee to the SFX Stockholders, other
than Mr. Sillerman or his affiliates.
On March 28, 1996, the MMR Independent Committee retained the law
firm of Paul, Hastings, Janofsky & Walker ("Paul Hastings") to assist it in its
deliberations. At a meeting on March 29, 1996, the MMR Independent Committee,
together with its counsel, received a presentation from Mr. Ferrel regarding
the financial condition, recent results of operations and other activities of
MMR which could affect its valuation. Mr. Ferrel also provided the MMR
Independent Committee with an overview of the radio industry and of the
available growth opportunities for MMR. Mr. Ferrel was then excused from the
meeting, and the MMR Independent Committee spoke with representatives of
Oppenheimer and engaged in additional deliberations relating to the retention
of one or more financial advisors to the MMR Independent Committee.
On April 1, 1996, the SFX Independent Committee met with
representatives of Dewey Ballantine and Furman Selz. The SFX Independent
Committee reviewed with Dewey Ballantine its mandate from the SFX Board and its
fiduciary obligations to the stockholders of SFX, other than Mr. Sillerman and
his affiliates. Thereafter, representatives of Furman Selz reported on the
financial due diligence conducted by Furman Selz and the valuation
methodologies and factors Furman Selz would employ and consider in connection
with evaluating the fairness, from a financial point of view, of a Merger
Transaction. The representatives of Furman Selz then briefly reported on the
initial Proposal which involved a fixed exchange ratio of 0.3 shares of SFX
common stock for each share of MMR common stock, constituting at the time a
value of approximately $10.25 per MMR Share. MMR Class A Shares had closed at
$9.625 that day after
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a recent price run up. The SFX Independent Committee authorized Furman Selz to
communicate the Proposal to the MMR Independent Committee.
At its meeting on April 1, 1996, Paul Hastings outlined for the MMR
Independent Committee its fiduciary duties under Delaware law. Representatives
of Oppenheimer thereafter discussed with the MMR Independent Committee the
various methodologies which they expected to employ in connection with their
evaluation of a Proposal. The members of the MMR Independent Committee also
reviewed with Paul Hastings MMR's capital structure and indicated their desire
in connection with any transactions to simplify MMR's capital structure, if
possible. The members of the MMR Independent Committee expressed their concern,
based upon prior advice from several of MMR's investment bankers, that MMR's
complicated capital structure, including two outstanding classes of
publicly-traded warrants, may have adversely affected MMR's market value. A
general discussion then followed regarding MMR's pending transactions and the
relationship of Mr. Sillerman and other entities affiliated with Mr. Sillerman
to MMR.
On the evening of April 1, 1996, Furman Selz communicated SFX's
initial Proposal to the MMR Independent Committee's advisors. Prior to the MMR
Independent Committee's next meeting on April 3, 1996, the MMR Independent
Committee determined that Oppenheimer would act as sole financial advisor to
the MMR Independent Committee and would be requested to render a fairness
opinion with respect to the fairness, from a financial point of view, of any
Proposal to the holders of the MMR Class A Shares. Oppenheimer was selected
because while it was familiar with MMR's business, having participated in the
preparation of the registration statement for MMR's then pending equity
offering, it had not been involved with any of SFX's contemplated offerings. It
was also understood that Oppenheimer would not participate in SFX's
contemplated financings, whether or not a Merger Transaction was pursued.
On April 3, after reviewing certain legal, financial and other
related matters with its advisors, the MMR Independent Committee reviewed the
terms of SFX's initial Proposal. The MMR Independent Committee discussed
various mechanisms for ensuring that MMR's stockholders would receive adequate
value in any business combination, notwithstanding changes in the market price
of SFX Class A Shares after the date on which any acquisition agreement were
executed. As part of such discussions, Paul Hastings again reviewed for the
members of the MMR Independent Committee their fiduciary duties under Delaware
law. Paul Hastings noted for the MMR Independent Committee that it could
consider in its deliberations the fact that Messrs. Sillerman, Ferrel and
Morrow, who controlled a substantial block of MMR's capital stock, had
informally indicated to the MMR Independent Committee that they supported a
combination of SFX and MMR and that such persons would be unlikely to favor any
other bidders for MMR. In particular, Paul Hastings advised the MMR Independent
Committee that, pursuant to MMR's charter, while the holders of MMR's Class B
Stock (Messrs. Morrow and Ferrel) would not vote ten for one in any Merger
Transaction involving SFX, they would be entitled to vote MMR Class B Shares
ten for one in respect of any competing transaction. Furthermore, although Mr.
Sillerman held shares of non-voting Class C Common Stock, par value $0.01 per
share, of MMR (the "MMR Class C Shares") and MMR Original Preferred Shares,
pursuant to MMR's Restated Certificate of Incorporation Mr. Sillerman's 360,000
MMR Class C Shares were convertible by Mr. Sillerman, subject to the receipt of
applicable prior FCC approval, into 360,000 MMR Class A Shares. Accordingly, in
voting on any competing transaction, Messrs. Sillerman, Morrow and Ferrel,
together, would have approximately 40% of the total voting power. Paul Hastings
also noted that pursuant to MMR's Restated Certificate of Incorporation, Mr.
Sillerman could convert his non-voting MMR securities (MMR Class C Shares and
MMR Original Preferred Shares) into MMR Class B Shares, subject to the receipt
of applicable prior FCC approval, (i) at any time after May 15, 1996 that MMR
was in default under any obligation for borrowed money, or (ii) in any event,
after July 1998. If Mr. Sillerman were able to convert his non-voting
securities into MMR Class B Shares, Mr. Sillerman, alone, would control
approximately 50% of the vote in respect of any competing transaction and could
thereby effectively prohibit the consummation of any competing transaction.
After additional discussions with its advisors, the MMR Independent Committee
requested that Oppenheimer commence preliminary negotiations with Furman Selz
regarding an acceptable framework for any business combination between the two
companies.
Oppenheimer and Furman Selz negotiated various aspects of the
Proposal on April 3. Among other things, Oppenheimer informed Furman Selz that
the proposed fixed exchange ratio of 0.3 shares of SFX was not acceptable. In
addition, Oppenheimer informed Furman Selz that the MMR Independent Committee
was seeking to limit the risk to MMR's stockholders if the SFX common stock
price declined and to also permit MMR's stockholders to participate in certain
increases in value of the SFX common stock. Oppenheimer also informed Furman
Selz that SFX would be
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required to assume principal responsibility for (and the costs associated with)
"simplifying" MMR's capital structure, and in particular the publicly traded
MMR Class A Warrants and MMR Class B Warrants.
Oppenheimer reported the results of its discussions with Furman Selz
to the MMR Independent Committee on April 4. The MMR Independent Committee also
discussed MMR's pending acquisition of certain radio stations from Liberty
Broadcasting and the related Exchange, and the effects of any combination upon
such transaction. Prior to the conclusion of the meeting, Paul Hastings
reviewed for the MMR Independent Committee certain aspects of a draft form of
the Merger Agreement and noted, among other things, the need to obtain
representations, warranties and covenants from SFX substantially similar to
those being requested of MMR, the delivery of disclosure schedules and the
timing thereof; the need to further negotiate the terms of any lockup or
breakup fees; the basis upon which MMR would be entitled to terminate the
Agreement, including the need for a "fiduciary out" provision; and ways in
which the MMR Stockholders could be protected from declines in the price of SFX
stock due to the significant time period it was anticipated it would take to
consummate the transaction.
On April 5, the MMR Independent Committee convened, and counsel
reported to the members of the MMR Independent Committee that, among other
things, the Merger Agreement contained a "fiduciary out" provision which would
permit MMR, under certain circumstances, to terminate the Merger Agreement and
accept a competing offer. This provision would not preclude a third party offer
during the anticipated time gap between signing and consummation. The Merger
Agreement also provided for disclosure schedules to be delivered after the
execution of the Merger Agreement at which time each party would, under certain
circumstances, be able to terminate the agreement. In addition, the MMR
Independent Committee discussed the nature of certain debt and equity
securities held by Huff and the requirement that MMR obtain Huff's prior
consent to entering into any business combination with SFX.
During the period April 2 through April 6, the SFX Independent
Committee met regularly with its financial and legal advisors to discuss the
status of the negotiations with respect to the proposed merger.
The MMR Independent Committee met again on April 6 to discuss the
status of the negotiations between its advisors and SFX's advisors. After
reviewing the status of the negotiations, representatives from Oppenheimer
discussed its preliminary findings and its valuation methodologies and
assumptions with the MMR Independent Committee. After extensive discussion of
Oppenheimer's analysis, the MMR Independent Committee authorized Oppenheimer to
propose a fixed exchange ratio of 0.39 for each outstanding MMR Share
(representing a cash value of approximately $13.50 based on the closing price
of $34.50 for SFX Class A Shares on the preceding trading day). It was believed
that a fixed exchange ratio of 0.39 was sufficient to protect MMR Stockholders
from potential declines in SFX common stock and would also obviate the need to
permit the MMR Stockholders to participate in increases in SFX's stock price.
The SFX Independent Committee rejected the proposed fixed exchange ratio of
0.39. SFX's advisors then proposed a fixed exchange ratio of 0.32, which was
rejected by the MMR Independent Committee. Thereafter, Messrs. Sillerman and
Tytel, in light of their familiarity with both companies, were invited by the
MMR Independent Committee to make a presentation to the MMR Independent
Committee regarding SFX's proposal. Messrs. Sillerman and Tytel discussed the
financial condition, results of operations and prospects of SFX and certain
possible alternatives regarding the proposed consideration. The MMR Independent
Committee indicated to Messrs. Sillerman and Tytel that it would not likely
recommend to the Board any proposal that did not protect MMR Stockholders in
the event of significant declines in the SFX stock price. The MMR Independent
Committee also indicated to Messrs. Sillerman and Tytel that it was prepared to
terminate discussions with SFX if SFX was unable to improve its initial offer.
During the period from April 7, 1996 to April 11, 1996, Oppenheimer
and Furman Selz conducted additional due diligence and revised their respective
financial assumptions. Also during this period, the SFX Independent Committee
met regularly with its legal and financial advisors and was informed of the
status of negotiations with respect to the proposed exchange ratio and the
terms of the draft merger agreement. The SFX Independent Committee also met
from time to time during the period from March 28, 1996 to April 15, 1996 with
Messrs. Sillerman and Tytel to obtain information, to inform them of the
status of the negotiations between the parties and to negotiate the payment to
SCMC of a fee for services previously rendered and the termination of SCMC's
future advisory services to SFX and MMR. See "Certain Relationships and Related
Transactions."
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<PAGE>
On April 11, 1996, each of Messrs. Sillerman, Morrow and Ferrel
delivered a letter to MMR to the effect that each intended to vote his MMR
stock for a Merger Transaction between MMR and SFX should such a proposal be
submitted to MMR Stockholders and each would vote against any competing
transaction.
On April 11, 1996, after the MMR Independent Committee had rejected
as inadequate several interim proposals, an exchange ratio was proposed
pursuant to which each outstanding share of MMR's common stock would be
exchanged for SFX common stock having a value equal to $11.50 which would be
adjusted as follows: (i) the consideration would increase by 25% of the
increase of the trading price of SFX common stock above $42.00, up to $44.00,
and by 30% of the increase above $44.00 (with no cap on the total value), and
(ii) if the price of SFX common stock dropped below $32.00, the exchange ratio
would be fixed at 0.3593. If the price of SFX common stock dropped below $28.52
(which would imply a value received for each of MMR's shares of $10.25), then
MMR would have the right to terminate the merger and, in the event of such
termination, SFX would have the right, but not an obligation, to rescind the
termination by agreeing that MMR Stockholders would receive SFX common stock
having a value of no less than $10.25 per share, subject to certain conditions.
In addition, MMR would be required to offer to exchange all of the MMR Class B
Warrants for a maximum of two-tenths (.2) of an MMR Class A Share. In the event
and to the extent that MMR failed to repurchase at least 50% of the MMR Class B
Warrants, the total value of SFX Shares received by the MMR Stockholders would
be reduced by $1.50 for each MMR Class B Warrant not so repurchased. SFX would
bear the cost of repurchasing all other derivative securities.
On April 11, the MMR Independent Committee met to consider the
financial terms of the proposed business combination and to make a formal
recommendation to the MMR Board regarding the latest Proposal. Prior to
commencing its formal discussions, Paul Hastings reported to the MMR
Independent Committee that, earlier in the day, it had received a telephone
call from counsel to Mr. Kenneth Harmonay, a member of the MMR Board designated
by Huff. Mr. Harmonay's counsel indicated, among other things, that Mr.
Harmonay would request additional time within which to consider the latest
Proposal and Oppenheimer's analysis thereof. The MMR Independent Committee then
determined to convene a telephonic conference call with all of the members of
the MMR Board, including Mr.
Harmonay.
Oppenheimer's representatives then reviewed its analysis of the
latest Proposal. Paul Hastings reviewed in detail the history of the
negotiations and the most recent draft of the Merger Agreement. After the
presentations, the members of the MMR Independent Committee determined to delay
making any recommendation to the full MMR Board until the other members of the
MMR Board, including Mr. Harmonay, had reviewed all information relevant to the
MMR Independent Committee's evaluation of the latest Proposal. After additional
discussion, the MMR Board determined to reconvene on April 14 to further
consider the latest Proposal.
On April 11, 1996, the SFX Independent Committee met with
representatives of Dewey Ballantine and Furman Selz to review the terms of the
proposed transactions. The representatives of Dewey Ballantine reviewed again
for the SFX Independent Committee their fiduciary obligations to the
stockholders of SFX, other than Mr. Sillerman and his affiliates. The
representatives of Furman Selz then reviewed with the SFX Independent Committee
their analyses of the latest Proposal. Dewey Ballantine reviewed for the SFX
Independent Committee the history of negotiations of the Merger Agreement and
described in detail certain key provisions of the draft Merger Agreement.
The MMR Board met by telephone conference call in the morning on
April 14 to consider the latest Proposal. The MMR Independent Committee's
advisors reviewed for the MMR Board the terms of the merger and the history of
the negotiations. Paul Hastings reviewed with the MMR Board the letters
delivered by Messrs. Sillerman, Ferrel and Morrow indicating their support for
a combination of SFX and MMR and their intention to vote against any competing
transaction. Paul Hastings also reviewed in detail for the MMR Board the
material terms of the Merger Agreement. The members of the MMR Independent
Committee noted for the full Board that the time frame within which the merger
was to be consummated provided ample opportunity for a higher third party
proposal to surface and that the $3.5 million breakup fee which had been
discussed with Paul Hastings and the MMR Independent Committee's special
Delaware counsel was intended to compensate SFX for out-of-pocket expenses and
not to deter such a proposal. However, the MMR Independent Committee was
mindful that any such third party proposal would likely require the support of
Messrs. Sillerman, Morrow and Ferrel, as well as Huff. Mr. Harmonay advised the
MMR Board that although certain points needed to be finalized, Huff supported
the latest Proposal.
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After further discussion regarding the terms of the Merger
Agreement, the representatives of Oppenheimer delivered their oral opinion to
the MMR Board, which was subsequently to be confirmed in writing, that the
consideration to be received by the holders of MMR Class A Shares was fair,
from a financial point of view. Following such presentation, the MMR
Independent Committee recommended to the full MMR Board that it approve and
adopt the Merger Agreement and recommend its approval by the MMR Stockholders.
The MMR Board thereafter approved and adopted the Merger Agreement and
recommended that the MMR Stockholders approve the Merger. Mr. Harmonay
abstained from such vote, indicating that he had a conflict of interest as a
result of certain ongoing negotiations between Huff and MMR with respect to the
consent which MMR required from Huff to enter into the transaction.
During the late evening of April 14, additional discussions
regarding the consent required from Huff to enter into the transaction were
undertaken. These discussions related to the precise terms of the consent,
including prepayment penalties with respect to certain subordinated
indebtedness held by Huff. After extensive discussions, an agreement in
principle was concluded between Huff and MMR, with Huff indicating that it
would consent to the execution of the Merger Agreement. At approximately 11:30
p.m. on April 14, representatives of the SFX Board and the MMR Board met by
telephone to consider certain modifications to the proposed terms of the merger
required as a result of the final terms of the Huff consent to the transaction,
which principally was an increase from $1.50 to $2.30 in the adjustment
required in the event that fewer than 50% of the MMR Class B Warrants were
repurchased. After reviewing the proposed modifications to the terms of the
merger with the MMR Independent Committee, representatives of Oppenheimer
updated certain of their financial analyses and rendered their oral fairness
opinion, subsequently confirmed in writing, the MMR Independent Committee and
the MMR Board (with Mr. Harmonay abstaining) again approved and adopted the
Merger Agreement and recommended that the MMR Stockholders approve the Merger.
The SFX Independent Committee met on April 14, 1996 with
representatives of Dewey Ballantine and Furman Selz and reviewed the proposed
terms of the Merger Transaction. The SFX Independent Committee also was
informed of the terms of the Huff Agreement. At such meeting, the
representatives of Furman Selz updated certain of their financial analyses and
rendered Furman Selz's oral fairness opinion, subsequently confirmed in
writing, to the SFX Independent Committee with respect to the Merger. Dewey
Ballantine reviewed for the SFX Independent Committee revisions to the draft
Merger Agreement and again reviewed with the SFX Independent Committee their
fiduciary obligations to the stockholders of SFX, other than Mr. Sillerman and
his affiliates. In light of the foregoing, the financial advice of Furman Selz
and the rendering of Furman Selz's fairness opinion, and after full
consideration of the terms of the draft Merger Agreement, the SFX Independent
Committee at the April 14, 1996 meeting unanimously determined that it would
recommend to the full SFX Board that the Merger Agreement, and the transactions
contemplated thereby, be approved and adopted. The SFX Board unanimously
approved and adopted the Merger Agreement and recommended that the SFX
Stockholders approve the Merger.
MMR and SFX executed the Merger Agreement on the morning of April 15
and issued a press release announcing the Merger.
In a complaint dated April 18, 1996, a suit was instituted against
MMR, each of the directors of MMR, SFX and Mr. Sillerman seeking to enjoin the
Merger, or, in the alternative seeking monetary damages. See "--Certain Legal
Proceedings."
On April 23, 1996 an amended and restated merger agreement (the
"Amended and Restated Merger Agreement") which contained non-substantive
technical amendments and extended the periods of time within which certain
matters were required to be completed was entered into. On May 6, 1996 an
amendment to the Amended and Restated Merger Agreement providing for an
extension of the time period provided in the Amended and Restated Merger
Agreement for negotiation of a definitive agreement between Huff and MMR was
entered into.
During June and July, Messrs. Sillerman and Tytel, on behalf of SFX,
had various discussions with a few major institutional MMR Stockholders and
their representatives who, while favorably disposed to the concept of a
combination, expressed the view that an increase in consideration would be
appropriate. Messrs. Sillerman and Tytel reported the substance of their
conversations to the SFX Board and the SFX Independent Committee and discussed
the possibility of increasing the Exchange Ratio with Furman Selz. Although it
was SFX's view that the Exchange Ratio was fair, it was acknowledged that SFX's
interests would be served by ensuring that the Merger be consummated as soon as
practicable,
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particularly since the pace of consolidation of the radio industry, if
anything, had accelerated. Inasmuch as certain significant institutional
holders of MMR Stock expressed dissatisfaction with the Exchange Ratio, it was
the SFX Board's view that raising the Exchange Ratio would be desirable if it
would enhance and hasten the completion of the Merger, particularly in light of
the substantial time and resources that it had already devoted to the
combination. In addition, the SFX Board was mindful of the pending litigation.
On July 26, 1996 (i) Gabriel Capital, L.P. and Ariel Fund Limited
and (ii) Chilton Investment Partners, L.P. and Richard L. Chilton, Jr., the
beneficial owners of 256,355 and 172,885 MMR Class A Shares, respectively,
agreed to vote the shares they own on the record date, if any, in favor of the
Merger and against any competing transactions provided that the Merger
Agreement be amended to increase the Exchange Ratio to provide for SFX Shares
with a value of $12.00.
On July 29, 1996, the MMR Independent Committee and the MMR Board
met to consider Amendment No. 2 to the Amended and Restated Agreement and Plan
of Merger (as executed, "Amendment No. 2") which (i) increased the price per
MMR Share from $11.50 to $12.00 resulting in a concomitant increase in the
Exchange Ratio, (ii) increasing the Exchange Ratio if the SFX Class A Common
Stock Price is less than $32.00 to 0.3750, (iv) increasing the adjustment to be
made to the aggregate price for all of the MMR Shares to $2.50 per MMR Class B
Warrant if, and to the extent that fewer than 50% of the MMR Class B Warrants
are tendered in the MMR Exchange Offer and (v) changing the price at which the
Merger Agreement is terminable to $27.33 to preserve the $10.25 Minimum Per
Share Amount. In addition, SFX and MMR would agree to negotiate in good faith
to enter an agreement whereby SFX would advance up to $18.0 million to MMR to
enable MMR to acquire WKSS-FM, Hartford, Connecticut and up to $5.0 million to
MMR for working capital. See "Business of MMR--Recent Acquisitions,
Dispositions and Other Transactions." Amendment No. 2 also provided that MMR
would make available to SFX the services of Michael G. Ferrel, the President
and Chief Executive Officer of MMR, on a consulting basis to the extent that
such services do not conflict with Mr. Ferrel's obligations to MMR until the
earlier of (x) the termination of the Merger Agreement and (y) the Effective
Time. Neither Mr. Ferrel nor MMR would receive any compensation for such
services. Paul Hastings gave a presentation reviewing Amendment No. 2.
Oppenheimer analyzed Amendment No. 2 and delivered its oral fairness opinion,
which was to be subsequently confirmed in writing, that, the Exchange Ratio (as
determined pursuant to Amendment No. 2) was fair, from a financial point of
view, to the holders of MMR Class A Shares. The MMR Independent Committee
unanimously approved the proposal and recommended the MMR Board approve
Amendment No. 2, subject to receipt of Oppenheimer's written fairness opinion.
The MMR Board approved Amendment No. 2 (with Mr. Harmonay abstaining), subject
to receipt of Oppenheimer's written fairness opinion.
On July 30, 1996, the SFX Independent Committee and the SFX Board
met to consider Amendment No. 2. Dewey Ballantine gave a presentation
reviewing Amendment No. 2. Furman Selz analyzed Amendment No. 2 and delivered
its oral fairness opinion, which was subsequently confirmed in writing, that,
as of the date of such opinion, the Exchange Ratio (as determined pursuant to
Amendment No. 2) was fair, from a financial point of view, to the SFX
Stockholders (other than Mr. Sillerman and his affiliates). The SFX
Independent Committee unanimously approved Amendment No. 2 and recommended
that the SFX Board approve Amendment No. 2. The SFX Board unanimously approved
Amendment No. 2.
On July 30, 1996 Oppenheimer delivered its fairness opinion that the
Exchange Ratio was fair from a financial point of view to the holders of MMR
Class A Shares. On July 30, 1996, MMR and SFX entered into Amendment No. 2.
On July 31, 1996, J. Morton Davis and D.H. Blair Investment Banking
Corp., the owners of 312,706 MMR Class A Shares, agreed to vote the shares they
own on the record date, if any, in favor of the Merger provided that there are
no pending competing offers.
In connection with the litigation seeking to enjoin the Merger or
obtain monetary damages, representatives of SFX and MMR continued discussions
with plaintiff's counsel through the summer regarding plaintiff's concerns. As
a result of these discussions, it was proposed that the Exchange Ratio be
further increased by $0.50 so that, in the Merger each MMR Share would receive
SFX stock having a value of $12.50. In connection therewith the "collar",
pursuant to which MMR Stockholders would receive 25% of the increase of the
trading price SFX stock between $42 and $44 per share would be deleted but MMR
Stockholders would continue to receive 30% of the increase in SFX stock beyond
$44 per share. Under the proposal, in the Merger, each MMR Share would be
exchanged for SFX stock having a value
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of $12.50, irrespective of the price at which SFX stock trades, provided that
SFX stock trades above $32, and MMR Stockholders would receive 30% of any
increase in SFX stock beyond $44. Accordingly, so long as the SFX stock trades
at or above $44, the Exchange Ratio would not be affected by Amendment No. 3.
The proposal was set forth in the Settlement which plaintiff executed and
delivered on September 25, 1996. See "--Certain Legal Proceedings."
On September 25, 1996, the SFX Board met to review the proposed
changes to the Exchange Ratio as set forth in Amendment No. 3. On September 30,
1996, the SFX Independent Committee met to review the proposed changes to the
Exchange Ratio as set forth in Amendment No. 3. On September 30, 1996, Furman
Selz analyzed Amendment No. 3 and delivered its oral fairness opinion, which
it subsequently confirmed in writing, that, as of the date of such opinion,
the Exchange Ratio (as determined pursuant to Amendment No. 3) was fair from a
financial point of view, to the SFX Stockholders (other than Mr. Sillerman and
his affiliates). The SFX Independent Committee unanimously approved Amendment
No. 3 and recommended that the SFX Board approve Amendment No. 3. The SFX
Board unanimously approved Amendment No. 3.
On September 26, the MMR Independent Committee and the MMR Board
met to review Amendment No. 3. The MMR Independent Committee unanimously
approved Amendment No. 3, subject to receipt of Oppenheimer's written fairness
opinion. The MMR Board approved Amendment No. 3 (with Mr. Harmonay
abstaining), subject to receipt of Oppenheimer's written fairness opinion.
Oppenheimer analyzed Amendment No. 3 and delivered its written fairness
opinion, that, as of the date of such opinion the Exchange Ratio (as set forth
in Amendment No. 3) was fair, from a financial point of view, to the holders
of MMR Class A Shares (other than Messrs. Morrow, Ferrel and Sillerman).
On September 30, Oppenheimer delivered its written fairness opinion
to the MMR Board and SFX and MMR entered into Amendment No. 3.
EFFECTS OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
SFX. The SFX Board and the SFX Independent Committee each believes
that the terms of the Merger, and the related stock issuance, are fair to, and
in the best interests of, SFX and its stockholders. Accordingly, each of the
SFX Board and the SFX Independent Committee has unanimously approved the
issuance of SFX Shares pursuant to the Merger Agreement and has recommended the
approval by the SFX Stockholders of the issuance of such shares. The SFX Board
and the SFX Independent Committee believe that the acquisition of MMR will
further SFX's long-term strategic objective to remain a major competitor in the
radio broadcasting business. In anticipation of the Recent Legislation, SFX
entered into various acquisition agreements, including the Merger Agreement,
which are expected to increase the number of radio stations owned and operated
by SFX or to which SFX provides programming or sells advertising from
approximately 20 to 67 and SFX has entered or plans to enter into arrangements
for an aggregate of approximately $750 million of financing.
At meetings held on April 11, 1996 and April 14, 1996, the SFX
Independent Committee received presentations from, and carefully reviewed the
terms of the Merger Agreement with its counsel and its financial advisor,
Furman Selz (see "--Opinions of Financial Advisors") as well as management of
SFX. Representatives of Dewey Ballantine, special counsel to the SFX
Independent Committee, made a presentation to the SFX Independent Committee
with respect to their fiduciary duties under Delaware law and reviewed with the
SFX Independent Committee the material terms of the proposed Merger Agreement.
At meetings held on April 11, 1996 and on April 14, 1996, the SFX Board
received presentations from and carefully reviewed the terms of the Merger
Agreement with Furman Selz and SFX management.
As part of its review, the SFX Board considered, among other things,
information with respect to the financial condition, assets, liabilities,
businesses, operations and prospects of both SFX and MMR including certain
information reflecting the two companies on a pro forma combined basis, and the
historical trading prices of SFX Shares and MMR Shares. The SFX Board also
received and relied upon an oral opinion from Furman Selz delivered on April
14, 1996, and reaffirmed on May 12, 1996 and July 29, 1996 (subsequently
confirmed in writing) as to the fairness, from a financial point of view, as of
each such date to the SFX Stockholders (other than Mr. Sillerman and his
affiliates) of the Exchange Ratio to be offered in the Merger. See "--Opinions
of Financial Advisors."
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In reaching its conclusions to enter into the Merger Agreement and
to recommend approval and adoption of the Merger Agreement by the SFX
Stockholders, the SFX Independent Committee and SFX Board considered a number
of factors, including, without limitation, the following:
(i) The complementary business strategies of the companies;
(ii) An analysis of the opportunities for cost savings and
operational synergies;
(iii) The opportunity to eliminate potential conflicts of interests
and artificial operating constraints;
(iv) MMR's and SFX's respective businesses, management, competitive
position and prospects and current conditions and trends in the
markets and industry in which they operate;
(v) The financial condition, results of operations and businesses
of MMR and SFX before and after giving effect to the Merger;
(vi) The terms of the Merger Agreement, including the parties'
mutual representations, warranties and covenants and the
conditions to their respective obligations; and
(vii) The opinion of Furman Selz that, as of the date of such
opinion, the Exchange Ratio to be offered in the Merger is
fair, from a financial point of view, to the SFX Stockholders
(other than Mr. Sillerman and his affiliates). See "--Opinions
of Financial Advisers."
In view of the wide variety of factors considered in connection with
its evaluation of the Merger Agreement, the SFX Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determinations.
MMR. The MMR Board and the MMR Independent Committee each believes
that the Merger will enable the MMR stockholders to become stockholders in a
significantly larger company on a tax free basis, which will be better
positioned to compete effectively in the changing radio industry. The MMR Board
and the MMR Independent Committee each believes that the Merger with SFX is in
the best interests of MMR and the MMR Stockholders and that the Merger will
allow MMR to more fully avail itself of the expertise of SCMC, Mr. Sillerman
and their affiliates beyond the limited financial assistance provided for in
MMR's consulting agreement with SCMC. Accordingly, the MMR Board (with the one
director representing one of MMR's debt holders abstaining due to a potential
conflict of interest) and the MMR Independent Committee unanimously approved
the Merger Agreement and the Merger and recommend that the MMR Stockholders
vote in favor of Proposal A. The MMR Board (with one member abstaining due to a
potential conflict of interest) unanimously recommends that the MMR
Stockholders vote in favor of Proposal B.
At a meeting held on April 14, 1996, the MMR Board (with one member
abstaining) and the MMR Independent Committee unanimously determined that the
Merger is fair to and in the best interests of MMR and its stockholders and
approved the Merger Agreement. The MMR Board unanimously (with one member
abstaining) and the MMR Independent Committee recommend that MMR Stockholders
vote FOR approval and adoption of the Merger Agreement.
At meetings held on April 11 and April 14, 1996, the MMR Independent
Committee received presentations from, and carefully reviewed the terms of the
Merger Agreement with, its counsel and its financial advisor, Oppenheimer. At
meetings held on April 11, and April 14, 1996, the MMR Board received
presentations from, and carefully reviewed the terms of the Merger Agreement
with, MMR's management and counsel to the Independent Committee and its
financial advisor, Oppenheimer. The MMR Board also received and relied upon an
oral opinion from Oppenheimer as to the fairness, from a financial point of
view, as of such date of the Exchange Ratio to the holders of the MMR Class A
Shares, other than Messrs. Morrow, Ferrel and Sillerman. See "--Opinions of
Financial Advisors."
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In reaching its conclusions to enter into the Merger Agreement and
to recommend approval and adoption of the Merger Agreement by the MMR
Stockholders, the MMR Independent Committee and MMR Board considered a number
of factors, including, without limitation, the following:
(i) MMR's and SFX's respective businesses, management, competitive
positions and prospects and current conditions and trends in
the markets and industry in which they operate;
(ii) The financial condition, results of operations and businesses
of MMR and SFX before and after giving effect to the Merger;
(iii) Current market conditions and historical market prices,
volatility and trading information with respect to MMR Shares
and SFX Shares;
(iv) The consideration to be received by MMR Stockholders in the
Merger, including the fact that the Exchange Ratio represented
a substantial premium over the recently-prevailing market
price of MMR Shares, and the relationship between the market
value of the SFX Shares to be issued in exchange for each MMR
Share and MMR's per share reported earnings, earnings before
interest and taxes and certain other measures;
(v) A comparison of selected acquisition transactions within the
radio broadcasting industry. See "--Opinions of Financial
Advisors--Opinion of Oppenheimer--Valuation of MMR."
(vi) The fact that the Merger will afford MMR Stockholders the
opportunity to receive SFX Shares in a non-taxable
transaction;
(vii) The opportunity for MMR Stockholders to continue to share in
the potential for long-term gains from their investment in MMR
through the ownership of SFX Shares following the Merger;
(viii) The terms of the Merger Agreement, including the parties'
mutual representations, warranties and covenants and the
conditions to their respective obligations;
(ix) The possibility, in light of the detailed terms of the Merger
Agreement and the factors discussed under "--Regulatory
Matters" below, that the Merger might not be consummated, and
the risk that the public announcement of the Merger might (a)
make it more difficult for MMR to attract and retain key
management, marketing and technical personnel and (b)
materially and adversely affect its sales and operating
results;
(x) The opportunity to become part of a larger radio company with
increased ability to access larger pools of capital that will
likely be required to compete as the industry seeks to take
advantage of the Recent Legislation;
(xi) The potential sale of MMR to a third party was considered
unlikely due to various complexities, and potential tax issues
that may arise and the ability of certain shareholders to
essentially block such a transaction; and
(xii) The opinion of Oppenheimer rendered at the April 14, 1996
meeting of the MMR Board that, as of the date of such opinion,
the Exchange Ratio provided by the Merger Agreement was fair,
from a financial point of view, to the holders of the MMR
Class A Shares, other than Messrs. Morrow, Ferrel and
Sillerman, as of such date.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger Agreement, the MMR Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weight to the specific factors considered in reaching its determinations.
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OPINIONS OF FINANCIAL ADVISORS
OPINION OF FURMAN SELZ
In April 1996, the SFX Independent Committee retained Furman Selz to
render an opinion as to whether the Exchange Ratio to be offered in the Merger
is fair, from a financial point of view, to the SFX Stockholders (other than
Robert F.X. Sillerman and his affiliates).
On April 14, 1996, Furman Selz delivered its oral opinion to the SFX
Independent Committee that, as of such date, based upon the facts and
circumstances as they existed at that time, and subject to certain assumptions,
facts and limitations, the Exchange Ratio to be offered in the Merger is fair,
from a financial point of view, to the SFX Stockholders (other than Robert F.X.
Sillerman and his affiliates). Furman Selz confirmed this opinion in writing as
of April 15, 1996. Such opinion was subsequently updated in writing as of May
12, 1996 (following receipt by Furman Selz of the disclosure schedules
delivered pursuant to the Merger Agreement), on July 30, 1996 (in connection
with the execution of Amendment No. 2, which, among other things, increased the
price per MMR Share from $11.50 to $12.00, resulting in an increase in the
Exchange Ratio), as of September 30, 1996 (in connection with Amendment No. 3,
which among other things, increased the price per MMR Share from $12.00 to
$12.50, resulting in an increase in the Exchange Ratio) and on the date of this
Joint Proxy Statement/Prospectus.
The full text of the written opinion of Furman Selz, dated September
30, 1996, which sets forth, among other things, the assumptions made, matters
considered and the scope and limitations of the review undertaken and
procedures followed by Furman Selz in rendering its opinion, is included as
Appendix E to this Joint Proxy Statement/Prospectus. Furman Selz's opinion is
directed only to the fairness, from a financial point of view, to the SFX
Stockholders (other than Robert F.X. Sillerman and his affiliates) of the
Exchange Ratio to be offered in the Merger, and does not address any other
terms of any other transaction involving SFX and MMR. Furman Selz's opinion was
delivered for the use and benefit of the SFX Independent Committee in its
consideration of the Merger and is not intended to be and does not constitute a
recommendation to any SFX Stockholder as to how such stockholder should vote
with respect to the proposed Merger. The summary of the opinion of Furman Selz
set forth below is qualified by reference to the full text of the opinion. SFX
Stockholders are urged to read this opinion in its entirety.
In connection with rendering its opinion, Furman Selz, among other
things:
1. reviewed the Merger Agreement and certain related documents
and the financial terms of the Merger set forth therein;
2. reviewed the disclosure schedules provided by MMR and SFX
pursuant to the Merger Agreement;
3. reviewed the Securities Purchase Agreement between MMR and
Huff dated March 27, 1995 and the financial terms set forth
therein;
4. reviewed the SCMC Termination Agreement;
5. reviewed the Joint Proxy Statement/Prospectus of SFX and
MMR, dated October 3, 1996;
6. reviewed SFX's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1994 and 1995, Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30,
1996 and certain other filings with the Commission made by
SFX, including proxy statements, Form 8-Ks, the prospectus
dated September 30, 1993 relating to the initial public
offering of SFX Class A Shares, the prospectus dated September
30, 1993 relating to the public offering of the Old Notes, the
prospectus dated June 28, 1995 relating to the public offering
of SFX Class A Shares and the offer to purchase and
solicitation of consents with respect to the Old Notes;
7. reviewed SFX's offering memorandum relating to the offering
(the "Note Offering") of 10.75% Senior Subordinated Notes due
2006 of SFX dated May 22, 1996 and the offering circular
relating
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<PAGE>
to the offering (the "Preferred Stock Offering") of SFX
Series D Preferred Shares dated May 22, 1996;
8. reviewed MMR's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1994 and 1995, Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30,
1996 and certain other filings with the Commission made by
MMR, including proxy statements, Form 8-Ks, the preliminary
prospectus dated February 27, 1996 relating to the proposed
public offering of MMR Class A Shares, and the preliminary
prospectus dated March 1, 1996 relating to the proposed public
offering of Senior Subordinated Notes due 2006 of MMR;
9. reviewed (a) the Stock Purchase Agreement, dated as of
November 15, 1995, among Liberty Broadcasting, Joseph
Littlejohn & Levy Fund, L.P., Michael R. Craven, James B.
Thompson and SFX, (b) the Asset Purchase Agreement, dated as
of February 9, 1996, by and between Prism Radio Partners, L.P.
and SFX and (c) the Asset Purchase Agreement, dated December
27, 1995, by and between Texas Coast Broadcasters, Inc. and
MMR, the Asset Purchase Agreement, dated as of January 26,
1996, by and between Lewis Broadcasting Corporation and
Multi-Market Radio Acquisition Corporation ("MMRAC"),
the Asset Purchase Agreement, dated as of January 18, 1996, by
and between HMW Communications, Inc. and MMRAC, and the Asset
Purchase Agreement, dated as of January 22, 1996, between ABS
Greenville Partners, L.P. and MMRAC (collectively, the "Swap
Agreements") with the assumption that the Swap Agreements have
been assigned to SFX;
10. reviewed the Exchange Agreement dated November 13, 1995
between SFX and MMR relating to the exchange of radio stations
between SFX and MMR;
11. reviewed (a) the Asset Exchange Agreement, dated May 1, 1996,
by and between SFX Broadcasting of Texas (KRLD), Inc., SFX
Broadcasting of Texas (KRLD) Licensee, Inc., SFX Broadcasting
of Texas (TSN), Inc., SFX Broadcasting of Texas (TSN)
Licensee, Inc., SFX Broadcasting of the Southwest, Inc., SFX
and CBS, Inc. and (b) the Exchange Agreement, dated July 1,
1996, between Chancellor Broadcasting Company ("Chancellor")
and SFX;
12. reviewed (a) the Letter Agreement, dated August 9, 1996,
between SFX and Kenneth A. Brown, ABS Communications, Inc.,
ABS Communications, L.L.C., ABS Richmond Partners, L.P., ABS
Richmond Partners II, L.P., EBF, Inc. and EBF Partners and (b)
the Letter Agreement, dated August 28, 1996, between SFX and
EZ Communications, Inc.
13. reviewed the $23.0 million Loan Agreement, dated September 4,
1996, between MMR and SFX;
14. reviewed certain other publicly available information
concerning SFX and the trading market for the SFX Class A
Shares;
15. reviewed certain other publicly available information
concerning MMR and the trading market for the MMR Class A
Shares, MMR Class A Warrants, MMR Class B Warrants and MMR
Units;
16. reviewed certain non-public information relating to SFX and
MMR, including financial forecasts and projections for each,
furnished to it by SFX and MMR;
17. reviewed certain publicly available information, including
research reports, concerning certain other companies engaged
in businesses which it believed to be comparable to SFX and
MMR and the trading markets for certain of such companies'
securities;
18. reviewed the financial terms of certain recent mergers and
acquisitions which it believed to be relevant;
19. conducted discussions with certain members of senior
management of SFX and MMR concerning their respective
businesses and operations, assets, present conditions and
future prospects; and
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20. performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered
such other factors, as it deemed in its sole judgment, to be
necessary, appropriate or relevant to render its opinion.
In arriving at its opinion, Furman Selz assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information obtained from public sources or provided to it by SFX
(including with respect to the proposed transaction with CBS Radio described in
SFX's press release dated September 26, 1996) or MMR and reviewed by it for
purposes of arriving at its opinion, and did not assume any responsibility for
independent verification of such information or undertake any obligation to
verify such information. In addition, with respect to the financial forecasts
and projections of SFX and MMR used in its analysis, the management of SFX or
MMR, as the case may be, informed Furman Selz that such projections were
reasonable and Furman Selz assumed that they represented the best current
judgment of the management of SFX or MMR, as the case may be, as to the future
financial condition and operating results of SFX and MMR, respectively, and
assumed that such forecasts and projections were reasonably prepared based on
such current judgment. Furman Selz assumed no responsibility for and expressed
no view as to such forecasts and projections or the assumptions on which they
are based. Furman Selz further assumed that the Merger will be tax-free to the
stockholders of both SFX and MMR.
Furman Selz's opinion assumed that SFX will not deliver a Make Whole
Notice to MMR.
In arriving at its opinion, Furman Selz did not conduct a physical
inspection of the properties and facilities of SFX or MMR and did not make,
obtain or assume any independent evaluations or appraisals of any such
properties and facilities or of the assets or liabilities of SFX or MMR.
Furman Selz also took into account its assessment of general
economic, market and financial conditions and its experience in similar
transactions, as well as its experience in securities valuation in general. Its
opinion necessarily is based upon conditions as they existed as of September
30, 1996 and could only be evaluated on such date, and did not represent an
opinion as to what the trading price of the SFX Class A Shares will be when the
Merger is consummated or at any other time.
The financial analyses used by Furman Selz in arriving at its
opinion included (i) reviewing the historical ratio of the prices of the MMR
Class A Shares to the SFX Class A Shares; (ii) comparable transaction analyses,
which consisted of reviewing financial terms of selected private market
acquisitions of assets, businesses or interests in businesses that, in Furman
Selz's judgment, were comparable to the businesses of SFX and MMR; (iii)
trading analysis, which consisted of comparing financial, market and operating
performances of selected publicly traded companies to those of SFX and MMR;
(iv) discounted cash flow analysis of projected future cash flow to be derived
by SFX and MMR based upon financial information provided by the managements of
SFX and MMR, respectively; (v) discounted share price analysis, which consisted
of discounting to the present potential future trading values of the SFX Class
A Shares and the MMR Class A Shares based upon financial information provided
by the managements of SFX and MMR, respectively; (vi) contribution analysis,
which consisted of comparing the relative contributions of SFX and MMR to the
combined historical and projected operating results of the two companies; (vii)
have/get analysis, which consisted of comparing the current and projected
operating results of SFX and MMR and the respective shares of the two
companies' combined operating results, based upon each company's implied
percentage economic ownership of the post-Merger shares outstanding. Analyses
(ii) through (v) above involved the determination of implied per share equity
values for SFX and MMR and corresponding implied exchange ratios based upon
such values. In each of the above cases, the exchange ratios implied by each of
Furman Selz's financial analyses were compared with the range of possible
Exchange Ratios set forth in the Merger Agreement (a range of 0.2841 to
0.3906).
The following is a brief summary of the material aspects of the
analyses performed by Furman Selz in connection with rendering its opinion.
Historical Trading Ratio Analysis. Furman Selz calculated the
historical ratios of the closing share prices of the MMR Class A Shares to the
SFX Class A Shares and compared these ratios to the range of possible Exchange
Ratios set forth in the Merger Agreement (a range of 0.2841 to 0.3906). During
the periods from September 30, 1993 (the date of SFX's initial public offering)
to April 12, 1996 (the last trading day prior to the announcement of the
Merger) and
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from January 1, 1996 to April 12, 1996, the ratios of the closing share prices
of the MMR Class A Shares to the SFX Class A Shares ranged from 0.2746 to
0.7444 and from 0.2746 to 0.3657, respectively.
Comparable Transaction Analysis. In order to determine a valuation
per share and an implied exchange ratio of the MMR Class A Shares to the SFX
Class A Shares based upon transactions involving a change in control, Furman
Selz reviewed the financial terms of selected acquisitions of radio station
groups that, in Furman Selz's judgment, were comparable to the businesses of
SFX and MMR. However, Furman Selz noted that none of such acquisitions took
place under market conditions or competitive conditions or circumstances that
are directly comparable to a merger as of the date of Furman Selz's opinion and
that, accordingly, qualitative judgments must be made concerning the
differences between the characteristics of these transactions and other factors
and issues which would affect the price an acquiror is willing to pay in an
acquisition. Acquisition transactions analyzed by Furman Selz included
(acquiror/target): Capstar Broadcasting/Osborn Communications, American Radio
Systems/EZ Communications, Chancellor Broadcasting/Colfax Communications,
Evergreen Media/Beasley Broadcasting, Westinghouse Electric Corp./Infinity
Broadcasting, Clear Channel Communications/Radio Equity Partners, American
Radio Systems/Henry Broadcasting, Clear Channel Communications/US Radio,
Infinity Broadcasting/Granum Holdings, Jacor Communications/Citicasters, Inc.,
SFX/Prism Radio, Jacor Communications/Noble Broadcast Group, Inc., MMR/Liberty
Broadcasting, SFX/Liberty Broadcasting, Chancellor Broadcasting/Shamrock
Broadcasting, SFX/HMW Communications, Citicasters/Omni-America, Evergreen
Media/Pyramid Communications, Regent Communications/Apollo Radio Group, River
City Broadcasting/Keymarket, and Evergreen Media/Broadcasting Partners. Based
on the mean, median, high and low multiples of broadcast cash flow of the
transactions analyzed, Furman Selz derived implied total enterprise values for
SFX and MMR. In order to derive implied equity value per share ranges for SFX
and MMR, Furman Selz subtracted the estimated net debt of SFX and MMR at July
31, 1996 and August 31, 1996, respectively, from the respective implied total
enterprise values and divided the result by the respective fully diluted shares
outstanding for SFX and MMR. Based on such implied equity value per share
ranges, Furman Selz derived an implied exchange ratio range of 0.2425 to
0.3375.
Trading Analysis. In order to determine a valuation per share and an
implied exchange ratio of the MMR Class A Shares to the SFX Class A Shares
based upon non-control, public market valuations, Furman Selz compared
financial, market and operating performances of selected publicly traded radio
broadcasting companies that, in Furman Selz's judgment, were comparable to SFX
and MMR, to the financial, market and operating performances of SFX and MMR.
However, Furman Selz noted that each of the selected companies is
distinguishable from SFX and MMR in certain respects, and that, accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in the financial and
operating characteristics of the companies and other factors that could affect
the public trading value of the companies or company to which they are being
compared. Companies analyzed by Furman Selz in connection with the trading
analysis included: American Radio Systems, Chancellor Broadcasting, Clear
Channel Communications, Emmis Broadcasting, Evergreen Media, Jacor
Communications, Saga Communications and Triathlon Broadcasting. Based on the
median multiples of 1995, estimated 1996 and estimated 1997 broadcast cash flow
and EBITDA of the companies analyzed, Furman Selz derived implied total
enterprise values of SFX and MMR. In order to derive implied equity value per
share ranges for SFX and MMR, Furman Selz subtracted the estimated net debt of
SFX and MMR at July 31, 1996 and August 31, 1996, respectively, from the
respective implied total enterprise values and divided the result by the
respective fully diluted shares outstanding for SFX and MMR. Based on such
implied equity value per share ranges, Furman Selz derived an implied exchange
ratio range of 0.2772 to 0.4638.
Discounted Cash Flow Analysis. Furman Selz conducted an unleveraged
discounted cash flow analysis of both SFX and MMR based upon financial
information provided by the managements of SFX and MMR, respectively. Furman
Selz calculated a range of the net present values of the unleveraged free cash
flows in the projections using various discount rates reflecting weighted
average costs of capital in the range of 10% to 15%. Furman Selz then combined
such values with the respective terminal values for SFX and MMR calculated by
multiplying projected EBITDA for the year 2000 by a range of exit multiples
from 10 to 12 times and using the same discount rates as those utilized for the
unleveraged free cash flows to obtain ranges of implied total enterprise value
for SFX and MMR. In order to derive implied equity value per share ranges for
SFX and MMR, Furman Selz subtracted the estimated net debt of SFX and MMR at
July 31, 1996 and August 31, 1996, respectively, from the respective implied
total enterprise values and divided the result by the respective fully diluted
shares outstanding for SFX and MMR. Based on such implied equity value per
share ranges, Furman Selz derived an implied exchange ratio range of 0.3967 to
0.4878.
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Discounted Share Price Analysis. Furman Selz analyzed the potential
future public market trading values of the SFX Class A Shares and the MMR Class
A Shares using the EBITDA projections of the managements of SFX and MMR,
respectively, applying at the end of each year multiples of 10 to 12 times
EBITDA for that year, and discounting the result at discount rates of 12.5% to
17.5%. This analysis, which was conducted for the 1997 through 2000 EBITDA
projections, generated ranges of per share equity values for SFX and MMR from
which Furman Selz derived an implied exchange ratio range of 0.3453 to 0.4071.
Contribution Analysis. Furman Selz analyzed the relative
contributions of SFX and MMR to the combined historical and projected revenues,
broadcast cash flow and EBITDA of the two companies. Based on net sales,
broadcast cash flow and EBITDA for the year ended December 31, 1995 and
projected net sales, broadcast cash flow and EBITDA for the years ended
December 31, 1996 and December 31, 1997 provided by the managements of SFX and
MMR, Furman Selz derived an implied mean exchange ratio range of 0.2985 to
0.3462.
Have/Get Analysis. Furman Selz compared the revenues, broadcast cash
flow and EBITDA of SFX and MMR for the fiscal year ended December 31, 1995 and
the projections of such items for the fiscal years ending December 31, 1996 and
1997 and the respective shares of the two companies' combined revenues,
broadcast cash flow and EBITDA for the corresponding periods, based upon each
company's implied percentage of the post-Merger shares outstanding, assuming
potential Exchange Ratios ranging from 0.2841 to 0.3906 which represents the
range of possible Exchange Ratios set forth in the Merger Agreement. Such
analysis indicated that each of SFX's historical revenues, broadcast cash flow
and EBITDA were within the implied ranges of SFX's share of the combined
historical revenues, broadcast cash flow and EBITDA based upon the relative
ownership of the combined company by the SFX Stockholders, while SFX's projected
revenues, broadcast cash flow and EBITDA (except in the case of estimated 1997
broadcast cash flow) were slightly higher than the implied ranges of SFX's share
of the combined projected revenues, broadcast cash flow and EBITDA based upon
the relative ownership of the combined company by the SFX Stockholders.
In arriving at its opinion and in discussing its opinion with the
SFX Independent Committee, Furman Selz performed various financial analyses.
While the foregoing summary describes all material analysis and factors
considered by Furman Selz in rendering its opinion, such summary does not
purport to be a complete description of Furman Selz's analyses. Furman Selz
believes that its analyses and summaries should be considered as a whole, and
that selecting portions of its analyses or the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
process underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses and
summary description. In performing its analyses, Furman Selz considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of SFX and MMR. The analyses performed by Furman Selz are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Pursuant to an engagement letter dated April 11, 1996, SFX has paid
Furman Selz a $100,000 retainer and $400,000 for opinions related to the
Merger, the SCMC Termination Agreement and the payment of fees to SCMC. In
addition, SFX has agreed to pay Furman Selz $50,000 upon delivery of the update
to its opinion relating to the Merger for use with this Joint Proxy
Statement/Prospectus and an advisory fee of $100,000 upon closing of the
Merger. SFX has also agreed to reimburse Furman Selz for its reasonable
out-of-pocket expenses (provided that Furman Selz's legal fees and expenses in
excess of $75,000 shall require the prior written approval of SFX, which
approval shall not be unreasonably withheld) and to indemnify Furman Selz
against certain liabilities relating to or arising out of services performed by
it as financial advisor to the SFX Independent Committee in connection with the
Merger. Pursuant to an engagement letter dated as of September 6, 1996, SFX has
agreed to pay Furman Selz $50,000 for an opinion related to the loan of up to
$23.0 million by SFX to MMR.
Furman Selz is a nationally recognized investment banking firm. As
part of its investment banking services, Furman Selz is frequently engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. Furman Selz
was retained by the SFX Independent Committee to act as its financial advisor
in connection with the Merger based upon Furman Selz's experience as a
financial advisor in mergers and acquisitions as well as Furman Selz's
familiarity with the radio broadcasting industry.
Furman Selz served as a managing underwriter for SFX's initial
public offering of 3,500,000 SFX Class A Shares in September 1993, served as a
managing underwriter in SFX's offering of 1,500,000 SFX Class A Shares in June
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1995, and provided to SFX fairness opinions regarding certain related party
transactions (as more fully described in this Joint Proxy
Statement/Prospectus), and in each case has received customary fees for such
services.
Except as described above, Furman Selz has not rendered material
financial advisory or investment banking services to SFX or to MMR during the
last three years. In the ordinary course of its business, Furman Selz may
actively trade in the equity securities of SFX and MMR for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
OPINION OF OPPENHEIMER
The MMR Independent Committee retained Oppenheimer to act as its
financial advisor and to render its opinion as to the fairness, from a
financial point of view, to the holders of the MMR Class A Shares, other than
Messrs. Morrow, Ferrel and Sillerman, of the exchange ratio with respect to the
MMR Class A Shares (the "Class A Exchange Ratio") in connection with the
Merger.
As part of its role as financial advisor to the MMR Independent
Committee, Oppenheimer rendered an oral opinion to the MMR Independent
Committee on April 14, 1996 (confirmed in a written opinion dated April 15,
1996) to the effect that, subject to the assumptions, factors, limitations and
other matters set forth therein, the Class A Exchange Ratio was fair, from a
financial point of view, to the holders of the MMR Class A Shares other than
Messrs. Morrow, Ferrel and Sillerman. Such opinion was updated orally
in connection with the consideration of Amendment No. 2, which increased the
price per MMR Share from $11.50 to $12.00, resulting in a change in the Exchange
Ratio. Such opinion was further updated in writing on September 30, 1996 (to
reflect the effect of Amendment No. 3, which increases the price per MMR Share
from $12.00 to $12.50, resulting in a change in the Exchange Ratio).
The full text of Oppenheimer's fairness opinion dated September 30,
1996 is attached as Annex G to this Joint Proxy Statement/Prospectus. MMR
Stockholders are urged to, and should, read this opinion carefully in its
entirety in conjunction with this Joint Proxy Statement/Prospectus for the
assumptions made, matters considered and limits of the review by Oppenheimer.
Oppenheimer's opinion was delivered for the use and benefit of the MMR
Independent Committee in its consideration of the Merger and is not intended to
be and does not constitute a recommendation to any MMR Stockholder as to how
such stockholder should vote with respect to the proposed Merger. The summary
of Oppenheimer's opinion set forth in this Joint Proxy Statement/Prospectus is
qualified by reference to the full text of the opinion.
In rendering its opinion, Oppenheimer, among other things:
1. reviewed the Merger Agreement as amended as of May 6, 1996 and
July 30, 1996;
2. reviewed proposed Amendment No. 3 to the Merger Agreement;
3. reviewed MMR's Equity Registration Statement on Form SB-2
dated February 27, 1996 and the related exhibits and MMR's
High Yield Registration Statement on Form SB-2 dated March 1,
1996 and the related exhibits;
4. reviewed SFX's $450.0 million Senior Subordinated Notes
Offering Memorandum and 2.6 million share Series D Cumulative
Convertible Exchangeable Preferred Stock Offering Circular,
both dated May 22, 1996;
5. reviewed SFX's and MMR's draft Preliminary Proxy Statement on
Schedule 14A dated August 1, 1996;
6. reviewed SFX's draft dated October 3, 1996 of its
Registration Statement on Form S-4;
7. reviewed MMR's and SFX's annual reports to stockholders and
annual reports on Form 10-K for the three fiscal years ended
December 31, 1995, including SFX's amended annual report on
Form 10-K
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for the fiscal year ended December 31, 1995 and quarterly
reports on Form 10-Q for fiscal years ended December 31,
1994 and 1995 and for the quarters, ended March 31, 1996
and June 30, 1996;
8. reviewed SFX's draft High Yield Registration Statement on Form
S-3 dated March 8, 1996;
9. reviewed MMR's and SFX's proxy statements dated July 25, 1995
and April 18, 1995, respectively;
10. reviewed and analyzed MMR's and SFX's audited financial
statements for the fiscal years ended December 31, 1993, 1994
and 1995 and for the three month periods ended March 31, 1995
and March 31, 1996, and June 30, 1995 and June 30, 1996;
11. held discussions with Michael G. Ferrel (Chief Executive
Officer, President, Chief Operating Officer and a Director of
MMR), Jerry D. Emlet (Chief Financial Officer of MMR), and D.
Geoffrey Armstrong (who was then serving as Executive Vice
President, Treasurer and Chief Financial Officer of SFX);
12. reviewed MMR projections provided by MMR for the fiscal years
ending December 31, 1996 through December 31, 2002 and the
revised MMR projections provided by MMR for the fiscal years
ending December 31, 1996 through December 31, 1997;
13. reviewed the SFX projections provided by SFX dated March 18,
1996 for the fiscal years ending December 31, 1996 through
December 31, 2000 and the revised SFX projections provided by
SFX for the fiscal years ending December 31, 1996 through
December 31, 1997;
14. held discussions with other members of senior management of
each of MMR and SFX;
15. reviewed the financial forecasts for MMR prepared by senior
management of MMR;
16. reviewed the financial forecasts for SFX prepared by senior
management of SFX;
17. reviewed current and historical market prices and trading data
of the MMR Class A Shares and the SFX Class A Shares;
18. reviewed financial and market data for certain public
companies considered comparable to MMR and SFX;
19. reviewed and analyzed recent mergers and acquisitions of radio
broadcast companies it deemed comparable to MMR and SFX;
20. reviewed and analyzed other information and data regarding
specific assets and liabilities of MMR;
21. held discussions with legal advisors to MMR and accounting and
tax advisors to MMR regarding various legal, accounting and
tax issues;
22. performed discounted cash flow analyses of MMR and SFX based
upon certain assumptions of future performance provided by the
managements of MMR and SFX;
23. reviewed historical and projected financial information of
stations being acquired by MMR from Liberty Broadcasting;
24. reviewed projected financial information of stations being
acquired by SFX from Liberty Broadcasting, Prism, HMW
Communications, Inc., Texas Coast Broadcasters, Inc.,
Chancellor Broadcasting Company, Lewis Broadcasting Corp. and
CBS, Inc.;
25. evaluated the financial impact on SFX's financial statements
of a combination of MMR and SFX;
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26. reviewed the SCMC Termination Agreement;
27. reviewed the Securities Purchase Agreement between MMR and
Huff dated March 27, 1995 and the financial terms set forth
therein;
28. reviewed the $23.0 million Loan Agreement between MMR and SFX;
29. considered its previous discussion with MMR's auditors, Ernst
& Young LLP; and
30. performed such other analyses and reviewed such other
information as it deemed appropriate.
As set forth in its opinion, Oppenheimer relied upon and assumed,
without independent verification or investigation, the accuracy and
completeness of all of the financial and other information provided to it by
MMR, SFX and their respective representatives and advisors. MMR and SFX each
provided Oppenheimer with the most current financial forecasts for their
company. Oppenheimer assumed that such forecasts were reasonably prepared on
bases reflecting the best available information, estimates and judgment of the
respective managements of the two companies. In arriving at its opinion,
Oppenheimer neither made nor obtained any independent valuation or appraisal of
the assets or liabilities of MMR or SFX. Oppenheimer also assumed the accuracy
of the advice and conclusions of MMR's legal counsel and accountants with
respect to tax and accounting matters as provided to Oppenheimer by MMR's
management, including, without limitation, the treatment of the Merger as a
tax-free reorganization for federal income tax purposes. Oppenheimer further
assumed that the Merger would be accounted for in accordance with the purchase
method of accounting.
Oppenheimer also assumed that MMR and its acquisition subsidiary
would assign to SFX their rights under certain asset purchase agreements to
acquire certain radio broadcast stations, and that MMR would offer to exchange
a maximum of two-tenths (.2) of an MMR Class A Share for each outstanding MMR
Class B Warrant.
Oppenheimer's opinion is based upon its analyses of certain factors
in light of its assessment of general economic, financial and market conditions
as of the date of its opinion that could be evaluated by it as of such date.
The following is a summary of certain factors considered and
principal financial analyses performed by Oppenheimer to arrive at its opinion
and does not purport to be a complete description of the analyses performed by
Oppenheimer. Oppenheimer performed certain procedures, including each of the
financial analyses described below, and reviewed with the managements of MMR
and SFX the assumptions on which such analyses were based and other factors,
including the current and projected financial results of such companies.
Valuation of MMR
Oppenheimer performed four primary valuation analyses of MMR: (i) an
MMR Class A Share analysis, (ii) a comparison with publicly traded comparable
companies, which consisted of reviewing and considering certain financial and
market data for certain other publicly traded companies determined to be
similar to MMR, (iii) a merger and acquisition transaction analysis which
consisted of reviewing certain financial data of selected acquisitions
involving companies whose businesses are similar to that of MMR, and (iv) a
discounted cash flow analysis which consisted of adding the discounted present
value of the projected future cash flows from MMR and the discounted present
value of the terminal value of MMR at the end of the reference period.
MMR Class A Share Analysis. Oppenheimer reviewed current and
historical market prices and trading data of the MMR Class A Shares since April
1, 1994. Oppenheimer noted that: during the approximately two year period ended
April 9, 1996, the MMR Class A Shares traded between a high of $11.375 and a
low of $6.125 per share; during the twelve months ended April 9, 1996, the
trading range of the MMR Class A Shares was between a high of $11.375 and a low
of $7.75 per share; and during the six months ended April 9, 1996, the MMR
Class A Shares traded between a high of $11.375 and a low of $8.25 per share;
and during the period from April 9, 1996 and September 27, 1996, the MMR Class
A Shares traded between a high of $13.00 and a low of $9.75 per share.
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Comparable Company Analysis. In order to determine the value of the
MMR Class A Shares, it examined the financial results and market data of the
following comparable radio broadcast companies, each having an aggregate market
value of less than $400.0 million (the "Small Cap Comparable Companies"): EZ
Communications Inc., SFX Broadcasting, Inc., Osborn Communications and Saga
Communications. Using publicly available information, Oppenheimer analyzed,
among other things, the market values and certain historical and projected
financial data for the Small Cap Comparable Companies.
Oppenheimer reviewed multiples of aggregate value (net debt plus
aggregate equity market value)/broadcast cash flow per share for the Small Cap
Comparable Companies, and noted that, on the basis of available estimates for
1996, these ranged from 9.1x to 15.0x, with an average of 11.8x and a median of
11.5x. In reviewing MMR on a stand-alone basis, Oppenheimer found aggregate
value/broadcast cash flow based on 1996 estimates (and reflecting the proposed
exchange rate of $13.03 per share) would be 12.3x on a stand alone basis and
11.8x assuming completion of the Liberty Acquisition.
Mergers and Acquisitions Transactions Analysis. Oppenheimer reviewed
the consideration paid in certain mergers and acquisitions transactions
involving radio broadcast companies with characteristics it determined to be
similar to those of MMR. Oppenheimer examined 22 transactions announced after
February 1, 1995, including 14 announced since passage of the Recent
Legislation. In analyzing these transactions, Oppenheimer then eliminated
purchases of companies operating in the top ten markets and companies holding
both television and radio broadcast properties. The trimmed average multiple of
aggregate value to broadcast cash flow was 11.4x.
Oppenheimer also reviewed a number of acquisitions of public
companies where the acquiror or its affiliates owns or controls more than 50%
of the target company and noted the premiums paid to the target company's stock
price one day, one week and four weeks prior to the transaction announcement
date. Such premiums ranged from 2.7% to 43.4%, from 0.0% to 50.5% and from 0.0%
to 143.1%, respectively, averaging 25.7%, 28.2% and 35.9%, respectively. The
premiums to the market prices of the MMR Class A Shares represented by the SFX
offer were 15.8%, 35.3% and 15.7%, respectively.
Discounted Cash Flow Analysis. Oppenheimer also prepared a valuation
of MMR based on discounted cash flow techniques. In doing so, it used the
forecasts for MMR supplied by MMR's management. Oppenheimer selected a range of
terminal exit multiples of 8.0 to 10.0 times broadcast cash flow and a range of
discount rates of 11% to 15% based upon its subjective judgments about, among
other things, the capital markets, MMR's prospects and the radio broadcast
industry. The terminal exit multiple represents an estimate of the value of
MMR's broadcast cash flow at the end of the six year period covered by MMR's
management's projections. This analysis implied an equity value range of $ 8.84
to $12.52 per MMR Class A Share. Oppenheimer drew no specific conclusion from
this analysis but subjectively factored its observations from this analysis
into its qualitative assessment of the relevant facts and circumstances.
SFX Valuation
In consideration of the fact that the Merger requires the issuance
of SFX Class A Shares, Oppenheimer also performed an analysis of the SFX Class
A Shares and a discounted cash flow analysis for SFX.
SFX Class A Share Analysis. Oppenheimer reviewed current and
historical market prices and trading data of the SFX Class A Shares since
September 1, 1994. Oppenheimer noted that the SFX Class A Shares traded between
a high of $35.50 and a low of $14.938 per share; during the twelve months
ending April 9, 1996, the SFX Class A Shares traded between a high of $35.50
and a low of $21.25 per share; during the six months ended April 9, 1996, the
SFX Class A Shares traded between a high of $35.50 and a low of $24.75 per
share; and during the period between April 9, 1996 and September 27, 1996, the
SFX Class A Shares traded between a high of $46.56 and a low of $32.875 per
share. Oppenheimer drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
Discounted Cash Flow Analysis. Oppenheimer also prepared a valuation
of SFX based on discounted cash flow techniques. A per share value of SFX was
determined by (i) calculating the present value of SFX, estimated future cash
flows from fiscal 1996 to fiscal 2002, and adding to such amount (ii) the
present value of SFX's terminal value, obtained
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by capitalizing SFX's projected broadcast cash flow in the year 2002 at
multiples of 8.0x to 10.0x. Oppenheimer used a range of discount rates (11.0%
to 15.0%) to calculate the present values referred to above, which reflect
SFX's estimated cost of capital. This analysis yielded values for SFX Shares
ranging from $27.34 to $42.68 per share, with a mid-point valuation of $33.69
per share.
Combined MMR/SFX Analysis
Oppenheimer undertook an analysis of the effect of combining the two
companies.
Discounted Cash Flow Analysis. Oppenheimer prepared a valuation of
SFX and MMR as a combined entity based on discounted cash flow techniques to
determine if the proposed merger enhances stockholder value from the
perspective of an MMR Class A shareholder (other than Messrs. Morrow, Ferrel
and Sillerman). Oppenheimer used forecasts for the combined MMR/SFX entity that
reflected other assumptions provided by the managements of MMR and SFX.
Oppenheimer selected a range of terminal exit multiples of 8.0 to 10.0 times
broadcast cash flow and a range of discount rates of 11% to 15% based upon its
subjective judgments about, among other things, the capital markets, the
prospects of MMR and SFX as a combined entity and the radio broadcast industry.
As part of this analysis, Oppenheimer analyzed certain pro forma effects
resulting from the Merger. Oppenheimer relied upon certain assumptions
described above and the financial projections provided by the managements of
MMR and SFX, including SFX's 1996 and 1997 pro forma broadcast cash flow
resulting from the Merger and the announced acquisitions. Oppenheimer also
reviewed, without independent verification, the estimates prepared by the
respective managements of MMR and SFX of cost reductions and synergies
available as a result of the Merger.
The discounted cash flow methodology yielded values for the SFX
Shares (post-acquisition) ranging from $35.51 to $47.44 per share, with a
midpoint value of $42.66. Oppenheimer concluded that this valuation approach
showed that the Merger would make a positive contribution to the value of the
SFX Shares on a fully-diluted basis.
Contribution Analysis. Oppenheimer reviewed the relative
contribution to the combined company after the Merger of MMR, as a stand alone
enterprise, and SFX, as a stand alone enterprise. Oppenheimer relied upon
estimates of 1996 financial information provided by MMR's and SFX's respective
managements. These estimates implied that MMR would provide an average of 20.4%
and SFX would provide 79.6% of the combined broadcast cash flow. Using
discounted cash flow analysis techniques, the respective share of total
enterprise value represented by MMR and SFX respectively were, 26.9% and 73.1%.
MMR's Stockholders would represent 21.0% of the combined company's outstanding
stock, assuming each MMR Class A Share will be exchanged for $13.03 worth of
SFX Class A Shares, representing an exchange ratio of 0.285. Oppenheimer drew
no specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the relevant
facts and circumstances.
Other Factors. In rendering its opinion, Oppenheimer considered
certain other factors, including the strategic value to SFX of the acquisition
of MMR, the ability of the MMR Stockholders to receive the transaction
consideration on a tax free basis, the existing control relationship which SFX
and its affiliates exercised over MMR and the enhanced role which senior
management of MMR would play in the combined companies.
A fairness opinion is the product of a complex process and cannot
necessarily be partially analyzed or readily summarized. Examining portions of
the analyses summarized above, without considering the analyses as a whole,
could create an incomplete view of the processes underlying Oppenheimer's
opinion. In arriving at its opinion, Oppenheimer considered the results of all
of such analyses as were relevant. The analyses were prepared by Oppenheimer
solely for purposes of providing its opinion as to the fairness of the Class A
Exchange Ratio, from a financial point of view, to the holders of the MMR Class
A Shares (other than Messrs. Morrow, Ferrel and Sillerman). Analyses based upon
forecasts of future results are inherently subject to substantial uncertainties
and are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses may actually be sold
or combined. Accordingly, Oppenheimer expresses no opinion as to what the value
of the SFX Class A Shares actually will be when issued to holders of the MMR
Class A Shares pursuant to the Merger or the price at which the SFX Class A
Shares will trade subsequent to the Merger. As described above, Oppenheimer's
opinion and presentation to the MMR Independent Committee was one of many
factors taken into consideration by the MMR
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Independent Committee in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analyses performed by Oppenheimer.
Oppenheimer is a nationally recognized investment banking firm. As
part of its investment banking services, it is regularly engaged in the
valuation of businesses and securities in connection with mergers,
acquisitions, sales and distributions of listed and unlisted securities and
private placements. Oppenheimer has performed investment banking and other
services for MMR in the past and was co-manager of the proposed offering of MMR
Class A Shares, which was the subject of the Equity Registration Statement
referred to above.
In the ordinary course of its business, Oppenheimer may actively
trade the securities of MMR and SFX for its own account or for the accounts of
its customers and accordingly may at any time hold a long or short position in
such securities.
Oppenheimer was engaged to render financial advisory services to the
MMR Independent Committee in connection with the proposed transaction and
received a financial advisory fee of $100,000 upon its engagement, and fairness
opinion fees of $325,000, the receipt of which were not dependent on the nature
of the opinion rendered. MMR has also agreed to reimburse Oppenheimer for its
reasonable out-of-pocket expenses and to indemnify Oppenheimer and certain
related persons against certain potential liabilities in connection with the
engagement of Oppenheimer, including certain potential liabilities under the
federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the SFX Board and the MMR
Board, stockholders should be aware that certain members of SFX's and MMR's
management and Boards of Directors have certain interests in the Merger that
may be construed to differ from, and are in addition to, the interests of the
MMR Stockholders and SFX Stockholders generally.
While in the Merger all MMR Stockholders are to receive the same
economic consideration, the holders of MMR Class A Shares are to receive SFX
Class A Shares, which have one vote per share, Messrs. Sillerman, Ferrel and
Morrow, as the holders of MMR Class B Shares and MMR Original Preferred Shares,
will receive SFX Class B Shares which have ten votes per share on most matters,
assuming Proposal B is approved. Mr. Sillerman, the Chairman of the Board and
Chief Executive Officer of SFX, and a significant stockholder of MMR, may be
deemed to be the beneficial owner of approximately 12.4% and 14.7% of the
outstanding SFX Shares and the MMR Shares, respectively, which (excluding
options and warrants to acquire SFX Shares or MMR Shares) represent
approximately 57.4% and 49.5% of the combined voting power of the outstanding
SFX Shares and the MMR Shares, respectively. If the Merger is approved by the
holders of the SFX Shares and the MMR Shares, Mr. Sillerman may be deemed to be
the beneficial owner (excluding options and warrants) of approximately 54.3% of
the combined voting power of the SFX Shares after the Merger, assuming that the
Proposal B is approved or approximately 52.6% if Proposal B is not approved. In
addition, (i) Mr. Sillerman is the principal stockholder of SCMC, which received
a $2.0 million non-refundable payment for providing investment banking services
to MMR in connection with the Merger (which payment was made by SFX on behalf of
MMR), and (ii) SFX has agreed to forgive, upon consummation of the Merger, a
$2.0 million loan to SCMC plus accrued and unpaid interest thereon and to issue
warrants to SCMC to purchase up to 600,000 SFX Class A Shares, which will be
immediately exercisable, at an initial exercise price of $33.75 per share (the
market price at the time the financial consulting arrangement was terminated),
of which warrants to purchase up to 300,000 shares are immediately exercisable
and the exercise of the remaining warrants is subject to the approval of
Proposal 4. Mr. Howard Tytel, the Executive Vice President, Secretary and a
Director of SFX, is an employee and stockholder of SCMC. See "Certain
Relationships and Related Transactions."
Kenneth Harmonay, a Director of MMR who abstained from voting on the
Merger, is an employee of, and was selected for nomination by, Huff. The
approval of Huff, as the holder of certain debt securities of MMR, is required
to consummate the Merger. Pursuant to the Huff Consent, at or prior to the
Effective Time, the MMR Senior Subordinated Debentures and the MMR Senior
Cumulative Preferred Shares held by Huff are to be redeemed for $21.0 million,
representing a substantial premium. In addition, SFX agreed to issue certain
additional warrants to Huff.
See "The Merger Agreement--Repayment of Certain Indebtedness."
Upon the consummation of the Merger, it is anticipated that Mr.
Ferrel, the President, Chief Operating Officer and Chief Executive Officer and
a Director of MMR, will become the Chief Executive Officer and a Director of
SFX and, in anticipation of such employment and for serving as a consultant to
SFX, Mr. Ferrel has received stock options from SFX to purchase 50,000 SFX
Class A Shares. SFX will record a charge to earnings in the quarter ended
September 30, 1996 in connection with these options of approximately $350,000.
See "Certain Relationships and Related Transactions--Issuance of Options to
Ferrel." Pursuant to the terms of the Merger Agreement, Mr. Ferrel currently
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serves as a consultant to SFX. SFX and Mr. Ferrel are negotiating the terms of
his employment agreement with SFX, the terms of which may provide him with
substantial benefits even if the Merger does not occur. See "Remuneration of
Management of SFX--Employment Agreements."
In the event that the Merger is consummated, it is anticipated that
Bruce Morrow, the Chairman of the Board of MMR, will receive a severance payment
in an amount currently expected not to exceed $100,000.
In addition, pursuant to the Merger Agreement, SFX has agreed to
maintain directors' and officers' liability insurance equivalent in amount of
coverage to MMR's current policies for a period of six years following the
Effective Time, subject to certain limitations on the amounts SFX is required
to expend to maintain such insurance. SFX also has agreed that, following the
Effective Time, it will indemnify MMR's directors and officers against any
liability arising out of actions or omissions prior the Effective Time.
In connection with the Merger, each of Messrs. Kramer and O'Grady,
the two SFX Independent Directors, served as members of the SFX Independent
Committee, evaluated the terms of the Merger and the SCMC Termination Agreement
and received a one-time fee of $50,000. Such fee was payable regardless of
whether or not a Proposal was made and whether or not the Merger was approved
by the SFX Independent Committee, the SFX Board or the SFX Stockholders. Such
fee has been paid. In connection with the Merger, each of Messrs. Simon and
Schumer, the two MMR Independent Directors, served as member of the MMR
Independent Committee, evaluated the terms of the Merger and received a
one-time fee of $20,000. Such fee was payable regardless of whether or not a
Proposal was made and whether or not the Merger was approved by the MMR
Independent Committee, the MMR Board or the MMR Stockholders. Such fee has been
paid.
In the Merger, the holders of MMR Series B Preferred Shares, which
are convertible into MMR Class A Shares only if a certain Broadcast Cash Flow
test is met in 1997 and which can be redeemed by MMR for $0.01 per share if
such test is not met, will receive SFX Class A Shares. Such SFX Class A Shares
will not be subject to any Broadcast Cash Flow or other test nor will they be
subject to redemption by SFX. The holders of the MMR Series B Preferred Shares
are directors or officers of MMR or SCMC. See "Management of MMR--Preferred
Stock Issuance." In addition, if Proposal B is approved, the MMR Class B Shares
and MMR Original Preferred Shares held by Messrs. Sillerman, Ferrel and Morrow
will be exchanged in the Merger for SFX Class B Common Stock, which has ten
votes per share on most matters.
Pursuant to the agreement governing the MMR Class A Warrants and the
MMR Class B Warrants, MMR is required to pay a fee of 4% of the exercise price
for each MMR Class A Warrant ($0.31) or MMR Class B Warrant ($0.46) exercised
to either D.H. Blair Investment Banking Corp. ("D.H. Blair") or Americorp
Securities, Inc. ("Americorp"). Both D.H. Blair and Americorp hold over 5% of
the outstanding MMR Class A Shares. MMR anticipates that such fee will
aggregate approximately $570,400 for the exercise of all MMR Class A Warrants
in connection with the MMR Warrant Redemption.
See "--Opinions of Financial Advisors" for a discussion of the fees
to be paid to Furman Selz and Oppenheimer for serving as financial advisor to
the SFX Independent Committee and the MMR Independent Committee, respectively.
For a discussion of certain additional potential conflicts of interest, see
"Certain Relationships and Related Transactions."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of MMR, including direct
costs of the Merger, will be allocated to the assets acquired and liabilities
assumed based upon their estimated relative fair values, with the excess
purchase consideration allocated to goodwill. SFX amortizes goodwill using the
straight-line method over a period of 40 years.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Baker & McKenzie, counsel to SFX, the following
discussion sets forth the material federal income tax consequences of the
Merger to MMR and holders of MMR Shares and MMR Preferred Shares. The
discussion is based on current law. The discussion does not address aspects of
federal taxation other than income taxation, nor does it address all aspects of
federal income taxation including, without limitation, aspects of federal
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income taxation that may be applicable to particular investors. In addition, it
does not address the state, local or foreign tax consequences of the Merger, if
any.
HOLDERS OF MMR SHARES AND MMR PREFERRED SHARES ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER.
In the opinion of Baker & McKenzie, counsel of SFX, the principal
federal income tax consequences of the Merger to MMR and holders of MMR Shares
and MMR Preferred Shares will be as follows: (a) the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and SFX,
Acquisition Sub and MMR will each be a party to the reorganization within the
meaning of Section 368(b) of the Code; (b) no gain or loss will be recognized
by holders of MMR Shares or MMR Preferred Shares upon their receipt of SFX
Shares in exchange for their MMR Shares or MMR Preferred Shares, except that
holders of MMR Shares or MMR Preferred Shares who receive cash proceeds in lieu
of fractional SFX Shares will recognize gain or loss equal to the difference,
if any, between such proceeds and the tax basis of MMR Shares or MMR Preferred
Shares allocated to their fractional share interests, and such gain or loss, if
any, will constitute capital gain or loss if their fractional share interests
are held as capital assets at the time of their sale; (d) capital gain or loss
will be long-term capital gain or loss if the fractional share interests
exchanged are held for more than one year; (e) the tax basis of SFX Shares
received by holders of MMR Shares or MMR Preferred Shares will be the same as
the tax basis of the MMR Shares or MMR Preferred Shares exchanged therefor less
the tax basis allocated to fractional share interests; and (f) the holding
period of SFX Shares in the hands of holders of MMR Shares or MMR Preferred
Shares will include the holding period of their MMR Shares or MMR Preferred
Shares exchanged therefor, provided that such MMR Shares or MMR Preferred
Shares are held as a capital asset immediately prior to the Merger.
It is a condition to the Merger that SFX and MMR receive opinions
from Baker & McKenzie, counsel to SFX, reasonably satisfactory in form and
substance to MMR and the counsel of the MMR Independent Committee, Paul
Hastings, one dated two business days prior to the date this Joint Proxy
Statement/Prospectus was first mailed to holders of MMR Shares and SFX Shares
and the other dated on the date the Merger is consummated, to the effect that,
on the basis of certain facts and assumptions, including facts and assumptions
based on representations of SFX and MMR, certain of which are attached to the
opinions, the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code. No ruling has or will be obtained from the Internal
Revenue Service (the "Service") with respect to this issue. The above mentioned
opinions are, therefore, not binding on the Service or the courts.
REGULATORY MATTERS
As a result of the elimination of the national ownership limits and
the liberalization of the local ownership limits effected by the Recent
Legislation, radio station acquisitions may be subject to antitrust review by
the Antitrust Agencies, even if approved by the FCC. SFX and MMR have obtained
FCC approval of the Merger. At any time before or after consummation of the
Merger, the Antitrust Agencies could take such action under the antitrust laws
as they deem necessary or desirable in the public interest, including seeking
to enjoin the consummation of the Merger or seeking divestiture of certain of
the radio station assets of the combined companies. Reporting the Merger to
federal Antitrust Agencies under the HSR Act is not required because Mr.
Sillerman is deemed the "ultimate parent entity" of both SFX and MMR. The
Antitrust Agencies have not articulated the standard that may be applied in an
antitrust review in the radio broadcasting industry. There can be no assurance
that antitrust review by the Antitrust Agencies will not otherwise affect the
combined companies' business or strategy. At any time before or after
consummation of the Merger, any state in which the combined companies will
operate radio stations could take such action under its antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of
certain radio stations. However, SFX believes that any such action is unlikely
to be taken by the state authorities. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
There can be no assurance that there will not be changes in the
current regulatory requirements, the imposition of additional regulations or
the creation of new regulatory agencies, which changes would restrict or
curtail the ability of SFX to acquire, operate and dispose of stations or, in
general, to compete profitably with other operators of radio and other media
properties. Moreover, there can be no assurance that there will not be other
regulatory changes, including
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aspects of deregulation, that will result in a decline in the value of
broadcasting licenses held by SFX or adversely affect SFX's competitive
position.
FEDERAL SECURITIES LAW CONSEQUENCES
All SFX Shares received by the MMR Stockholders in the Merger will
be freely transferable under the federal securities laws, except that (i) SFX
Shares received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of MMR prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of SFX) or as otherwise permitted under the Securities
Act, and (ii) SFX Shares received by certain institutional and other investors
(collectively, the "Institutional Investors") who have agreed to vote the MMR
Class A Shares, if any, held by them on the record date for the MMR Special
Meeting in favor of the Merger may not be registered in the registration
statement of which this Joint Proxy Statement/Prospectus forms a part. Rule 145
generally provides that "affiliates" of an issuer may not sell securities of the
issuer unless pursuant to an effective registration statement or unless pursuant
to the volume and manner of sale limitations of Rule 144. Rule 144 generally
requires that any sales made by an affiliate not exceed 1% of the outstanding
shares of the issuer in any three month period and that such sales be made in
unsolicited, open market "brokers transactions" for a three year period
following the Merger. Persons who may be deemed to be affiliates of SFX or MMR
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. SFX
has agreed with the Institutional Investors, who as of the date of signing
their respective voting agreements owned an aggregate of 741,946 MMR Class A
Shares, that it will file and use its best efforts to have declared effective
under the Securities Act, on or before the Effective Time, a registration
statement permitting the resale of the SFX Shares to be issued to the
Institutional Investors in the Merger.
The Merger Agreement requires MMR to use all commercially reasonable
efforts to obtain from each of MMR's affiliates a written agreement to the
effect that such person will not sell, transfer or otherwise dispose of any of
the SFX Shares issued to such person in the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder. Approximately 95,491 SFX Class A Shares (including SFX Class A
Shares to be issued upon the exercise of options and warrants) and 198,840 SFX
Class B Shares will be affected by these restrictions.
NASDAQ NATIONAL MARKET QUOTATION
The SFX Class A Shares, the MMR Class A Shares, the MMR Class A
Warrants and the MMR Class B Warrants are quoted on the Nasdaq National Market.
The MMR Units are quoted on the Nasdaq SmallCap Market. No other securities of
either SFX or MMR (including, without limitation, the SFX Class B Shares) are
quoted on Nasdaq or listed on an exchange. Upon the consummation of the MMR
Warrant Redemption, the MMR Class A Warrants and the MMR Units will cease to be
quoted on the Nasdaq National Market and the Nasdaq SmallCap Market,
respectively, and public trading of such securities will cease. Upon the
consummation of the Merger, the MMR Class A Shares and the MMR Class B Warrants
will cease to be quoted on the Nasdaq National Market, and public trading of
such securities will cease.
SFX has made an application for quotation on the Nasdaq National
Market of the SFX Class A Shares issuable in the Merger and it is anticipated
that, prior to the Effective Time, such shares will be approved for quotation
thereon.
APPRAISAL RIGHTS
Holders of MMR Class A Shares are not entitled to dissenters'
appraisal rights under the DGCL in connection with the Merger because both the
MMR Class A Shares and the SFX Class A Shares to be issued pursuant to the
Merger are quoted on the Nasdaq National Market.
Holders of SFX Shares are not entitled to dissenters' appraisal
rights under the DGCL in connection with the Merger.
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Holders of MMR Class B Shares, MMR Original Preferred Shares and MMR
Series B Preferred Shares who comply with the procedures set forth in Section
262 of the DGCL will be entitled to have their shares appraised by the Court of
Chancery in the State of Delaware and to receive the "fair value" of such
shares, as determined by such court. However, MMR believes that no such holders
(all of whom are currently executive officers and/or directors of MMR or SCMC,
MMR's financial advisor) will exercise dissenters' appraisal rights.
CERTAIN LEGAL PROCEEDINGS
In a complaint (Index No. 602056/96) dated April 18, 1996, Paul
Pops, who purports to be a stockholder of MMR, brought suit in the Supreme
Court of the State of New York against MMR, each of the directors of MMR, SFX
and Mr. Sillerman seeking to enjoin the Merger, or, in the alternative, seeking
monetary damages. The suit alleges that the consideration to be paid to the MMR
Stockholders in the Merger is unfair and grossly inadequate. The suit also
alleges that in connection with entering into the Merger Agreement, the
directors of MMR violated their fiduciary duties to MMR and its stockholders
and that SFX aided and abetted such violation. The complaint also alleges that
the action should be certified as a class action representing the interests of
the stockholders of MMR. The defendants filed a motion to dismiss the complaint
for failure to state a cause of action. On September 25, 1996, the parties
entered into a Memorandum of Understanding, pursuant to which the parties have
reached an agreement in principle providing for the settlement of the action.
Pursuant to the Settlement, the plaintiff has agreed that the Exchange Ratio as
set forth in Amendment No. 3 is fair to the public shareholders of MMR. The
Settlement provides for SFX to pay plaintiff's counsel's fees as approved by
the Court. The Settlement is conditioned upon the (i) consummation of the
Merger, (ii) completion of certain confirmatory discovery, and (iii) approval
of the Court. Pursuant to the Settlement, the defendants have denied, and
continue to deny, that they committed any violations of law or have acted in
bad faith. There can be no assurance that the Court will approve the Settlement
on the terms and conditions provided for therein, or at all. See "Merger
Agreement--Conditions."
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex B to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified by reference to the full text of the Merger Agreement.
THE MERGER
If the Merger Agreement and the Merger are approved by the SFX
Stockholders and the MMR Stockholders (Proposal 1 and Proposal A,
respectively), the SFX Stockholders approve Proposal 2 and the other conditions
to the Merger are satisfied or waived, at the Effective Time, Acquisition Sub
will be merged with and into MMR, with MMR continuing as the surviving
corporation and a wholly-owned subsidiary of SFX. The time at which the Merger
becomes effective in accordance with the DGCL is referred to as the "Effective
Time." The Merger is intended to qualify as a tax-free reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
Upon consummation of the Merger, pursuant to the Merger Agreement,
each issued and outstanding MMR Share and MMR Preferred Share (other than
shares held in the treasury of MMR or by SFX or any wholly-owned subsidiary of
SFX, all of which will be canceled) will be converted into the right to receive
a fraction of an SFX Share valued at $12.50, if the SFX Class A Stock Price is
between $32.00 and $44.00 per share. Each issued and outstanding MMR Share and
MMR Preferred Share is to receive an additional fraction of an SFX Share with a
value equal to 30% of the extent to which the SFX Class A Stock Price exceeds
$44.00 per share. In the event that the SFX Class A Stock Price is less than
$32.00 per share, then each issued and outstanding MMR Share and MMR Preferred
Share will be converted into the right to receive 0.3750 of an SFX Share
(implying a value of less than $12.00 per MMR Share). The consideration to be
received is more fully described in the definition of "Exchange Ratio" set
forth below. In the event that the SFX Class A Stock Price is less than $27.33
per share, under certain circumstances, each issued and outstanding MMR Share
and MMR Preferred Share is to receive a fraction of an SFX Share valued at
$10.25 per share. See "--Termination; Fees and Expenses." The Exchange Ratio is
subject to further adjustment in the event that fewer than 920,000 MMR Class B
Warrants are exchanged in the MMR Exchange Offer.
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Upon consummation of the Merger, and subject to certain conditions,
the outstanding securities of MMR will, subject to prior FCC approval and to
applicable dissenters' rights, if any, be converted into SFX Shares, at the
Exchange Ratio as follows: (i) each outstanding MMR Class A Share and MMR
Series B Preferred Share will be converted into a fraction of a SFX Class A
Share and (ii) each outstanding MMR Class B Share and MMR Original Preferred
Share will be converted into a fraction of an SFX Class B Share. In the event
that the stockholders of MMR fail to approve Proposal B, then each outstanding
MMR Class B Share and MMR Original Preferred Share will be converted at the
Effective Time into a fraction of an SFX Class A Share. In the event that the
SFX Stockholders do not approve Proposal 2, SFX will not be able to consummate
the Merger.
Based upon the shares of SFX and MMR outstanding on October 1, 1966
and assuming that the SFX Class A Stock Price was $43.9875 (the value
calculated as if October 1, 1996 was the Effective Time), resulting in an
Exchange Ratio of 0.2842, (i) the MMR Stockholders would receive approximately
2,466,000 SFX Class A Shares (including SFX Class A Shares to be issued upon
the exercise of options and warrants) and approximately 198,940 SFX Class B
Shares in the Merger, representing approximately 29.3% of the total number of
SFX Shares and approximately 24.0% of the combined voting power of the SFX
Shares, and (ii) the MMR Stockholders (other than Messrs. Morrow, Ferrel and
Sillerman) would receive approximately 2,328,873 SFX Class A Shares and no SFX
Class B Shares in the Merger, representing approximately 25.6% of the total
number of SFX Shares and approximately 12.5% of the combined voting power of
the SFX Shares.
If any holder of MMR Shares or MMR Preferred Shares would be
entitled to receive a number of SFX Shares that includes a fraction of an SFX
Share, then, in lieu of such fractional share, such holder will be entitled to
receive cash from SFX in an amount equal to the SFX Class A Stock Price
multiplied by such fraction.
Promptly after the Effective Time, transmittal forms will be mailed
to each holder of record of MMR Shares and MMR Preferred Shares to be used in
forwarding his or her certificates evidencing such shares for surrender and
exchange for certificates evidencing the SFX Shares to which he or she has
become entitled and, if applicable, cash in lieu of a fractional SFX Share.
After receipt of such transmittal form, each holder of certificates formerly
representing MMR Shares or MMR Preferred Shares should surrender such
certificates to ChaseMellon Shareholder Services, LLC (the "Exchange Agent"),
and each such holder will receive in exchange therefor certificates evidencing
the whole number of SFX Shares to which he or she is entitled and any cash
which may be payable in lieu of a fractional SFX Share. Such transmittal forms
will be accompanied by instructions specifying other details of the exchange.
MMR STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing MMR Shares or
MMR Preferred Shares, until so surrendered and exchanged, will be deemed, for
all purposes, to evidence only the right to receive the number of SFX Shares
which the holder of such certificate is entitled to receive and the right to
receive any cash payment in lieu of a fractional SFX Share. The holder of such
unexchanged certificate will not be entitled to receive, dividends or other
distributions payable by SFX, if any, until the certificate is surrendered, at
which time such dividends and distributions, together with any cash payment in
lieu of a fractional SFX Share, will be paid without interest.
THE EXCHANGE RATIO
For purposes of the Merger Agreement, subject to adjustment as
described below, "Exchange Ratio" means the number of SFX Class A Shares or SFX
Class B Shares, as the case may be, to be issued in the Merger equal to the
quotient obtained by dividing $12.50 by the average of the Reported Price (as
defined below) for the 20 consecutive trading days ending on the fifth trading
day prior to the Effective Time (such average Reported Price being hereinafter
referred to as the "SFX Class A Stock Price" and the fifth trading day prior to
the Effective Time being hereinafter referred to as the "Determination Date"),
on the Nasdaq National Market; provided, however, that (1) in the event that
the SFX Class A Stock Price exceeds $44.00, then the Exchange Ratio shall be
the quotient obtained by dividing (i) the sum of (A) $12.50, plus (B) the
product of (I) thirty percent (30%) multiplied by (II) the difference between
the SFX Class A Stock Price and $44.00 by (ii) the SFX Class A Stock Price; or
(2) in the event that the SFX Class A Stock Price is less than $32.00, then the
Exchange Ratio shall be 0.3750 (implying a value of less than $12.00 per MMR
Share), subject to possible increase at the option of SFX as described below
under "--Termination; Fees and Expenses." For
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purposes of the Merger Agreement, "Reported Price" means, with respect to each
trading day, the average of the last reported bid and asked prices of the SFX
Class A Shares of SFX on such trading day. The Exchange Ratio is also subject
to further adjustment in the event that fewer than 920,000 MMR Class B Warrants
are exchanged in the MMR Exchange Offer.
There are 1,055,437 MMR Class A Warrants and 1,840,000 MMR Class B
Warrants outstanding. Each MMR Class A Warrant and MMR Class B Warrant entitles
the holder to purchase one MMR Class A Share at $7.75 and $11.50, respectively,
subject to adjustment, until March 22, 1999, and is subject to redemption at a
redemption price of $0.01 per warrant on 30 days prior written notice if the
closing price of MMR Class A Shares exceeds $10.75 and $16.00, respectively,
for 20 consecutive trading days ending within five days of the notice. Since
the conditions precedent for a redemption call have been met, MMR intends to
commence the MMR Warrant Redemption on or about the date of this Joint Proxy
Statement/Prospectus. It is expected that all MMR Class A Warrants will be
exercised and converted into an equal number of MMR Class A Shares. The Merger
Agreement provides that MMR shall use all commercially reasonable efforts to
commence the MMR Exchange Offer to exchange MMR Class A Shares for all
outstanding MMR Class B Warrants, which offer shall not be greater than
two-tenths (.2) of an MMR Class A Share for each such MMR Class B Warrant. In
the event that MMR is unsuccessful in obtaining the exchange of at least
one-half of the outstanding MMR Class B Warrants in the MMR Exchange Offer, the
Exchange Ratio shall be adjusted downward to the extent necessary to reduce the
total dollar value of the SFX Shares that would have otherwise been received by
security holders of MMR on the Effective Time by a dollar amount equal to the
product of $2.50 times the number of MMR Class B Warrants outstanding
immediately after such exchange in excess of 920,000. In calculating the total
value of SFX Class A Shares and SFX Class B Shares received by MMR security
holders, each SFX Class B Share shall be deemed to have the same value as an
SFX Class A Share. On or about the date of this Joint Proxy
Statement/Prospectus, MMR intends to commence the MMR Exchange Offer. There can
be no assurance that the holders of more than 50% of the MMR Class B Warrants
will accept the MMR Exchange Offer. In the event that no MMR Class B Warrants
are exchanged in the MMR Exchange Offer, the consideration to be received by the
MMR security holders would be reduced by approximately $0.39 per share. The last
sale price of a MMR Class B Warrant on the Nasdaq National Market on September
30, 1996 was $2 19/32. If no outstanding MMR Class B Warrants were exchanged in
the MMR Exchange Offer, the value of SFX Shares to be issued in the Merger would
be reduced by $2,300,000. If no outstanding MMR Class A Warrants were converted
into MMR Class A Shares and no MMR Class B Warrants were exchanged in the MMR
Exchange Offer, assuming an Exchange Ratio of 0.2842, such warrants would be
converted into warrants to purchase approximately 822,883 SFX Class A Shares
subject to the receipt of applicable prior FCC approval. Any MMR Class A Shares
issued upon redemption of MMR Class A Warrants or in the MMR Exchange Offer will
be issued after the record date and therefore will not be entitled to vote at
the MMR Special Meeting.
REPAYMENT OF CERTAIN INDEBTEDNESS
Pursuant to the terms of the Merger Agreement, it is a condition to
SFX's obligation to consummate the Merger that on or prior to the Effective
Time, MMR have repaid or provided for the repayment of all amounts outstanding
under the Finova Loan. As of September 30, 1996, there was approximately $21.7
million outstanding under the Finova Loan. The Merger Agreement provides that,
on or prior to the Effective Time, MMR shall use its best efforts to repay all
amounts due under the MMR Senior Subordinated Debentures and redeem all shares
of the MMR Senior Cumulative Preferred Shares. All of the MMR Senior
Subordinated Debentures and all of the MMR Senior Cumulative Preferred Shares
are held by Huff. The Huff Consent Agreement contains Huff's consent to the
Merger on the terms and conditions set forth therein. Pursuant to the Huff
Consent Agreement, MMR has agreed to repay and redeem in full, at or
immediately prior to the Effective Time, the MMR Senior Subordinated Debentures
and the MMR Senior Cumulative Preferred Shares for an aggregate purchase price
of $21.0 million plus accrued and unpaid interest and dividends through the
date of repayment and redemption. In the Huff Consent Agreement, SFX agreed,
among other things, at the Effective Time, to issue to Huff warrants to acquire
that number of SFX Class A Shares equal to 175,000 multiplied by the Exchange
Ratio. Approximately 57% of such warrants shall be exercisable at a price
determined by dividing $11.75 by the Exchange Ratio, approximately 14% of such
warrants shall be exercisable at a price determined by dividing $12.00 by the
Exchange Ratio, approximately 14% of such warrants shall be exercisable at a
price determined by dividing $12.25 by the Exchange Ratio and the remaining
warrants shall be exercisable at a price determined by dividing $12.50 by the
Exchange Ratio. The Consent Agreement provides that Huff will consent to the
consummation of the Merger provided that the MMR Senior Subordinated Debentures
and MMR Senior Cumulative Preferred Shares are repaid and redeemed and certain
other conditions have been satisfied prior to April 30, 1997, provided that
such consent may be extended
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to December 31, 1997 in the event that on or prior to April 30, 1997, the MMR
Senior Subordinated Debentures and MMR Senior Cumulative Preferred Shares are
repaid and redeemed and MMR issues a warrant in respect of 175,000 MMR Class
A Shares. It is anticipated that, simultaneously with the consummation of the
Merger, SFX, will fund the repayment of the Finova Loan and the redemption of
the MMR Senior Subordinated Debentures and the MMR Senior Cumulative Preferred
Shares.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties by SFX and Acquisition Sub, on the one hand, and MMR. on the other,
relating to, among other things, (i) each party's and, with respect to MMR, its
subsidiaries' organization and corporate good standing, (ii) each party's
capital structure, (iii) each party's corporate power and authority to execute,
deliver and perform the Merger Agreement, (iv) lack of conflicts with
certificates of incorporation or bylaws, applicable statutes and regulations
and material agreements, other than as specified, (v) each party's licenses and
permits from governmental authorities, (vi) documents filed by each of MMR and
SFX with the Commission and the accuracy of the information contained therein,
(vii) the absence, since December 31, 1995, of certain changes, other than
those disclosed in the Merger Agreement, (viii) litigation, (ix) employee
benefits, (x) taxes, (xi) in the case of MMR, material contracts, (xii)
compliance with the Communications Act and FCC rules and regulations, other
than as disclosed, (xiii) in the case of MMR, change in control provisions in
contracts, agreements and understandings, (xiv) in the case of MMR,
environmental laws, (xv) in the case of MMR, real property owned and leased,
and (xvi) interested party transactions.
COVENANTS
MMR has agreed that, until the completion of the Merger, except as
contemplated in the Merger Agreement or with the consent of SFX, it will,
among other things: (i) conduct the operation of its radio stations in the
ordinary course of business consistent with past practice, (ii) use its
reasonable efforts to preserve substantially intact its business organization
and to keep available the services of its current officers, employees and
consultants, (iii) preserve its current relationships with its customers,
suppliers and other persons with which it has significant business relations,
(iv) not make any commitment or incurrence of any capital expenditure in
excess of $100,000, (v) enter into any material contract other than for
advertising or programming, consistent with past practice, or (vi) incur any
indebtedness in excess of $100,000. In addition, SFX has agreed that, until
the completion of the Merger, except as contemplated in the Merger Agreement
or with the consent of MMR, it will, among other things: (i) conduct the
operation of its radio stations in the ordinary course of business consistent
with past practice, (ii) use its reasonable efforts to preserve substantially
intact its business organization and to preserve the current relationships
with its customers, suppliers and other persons with which it has significant
business relations, (iii) except in a manner consistent with past practice,
enter into any material contract and (iv) not amend, supplement or otherwise
modify the SCMC Termination Agreement. See "Certain Relationships and Related
Transactions--Relationship of SFX with SCMC."
Pursuant to the Merger Agreement, each of SFX and MMR has agreed to
take such reasonable actions and to execute and deliver such documents as may
be necessary to complete the Merger, and to proceed as expeditiously as
practicable to file an application requesting FCC consent to the transfer of
control of the radio station ownership changes resulting from the Merger. The
application was filed with the FCC on August 4, 1996 and such application was
granted on September 4, 1996.
The Merger Agreement provides that MMR shall, at the request of SFX,
use all commercially reasonable efforts to cooperate with SFX in connection
with the solicitation of the purchase of all of the outstanding MMR UPOs and
MMR IPO Warrants. Each MMR UPO entitles the holder thereof to purchase one MMR
Unit during the period from March 23, 1997 until March 22, 1999, except that,
upon a merger involving MMR, the holders of the MMR UPOs have the right to
exercise the MMR UPOs and the warrants included therein and receive the kind
and amount of securities receivable by a holder of MMR Class A Shares in the
merger. The MMR IPO Warrants provide that, in the event of a merger involving
MMR, the surviving corporation shall execute a supplemental warrant assuming
the MMR IPO Warrants.
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The Merger Agreement provides that, after the Effective Time, the
corporation surviving the merger (the "Surviving Corporation") will indemnify,
to the fullest extent permitted by DGCL, each person who was as of the date of
the Merger Agreement or who has been at any time prior to the date of the
Merger Agreement or who becomes prior to the Effective Time, an officer, or
director of MMR or any of its subsidiaries, (the "Indemnified Parties"),
against all losses, expenses (including reasonable attorneys' fees), claims,
damages, liabilities and amounts paid in connection with any threatened or
actual claim, action, suit, proceeding or investigation (a "Claim") based on
the fact that the Indemnified Party is or was an officer or director of MMR or
any of its subsidiaries, and which pertains to any matter existing or arising
out of actions or omissions occurring at or prior to the Effective Time. SFX
has unconditionally guaranteed the Surviving Corporation's indemnity
obligation. The Surviving Corporation is to maintain in effect, for a period of
six years after the Effective Time, officers' and directors' liability
insurance currently maintained by MMR, covering the officers and directors
currently covered thereby, provided that the Surviving Corporation is not
required to pay annual premiums in excess of 200% of MMR's current annual
premiums.
SFX has agreed, at or prior to the Effective Time, to amend its
Bylaws to increase the number of directors constituting the Board of Directors
by two and to (i) cause Mr. Ferrel to be named a Director and the Chief
Executive Officer of SFX and (ii) name an additional SFX Independent Director
to the SFX Board. In accordance with such provisions, SFX has nominated Edward
F. Dugan for election to the SFX Board as an SFX Independent Director.
NON-SOLICITATION
The Merger Agreement provides that MMR will not, nor will it
authorize or permit any of its officers, directors, employees, investment
bankers, financial advisors or attorneys to, initiate, solicit or encourage, or
take any other action to facilitate, any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to any
Competing Transaction. The agreement provides that MMR shall advise SFX of any
such inquiry or proposal. As used in the Merger Agreement, "Competing
Transaction" means any of the following involving MMR or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination or other similar transaction, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 25% or more of the assets of
MMR and its subsidiaries, taken as a whole, in a single transaction or series
of transactions, (iii) any tender offer or exchange offer for 25% or more of
any outstanding class of capital stock of MMR, (iv) the acquisition by any
person of beneficial ownership, or the right to acquire beneficial ownership,
of 30% of more of the outstanding shares of any class of capital stock of MMR
(other than by persons affiliated with Robert F.X. Sillerman) or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing. The
agreement does not prohibit MMR or its representatives from (i) furnishing
information to, or entering into discussions or negotiations with, any person
in connection with an unsolicited bona fide written proposal to acquire MMR
pursuant to a merger, consolidation, share exchange, business combination or
other similar transaction or to acquire all or substantially all of the assets
of MMR if (a) the MMR Board, after consultation with legal counsel and its
investment banker, determines in good faith that such action is required in
order for the MMR Board to comply with its fiduciary duties imposed by the DGCL
and (b) prior to furnishing such information to, or entering into discussions
or negotiations with, such person, MMR provides prompt notice to SFX of its
intention to do so and such person enters into a confidentiality agreement with
MMR, or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with
respect to a Competing Transaction.
CONDITIONS
The closing of the Merger Agreement is subject to certain
conditions, including, among others: (i) the approval of the Merger by the
stockholders of SFX and MMR pursuant to Proposals 1 and A, (ii) the number of
SFX Class A Shares which SFX shall have authority to issue shall have been
increased pursuant to Proposal 2, (iii) no governmental authority shall have
enacted, issued, promulgated, enforced or entered any order, stay, decree,
judgment or injunction or statute, rule or regulation which has the effect of
making the Merger illegal or otherwise prohibiting the consummation of the
Merger, (iv) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or terminated, (v) the receipt of FCC approval of the
radio station ownership changes to result from the Merger, (vi) SFX and MMR
shall each have received an opinion from Baker & McKenzie, counsel to SFX,
that, among other things, the Merger will be treated for federal income tax
purposes as a reorganization qualifying under Section 368(a) of the Code and
(vii) all other material consents, authorizations, orders and approvals of any
third party (including Huff, as the holder of the MMR Senior Subordinated
Debentures and the MMR Senior Cumulative Preferred Stock) or governmental body
required in connection with the Merger shall have been obtained. In addition,
the obligation of SFX
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to complete the Merger is subject to, among other things, there having been no
material adverse change in the financial condition, results or operations or
business of MMR at the time of the closing, and the obligation of MMR to
complete the Merger is subject to, among other things, there having been no
material adverse change in the financial condition, results or operations or
business of SFX at the time of the closing.
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated (i) by the mutual consent of
the Boards of Directors of SFX and MMR, (ii) by either party not then in
default under the Merger Agreement if the Effective Time shall not have
occurred on or before December 31, 1997 (which date shall be extended to June
30, 1998 in the event that all of the conditions to the Merger shall have been
satisfied except for certain conditions relating to the approval of the FCC),
(iii) by SFX, if MMR shall have failed to recommend, withdraws or materially
modifies its recommendation of the Merger in a manner adverse to SFX or shall
have resolved to do any of the foregoing, if MMR shall have recommended to its
stockholders a Competing Transaction or shall have failed to recommend against
accepting a Competing Transaction or takes no position with respect thereto or
shall have resolved to do any of the foregoing, or if any person (other than
SFX or any of its affiliates) shall have acquired beneficial ownership, or any
group shall have been formed which beneficially owns, or has the right to
acquire, more than 30% of the outstanding shares of any class of capital stock
of MMR, (iv) by SFX or MMR, if the stockholders of the other party shall have
failed to approve and adopt the Merger Agreement and approve the Merger, (v) by
SFX or MMR, in the event of any breach of the Merger Agreement by the other
party, unless such party is using its best efforts to cure such breach, (vi) by
SFX, upon the revocation of Furman Selz's fairness opinion, or by MMR, upon the
revocation of Oppenheimer's fairness opinion, if such revocation was directly
related to (a) a material misstatement or omission contained in information
furnished by MMR or SFX, respectively, and SFX, or MMR, respectively, has not
solicited such revocation or (b) any change or effect that, individually or in
the aggregate, is or is reasonably likely to be materially adverse to the
financial condition, business or results of operations or prospects of MMR, or
SFX, respectively, (vii) by MMR, if it accepts a Competing Transaction, and
(viii) by MMR, if SFX fails to recommend, withdraws or materially changes its
recommendation of the Merger Agreement in a manner adverse to MMR or if it
shall have resolved to do so.
The Merger Agreement further provides that it may be terminated and
the transactions contemplated thereby abandoned by MMR or the MMR Independent
Committee in the event that (i) the Average Price during the period commencing
June 17, 1996 and ending on the Determination Date shall be less than $27.33
(implying a value of less than $12.00 per MMR Share) and (ii) MMR shall have
delivered the Price Termination Notice to SFX within 48 hours following the
date on which the Average Price is less than $27.33; provided, however, that
SFX, upon the recommendation of the SFX Independent Committee, shall have the
right, but not the obligation, to deliver, within 48 hours after the receipt of
the Price Termination Notice, the Make Whole Notice pursuant to which it agrees
that the stockholders of MMR shall receive no less than the Minimum Per Share
Amount and provided, further, that SFX, upon the recommendation of the SFX
Independent Committee, shall have the right to rescind such Make Whole Notice
by delivering the Make Whole Rescission Notice in the event that the Average
Price at any time following the delivery of the Make Whole Notice is at least
an additional $0.25 less than the Average Price as set forth in, and which
triggered, the Price Termination Notice. In the event that SFX delivers the
Make Whole Notice to MMR and does not deliver a Make Whole Rescission Notice,
the Exchange Ratio (x) shall be determined as set forth above if the SFX Class
A Stock Price equals or exceeds $27.33 (implying a value of at least $10.25 per
MMR Share), and (y) if the SFX Class A Stock Price is less than $27.33, shall
be increased such that, on the Determination Date, the product of (a) the
Exchange Ratio as so adjusted, multiplied by (b) the SFX Class A Stock Price
shall be an amount equal to $10.25 (such amount being referred to as the
"Minimum Per Share Amount"). By approving the Merger Agreement, the MMR
Stockholders will be permitting the MMR Board and the MMR Independent Committee
to determine, in the exercise of their fiduciary duties, to proceed with the
Merger even though the consideration per MMR Share or MMR Preferred Share is as
low as $10.25 because the Average Price was below $27.33. By approving the
Merger Agreement, the SFX Stockholders will be permitting the SFX Board and the
SFX Independent Committee to determine, in the exercise of their fiduciary
duties, to proceed with the Merger even though the Exchange Ratio would be
increased over 0.3750 and, accordingly, the SFX Stockholders will suffer
greater dilution in their ownership of SFX as a result of the Merger.
The Merger Agreement provides that MMR will pay SFX the Alternate
Proposal Fee of $3.5 million, which amount is inclusive of all Specified
Expenses (as defined herein), in the event that the Merger Agreement is
terminated as a consequence of (i) MMR accepting a Competing Transaction, (ii)
the MMR Board or the MMR Independent
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Committee (a) having failed to recommend, withdrawing or materially modifying
the recommendation of the Merger and the Merger Agreement (other than due to a
drop in the price of the SFX Class A Shares, a breach of a representation by
SFX, failure of the SFX Board or the SFX Independent Committee to recommend or
the SFX Board or SFX Independent Committee withdrawing or materially modifying
the recommendation of the Merger and the Merger Agreement, or revocation of
Oppenheimer's fairness opinion if such revocation was directly related to a
material misstatement or omission contained in information provided by SFX to
Oppenheimer and MMR does not solicit such revocation or a direct result of a
material adverse effect with respect to SFX) or (b) recommending or failing to
recommend against accepting a Competing Transaction, (iii) any party (other
than SFX, Acquisition Sub or their affiliates) acquires beneficial ownership of
30% or more of any class of MMR's capital stock, or (iv) the MMR Stockholders
having failed to approve the Merger, a proposal for a Competing Transaction
shall have been made prior to such termination and any Competing Transaction is
consummated within one year of such termination. SFX has agreed to pay to MMR a
fee of $1.0 million, which amount is inclusive of all Specified Expenses, in
the event that the majority of the combined voting power of SFX votes at the
SFX Annual Meeting but shall have failed to approve Proposal 1. Except in
connection with a termination pursuant to which the Alternate Proposal Fee
would otherwise be due and owing, MMR has agreed to pay to SFX a fee of $1.0
million, which amount is inclusive of all Specified Expenses, in the event that
the majority of the combined voting power of MMR votes at the MMR Special
Meeting but shall have failed to approve Proposal A. "Specified Expenses" means
all reasonable out-of-pocket expenses and fees actually incurred or accrued by
a party in connection with the transactions contemplated by the Merger
Agreement and in connection with the negotiation and performance thereof (with
certain exceptions).
OTHER PROVISIONS
On November 13, 1995, SFX and MMR entered into the Exchange
Agreement, pursuant to which MMR agreed to acquire seven FM and four AM radio
stations owned by Liberty Broadcasting, and to assume a JSA from Liberty
Broadcasting with respect to one FM station following SFX's acquisition of
Liberty Broadcasting, in exchange for ten radio stations identified by SFX to
be acquired by MMR for aggregate consideration of approximately $100 million,
in a like-kind exchange that was intended to be substantially tax free.
Pursuant to the Merger Agreement, SFX and MMR canceled the Exchange Agreement
and MMR agreed to use its commercially reasonable efforts to transfer to SFX
its rights under the following purchase agreements for the stations originally
to be acquired by MMR and exchanged with SFX. In connection therewith, SFX has
provided MMR $300,000 in cash and letters of credit in the aggregate amount of
$6.75 million. On December 27, 1995, MMR entered into a purchase agreement to
acquire substantially all of the assets of KQUE-FM and KNUZ-AM, both operating
in Houston, Texas, for a purchase price of $38.0 million. SFX, on behalf of
MMR, deposited in escrow an irrevocable letter of credit in the amount of $2.0
million to secure MMR's obligations under the agreement. Based upon an audit
conducted by an environmental consultant of one of the sites used in connection
with the stations' business, MMR may elect to terminate such purchase
agreement. SFX has been advised by MMR that, although MMR has not elected to
terminate the purchase agreement, MMR is negotiating an agreement with the
seller and the relevant environmental authorities regarding the cleanup of the
site. There can be no assurance that MMR will be able to enter into such an
agreement. On January 26, 1996, MMR entered into an agreement to acquire
substantially all of the assets of WSTZ-FM and WZRX-AM, both operating in
Jackson, Mississippi, for a purchase price of $3.5 million. On January 22,
1996, MMR entered into an agreement to acquire substantially all of the assets
of WROQ-FM, operating in Greenville, South Carolina, for a purchase price of
$14.0 million. On January 18, 1996, MMR entered into an agreement to acquire
substantially all of the assets of WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM),
each operating in Greensboro, North Carolina, for a purchase price of
approximately $32.0 million, subject to adjustment based on the broadcast cash
flow of WTRG-FM and WRDU-FM. The purchase price was subsequently increased to
approximately $36.8 million. SFX and MMR have agreed that, in lieu of MMR using
its commercially reasonable efforts to transfer its rights under such purchase
agreements to SFX, SFX will finance the purchase of such stations and MMR will
transfer the purchased assets to SFX simultaneously with the purchase of such
stations. The acquisitions of WROQ-FM, WTRG-FM, WRDU-FM, WMFR-AM, WMAG-FM and
WTCK-AM by SFX were consummated in June 1996 and the acquisitions of WSTZ-FM
and WZRX-AM by SFX were consummated in August 1996.
In the event that the Merger Agreement is terminated pursuant to
certain provisions thereof, MMR will have the right but not the obligation,
subject to the receipt of prior FCC approval and the receipt of any required
consents from Finova and Huff, to acquire the MMR Liberty Stations from SFX for
$100.0 million, in which event SFX will be subject to a substantial
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tax liability. In the event the Merger Agreement is terminated pursuant to
certain provisions thereof, SFX will have the right to structure an exchange of
certain of MMR's stations for the MMR Liberty Stations, subject to receipt of
any necessary prior FCC approval, in a transaction which is intended to qualify
as a like-kind exchange under Section 1031 of the Code. SFX and MMR
acknowledged in the Merger Agreement that any acquisition with respect to
WYSR-FM would be of an interest in a JSA rather than the station itself to the
extent that SFX's interest in WYSR-FM is limited to a JSA. See "Certain
Relationships and Related Transactions--Material Contacts Between SFX and MMR."
In the Merger Agreement, SFX agreed that, if requested by MMR, it
would negotiate in good faith to enter into an agreement to advance up to $18.0
million to MMR to enable MMR to acquire WKSS-FM, Hartford, Connecticut, and up
to $5.0 million to MMR for working capital. In September 1996, SFX and MMR
entered into the $23.0 million SFX Loan. Prior to that date, SFX had advanced
approximately $2.2 million of such $23.0 million to MMR for working capital,
including a $2.0 million non-refundable fee which was paid by SFX to SCMC on
behalf of MMR for investment banking services provided to MMR in connection
with the Merger. As of September 30, 1996, SFX had loaned MMR approximately
$20.0 million pursuant to the SFX Loan. See "MMR's Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions--Relationship of
MMR with SCMC." In addition, MMR agreed to make available to SFX, until the
earlier of the termination of the Merger Agreement or the Effective Time, the
services of Mr. Ferrel as a consultant to SFX to the extent that such services
do not conflict with Mr. Ferrel's obligations to MMR. See "Remuneration of
Management of SFX--Employment Agreements."
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PROPOSALS 2 AND 3
AMENDMENTS TO SFX'S RESTATED CERTIFICATE OF INCORPORATION
At present, 10,000,000 SFX Class A Shares and 1,000,000 SFX Class B
Shares are authorized under SFX's Restated Certificate of Incorporation, of
which 6,431,897 and 856,126, respectively, were issued and outstanding. It is
proposed that the SFX Stockholders approve amendments to SFX's Restated
Certificate of Incorporation to increase the number of authorized SFX Class A
Shares to 100,000,000 (Proposal 2)and to increase the number of authorized SFX
Class B Shares to 10,000,000 (Proposal 3). The approval of Proposals 2 and 3 is
necessary in order for SFX to have a sufficient number of authorized SFX Class
A Shares and SFX Class B Shares to issue in the Merger and to enable SFX to
comply with its obligations to reserve SFX Class A Shares for issuance upon the
conversion of the SFX Series D Preferred Shares and the Exchange Notes issuable
upon the exchange thereof, to issue upon exercise of outstanding options and
warrants, and to issue upon exercise by SFX of certain warrants and options of
MMR to be assumed by SFX in the Merger. FAILURE TO APPROVE PROPOSAL 2 WILL
PREVENT THE CONSUMMATION OF THE MERGER. The SFX Board is also considering a
possible stock split in which holders of each class of SFX Shares will receive
additional shares of such class. Such stock split is anticipated to have no
effect on the respective voting power of each class of SFX Shares.
Four of the executive officers and Directors of SFX
have agreed not to exercise any of their rights, options or warrants to acquire
692,900 SFX Class A Shares until the SFX Stockholders have approved the
increase in the number of authorized SFX Class A Shares sufficient to ensure
the availability of SFX Class A Shares issuable upon conversion of the Series D
Preferred Shares or the Exchange Notes issuable upon the exchange thereof. Even
with such forbearance, SFX does not currently have a sufficient number of SFX
Class A Shares authorized to comply with all of its obligations to reserve SFX
Class A Shares, including sufficient shares to convert approximately 3,000 of
the 2,990,000 outstanding SFX Series D Preferred Shares. In the event that SFX
does not have a sufficient number of SFX Class A Shares available for issuance
upon conversion of any SFX Series D Preferred Shares, SFX will be required to
pay to the holder of each Series D Preferred Share seeking to convert such
share, cash in an amount per SFX Class A Share equal to 110% of the market
price of the SFX Class A Shares as of the date of such conversion.
The affirmative vote of a majority of the combined voting power of the
outstanding SFX Shares and the affirmative vote of a majority of the
outstanding SFX Class A Shares, voting separately, is necessary to approve
Proposal 2. The affirmative vote of a majority of the combined voting power of
the outstanding SFX Shares and the affirmative vote of a majority of the
outstanding SFX Class B Shares, voting separately, is necessary to approve
Proposal 3. THE SFX BOARD RECOMMENDS THAT THE SFX STOCKHOLDERS VOTE FOR
APPROVAL OF PROPOSALS 2 AND 3.
Mr. Sillerman has informed SFX that he intends to vote for Proposals 2
and 3. Mr. Sillerman may be deemed to beneficially own approximately 5.9% of
the SFX Class A Shares and 100.0% of the SFX Class B Shares which represents
57.4% of the combined voting power of the SFX Shares. Accordingly, approval of
Proposal 3 is expected.
Except as disclosed in this Joint Proxy Statement/Prospectus, SFX has
no plans, understandings, agreements, or arrangements concerning the issuance
of additional SFX Shares. If any plans, understandings, arrangements or
agreements are made concerning the issuance of any such shares, holders of
outstanding SFX Shares may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transaction, the law applicable thereto,
the policy of the Nasdaq National Market or the policy of any national
securities exchange on which SFX Class A Shares may be listed in the future.
The Nasdaq National Market currently requires stockholder approval as a
prerequisite to quoting shares in certain instances, including in connection
with acquisition transactions where the present or potential issuance of shares
could result in an increase of 20% (i) in the outstanding voting power or (ii)
in the number of outstanding shares. Such authorized shares may be used in the
future for a variety of purposes including, acquisitions, increases in the
shares reserved for issuance pursuant to SFX's employee benefit plans, stock
splits or stock dividend financing transactions. In addition, although there is
no intention to do so, the issuance of SFX Shares under certain circumstances
could be used to prevent a change of control or to frustrate persons seeking to
effect a takeover or otherwise gain control of SFX.
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PROPOSAL 4
APPROVAL OF ISSUANCE OF A WARRANT
TO SCMC TO PURCHASE 300,000 SFX CLASS A SHARES
On April 15, 1996, SFX and SCMC entered into the SCMC Termination
Agreement pursuant to which SCMC assigned to SFX its rights to receive fees for
consulting and marketing services payable by each of MMR and Triathlon, except
for fees relating to certain transactions pending at the date of such
agreement, and SFX and SCMC terminated the arrangement pursuant to which SCMC
performed financial consulting services for SFX. MMR currently pays SCMC an
annual fee of $500,000 and Triathlon currently pays SCMC an annual fee of
$300,000 (which shall increase to $500,000 at such time as Triathlon has used
an amount equal to the net proceeds of its last public offering in the manner
contemplated by the registration statement filed in connection therewith). SCMC
has informed SFX that it expects that Triathlon will have used such amount by
January 1, 1997. In addition, Triathlon has agreed to advance to SCMC an amount
of $500,000 per year in connection with services to be rendered by SCMC;
provided, however, that if the agreement between SCMC and Triathlon is
terminated or an unaffiliated person acquires a majority of the capital stock
of Triathlon, the unearned fees must be repaid at such time. Pursuant to the
SCMC Termination Agreement, SCMC has agreed to continue to provide consulting
and marketing services to each of MMR and Triathlon until the expiration of
their agreements on July 28, 1998 and June 1, 2005, respectively, and not to
perform any consulting or investment banking services for any person or entity,
other than MMR or Triathlon, in the radio broadcasting industry or in any
business which uses technology for the audio transmission of information or
entertainment. In consideration of the foregoing agreements, SFX issued to SCMC
warrants to purchase up to 600,000 SFX Class A Shares at an initial purchase
price, subject to adjustment, of $33.75 per share (the market price at the time
of the financial consulting arrangement was terminated), of which warrants to
purchase up to 300,000 shares are immediately exercisable and the exercise of
the remaining warrants is subject to the approval of Proposal 4, and SFX will
forgive, upon the consummation of the Merger, a $2.0 million loan made to SCMC
plus accrued and unpaid interest thereon. The warrants are exercisable for a
period of six years from their date of issuance.
On April 15, 1996, Furman Selz delivered its written opinion to the
SFX Independent Committee that, as of the date of such opinion, the
consideration to be offered by SFX to SCMC pursuant to the SCMC Termination
Agreement was fair, from a financial point of view, to SFX. In rendering its
opinion, Furman Selz relied on, among other things, a schedule prepared by Mr.
Sillerman of projected fees payable to SCMC by each of SFX, MMR and Triathlon.
Furman Selz's opinion is directed only to the fairness of the consideration
offered to SCMC and does not address any other terms of any other transaction
involving SFX and SCMC. Furman Selz's opinion was delivered for the use and
benefit of the SFX Independent Committee in its consideration of the SCMC
Termination Agreement and does not constitute a recommendation to the SFX
Stockholders as to how they should vote with respect to the proposed warrant
issuance to SCMC. A copy of the opinion of Furman Selz related to the SCMC
Termination Agreement is attached to this Joint Proxy Statement/Prospectus as
Annex H. Such opinion sets forth the assumptions made, matters considered and
scope of Furman Selz's review, and should be read in its entirety.
The affirmative vote of the holders of a majority of the combined
voting power of the SFX Shares represented in person or by proxy at the SFX
Annual Meeting (at which a quorum is present) and voting on the proposal is
necessary to approve the warrant issuance to SCMC. Mr. Sillerman has informed
SFX that he intends to vote for Proposal 4. Mr. Sillerman may be deemed to
beneficially own approximately 5.9% of the SFX Class A Shares and 100.0% of the
SFX Class B Shares, which (excluding options and warrants to acquire SFX
Shares) represents approximately 57.4% of the combined voting power of the SFX
Shares. Accordingly, approval of Proposal 4 is expected.
THE SFX BOARD RECOMMENDS A VOTE FOR PROPOSAL 4.
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PROPOSAL 5
ELECTION OF DIRECTORS OF SFX
The By-laws of SFX authorize the SFX Board to fix the number of
directors from time to time, but at no less than two nor more than nine
directors. The SFX Board currently consists of six directors. The SFX Board has
fixed the number of directors to be elected at the SFX Annual Meeting at eight.
All directors hold office until the next annual meeting of stockholders
following their election or until their successors are elected and qualified.
If the enclosed Proxy is signed and returned, it will be voted FOR the
election of the persons named below, as nominees for election as directors,
unless contrary directions are given therein. However, should any nominee
become unavailable or prove unable to serve for any reason, the Proxy will be
voted for the election of such other person as the SFX Board may select to
replace such nominee. The SFX Board has no reason to believe that any of the
nominees will not be available or prove unable to serve.
The holders of SFX Class A Shares are entitled by class vote,
exclusive of all other stockholders, to elect the SFX Independent Directors,
with each SFX Class A Share being entitled to one vote. Pursuant to SFX's
Restated Certificate of Incorporation, each of the SFX Independent Directors
must not be (i) an officer or employee of SFX, or a director, officer or
employee of any of its subsidiaries or any affiliate of Mr. Sillerman or any
individual who has been employed in such capacity within the preceding three
years, (ii) an affiliate of Mr. Sillerman, (iii) a person who either
individually or in his capacity as a representative of an organization has
served on a regular basis as a professional advisor, legal counsel or
consultant to management of SFX or its subsidiaries if, in the opinion of the
SFX Board, such relationship is material to SFX, such individual or the
organization in which such individual has served, (iv) an individual having a
relationship which, in the opinion of the SFX Board, would interfere with the
exercise by such person of independent judgment in carrying out the
responsibilities of a director, or (v) a member of the immediate family of a
person who, pursuant to clauses (i) through (iv) above, is not qualified to
serve as an SFX Independent Director. The SFX Restated Certificate of
Incorporation provides that the number of SFX Independent Directors must be at
least two-sevenths (2/7ths) of SFX's directors (rounded up to the next whole
number). As the SFX Board has fixed the number of directors constituting the
whole board at eight, the holders of SFX Class A Shares, voting separately, are
entitled to elect three SFX Independent Directors. Messrs. O'Grady and Kramer
are the current SFX Independent Directors and are standing for re-election and
the SFX Board has nominated Edward F. Dugan to be elected as an SFX Independent
Director. In connection with the election of the SFX Independent Directors,
each of Mr. Sillerman and SCMC has agreed to abstain, and has agreed to cause
each of his and its respective affiliated transferees to abstain, from voting
SFX Class A Shares beneficially owned by him or it, as the case may be.
The remaining directors are elected by the holders of the SFX Class A
Shares and the SFX Class B Shares, with the holders of the SFX Class A Shares
having one-vote-per-share and the holders of the SFX Class B Shares having ten
votes per share. Messrs. Sillerman, Armstrong, Tytel and Liese are current
directors who are standing for re-election and Mr. Thomas P. Benson, the Vice
President of Financial Affairs, has been nominated to be elected.
Upon the consummation of the Merger, the number of directors will be
increased by one and it is anticipated that Michael G. Ferrel, the Chief
Executive Officer, President and Chief Operating Officer of MMR, will be
appointed by the SFX Board to hold office until the next annual meeting of
stockholders. Mr. Ferrel has advised SFX of his willingness to serve if
appointed. Upon consummation of the Merger, the SFX Board will consist of a
total of nine directors.
In the event dividends on the SFX Series D Preferred Shares are in
arrears and unpaid in an aggregate amount equal to six full quarterly dividends
and in certain other circumstances, the holders of the SFX Series D Preferred
Shares (voting separately as a class) will be entitled to elect two additional
members of the SFX Board.
Mr. Sillerman may be deemed to beneficially own approximately 5.9% of
the SFX Class A Shares and 100.0% of the SFX Class B Shares, which (excluding
options and warrants to acquire SFX Shares) represents approximately 57.4% of
the combined voting power of the SFX Shares. Accordingly, Mr. Sillerman can
control the election of all of the directors other than the election of the
Independent Directors. In the event dividends on the SFX Series D Preferred
Shares are in arrears and unpaid in an aggregate amount equal to six full
quarterly dividends and in certain other
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circumstances, the holders of the SFX Series D Preferred Shares (voting
separately as a class) will be entitled to elect two additional members of the
SFX Board.
NOMINEES
Except for Messrs. Dugan and Benson, each person named below as a
nominee for director is currently serving in such capacity. In addition, each
of Messrs. Sillerman, Armstrong, Tytel and Liese are executive officers of SFX.
Each nominee has advised SFX of his willingness to serve if elected. There are
no family relationships among any directors and executive officers of SFX.
Nominees to be elected by holders of SFX Class A Shares and SFX Class B Shares:
FIRST BECAME A
NAME AGE POSITIONS WITH SFX DIRECTOR OF SFX
Robert F.X. Sillerman....... 48 Chairman of the Board 1992
and Chief Executive
Officer
D. Geoffrey Armstrong....... 39 Director, Chief Operating 1993
Officer, Chief Financial
Officer, Executive Vice
President and Treasurer
Howard J. Tytel............. 50 Director, Executive Vice 1993
President and Secretary
Richard A. Liese............ 45 Director, Vice President 1995
and Assistant General
Counsel
Thomas P. Benson............ 34 Vice President of (1)
Financial Affairs
Nominees to be elected by holders of SFX Class A Shares:
FIRST BECAME A
NAME AGE POSITIONS WITH SFX DIRECTOR OF SFX
James F. O'Grady Jr......... 68 Director 1993
Paul Kramer................. 64 Director 1993
Edward F. Dugan ............ 62 N/A (1)
- ----------
(1) If elected, will commence serving as a Director of SFX immediately
after the SFX Annual Meeting.
In addition to the foregoing officers of SFX, Michael G. Ferrel, the
Chief Executive Officer, President and Chief Operating Officer of MMR,
currently serves as a consultant to SFX pursuant to the terms of the Merger
Agreement, which requires MMR to make Mr. Ferrel available to SFX for
consulting services until the consummation or termination of the Merger.
Upon the consummation of the Merger, it is anticipated that (i) Robert
F.X. Sillerman, the Chairman of the Board and Chief Executive Officer of SFX,
will resign as the Chief Executive Officer of SFX, (ii) the SFX Board will
appoint Mr. Ferrel as the Chief Executive Officer of SFX, and (iii) the SFX
Board will appoint Mr. Ferrel as an additional Director to serve until the next
annual meeting of stockholders or until his successor is elected and qualified.
SFX anticipates that in the event the Merger is not consummated, Mr. Sillerman
will continue to serve as the Chief Executive Officer of SFX and Mr. Ferrel
will cease to act as a consultant to SFX.
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CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the business experience and affiliations
of the current and anticipated directors and executive officers of SFX is set
forth below.
Robert F.X. Sillerman has been Chairman of the Board of SFX since its
inception in 1992. He has also been the Chief Executive Officer of SFX since
its inception, except during the period from July 1995 until June 1996, when he
served as Executive Chairman of SFX. Since 1985 he has been Chairman of the
Board and Chief Executive Officer of SCMC, a private investment company which
makes investments in and provides financial consulting services to companies
engaged in the media business and, through privately held entities, he controls
the general partner of Sillerman Communications Partners, L.P., an investment
partnership ("SCP"). From 1985 to 1989, Mr. Sillerman was co-Chairman of Legacy
Broadcasting, Inc. ("Legacy I"), which owned radio stations and which has
subsequently been liquidated. In addition, Mr. Sillerman was Co-Chairman of
Metropolitan Broadcasting Corporation ("Metropolitan"), which was merged with
Legacy I and Group W Radio Holdings, Inc., an affiliate of Westinghouse
Broadcasting Corporation, in 1989. Mr. Sillerman also served, from 1990 to
1993, as co-Chairman of Legacy Broadcasting, Inc. ("Legacy II"), which through
a related partnership owned and operated a radio business. In 1993, Mr.
Sillerman became the Chancellor of the Southampton campus of Long Island
University.
D. Geoffrey Armstrong is Chief Operating Officer, Chief Financial
Officer, Executive Vice President and Treasurer and a Director of SFX. Mr.
Armstrong became the Chief Operating Officer of SFX in June 1996 and the Chief
Financial Officer, Executive Vice President and Treasurer of SFX in April 1995.
Mr. Armstrong was Vice President, Chief Financial Officer and Treasurer of SFX
from 1992 until March 1995. He had been Executive Vice President and Chief
Financial Officer of Capstar, a predecessor of SFX, since 1989. From 1988 to
1989, Mr. Armstrong was the Chief Executive Officer of Sterling Communications
Corporation ("Sterling"), which owned and operated five stations in three
markets (Jackson, Mississippi; Greenville-Spartanburg, South Carolina; and
Baton Rouge, Louisiana). Sterling sold WGVL-AM and WSSL-FM, both operating in
Greenville-Spartanburg, South Carolina, and WJDS-AM and WMSI-FM, both operating
in Jackson, Mississippi, to Capstar in 1989. Mr. Armstrong was Chief Financial
Officer of Sterling from 1986 to 1988.
Howard J. Tytel has been a Director, Executive Vice President and
Secretary of SFX since 1992. Mr. Tytel has also been Executive Vice President
and General Counsel of SCMC since 1985, a Director of SCMC since 1989, and an
officer and Director of Legacy II from 1991 to 1993. Mr. Tytel was a Director
of Country Music Television from 1988 to 1991 and was a Director and Executive
Vice President of Legacy I from 1986 to 1989 and Metropolitan from 1988 to
1989. Since March 1995, Mr. Tytel has been a Director of Interactive Flight
Technologies, Inc., a company providing computer-based in-flight entertainment.
Mr. Tytel was formerly Of Counsel to the law firm of Winston & Strawn and,
since 1993, is Of Counsel to the law firm of Baker & McKenzie, which currently
represents SFX, SCMC, SCP, MMR and Triathlon on various matters, including SFX
in connection with the Merger.
Richard A. Liese has been a Director, Vice President and Assistant
General Counsel of SFX since 1995. Mr. Liese has also been the Assistant
General Counsel and Assistant Secretary of SCMC since 1988. In addition, from
1993 until April 1995, he served as Secretary of MMR.
Thomas P. Benson became the Vice President of Financial Affairs of SFX
in June 1996. Mr. Benson was the Vice President--External and International
Reporting for American Express Travel Related Services Company from September
1995 to June 1996. From 1984 through September 1995, Mr. Benson worked at Ernst
& Young as a staff accountant, senior accountant, manager and senior manager.
James F. O'Grady, Jr. has been President of O'Grady and Associates, a
media brokerage and consulting company, since 1979. Mr. O'Grady has been a
Director of Orange and Rockland Utilities, Inc. and of Video for Broadcast,
Inc. since 1980 and 1991, respectively. Mr. O'Grady has been the co-owner of
Allcom Marketing Corp., a corporation that provides marketing and public
relations services for a variety of clients, since 1985, and has been Of
Counsel to Cahill and Cahill, Brooklyn, New York, since 1986. He also served on
the Board of Trustees of St. John's University from 1984 to 1996, and has
served as a Director of The Insurance Broadcast System, Inc. since 1994.
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Paul Kramer has been a partner in Kramer & Love, financial consultants
specializing in acquisitions, reorganizations and dispute resolution, since
1994. From 1992 to 1994, Mr. Kramer was an independent financial consultant to
foreign investors. Mr. Kramer was a partner in the New York office of Ernst &
Young from 1968 to 1992, and from 1987 to 1992 was Ernst & Young's designated
Broadcasting Industry Specialist.
Edward F. Dugan is a Senior Advisor to Bentley Associates L.P./Bentley
Securities Corporation and President of Dugan Associates Inc., a financial
advisory firm to media and communications companies, which he founded in 1991.
Mr. Dugan was an investment banker with PaineWebber Inc. from 1978 to 1990,
with Warburg Paribus Becker Inc. from 1975 to 1978 and with Smith Barney,
Harris Upham & Co. from 1960 to 1975. Dugan Associates Inc. is acting as broker
in connection with a proposed acquisition of radio stations by SFX. See
"Certain Relationships and Related Transactions--Relationship Between SFX and
Edward F. Dugan."
Michael G. Ferrel has served as President and Chief Operating Officer
of MMR and a member of the MMR Board since MMR's inception in August 1992 and
as Co-Chief Executive Officer of MMR from January 1994 to January 1996, when he
became the Chief Executive Officer. Mr. Ferrel currently serves as a consultant
to SFX pursuant to the terms of the Merger Agreement, which requires MMR to
make Mr. Ferrel available for consulting services to SFX until the consummation
or termination of the Merger. Mr. Ferrel has agreed to become the Chief
Executive Officer and to serve on the SFX Board following consummation of the
Merger and the SFX Board intends to appoint Mr. Ferrel to the SFX Board upon
the consummation of the Merger. From 1990 to 1993, Mr. Ferrel served as Vice
President of Goldenberg Broadcasting, Inc. the former owner of radio station
WPKX-FM, Springfield, Massachusetts, which was acquired by MMR in July 1993.
See "Remuneration of Management of SFX--Employment Agreements."
BOARD MEETINGS AND COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The standing committees of the SFX Board are the Audit Committee, the
Compensation Committee and the Stock Option Committee. The Audit Committee of
the SFX Board currently consists of Mr. Armstrong and the two SFX Independent
Directors, Messrs. O'Grady and Kramer. The principal functions of the Audit
Committee are to review and make recommendations to the SFX Board with respect
to the selection and the terms of engagement of SFX's independent public
accountants, and to maintain communications among the SFX Board, such
independent public accountants, and SFX's internal accounting staff with
respect to accounting and audit procedures, to the implementation of
recommendations by such independent public accountants, to the adequacy of
SFX's internal controls and to related matters. The Audit Committee also
reviews certain related-party transactions and potential conflict-of-interest
situations involving officers, directors or stockholders of SFX. The Audit
Committee met two times in 1995.
The Compensation Committee of the SFX Board consists of Mr. Sillerman
and the two SFX Independent Directors, Messrs. Kramer and O'Grady. Mr.
Sillerman is the Chairman of the Board and Chief Executive Officer of SFX and
an officer of all of SFX's subsidiaries. The principal functions of the
Compensation Committee are to review and make recommendations with respect to
certain of SFX's compensation programs and compensation arrangements with
respect to certain officers, including Messrs. Sillerman, Armstrong and Benson.
Mr. Sillerman does not participate in the deliberations of the Compensation
Committee with respect to his own compensation. Mr. Sillerman has engaged in
certain material transactions, and entered into certain relationships, with SFX
and MMR. See "Certain Relationships and Related Transactions." Messrs. Kramer
and O'Grady have received a fee of $50,000 for services rendered in connection
with the Merger. See "Proposals 1 and A - The Merger--Interests of Certain
Persons in the Merger" and "--Remuneration of Directors." The Compensation
Committee met three times in 1995.
The Stock Option Committee consists of Messrs. Kramer and O'Grady, the
two SFX Independent Directors. The principal functions of the Stock Option
Committee are to grant options, determine which employees and other individuals
performing substantial services to SFX may be granted options and determine the
rights and limitations of options granted under SFX's plans. The Stock Option
Committee met two times in 1995.
REMUNERATION OF DIRECTORS
Messrs. Sillerman, Armstrong, Tytel and Liese are executive officers
of SFX and, except for Mr. Tytel, receive compensation from SFX in connection
with such employment. See "Remuneration of Management of SFX."
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Directors employed by SFX receive no compensation for meetings they
attend. Each director not employed by SFX receives a fee of $1,500 for each
meeting of the SFX Board he attends in addition to reimbursement of travel
expenses. Each such director who is a member of the Compensation Committee, the
Stock Option Committee or the Audit Committee also receives $1,500 for each
committee meeting he attends which is not held in conjunction with an SFX Board
meeting. If such committee meeting occurs in conjunction with a SFX Board
meeting, each committee member receives an additional $500 for each committee
meeting he attends. In connection with the Merger each of Messrs. Kramer and
O'Grady served as the members of the Independent Committee of the SFX Board,
evaluated the terms of the Merger and the SCMC Termination Agreement and
received a one-time fee of $50,000.
Additionally, since March 1, 1995, each of Messrs. Kramer and O'Grady
has received an annual fee of $12,000, and effective May 16, 1995 each of
Messrs. Kramer and O'Grady received cash-only SARs with respect to 5,000 SFX
Class A Shares. The cash-only SARs entitle the holder thereof to receive on
each anniversary of the grant date until May 16, 2000, a cash payment in the
amount of the difference between $21.25 and the closing price of one SFX Class
A Share on that date multiplied by 1,000.
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PROPOSAL 6
APPROVAL OF SFX'S 1996 STOCK
OPTION PLAN AND THE PERFORMANCE GOAL INCLUDED THEREIN
The SFX Board has unanimously approved, subject the approval of SFX's
stockholders, the adoption of SFX's 1996 Stock Option Plan (the "1996 Plan").
The 1996 Plan, which provides for a grant of a limited number of non-qualified
and incentive stock options in respect of up to 300,000 SFX Class A Shares to
eligible employees and consultants, is designed to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to key employees, officers, and consultants of SFX and its
subsidiaries and to promote the success of SFX's business.
As of December 31, 1995, there were 4,000 SFX Class A Shares available
for grant under SFX's existing stock option plans. An additional reserve of
300,000 SFX Class A Shares, pursuant to the 1996 Plan, will be established.
Each option granted pursuant to the 1996 Plan is designated at the
time of grant as either an "Incentive Stock Option" or as a "Non-qualified
Stock Option." Grants to executive officers may be made only at the fair market
value of the underlying stock on the date of issuance. The issuance of options
at fair market value on grant date constitutes a performance goal under Section
162(m) of the Code. A copy of the 1996 Plan is attached hereto as Annex E. A
summary of the 1996 Plan is set forth below.
Administration of the Plan. The 1996 Plan is administered by the Stock
Option Committee which is appointed by the SFX Board. Only Outside Directors,
as such term is defined under Section 1.162-27 of the Code may serve on the
Committee. The Stock Option Committee is currently comprised of Messrs. Kramer
and O'Grady. The Stock Option Committee determines who among those eligible
will be granted options, the time or times at which options will be granted,
the number of shares to be subject to options, the duration of options, any
conditions for the exercise of options, and the manner in and price at which
options may be exercised.
The 1996 Plan may be amended without stockholder approval, except
stockholder approval is required to (i) decrease the exercise price; (ii)
extend the term of the 1996 Plan beyond ten years; (iii) extend the maximum
term of the options granted thereunder beyond ten years; (iv) withdraw the
administration of the 1996 Plan from the Committee: (v) expand the class of
eligible participants; (vi) increase the aggregate number of SFX Class A Shares
that may be issued pursuant to the provisions of the 1996 Plan; (vii) otherwise
change the material terms of the performance goal within the meaning of Section
162(m) of the Code.
Unless the 1996 Plan is terminated earlier by the SFX Board, it will
terminate when all SFX Class A Shares reserved for issuance under the 1996 Plan
have been acquired through the exercise of options granted thereunder; or upon
the tenth anniversary of the adoption of the 1996 Plan by the SFX Board or
stockholders, whichever occurs first.
SHARES SUBJECT TO THE PLAN. The 1996 Plan provides that options may be
granted with respect to a total of 300,000 SFX Class A Shares. Under certain
circumstances involving a change in the number of SFX Class A Shares without
receipt by SFX of any consideration therefor, such as a stock split, stock
consolidation or payment of a stock dividend, the class and aggregate number of
shares subject to each outstanding option and the option price per share will
be proportionately adjusted. In addition, if SFX is involved in a merger,
consolidation, dissolution or liquidation, the options granted under the 1996
Plan will be adjusted. If any option expires or terminates for any reason,
without having been exercised in full, the unpurchased shares subject to such
option will be available again for the purposes of the 1996 Plan.
PARTICIPATION. Options under the 1996 Plan may be granted to employees
and any other individual or entity who in the judgment of the Committee
performs valuable and important services for SFX. All employees are eligible to
participate in the 1996 Plan. Non-employee directors are not eligible to
participate in the 1996 Plan. No participant may receive, in the aggregate,
options in respect of more than 100,000 SFX Class A Shares.
OPTION PRICE. The exercise price of each option will be determined by
the Stock Option Committee, but in the case of an incentive stock option may
not be less than 100% of the fair market value of the SFX Class A Shares
covered
79
<PAGE>
by the option on the date the option is granted. If an incentive stock option
is to be granted to an employee who owns over 10% of the total combined voting
power of all classes of SFX's stock, then the exercise price may not be less
than 110% of the fair market value of the SFX Class A Shares covered by the
option on the date the option is granted. The exercise price of non-qualified
stock options may be any price determined by the Stock Option Committee;
provided, however, that the exercise price of any grant to any executive
officer shall not be lower than the fair market value of the underlying SFX
Class A Shares on the date of grant. The issuance of options at fair market
value on the date of grant constitutes a performance goal under Section 162(m)
of the Code. Accordingly, grants under the 1996 Plan should qualify as
performance-based compensation.
TERM OF OPTIONS. The Committee shall fix the term of each option,
provided that the maximum term of each option shall be ten years. Incentive
stock options granted to an employee who owns 10% of the total combined voting
power of all classes of stock of SFX shall expire not more than five years
after the date of grant. The 1996 Plan provides for the earlier expiration of
options of a participant in the event of certain terminations of employment.
The Stock Option Committee will have discretion on a case by case basis, with
respect to any grantee whose employment is terminated for any reason
whatsoever, to accelerate the vesting of any options outstanding on the date
employment is terminated and to permit the grantee to exercise the option
during the remaining term of such options. The options must be paid for in
United States currency, or, at SFX's discretion, in SFX Class A Shares which
the grantee already owns.
RESTRICTIONS ON TRANSFER, GRANT AND EXERCISE. An option may not be
transferred other than to members of the holder's family, trusts and charities.
Any other transfers are permissible upon prior written approval of the Stock
Option Committee. Notwithstanding the above, the option agreement accompanying
the issuance of any incentive stock options ("ISOs") shall limit the
transferability of such ISOs to the extent required by the then applicable tax
provisions governing the qualification of ISOs. The aggregate fair market value
(determined at the time the option is granted) of the shares as to which an
employee may first exercise incentive stock options in any one calendar year
may not exceed $100,000. The Stock Option Committee may impose any other
conditions to exercise it deems appropriate.
FEDERAL INCOME TAX CONSEQUENCES TO SFX AND THE PARTICIPANT
INCENTIVE STOCK OPTIONS
Options granted under the 1996 Plan which constitute ISOs will, in
general, be subject the following Federal income tax treatment:
(i) The grant of an ISO will give rise to no Federal income tax
consequences to either SFX or the participant.
(ii) A participant's exercise of an ISO will result in no Federal
income tax consequences to SFX.
(iii) A participant's exercise of an ISO will not result in ordinary
Federal taxable income to the participant, but may result in the imposition of,
or an increase in, the alternative minimum tax. A participant's holding period
for shares acquired upon the exercise of an ISO will commence the day after
acquisition. If shares acquired upon exercise of an ISO are not disposed of
within the same taxable year the ISO is exercised, the excess of the fair
market value of the shares at the time the ISO is exercised over the option
price is included in the participant's computation of alternative minimum
taxable income.
(iv) If shares acquired upon the exercise of an ISO are disposed of
within two years of the date of the option grant, or within one year of the
date of the option exercise, the participant will realize ordinary Federal
taxable income at the time of the disposition to the extent that the fair
market value of the shares at the time of exercise exceeds the option price,
but not in an amount greater than the excess, if any, of the amount realized on
the disposition over the option price.
Short-term or long-term capital gain will be realized by the
participant at the time of such a disposition to the extent that the amount of
proceeds from the sale exceeds the fair market value of the shares at the time
of the exercise of the ISO.
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Short-term or long-term capital loss will be realized by the
participant at the time of such a disposition to the extent that the option
price exceeds the amount of proceeds from the sale.
If a disposition is made as described in this section, SFX will be
entitled to a Federal income tax deduction in the taxable year in which the
disposition is made in an amount equal to the amount of ordinary Federal
taxable income realized by the participant.
If shares acquired upon the exercise of an ISO are disposed of after
the later of two years from the date of the option grant or one year from the
date of the option exercise, the participant will realize long-term capital
gain or loss in an amount equal to the difference between the amount realized
by the participant on the disposition and the participant's Federal income tax
basis in the shares (usually the option price). In such event, SFX will not be
entitled to any Federal income tax deduction with respect to the ISO.
NON-QUALIFIED STOCK OPTIONS
Options granted under the 1996 Plan which constitute non-qualified
stock options ("NQSOs") will, in general, be subject the following Federal
income tax treatment:
(i) The grant of a NQSO will give rise to no Federal income tax
consequences to either SFX or the participant.
(ii) The exercise of a NQSO will generally result in ordinary Federal
taxable income to the participant in an amount equal to the excess of the fair
market value of the shares at the time of exercise over the option price.
(iii) SFX will be entitled to deduct from its Federal taxable income
an amount equal to the amount of ordinary income recognized by the participant.
(iv) Upon a subsequent disposition of shares, a participant will
recognize a short-term or long-term capital gain or loss equal to the
difference between the amount received and the tax basis of the shares, usually
fair market value at the time of exercise. A participant's holding period will
commence on the day after such participant acquires the shares disposed of.
NEW PLAN BENEFITS
On September 26, 1996, and subject to stockholder approval of Proposal
6, members of management of SFX as well as consultants and station level
employees of SFX and MMR (upon consummation of the Merger only) were issued
options under the 1996 Plan. For Messrs. Sillerman, Armstrong and Benson, those
options were issued pursuant to their respective employment agreements. See
"Management of SFX--Employment Agreements." These ten-year options, have an
exercise price of $45.00 which is equal to the market value on the date of the
grant and are exercisable at such times and for such periods as the SFX Board
shall determine. The following table sets forth certain information concerning
the number of options issued pursuant to the 1996 Plan. There can be no
assurance that additional options will not be issued under the 1996 Plan to
Messrs. Sillerman, Armstrong and Benson or to others.
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NEW PLAN BENEFITS
1996 STOCK OPTION PLAN
Name and Position(1) Number of Options(1)
-------------------- --------------------
Robert F.X. Sillerman,................................... 100,000
Chairman of the Board and Chief Executive Officer
Executive Group (4 persons) ............................. 115,000
Non-Executive Director Group............................. 0
Non-Executive Officer Employee Group (4 persons) ........ 40,000
- ---------------
(1) Does not include options to be granted under the 1996 Plan to Mr.
Armstrong, as his employment agreement does not specify a minimum
quantity of options to be granted to him.
The affirmative vote of a majority of the combined voting power of the
SFX Shares represented in person or by proxy at the SFX Annual Meeting (at
which a quorum is present) and voting on the proposal is necessary to approve
Proposal 6. Mr. Sillerman has informed SFX that he intends to vote for Proposal
6. Mr. Sillerman may be deemed to beneficially own approximately 5.9% of the
SFX Class A Shares and 100.0% of the SFX Class B Shares, which (excluding
options and warrants to acquire SFX Shares) represents approximately 57.4% of
the combined voting power of the SFX Shares. Accordingly, approval of Proposal
6 is expected.
THE SFX BOARD BELIEVES THAT THE PROPOSAL TO ADOPT THE 1996 STOCK
OPTION PLAN AND THE PERFORMANCE GOAL INCLUDED THEREIN IS IN THE BEST INTEREST
OF SFX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 6.
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PROPOSAL 7
APPOINTMENT OF INDEPENDENT AUDITORS OF SFX
Audited financial statements of SFX and its consolidated subsidiaries
are included in SFX's Annual Report on Form 10-K for the year ended December
31, 1995, a copy of which is being mailed to the SFX Stockholders herewith.
Upon the recommendation of the Audit Committee, the SFX Board has appointed
Ernst & Young LLP to examine its consolidated financial statements for the year
ended December 31, 1996 and has determined it desirable to request that the SFX
Stockholders approve such appointment. Representatives of Ernst & Young LLP
will be present at the SFX Annual Meeting and will have the opportunity to make
a statement, if they desire to do so, and are also expected to be available to
respond to appropriate questions.
The affirmative vote of a majority of the combined voting power of the
SFX Shares represented in person or by a proxy at the SFX Annual Meeting (at
which a quorum is present) is necessary to ratify Proposal 7. Mr. Sillerman has
informed SFX that he intends to vote for Proposal 7. Mr. Sillerman may be
deemed to beneficially own approximately 5.9% of the SFX Class A Shares and
100.0% of the SFX Class B Shares, which (excluding options and warrants to
acquire SFX Shares) represents approximately 57.4% of the combined voting power
of the SFX Shares.
Accordingly, ratification of Proposal 7 is expected.
THE SFX BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF PROPOSAL 7.
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PROPOSAL B
AMENDMENT TO MMR'S RESTATED CERTIFICATE OF INCORPORATION
The Merger Agreement provides that holders of MMR Class A Shares and
MMR Series B Preferred Shares will receive SFX Class A Shares in the Merger and
holders of MMR Class B Shares and MMR Original Preferred Shares will receive
SFX Class B Shares in the Merger. It is proposed that MMR Stockholders approve
an amendment to MMR's Restated Certificate of Incorporation providing that, in
any merger, consolidation or business combination in which holders of capital
stock of MMR are to be issued shares of common stock, the holders of all
classes and series of capital stock of MMR shall receive the same
consideration, except that the holders of any class or series of capital stock
of MMR which is generally entitled to ten votes per share, or which is
convertible into such a class or series, may receive shares which have ten
votes per share. The effect of the amendment to MMR's Restated Certificate of
Incorporation is to permit holders of MMR Class B Shares and MMR Original
Preferred Shares (currently, Messrs. Sillerman, Ferrel and Morrow) to receive
SFX Class B Shares in the Merger. The text of the amendment is attached to this
Joint Proxy Statement/Prospectus as Annex D. The approval of the amendment to
MMR's Restated Certificate of Incorporation is not necessary for the Merger to
occur. In the event that the amendment to MMR's Restated Certificate of
Incorporation is not approved, Messrs. Sillerman, Ferrel and Morrow will
receive in the Merger that number of SFX Class A Shares equal the number of SFX
Class B Shares such holders would otherwise have received had the amendment
been approved.
The affirmative vote of the holders of a majority of the combined
voting power of the outstanding MMR Class A Shares and MMR Class B Shares,
voting together (with each MMR Class A Share entitled to one vote per share and
each MMR Class B Share entitled to ten votes per share), and the affirmative
vote of the holders of a majority of the outstanding MMR Class A Shares and the
MMR Class B Shares, each voting separately as a class, will be required to
approve this amendment. THE MMR BOARD (WITH ONE MEMBER ABSTAINING DUE TO A
POTENTIAL CONFLICT OF INTEREST) UNANIMOUSLY RECOMMENDS THAT THE MMR
STOCKHOLDERS VOTE FOR APPROVAL OF PROPOSAL B.
Management of MMR, including Bruce Morrow and Michael Ferrel, may be
deemed to beneficially own 109,000 MMR Class A Shares and 140,000 MMR Class B
Shares, which (exclusive of stock options and warrants) represent 4.3% of the
outstanding combined voting power of MMR with respect to Proposal A and 14.1%
of the outstanding combined voting power of MMR with respect to Proposal B (and
1.5% and 22.1% of the votes in the MMR Class A Share and MMR Class B Share
class votes, respectively, for Proposal B). Mr. Sillerman may be deemed to
beneficially own 227,000 MMR Class A Shares and 493,334 MMR Class B Shares,
which (exclusive of stock options and warrants) represent 14.7% of the
outstanding combined voting power of MMR with respect to Proposal A and 49.5%
of the outstanding combined voting power of MMR with respect to Proposal B (and
4.7% and 77.9% of the votes in the MMR Class A Share and MMR Class B Share
class votes, respectively, for Proposal B). Management of MMR together with Mr.
Sillerman may be deemed to beneficially own 336,000 MMR Class A Shares and
633,334 MMR Class B Shares, which (exclusive of stock options and warrants)
represent 19.0% of the outstanding combined voting power of MMR with respect to
Proposal A and 63.7% of the outstanding combined voting power with respect to
Proposal B (and 6.2% and 100.0% of the votes in the MMR Class A Share and MMR
Class B Share class votes, respectively, for Proposal B). See "Security
Ownership of Management and Principal Stockholders of MMR." All members of
management of MMR and Mr. Sillerman have informed MMR that they intend to vote
their MMR Shares in favor of Proposals A and B. In addition, certain
institutional stockholders owning an aggregate of 7.2% of the MMR Class A
Shares have agreed to vote any shares held by them on the record date for the
MMR Special Meeting in favor of Proposals A and B, provided that there are no
pending competing offers.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF SFX
The Unaudited Pro Forma Condensed Combined Balance Sheet at June 30,
1996 is presented as if SFX had completed (i) the Liberty Acquisition,
including the Washington Dispositions (as defined herein) and Chancellor
Exchange (as defined herein); (ii) the Prism Acquisition, including the
Louisville Dispositions (as defined herein); (iii) the Greensboro
Acquisition (as defined herein) and Jackson Acquisitions (as defined herein);
(iv) the Dallas Disposition (as defined herein); (v) the
Richmond Acquisition (as defined herein); (vi) the Charlotte Exchange (as
defined herein); (vii) the Albany Acquisition (as defined herein); and (viii)
the Merger, including the MMR Hartford Acquisition, MMR Myrtle Beach
Acquisition, MMR A Dispositions, and exercise of all outstanding MMR Class A
Warrants and the exchange of all outstanding MMR Class B Warrants in the MMR
Exchange Offer. The transactions set forth above are collectively referred to as
the "Pending Transactions As Of June 30, 1996." No adjustment has been made to
the Unaudited Pro Forma Condensed Combined Balance Sheet for the Houston
Exchange as it will be recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1995 and six months ended June 30, 1996 are
presented as if SFX had completed the Recent Acquisitions and the Transactions
as of January 1, 1995. The MMR Myrtle Beach Acquisition, the MMR Myrtle Beach
Disposition, and the Albany Acquisition have not been reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations as it would not
have a material impact.
In the opinion of management, all adjustments necessary to fairly
present this pro forma information have been made. The Unaudited Pro Forma
Condensed Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective notes
to such financial statements contained in the Forms 8-K filed with the
Commission on May 9, 1996 and May 30, 1996. The pro forma information does not
purport to be indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor is it indicative of SFX's
future results if the aforementioned transactions are completed. SFX cannot
predict whether the consummation of the Acquisitions or the Dispositions will
conform to the assumptions used in the preparation of the Unaudited Pro Forma
Condensed Combined Financial Statements.
The Unaudited Pro Forma Statement of Operations data include
adjustments to station operating expenses to reflect anticipated savings that
management believes it will be able to achieve through the implementation of
its strategy. There can be no assurance that SFX will be able to achieve such
savings. Such data also assume that the proceeds of the Dispositions will be
available to SFX to consummate the Acquisitions, although certain of the
Dispositions are expected to occur at a later date.
As used herein, (i) "Greensboro Acquisition" means the acquisition by
SFX of the assets of WHSL-FM, operating in Raleigh-Durham, North Carolina, for
$6.0 million; (ii) "Jackson Acquisitions" means, collectively, the acquisitions
by SFX of the assets of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi; (iii) "Charlotte Exchange" means the exchange by SFX of WTDR-FM,
operating in Charlotte, North Carolina, and $64.8 million for WSSS-FM, WRFX-FM
and WKNS-FM, operating in Charlotte, North Carolina; (iv) "Chancellor Exchange"
means the exchange by SFX of four radio stations operating in the Long Island,
New York market for two radio stations in the Jacksonville, Florida market and a
payment of $11.0 million; and (v) "Additional Acquisitions" means, collectively,
the acquisitions by SFX of all of the assets of radio stations WROQ-FM,
operating in Greenville, South Carolina; WJDX-FM, WSTZ-FM and WZRX-AM, each
operating in Jackson, Mississippi; WTRG-FM and WRDU-FM, both operating in
Raleigh-Durham, North Carolina; and WHSL-FM, WMFR-AM, WMAG-FM and WTCK-AM, each
operating in Greensboro, North Carolina.
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SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(in thousands)
Liberty Acquisition Prism
Including Washington Acquisition Greensboro
SFX Dispositions Including Acquisition
Broadcasting, & Chancellor Louisville and Jackson
Inc. As Reported Exchange(1) Dispositions(2) Acquisitions(3)
---------------- ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ............ $405,381 $ 24,725 $ 7,904 $ 726
Property and equipment, net 28,635 14,079 7,483 1,546
Intangible assets, net .... 202,726 94,062 13,997 2,262
Other assets .............. 24,710 - - -
-------- -------- -------- --------
Total assets .............. 661,452 132,866 29,384 4,534
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ....... 18,579 9,047 2,399 203
Other liabilities ......... 1,254 754 -
Long-term debt (incl ......
current portion):
New Credit Agreement .... - - -
Note Offering ........... 450,000 - - -
Acquired company debt ... - 71,517 15,695 -
Other Debt ................ 1,369 - - -
Deferred taxes ............ 7,415 8,093 - -
Minority Interest
Redeemable preferred stock
Series B Preferred Stock 1,836 - - -
Series C Preferred Stock 1,592 - - -
Series D Preferred Stock 149,500 - - -
Stockholders' equity ...... 29,907 43,455 11,290 4,331
Total liabilities and -------- -------- -------- --------
stockholders' equity ..... $661,452 $132,866 $ 29,384 $ 4,534
======== ======== ======== ========
</TABLE>
<PAGE>
SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(in thousands)
(CONTINUED)
<TABLE>
<CAPTION>
Pro Forma
For the Pending
Other Transactions As
Acquisitions/ Richmond Charlotte Pro Forma June 30, 1996 (Other
Dispositions(4) Acquisition (5) Exchange (6) Adjustments(7) Of than the Merger
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets ............ $10,541 $4,460 ($64,800) ($212,500)(a) $88,575
(80,487)(b)
(7,904)(b)
(6,200)(c)
(726)(c)
(38,800)(d)
(4,460)(d)
(3,285)(e)
(2,000)(f)
(1,000)(g)
57,000 (h)
Property and equipment, net (1,193) 1,597 - 52,147
Intangible assets, net .... (9,061) 9,580 64,800 120,737 (a) 605,524
64,270 (b)
8,692 (c)
29,174 (d)
3,285 (e)
1,000 (g)
Other assets .............. (2) 66 - (5,263)(b) 13,211
(6,300)(c)
Total assets ..............
-------- -------- -------- ---------- ----------
285 15,703 - (84,767) 759,457
======== ======== ======== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities .......
$ - 799 $ - (2,399)(b) 27,626
(203)(c)
Other liabilities ......... (799)(d)
Long-term debt (incl ...... - 996 - (996)(d) 2,008
current portion):
New Credit Facility .....
Note Offering ........... - - - 57,000 (h) 57,000
Acquired company debt ... - 0 450,000
- 14,529 - (71,517)(a)
(15,695)(b)
Other Debt ................ (14,529)(c)
Deferred taxes ............ - - - 0 1,369
- - - 23,209 (a) 38,717
Minority Interest
Redeemable preferred stock 1,617 (d) 1,617
Series B Preferred Stock
Series C Preferred Stock - - - 1,836
Series D Preferred Stock - - - (1,592)(f) -
- - - 149,500
Stockholders' equity ......
285 (621) - (43,455)(a) 29,784
(11,290)(b)
(4,331)(c)
621 (d)
Total liabilities and (408)(f)
stockholders' equity .....
-------- -------- -------- ---------- ----------
$285 $15,703 $ - ($84,767) $759,457
======== ======== ======== ========== ==========
</TABLE>
<PAGE>
SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(in thousands)
(CONTINUED)
Pro Forma
For the Pending
Transactions
Merger(8) As Of June 30,
1996
ASSETS
Current assets ............ ($43,245) $45,330
Property and equipment, net 3,685 55,832
Intangible assets, net .... 142,388 747,912
Other assets .............. (164) 13,047
Total assets .............. -------- --------
102,664 862,121
LIABILITIES AND ======== ========
STOCKHOLDERS' EQUITY
Current liabilities .......
2,423 30,049
Other liabilities .........
Long-term debt (incl ...... - 2,008
current portion):
New Credit Facility .....
Note Offering ........... - 57,000
Acquired company debt ... - 450,000
- -
Other Debt ................
Deferred taxes ............ - 1,369
13,116 51,833
Minority Interest
Redeemable preferred stock 1,617
Series B Preferred Stock
Series C Preferred Stock - 1,836
Series D Preferred Stock -
- 149,500
Stockholders' equity ......
87,125 116,909
Total liabilities and stockholders' equity .....
-------- --------
stockholders' equity $102,664 $862,121
======== ========
86
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Liberty Acquisition
Reflects the Liberty Acquisition for $237.5 million adjusted for the
Washington Dispositions of $25.0 million and the Chancellor Exchange
(SFX will receive $11.0 million in cash in the Chancellor Exchange).
No gain or loss will be recognized in connection with the Washington
Dispositions or the Chancellor Exchange.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Liberty Acquisition
Reflects the Liberty Acquisition for $237.5 million adjusted for
the Washington Dispositions of $25.0 million and the Chancellor
Exchange (SFX will receive $11.0 million in cash in the
Chancellor Exchange). No gain or loss will be recognized in
connection with the Washington Dispositions or the Chancellor
Exchange.
<TABLE>
<CAPTION>
LIBERTY AS WASHINGTON CHANCELLOR LIBERTY
REPORTED DISPOSITIONS EXCHANGE AS ADJUSTED
--------- ------------ ---------- -----------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Current assets................................... $ 13,725 $ - $ 11,000 $ 24,725
Property and equipment, net...................... 15,439 (1,360) - 14,079
Intangible assets, net........................... $128,702 (23,640) (11,000) 94,062
-------- ------- ---------- --------
Total assets....................... $157,866 $(25,000) $ 0 $132,866
======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................. $ 9,047 $ - $ - $ 9,047
Other liabilities................................ 754 - - 754
Long-term debt................................... 71,517 - - 71,517
Deferred taxes................................... 8,093 - - 8,093
Stockholders' equity
-------- ------- ---------- --------
Total liabilities and stockholders' equity...... $157,866 $(25,000) $ 0 $132,866
======== ======== ========== ========
</TABLE>
(2) Prism Acquisition
Reflects the Prism Acquisition for $105.25 million adjusted for the
Louisville Dispositions of $19.5 million. No gain or loss will be
recognized on the Louisville Dispositions.
<TABLE>
<CAPTION>
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS AS ADJUSTED
-------- ------------ -----------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C>
Current assets................................. $ 7,904 $ - $ 7,904
Property and equipment, net.................... 9,122 (1,639) 7,483
Intangible assets, net......................... 31,858 (17,861) 13,997
------ ------- ------
Total assets..................... $ 48,884 $(19,500) $ 29,384
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................ $ 2,399 __ $ 2,399
Long-term debt................................. 15,695 __ 15,695
Stockholders' equity........................... 30,790 (19,500) 11,290
------ ------- ------
Total liabilities and stockholders' equity.... $ 48,884 $(19,500) $ 29,384
======== ======== ========
</TABLE>
(3) Greensboro Acquisition and the Jackson Acquisitions
Reflects the acquisition of radio stations (i) WHSL-FM from HMW
Communications, Inc. in the Greensboro Acquisition for a purchase
price of approximately $6.0 million, (ii) WSTZ-FM and WZRX-AM from
Lewis Broadcasting, Inc. and WJDX-FM from Spur Jackson, L.P. in the
Jackson Acquisitions for a purchase price of $6.5 million. The
aggregate purchase price is $12.5 million.
87
<PAGE>
<TABLE>
<CAPTION>
GREENSBORO
GREENSBORO JACKSON ACQUISITION AND THE
ACQUISITION ACQUISITIONS JACKSON ACQUISITION
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C>
Current assets........................................ $ 484 $ 242 $ 726
Property and equipment, net........................... 1,164 382 1,546
Intangible assets, net................................ 1,252 1,010 2,262
------ ------ ------
Total assets.................................. $2,900 $1,634 $4,534
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................................... $ 171 $ 32 $ 203
Stockholders' equity.................................. 2,729 1,602 4,331
------ ------ ------
Total liabilities and stockholders' equity........... $2,900 $1,634 $4,534
====== ====== ======
</TABLE>
(4) Other Acquisitions and Dispositions
To reflect the Dallas Disposition for $11.5 million which is net of
payment anticipated to be made to the seller of the station to SFX. No
adjustment has been made to the pro forma balance sheet for the
Houston Exchange as it will be recorded at historical cost. See note
7(f) for the effect of the related redemption of SFX's Series C
Preferred Stock.
<TABLE>
<CAPTION>
SALE PROCEEDS KTCK-AM ADJUSTMENT
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C>
Current assets........................................................ $11,500 $(959) $10,541
Property and equipment, net........................................... - (1,193) (1,193)
Intangible assets, net................................................ - (9,061) (9,061)
Other assets.......................................................... - (2) (2)
------ ------- ------
Total assets................................................. 11,500 (11,215) 285
====== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity.................................................. 11,500 (11,215) 285
------ ------- ------
Total liabilities and stockholders' equity......................... $11,500 $(11,215) $285
====== ======= ======
</TABLE>
(5) Richmond Acquisition
To reflect the acquisition of 96% interest in ABS, which will acquire
the assets of radio stations WKHK-FM, WBZU-FM and WVGO-FM/WLEE-FM, for
approximately $38.8 million.
<TABLE>
<CAPTION>
WVGO-FM/ Richmond
WKHK-FM WBZU-FM WLEE-FM Acquisition
------- ------- ------- -----------
(in thousands)
ASSETS
<S> <C> <C> <C> <C>
Current assets........................................... $ 2,530 $ 366 $ 1,564 $ 4,460
Property and equipment, net.............................. 79 948 570 1,597
Intangible assets, net................................... 4,855 1,057 3,668 9,580
Other assets............................................. 66 66
------- ------- ------- -------
Total assets.................................... $ 7,464 $ 2,437 $ 5,802 $15,703
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities...................................... $ 248 $ 113 $ 438 $ 799
Other liabilities 996 - - 996
Long-term debt........................................... 11,000 504 3,025 14,529
Stockholders' equity..................................... (4,780) 1,820 2,339 (621)
------- ------- ------- -------
Total liabilities and stockholders' equity............... $ 7,464 $ 2,437 $ 5,802 $15,703
======= ======= ======= =======
</TABLE>
88
<PAGE>
(6) Charlotte Exchange
To reflect the exchange of radio station WTDR-FM and $64.8 million cash
for WSSS-FM, WRFX-FM and WNKS-FM. No adjustment (other than to reflect
the cash paid) has been made for the Charlotte Exchange as it will be
recorded at historical cost.
CHARLOTTE
EXCHANGE
---------
ASSETS
Current assets........................................ $(64,800)
Intangible assets, net................................ 64,800
------------
Total assets.................................... $ 0
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity.................................. $ 0
------------
Total liabilities and stockholders' equity............ $ 0
============
(7) Pro Forma Adjustments
(a) To reflect the Liberty Acquisition for $237,500,000 net of proceeds
to be received from the Washington Dispositions of $25,000,000, the
recording of the related excess of the purchase price paid over the
net book value of the assets carried on the adjusted balance sheet
of $120,737,000 and incremental deferred taxes of $23,209,000 and
the adjustments to remove the long-term debt of $71,517,000 which is
not being assumed, and the stockholders' equity of $43,455,000 of
the Liberty Acquisition.
(b) To reflect the Prism Acquisition for $105,250,000 net of proceeds to
be received from the Louisville Dispositions of $19,500,000 and net
of deposit of $5,263,000, the recording of the related excess of the
purchase price paid over the net book value of the assets carried on
the adjusted balance sheet of $64,270,000 and adjustments to remove
the current assets of $7,904,000, current liabilities of $2,399,000,
long term debt of $15,695,000 and stockholders' equity of
$11,290,000.
(c) To reflect the $12,500,000 purchase price of the Greensboro
Acquisition and the Jackson Acquisitions, net of deposit of
$6,300,000, the recording of the related excess of the purchase
price paid over the net book value of the assets carried on the
adjusted balance sheet of $8,692,000 and the adjustments to remove
the current assets of $726,000, current liabilities of $203,000, and
stockholders' equity of $4,331,000.
(d) To reflect the Richmond Acquisition for $38,800,000, the recording
of the related excess of the purchase price paid over the net book
value of the assets carried on the adjusted balance sheet of
$29,174,000, the minority interest of $1,617,000 and adjustments to
remove the current assets of $4,460,000, current liabilities of
$799,000, other liabilities of $996,000, long term debt of
$14,529,000 and stockholders' deficit of $621,000.
(e) To reflect additional acquisition costs related to the Liberty
Acquisition, Prism Acquisition, Additional Acquisitions, Richmond
Acquisition, Chancellor Exchange, and Charlotte Exchange and deferred
financing costs related to the New Credit Agreement.
(f) In connection with the Dallas Disposition, SFX expects to
redeem its Series C Redeemable Convertible Preferred Stock for
approximately $2 million, which will result in a corresponding
charge of $408,000 to the gain or loss on the Dallas Disposition.
(g) To reflect the Albany Acquisition for $1,000,000.
(h) To reflect additional funding from the New Credit Agreement in
order to finance the acquisitions.
89
<PAGE>
<TABLE>
<CAPTION>
(8) Merger
Multi-Market Radio, Inc
---------------------------------------------------------------------------------
MMR A MMR Hartford Pro Forma
As Reported Dispositions(a) Acquisitions(b) Adjustments As Adjusted
------------- ---------------- ---------------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 5,470 $ 5,600 $ -- $ (18,000) (b) $ (43,245)
13,200 (b)
(46,849) (c)
(2,666) (d)
Property and equipment, net 3,649 (303) 339 -- 3,685
Intangible assets, net 48,434 (3,797) 4,197 71,424 (e) 142,388
13,464(b) 6,000 (c)
2,666 (d)
Other assets 7,256 (5,000) -- (2,420) (f) (164)
------------- ---------------- ---------------- ------------- -------------
Total assets $ 64,809 $ (3,500) $ 18,000 $ 23,355 $ 102,664
============= ================ ================ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 4,843 -- $ -- $ (2,420) (f) $ 2,423
Other liabilities 3,500 (3,500) -- -- 0
Long-term debt 40,849 -- -- (40,849) (c) 0
Deferred taxes 7,241 -- -- 5,875 (e) 11,116
Stockholders' equity 8,376 -- 18,000 13,200 (b) 87,125
(18,000) (b)
(13,200) (e)
78,749 (e)
------------- ---------------- ---------------- ------------- -------------
Total liabilities and stockholders' equity $ 64,809 $ (3,500) $ 18,000 $ 23,355 $ 102,664
============= ================ ================ ============= =============
</TABLE>
(a) Represents the sale of WRXR-FM and WKGB-FM which occurred in July 1996
for $5,000,000 and pending sale of KOLL-FM for $4,100,000. In the
aggregate, a loss of approximately $1,596,000 has been recognized during
the six months ended June 30, 1996 relating to the sales, principally
relating to WRXR-FM and WKBG-FM. Current assets include $5,600,000 of
proceeds to be received in connection with the dispositions (total sale
proceeds of $10,050,000 less $4,450,000 received in connection with the
KOLL-FM and WRSF-FM dispositions).
(b) To reflect the pending MMR Hartford Acquisition for $18,000,000,
including corresponding excess of purchase price paid, $13,464,000 over
net book value of assets acquired, and the adjustment to remove the
stockholders' equity of $18,000,000. SFX loaned MMR approximately $20.0
million pursuant to the SFX Loan for the purposes of financing the MMR
Hartford Acquisition and for working capital. It is also assumed that the
MMR Class A Warrants will be exercised for net proceeds of approximately
$13,200,000.
(c) Repayment of $40,849,000 of existing MMR indebtedness and approximately
$6,000,000 related to prepayment premiums which will increase the
purchase price of MMR.
(d) Includes acquisition costs associated with the Merger of $1,666,000 and
the $1,000,000 purchase price of the MMR Myrtle Beach Acquisition.
(e) To reflect the Merger, assuming SFX's stock price is $44 per
share, at an estimated purchase price of $87,125,000 including the excess
of the purchase price paid over the net book value of the assets
acquired, including deferred taxes, of $71,424,000.
(f) To eliminate payable/receivable between SFX and MMR.
90
<PAGE>
<TABLE>
<CAPTION>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(in thousands except per share amounts)
Liberty
Acquisition
including
Washington Prism
SFX Dispositions Acquitision
Broadcasting, and including Other
Inc. Chancellor Louisville Additional Acquisitions/ Richmond
as reported Exchange(1) Dispositions(2) Acquisitions(3) Dispositions(4) Acquisition(5)
----------- ----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . $ 47,554 $ 23,919 $ 12,404 $ 4,728 $ (4,529) $ 4,548
Station operating expenses . 33,177 16,059 10,175 2,869 (5,281) 4,150
Depreciation, amortization and
acquisition related costs 4,648** 5,013 1,118 1,492 (188) 712
Corporate expenses . . . . . 2,790 452 746 111 60 401
Corporate expenses-
non-recurring and other . 27,489 - - - (1,600) -
-------- -------- -------- -------- -------- --------
Operating Income . . . . . . (20,550) 2,395 365 256 2,480 (715)
Interest expense, including
amortization of deferred
financing costs . . . . . 9,588 3,319 714 382 (954) 638
Other expense (income) . . . (2,298) 5,934 - (11,948) - -
Minority interest . . . . . .
Income tax expense (benefit) - (3,380) - 45 423 -
-------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . (27,840) (3,478) (349) 11,777 3,011 (1,353)
Preferred stock dividend
requirement . . . . . . . 967 - - - - -
-------- -------- -------- -------- -------- --------
Net loss applicable to
common shares . . . . . . $(28,807) $ (3,478) $(349) $ 11,777 $ 3,011 $(1,353)
======== ======== ======== ======== ======== ========
Net loss per common share . . $ (3.87)
Average common shares
outstanding . . . . . . . 7,448
</TABLE>
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(in thousands except per share amounts)
Pro Forma For the
Charlotte Pro Forma Transactions other Pro Forma for the
Exchange(6) Adjustments(7) than the Merger Merger(8) Transactions
----------- -------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . $ 5,154 $ 2,770 (a) $96,548* $11,509 $108,057
Station operating expenses . 3,580 (2,645) (b) 62,084 6,622 68,706
Depreciation, amortization and
acquisition related costs - (240) (c) 13,350 1,651 15,001
391 (d)
125 (e)
279 (f)
Corporate expenses . . . . . 129 628 (g) 3,418 626 4,044
(1,899) (g)
Corporate expenses-
non-recurring and other . - 25,889 546 26,435
-------- -------- -------- -------- --------
Operating Income . . . . . . 1,445 6,131 (8,193) 2,064 (6,129)
Interest expense, including
amortization of deferred
financing costs . . . . . 13 24,187 (h) 27,835 - 27,835
799 (h) -
(13,667) (h)
2,816 (h)
Other expense (income) . . . 8 (5,934) (i) (2,318) - (2,318)
11,920 (i)
Minority interest . . . . . . (10) (k) (10) (10)
Income tax expense (benefit) - 2,912 (i) - - -
-------- -------- -------- -------- --------
Net income (loss) . . . . . . 1,424 (16,892) (33,700) 2,064 (31,636)
Preferred stock dividend
requirement . . . . . . . - 3,992 (j) 4,959 - 4,959
-------- -------- -------- -------- --------
Net loss applicable to
common shares . . . . . . $ 1,424 $(20,884) $(38,659) $ 2,064 $(36,595)
======== ======== ======== ======== ========
Net loss per common share . . $ (5.19) $ (3.96)
Average common shares
outstanding . . . . . . . 7,448 9,238
</TABLE>
____________
* Includes $2,770,000 of fees from Triathlon; see Note 7(a).
** Includes $277,000 of acquisition related costs.
91
<PAGE>
<TABLE>
<CAPTION>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(in thousands except per share amounts)
Liberty Acquisition
SFX including Washington
Broadcasting, Dispositions and Prism Acquisition
Inc. as Chancellor including Louisville Additional Other Acquisitions/
reported Exchange(1) Dispositions(2) Acquisitions(3) Dispositions(4)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . . . . $ 76,830 $ 46,636 $ 26,959 $ 18,463 $ (9,967)
Station operating expenses . . . . 51,039 30,339 22,411 15,570 (9,689)
Depreciation, amortization and
duopoly integration costs . . . 9,137** 8,817 2,232 2,947 (124)
Corporate expenses . . . . . . . . 3,797 3,193 2,027 265 120
Other . . . . . . . . . . . . . . . 5,000 - - - (5,000)
--------- --------- --------- --------- ---------
Operating Income . . . . . . . . . 7,857 4,287 289 (319) 4,726
Interest expense, including
amortization of deferred
financing costs . . . . . . . . 12,903 7,258 1,565 948 (1,841)
Other expense (income) . . . . . . (650) (200) (201) (498)
Minority interest . . . . . . . . .
Income tax expense (benefit) . . . - (2,725) - 562 -
--------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . (4,396) (246) (1,076) (1,628) 7,065
Preferred stock dividend
requirement . . . . . . . . . . 291 - - - -
--------- --------- --------- --------- ---------
Net loss applicable to
common shares . . . . . . . . . $ (4,687) $ (246) $ (1,076) $ (1,628) $ 7,065
========= ========= ========= ========= =========
Net loss per common share . . . . . $ (0.71)
Average common shares
outstanding . . . . . . . . . . 6,596
<CAPTION>
Pro Forma For the Pro Forma
Richmond Charlotte Pro Forma Transactions other for the
Acquisition (5) Exchange (6) Adjustments(7) than the Merger Merger(8) Transactions
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . . . . $ 9,213 $ 11,601 $ 5,035 (a) $ 184,770* $ 22,982 $ 207,752
Station operating expenses . . . . 8,097 8,528 1,323 (a) 122,328 13,064 135,392
(5,290) (b)
Depreciation, amortization and
duopoly integration costs . . . 1,410 497 978 (a) 28,273 3,830 32,103
789 (c)
782 (d)
250 (e)
558 (f)
Corporate expenses . . . . . . . . 650 251 45 (a) 5,097 1,253 6,350
1,255 (g)
(6,506) (g)
Other . . . . . . . . . . . . . . . - - - 1,114 1,114
--------- --------- --------- --------- --------- ---------
Operating Income . . . . . . . . . (944) 2,325 10,851 29,072 3,721 32,793
Interest expense, including
amortization of deferred
financing costs . . . . . . . . 1,415 101 48,375 (h) 55,673 - 55,673
1,598 (h)
(22,282) (h)
5,633 (h)
Other expense (income) . . . . . . 43 799 (707) - (707)
Minority interest income (loss) . . 3 (k) 3 3
Income tax expense (benefit) . . . - - 2,163 (i) - - -
--------- --------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . (2,402) 1,425 (24,639) (25,897) 3,721 (22,176)
Preferred stock dividend
requirement . . . . . . . . . . - - 9,665 (j) 9,956 - 9,956
--------- --------- --------- --------- --------- ---------
Net loss applicable to
common shares . . . . . . . . . $ (2,402) $ 1,425 $ (34,304) $(35,853) $ 3,721 $ (32,132)
========= ========= ========= ========= ========= =========
Net loss per common share . . . . . $ (4.81) (3.48)
Average common shares
outstanding . . . . . . . . . . 7,448 9,238
</TABLE>
________________
* Includes $3,584,000 of fees from Triathlon; see Note 7(a).
** Includes $1,400,000 of duopoly integration costs.
92
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(1) Liberty Acquisition
Reflects the net effect of the historical operations of the Liberty
Stations adjusted for the Washington Dispositions and the Chancellor
Exchange.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
--------------------------------------------------------------------------------
Liberty As Washington Long Island Jacksonville Liberty As
Reported Dispositions Disposition Acquisition Adjustments* Adjusted
--------- ------------ ----------- ----------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . $ 25,966 $ (974) $ (5,108) $ 4,035 $ 23,919
Station operating expenses . . 19,337 (1,563) (3,923) 2,208 16,059
Depreciation/amortization . . . 5,926 (776) (1,429) 751 541 5,013
Corporate expenses . . . . . . 1,566 (88) (1,026) 0 - 452
--------- --------- --------- --------- --------- ---------
Operating income . . . . . . . (863) 1,453 1,270 1,076 (541) 2,395
Interest expense . . . . . . . 3,467 (141) (7) 3,319
Other expense (income) . . . . 5,935 (1) 5,934
Income tax expense (benefit) (3,378) 0 (2) 0 0 (3,380)
--------- --------- --------- --------- --------- ---------
Net income (loss) . . . . . . . $ (6,887) $ 1,594 $ 1,280 $ 1,076 $ (541) $ (3,478)
========= ========= ========= ========= ========= =========
<CAPTION>
Year Ended December 31, 1995
Liberty as Beck Ross Washington Long Island Jacksonville Adjustments Liberty as
Reported Acquisition** Dispositions Disposition Acquisition Adjusted
-------- ----------- ------------ ----------- ----------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . $ 51,407 $ 2,486 $ (3,375) $ (11,511) $ 7,629 $ - $ 46,636
Station operating expenses . 34,725 2,121 (4,065) (7,282) 4,840 - 30,339
Depreciation/amortization . . 10,429 40 (1,377) (2,682) 1,491 916 8,817
Corporate expenses . . . . . 4,653 - - (1,460) - - 3,193
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) . . . 1,600 325 2,067 (87) 1,298 (916) 4,287
Interest expense . . . . . . 7,373 - (98) (17) - - 7,258
Income tax expense . . . . . (2,725) - - - - - (2,725)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) . . . . . .$ (3,048) $ 325 $ 2,165 $ (70) $ 1,298 $ (916) $ (246)
========= ========= ========= ========= ========= ========= =========
</TABLE>
_________________________
* To reflect historic depreciation of the stations that are the subject of
the Long Island Disposition net of decrease in amortization due to the
exchange allocation.
** Represents the acquisition by Liberty of radio stations WBLI-FM, WHCN-FM
and WSNE-FM from Beck-Ross Communications, Inc. in 1995.
93
<PAGE>
(2) Prism Acquisition
Reflects the net effect of the historical operations of the Prism Acquisition
adjusted for the Louisville Dispositions.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
---------------------------------------------
Prism as Louisville Prism as
Reported Dispositions Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . $ 15,752 $ (3,348) $ 12,404
Station operating expenses . . . . . . . . . . 12,651 (2,476) 10,175
Depreciation/amortization . . . . . . . . . . . 1,476 (358) 1,118
Corporate expenses . . . . . . . . . . . . . . 746 - 746
------------ ------------ ------------
Operating income . . . . . . . . . . . . . . . 879 (514) 365
Interest expense . . . . . . . . . . . . . . . 714 - 714
------------ ------------ ------------
Net income (loss) . . . . . . . . . . . . . . . $ 165 $ (514) $ (349)
============ ============ ============
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------
Prism as Louisville Prism as
Reported Dispositions Adjusted
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . $ 32,572 $ (5,613) $ 26,959
Station operating expenses . . . . . . . . . . 26,979 (4,568) 22,411
Depreciation/amortization . . . . . . . . . . . 2,946 (714) 2,232
Corporate expenses . . . . . . . . . . . . . . 2,027 - 2,027
----------- ----------- -----------
Operating income/(loss) . . . . . . . . . . . . 620 (331) 289
Interest expense including
amortization of deferred financing costs . . 1,565 - 1,565
Other expense (income) . . . . . . . . . . . . (200) - (200)
----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . $ (745) $ (331) $ (1,076)
=========== =========== ===========
</TABLE>
94
<PAGE>
(3) Additional Acquisitions
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition and radio stations WRDU-FM, WTRG-FM, WMAG-FM,
WMFR-AM and WTCK-AM acquired from HMW Communications, Inc. (collectively
"Raleigh-Greensboro Acquisitions"), radio station WROQ-FM acquired from
ABS Greenville Partners, L.P. (the "Greenville Acquisition") and the
Jackson Acquisitions.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
---------------------------------------------------------
Raleigh - The Additional
Greensboro Greenville Jackson Acquisitions
Acquisitions Acquisition Acquisitions Combined
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . $ 3,619 $ 639 $ 470 $ 4,728
Station operating expenses . . . . . . . . 2,264 271 334 2,869
Depreciation/ amortization . . . . . . . . 1,168 244 80 1,492
Corporate expenses . . . . . . . . . . . . 4 107 - 111
------------- ----------- ------------ ------------
Operating income (loss) . . . . . . . . . . 183 17 56 256
Interest expense, including amortization
of deferred financing costs . . . . . . 59 323 382
Other income . . . . . . . . . . . . . . . (51) (11,897) (11,948)
Income tax expense 45 0 0 45
------------- ----------- ------------ ------------
Net income (loss) . . . . . . . . . . . . . $ 130 $ 11,591 $ 56 $ 11,777
============= =========== ============ ============
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------
Raleigh- Additional
Greensboro Greenville Jackson Acquisitions
Acquisitions Acquisition Acquisitions Combined
------------- ----------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . $ 12,688 $ 4,074 $ 1,701 $ 18,463
Station operating expenses . . . . . . . . 10,982 3,238 1,350 15,570
Depreciation/amortization . . . . . . . . . 2,325 514 108 2,947
Corporate expenses . . . . . . . . . . . . - 195 70 265
------------- ----------- ------------ ------------
Operating income (loss) . . . . . . . . . . (619) 127 173 (319)
Interest expense . . . . . . . . . . . . . 156 792 - 948
Other expense (income) . . . . . . . . . . (203) 2 - (201)
Income tax expense (benefit) . . . . . . . 562 - - 562
------------- ----------- ------------ ------------
Net income (loss) . . . . . . . . . . . . . $ (1,134) $ (667) $ 173 $ (1,628)
============= =========== ============ ============
</TABLE>
95
<PAGE>
(4) Other Acquisitions/Dispositions
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
----------------------------------------------------------------------
Disposition Acquisition Adjustments(*) Net
------------------------------ ------------- --------------- ---------
KRLD-AM TSN KTCK-AM KKRW-FM
--------- --------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . $(5,048) $(1,212) $ (1,858) $ 3,589 - $(4,529)
Station operating expenses . . . (4,401) (1,006) (2,211) 2,337 (5,281)
Depreciation/amortization . . . . (686) (125) (188) 346 465 (188)
Corporate expenses . . . . . . . - - - 60 60
Other . . . . . . . . . . . . . . (1,600) 0 - 0 0 (1,600)
--------- --------- --------- ------------- --------------- ---------
Operating income . . . . . . . . 1,639 (81) 541 846 (465) 2,480
Interest expense . . . . . . . . (732) (218) (4) (954)
Income tax expense (benefit) 0 0 0 423 0 423
--------- --------- --------- ------------- --------------- ---------
Net income (loss) . . . . . . . 2,371 137 545 423 (465) 3,011
========= ========= ========= ============= =============== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------------------------------------------------
Disposition Acquisition Adjustments(*) Net
------------------------------ ------------- --------------- ---------
KRLD-AM TSN KTCK-AM KKRW-FM
--------- --------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . $(9,792) $(3,196) $(4,096) $ 7,117 - $(9,967)
Station operating expenses . . . (8,881) (2,261) (3,714) 5,167 - (9,689)
Depreciation/amortization . . . . (1,350) (725) (124) 371 1,704 (124)
Corporate expenses . . . . . . . - - - 120 - 120
Other . . . . . . . . . . . . . . (5,000) - - - - (5,000)
--------- --------- --------- ------------- --------------- ---------
Operating income . . . . . . . . 5,439 (210) (258) 1,459 (1,704) 4,726
Interest expense . . . . . . . . (1,433) (403) (5) - - (1,841)
Other income . . . . . . . . . . - - (323) (175) - (498)
--------- --------- --------- ------------- --------------- ---------
Net income (loss) . . . . . . . $ 6,872 $ 193 $ 70 $ 1,634 $ (1,704) $ 7,065
========= ========= ========= ============= =============== =========
</TABLE>
______________
(*) To reflect historical depreciation of KRLD-AM and TSN and disposition of
KTCK-AM.
-96-
<PAGE>
(5) Reflects the net effect of the combined historical operations of radio
stations WKHK-FM, WBZU-FM and WVGO-FM/WLEE-FM acquired in the Richmond
Acquisition.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
---------------------------------------------------
WVGO -FM/ Richmond
WKHK-FM WBZU-FM WLEE-FM Acquisition
----------- ----------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . $ 2,499 $ 499 $ 1,550 $ 4,548
Station operating expenses . . . . . . . . . . . 1,818 671 1,661 4,150
Depreciation/amortization . . . . . . . . . . . . 150 104 458 712
Corporate expenses . . . . . . . . . . . . . . . 165 52 184 401
----------- ----------- ---------- ------------
Operating income . . . . . . . . . . . . . . . . 366 (328) (753) (715)
Interest expense . . . . . . . . . . . . . . . . 376 132 130 638
----------- ----------- ---------- ------------
Net income (loss) . . . . . . . . . . . . . . . (10) (460) (883) (1,353)
=========== =========== ========== ============
<CAPTION>
Year ended December 31, 1995
---------------------------------------------------
WVGO -FM/ Richmond
WKHK-FM WBZU-FM WLEE-FM Acquisition
----------- ----------- ---------- ------------
(in thousands)
Net revenues . . . . . . . . . . . . . . . . . . $ 4,478 $ 849 $ 3,886 $ 9,213
Station operating expenses . . . . . . . . . . . 3,154 1,561 3,382 8,097
Depreciation/amortization . . . . . . . . . . . . 253 243 914 1,410
Corporate expenses . . . . . . . . . . . . . . . 245 77 328 650
----------- ----------- ---------- ------------
Operating income . . . . . . . . . . . . . . . . 826 (1,032) (738) (944)
Interest expense . . . . . . . . . . . . . . . . 811 287 317 1,415
Other expense (income) . . . . . . . . . . . . . 0 0 43 43
----------- ----------- ---------- ------------
Net income (loss) . . . . . . . . . . . . . . . $ 15 $ (1,319) $ (1,098) $ (2,402)
=========== =========== ========== ============
</TABLE>
(6) To reflect the exchange of radio station WTDR-FM for radio stations
WSSS-FM, WRFX-FM and WNKS-FM in the Charlotte Exchange.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-----------------------------------------------------------
Acquisitions Disposition
--------------------- -----------
WRFX-FM/
WSSS-FM WNKS-FM WTDR-FM Adjustments* Net
---------- ---------- --------- -------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $ 1,930 $ 5,033 $ (1,809) $ 5,154
Station operating expenses . . . . . . . 1,381 3,240 (1,041) 3,580
Depreciation/amortization . . . . . . . . 99 2,180 (248) (2,031) 0
Corporate expenses . . . . . . . . . . . 129 - - - 129
---------- ---------- --------- -------------- --------
Operating income . . . . . . . . . . . . 321 (387) (520) 2,031 1,445
Interest expense . . . . . . . . . . . . 13 13
Other expense . . . . . . . . . . . . . . 8 - - - 8
---------- ---------- --------- -------------- --------
Net income (loss) . . . . . . . . . . . $ 300 $(387) $ (520) $ 2,031 $ 1,424
========== ========== ========= ============== ========
</TABLE>
-97-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------------
Acquisitions Disposition
---------------------- -------------
WRFX-FM/
WSSS-FM WNKS-FM WTDR Adjustments* Net
--------- --------- ------------- -------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $ 3,575 $ 10,624 $ (2,598) $ 11,601
Station operating expenses . . . . . . . 2,268 7,623 (1,363) 8,528
Depreciation/amortization . . . . . . . . 208 3,120 (497) (2,334) 497
Corporate expenses . . . . . . . . . . . 251 0 0 0 251
--------- --------- ------------- -------------- ---------
Operating income . . . . . . . . . . . . 848 (119) (738) 2,334 2,325
Interest expense . . . . . . . . . . . . 94 7 101
Other expense (income) 191 608 799
Income tax expense (benefit) . . . . . . 0 - 0 0 -
--------- --------- ------------- -------------- ---------
Net income (loss) . . . . . . . . . . . $ 563 $ (734) $ (738) $ 2,334 $ 1,425
========= ========= ============= ============== =========
</TABLE>
- -------------------
* To eliminate depriciation of WSSS-FM, WRFX-FM, WNKS-FM and reflect
depreciation of WTDR-FM.
(7) Pro Forma Adjustments
(a) Reflects the results of radio stations (located in San Diego,
Charlotte - WLYT only, and Dallas) acquired in the Recent
Acquisitions during the year ended December 31, 1995 and fees
of $3,584,000 and $2,770,000 incurred by Triathlon and
payable to SCMC for the year ended December 31, 1995 and the
six months ended June 30, 1996, respectively of which
$2,584,000 and $2,020,000, respectively, represent fees based
upon acquisition and financing activities in the respective
period. Future fees may be lesser or greater based upon
future acquisition and financing activity by Triathlon.
Minimum annual fees will be $1,000,000 per year commencing at
such time as Triathlon spends an amount equal to the net
proceeds of its last public offering, of which $750,000 is
due in the first six months.
(b) Reflects anticipated cost savings expected to be realized
following the Liberty Acquisition, the Chancellor Exchange,
the Prism Acquisition, the Jackson Acquisitions and the
Richmond Acquisition, consisting principally of the
elimination of certain duplicative technical, sales and
general and administrative functions due to operating a
cluster of stations in each of its principal markets, a
reduction of employee benefit costs and commission rates and
the elimination of programming personnel due to automation
and simulcasting.
In addition to the cost savings identified above which are
reflected in the pro forma adjustments, SFX has
identified certain additional expenses of approximately
$936,000 which are not expected to recur or are expected to
recur in reduced amounts. These expenses consist primarily of
(i) non-recurring marketing costs of approximately $471,000
related to SFX's stations operating in San Diego,
California, Charlotte, North Carolina and
Greenville-Spartanburg, South Carolina, incurred by the prior
owners of such stations, (ii) costs associated with barter
arrangements of approximately $98,000 related to SFX's
stations operating in Raleigh, North Carolina,
(iii) costs of third party service providers of approximately
$272,000 related to the radio stations acquired in the Prism
Acquisition and retained by SFX, and (iv) employee
relocation expenses of approximately $95,000 incurred by the
prior owners of Prism.
While management believes that such cost savings and the
elimination of non-recurring expenses are reasonably
achievable, SFX's ability to achieve such cost
savings and to eliminate the non-recurring expenses is
subject to numerous factors, many of which are beyond
SFX's control. There can be no assurance that SFX
will realize such cost savings.
98
<PAGE>
(c) Reflects increase (decrease) in amortization of intangible
assets resulting from the purchase price allocation and
change in amortization period:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996 FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------- ------------------------------------
INCREASE DUE DECREASE DUE INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE) ALLOCATION PERIODS (DECREASE)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Liberty Acquisition............... $ 1,117 $ (2,984) $ (1,867) $ 2,235 $ (4,799) $ (2,564)
Prism Acquisition 803 (605) 198 1,606 (1,211) 395
Greensboro Acquisition and
Jackson Acquisitions........... 108 (5) 103 217 (10) 207
Richmond Acquisition.............. 364 (310) 54 729 (641) 88
Charlotte Exchange................ 810 0 810 1,620 0 1,620
Additional Acquisitions other
than the Greensboro Acquisition
and the Jackson Acquisition.... 450 0 450 1,018 0 1,018
Albany Acquisition................ 12 0 12 25 0 25
------------ ------------ ------------ ------------ ------------ ------------
Net Decrease (240) Net Increase 789
</TABLE>
(d) Reflects $391,000 and $782,000 in amortization of goodwill
arising from the deferred tax recorded in connection with the
Liberty Acquisition for the six months ended June 30, 1996
and year ended December 31, 1995, respectively.
(e) Amortization of $125,000 and $250,000 for acquisition costs
associated with the Acquisitions for the six months ended
June 30, 1996 and year ended December 31, 1995, respectively.
(f) To reflect $279,000 and $558,000 in amortization relating to
the present value of the Triathlon consulting fees assigned
to SFX under its agreement with SCMC for the six
months ended June 30, 1996 and year ended December 31, 1995,
respectively.
(g) To record incremental corporate overhead charges of $628,000
and $1,255,000 for the six months ended June 30, 1996 and
year ended December 31, 1995, respectively, relating to
increases in personnel, professional fees and administrative
expenses associated with the increased size of SFX
due to the Acquisitions and the elimination of $1,899,000 and
$6,506,000 for the six months ended June 30, 1996 and year
ended December 31, 1995, respectively of the corporate
overhead of the sellers.
(h) To reflect interest expense of $24,187,000 and $48,375,000
for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively, related to the $450,000,000
Note Offering at 10.75%, amortization of deferred financing
costs of $799,000 and $1,598,000 for the six months ended
June 30, 1996 and year ended December 31, 1995, respectively,
interest expense of $2,816,000 and $5,633,000 relating to the
borrowings from the New Credit Agreement for the six months
ended June 30, 1996 and year ended December 31, 1995,
respectively, and elimination of existing interest expense
(net of interest on other debt) of $13,667,000 and
$22,282,000 related to SFX and the sellers for the
six months ended June 30, 1996 and year ended December 31,
1995, respectively.
(i) Elimination of acquisition related costs of $5,934,000
recorded on the income statement of Liberty for the six
months June 30, 1996, gain on the sale of assets of
$11,920,000 recorded on the books of ABS Greenville Partners,
L.P. for the six months ended June 30, 1996 and income tax
benefits of $2,912,000 and $2,163,000 for the six months
ended June 30, 1996 and year ended December 31, 1995,
respectively.
99
<PAGE>
(j) To record the incremental Series D Preferred Stock dividend
at a rate of 6.5% net of the elimination of preferred
dividends relating to the Series C Preferred Stock.
(k) To record minority interest income (loss) related to the
Richmond Acquisition of ($10,000) and $3,000 for the six
months ended June 30, 1996 and year ended December 31, 1995,
respectively.
(8) Merger
Reflects the net effect of the historical operations of MMR as adjusted for
acquisitions and dispositions.
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
---------------------------------------------------------------------------------
MMR A MMR
DISPOSITIONS HARTFORD PRO FORMA PRO FORMA
AS REPORTED (A) ACQUISITION ADJUSTMENTS AS ADJUSTED
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ 10,144 $ (717) $ 2,082 $ 11,509
Station operating expenses............ 6,254 (810) 1,610 (432) (b) 6,622
Depreciation/amortization............. 810 (95) 247 669 (c) 1,651
20 (d)
Corporate expenses.................... 1,275 - - 626 (e) 626
(1,275) (e)
Non-cash compensation................. 130 - - 416 (g) 546
----------- ------------ ----------- ----------- -----------
Operating income ..................... 1,675 188 225 (24) 2,064
Interest expense...................... 2,609 - 203 (2,812) (f) -
Other expense (income)................ 5,657 (1,577) (12) (4,068) (f) -
Income tax expense (benefit) - - 7 (7) (f) -
----------- ------------ ----------- --------- -----------
Net income (loss) .................... (6,591) 1,765 27 6,863 2,064
=========== ============ =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
MMR A MMR SOUTHERN
DISPOSITIONS HARTFORD STARR - 1ST PRO FORMA
AS REPORTED (A) ACQUISITION QUARTER 1995 ADJUSTMENTS AS ADJUSTED
----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 18,288 $ (2,422) $ 4,424 $ 2,692 $ 22,982
Station operating expenses......... 11,026 (2,247) 3,286 1,863 (864) (b) 13,064
Depreciation/amortization.......... 1,750 (304) 539 327 1,477 (c) 3,830
41 (d)
Corporate expenses................. 1,666 - - - 1,253 (e) 1,253
(1,666) (e)
Non-cash compensation.............. 281 - - - 833 (g) 1,114
----------- ------------ ----------- ------------ ----------- -----------
Operating income .................. 3,565 129 599 502 (1,074) 3,721
Interest expense, including
amortization
of deferred financing costs.... 4,966 - 502 - (5,468) (f) -
Other expense (income)............. (11) - (14) - 25 (f) -
Income tax expense (benefit) (59) - 48 - 11 (f) -
----------- ------------ ----------- ------------ ----------- -----------
Net income (loss) ................. (1,331) 129 63 502 4,358 3,721
=========== ============ =========== ============ =========== ===========
</TABLE>
100
<PAGE>
- -------------------
(a) Reflects the elimination of the operations of stations
WRSF-FM, sold in March 1996, WRXR-FM and WKBG-FM, sold in
July 1996, and the pending sale of KOLL-FM.
(b) Reflects cost savings of $432,000 and $864,000 for the six
months ended June 30, 1996 and year ended December 31, 1995,
respectively, anticipated with the MMR Hartford Acquisition,
consisting principally of the elimination of certain
duplicative technical sales and general and administrative
functions due to operating a cluster of stations in MMR's
markets and the elimination of programming personnel due to
automation and simulcasting.
(c) Reflects $669,000 and $1,477,000 for the six months ended
June 30, 1996 and year ended December 31, 1995, respectively,
in amortization of intangible assets recorded in connection
with the Merger, MMR Myrtle Beach Acquisition and change in
amortization periods.
(d) Amortization of $20,000 and $41,000 for acquisition costs
associated with the Merger for the six months ended June 30,
1996 and year ended December 31, 1995, respectively.
(e) To record incremental corporate overhead charges of $626,000
and $1,253,000 associated with the Merger for the three
months ended June 30, 1996 and year ended December 31, 1995,
respectively and to eliminate MMR's existing corporate
overhead of $1,275,000 and $1,666,000 for the six months
ended June 30, 1996 and year ended December 31, 1995,
respectively.
(f) Elimination of a nonrecurring loss (income) of $4,067,000 and
($25,000) for the six months ended June 30, 1996 and year
ended December 31, 1995, respectively, interest expense of
and $2,812,000 and $5,468,000 the six months ended June 30,
1996 and year ended December 31, 1995, respectively, and
income tax expense (benefit) of $7,000 and ($11,000) for the
six months ended June 30, 1996 and year ended December 31,
1995, respectively.
(g) Reflects non-cash compensation charge for the issuance of
shares of the Series A and Series B Convertible Preferred
Shares Stock of MMR. These shares were issued in July 1996.
101
<PAGE>
BUSINESS OF SFX
SFX, founded in 1992, currently owns and operates or provides
programming to or sells advertising on behalf of 55 radio stations in 19
markets. Upon consummation of the Pending Acquisitions (including the Merger)
and the Pending Disposition, SFX will own and operate or provide programming to
or sell advertising on behalf of 67 radio stations (52 FM and 15 AM stations)
and will be one of the largest companies in terms of number of stations in the
United States exclusively devoted to radio broadcasting. SFX is, and after the
Pending Acquisitions (including the Merger) and the Pending Disposition, will
continue to be, diverse in terms of format and geographic markets, will operate
in 20 markets and will own and operate or provide programming to or sell
advertising on behalf of two or more stations in 18 of these markets.
The following is only a brief summary of the description of the
business of SFX. For a more complete description of the business of SFX,
including financial statements of SFX, see the SFX Reports.
The following chart sets forth certain information with respect to
SFX's stations after giving effect to the Pending Acquisitions (other than the
Merger) and the Pending Disposition:
<TABLE>
<CAPTION>
NUMBER OF
STATIONS
NUMBER OF NUMBER OF FOLLOWING
STATIONS STATIONS ACQUISITIONS 1995
NUMBER OF CURRENTLY NUMBER OF TO BE UNDER (OTHER THAN COMBINED COMBINED
STATIONS UNDER STATIONS TO LMA OR JSA THE MERGER) MARKET MARKET
MARKET CURRENTLY LMA OR BE AFTER AND AUDIENCE REVENUE
MARKET RANK OWNED(1) JSA(2) ACQUIRED(2) ACQUISITIONS(2) DISPOSITION SHARE SHARE
- ----------------------------- -------- ---------- --------- ---------- ----------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION AM FM
Providence, RI............ 31 3 -- -- -- 1 2 14.9% 28.3%
Hartford, CT.............. 41 3 -- -- -- 1 2 10.3% 16.3%
Albany, NY................ 57 4 1 1 -- 2 3 23.3% 32.4%
MID-SOUTH ATLANTIC REGION
Charlotte, NC............. 37 1 -- 3 -- -- 4 21.6% 30.0%
Greensboro, NC............ 42 3 1 1 -- 2 2 11.8% 13.7%
Nashville, TN............. 44 2 -- -- -- -- 2 24.1% 27.3%
Greenville-Spartanburg, SC 59 4 -- -- -- 1 3 29.3% 43.4%
MID-ATLANTIC REGION
Raleigh-Durham, NC........ 50 4 -- -- -- -- 4 24.6% 35.8%
Richmond, VA.............. 56 1 -- 4 -- -- 5 30.0% 38.3%
Washington, DC/
Baltimore, MD........ 8 1 -- -- -- -- 1 2.9% 3.6%
SOUTHERN REGION
Jacksonville, FL.......... 53 4 -- 2 -- 2 4 30.7% 44.8%
Jackson, MS............... 118 6 -- -- -- 2 4 32.3% 56.0%
SOUTHWEST REGION
Houston, TX............... 9 1 -- 1 -- -- 2 9.5% 13.4%
San Diego, CA............. 15 2 -- -- -- -- 2 6.4% 10.1%
Tucson, AZ................ 62 4 -- -- -- 2 2 22.1% 26.2%
Wichita, KS............... 91 3 -- -- -- 1 2 17.4% 21.0%
---- ---- ---- ---- ---- ----
Total................. 46 2 12 -- 14 44
</TABLE>
- --------------------
(1) Does not include seven radio stations, all of which are currently owned
by SFX, which are to be transferred by SFX in the Dallas Disposition, the
Houston Exchange, the Chancellor Exchange and the Charlotte Exchange.
Also does not include the exchange of one SFX-owned station for two new
stations in the CBS Exchange (as defined herein).
(2) Includes radio stations to which SFX currently provides programming and
on which SFX currently sells advertising pursuant to an LMA or on which
SFX currently sells advertising pursuant to a JSA.
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THE SFX STATIONS
The following table summarizes certain information with respect to the
radio stations SFX will own and operate or provide programming to or sell
advertising on behalf of, after giving effect to the Pending Acquisitions
(other than the Merger) and the Pending Disposition.
<TABLE>
<CAPTION>
TOTAL
STATION RANK 1995 STATION NUMBER
MARKET TARGET AMONG TARGET AUDIENCE REVENUE OF STATIONS
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE RANK IN MARKET
- ----------------------------------------------------------------------------------------------------------------------------------
NORTHEAST REGION
<S> <C> <C> <C> <C> <C> <C> <C>
Providence, RI 31
WSNE-FM ............. Adult Contemporary ("AC) Adults 25-54 5 4.4% 5 30
WHJY-FM ............. Album Oriented Rock Adults 18-34 1 6.5% 1 30
WHJJ-AM ............. News/Talk Adults 35-64 10 4.0% 9 30
Hartford, CT 41
WHCN-FM ............. Album Oriented Rock Men 25-54 5 3.7% 7 21
WMRQ-FM ............. Modern Rock Adults 18-34 1 5.7% 8 21
WPOP-AM ............. News/Talk Adults 35-64 11 0.9% 11 21
Albany, NY 57
WGNA-FM ............. Country Adults 25-54 1 12.7% 1 42
WGNA-AM ............. Country Adults 25-54 18* 0.3% 24 42
WPYX-FM ............. Album Oriented Rock Adults 18-34 2 7.5% 2 42
WTRY-AM ............. Oldies Adults 35-64 9* 1.6% 16 42
WYSR-FM (3).......... 70s Oldies Adults 25-54 12* 1.2% 11 42
MID-SOUTH ATLANTIC REGION
Charlotte, NC (4) 37
WLYT-FM (5).......... AC Adults 25-54 6 5.5% 8 42
WSSS-FM (6).......... 70s Oldies Adults 18-49 9 3.2% 9 42
WRFX-FM (6).......... Album Oriented Rock Adults 18-49 2 7.2% 2 42
WNKS-FM (6).......... Contemporary Hit Radio Adults 25-54 5* 5.7% 10 42
Greensboro, NC 42
WMAG-FM ............. AC Adults 25-54 3 6.1% 4 34
WTCK-AM (7).......... Sports Adults 25-54 NR NR 20 34
WMFR-AM ............. News/Talk Adults 25-54 16 1.3% 11 34
WHSL-FM (8).......... Country Adults 25-54 6 4.4% 13 34
Nashville, TN 44
WSIX-FM.............. Country Adults 25-54 1 12.3% 1 45
WRVW-FM (9).......... AC Adults 18-34 2 7.7% 9 45
Greenville-Spartanburg, SC 59
WSSL-FM.............. Country Adults 25-54 1 12.3% 1 39
WMYI-FM.............. AC Adults 25-54 4 7.5% 2 39
WGVL-AM.............. Talk Adults 25-54 18* 0.6% NR 39
WROQ-FM.............. Classic Rock Adults 25-54 3 8.9% 3 39
MID-ATLANTIC REGION
Raleigh-Durham, NC 50
WRSN-FM (10) ........ Classic Rock Adults 25-54 7* 3.8% 9 33
WDCG-FM.............. Contemporary Hit Radio Adults 18-34 1 8.8% 4 33
WRDU-FM.............. Album Oriented Rock Adults 25-54 7* 4.3% 2 33
WTRG-FM.............. Oldies Adults 35-64 1 7.7% 7 33
Richmond, VA 56
WMXB-FM ............. AC Adults 25-34 4 5.9% 2 26
WVGO-FM (11)......... Modern Rock Adults 18-49 8 3.1% 8 26
WLEE-FM (11)......... 70s Oldies Adults 25-54 10 2.9% 10 26
WKHK-FM (11)......... Country Adults 18-54 1 13.9% 1 26
WBZU-FM (11)......... Modern Rock Adults 18-34 5* 4.2% 11 26
Washington, DC/
Baltimore, MD 8
WHFS-FM (12)......... Alternative Rock Adults 18-34 6 2.9% 14 44
</TABLE>
103
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<TABLE>
<CAPTION>
TOTAL
STATION RANK 1995 STATION NUMBER
MARKET TARGET AMONG TARGET AUDIENCE REVENUE OF STATIONS
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE RANK IN MARKET
- ----------------------------------------------------------------------------------------------------------------------------------
SOUTHERN REGION
<S> <C> <C> <C> <C> <C> <C> <C>
Jacksonville, FL 53
WKQL-FM.............. Oldies/Adult Adults 25-54 6 4.5% 6 33
WIVY-FM ............. AC Adults 25-54 3* 5.0% 7 33
WOKV-AM ............. News/Talk Adults 18-49 12 4.2% 8 33
WPDQ-AM ............. Nostalgia Adults 50 & over 5 1.8% 15 33
WFYV-FM(13).......... Classic Rock Adults 18-49 1 8.0% 2 33
WAPE-FM(13).......... Top 40 Adults 18-49 3 7.2% 4 33
Jackson, MS 118
WMSI-FM.............. Country Adults 25-54 1 11.1% 1 29
WKTF-FM.............. Country Adults 25-54 11 2.6% 7 29
WJDS-AM.............. AC Adults 25-54 13 1.1% 17 29
WSTZ-FM.............. Album Oriented Rock Adults 25-54 3 8.4% 4 29
WJDX-FM.............. AC Adults 25-54 5 7.8% 3 29
WZRX-AM ............. Gospel Adults 25-54 14* 1.3% 12 29
SOUTHWEST REGION (14)
Houston, TX(15) 9
KODA-FM.............. AC Adults 25-54 2 6.2% 1 50
KKRW-FM (16)......... 70s Oldies Adults 18-34 11 3.3% 12 50
San Diego, CA 15
KYXY-FM.............. AC Adults 25-54 2 6.4% 5 36
KPLN-FM (17)......... Classic Rock Adults 25-54 NR NR 12 36
Tucson, AZ 62
KRQQ-FM ............. Contemporary Hit Radio Adults 18-34 1 7.4% 5 28
KWFM-FM ............. Oldies Adults 25-54 5 5.5% 6 28
KCEE-AM ............ Nostalgia Adults 61 & over 2 3.4% 11 28
KNST-AM ............. News/Talk Adults 25-54 8 5.8% 4 28
Wichita, KS 91
KRZZ-FM ............ Classic Rock Adults 18-34 2* 6.4% 6 23
KKRD-FM ............. Contemporary Hit Radio Adults 18-34 3 6.6% 4 23
KNSS-AM ............. News/Talk Adults 25-54 9 4.4% 8 23
</TABLE>
- ------------------
* Indicates ranking is tied with another station.
(1) Some stations are licensed to a different community located within the
market they serve.
(2) Due to variations that may exist within the same station programming
format, the demographic target may be different even though the
station program format is the same.
(3) WYSR-FM changed its call letters from WTRY-FM. SFX sells advertising
on WYSR-FM pursuant to a JSA and has exercised its option to acquire
the station. The closing of the acquisition is subject to the
satisfaction of certain conditions, including the receipt of FCC
approval.
(4) Does not include WTDR-FM, operating in the Charlotte, North Carolina
market, which is to be disposed of in the Charlotte Exchange.
(5) WLYT-FM changed its call letters from WEZC-FM.
(6) SFX has agreed to acquire WSSS-FM, WRFX-FM, and WNKS-FM, operating in
the Charlotte, North Carolina market from EZ Communications in
exchange for WTDR-FM, operating in the Charlotte, North Carolina
market and $64.8 million. Prior to this acquisition, SFX will enter
into an LMA with respect to WRFX-FM and WNKS-FM. EZ Communications
intends to acquire WRFX-FM and WNKS-FM from Evergreen Media Corp.
(7) WTCK-AM changed its call letters from WWWB-AM.
(8) SFX has exercised its option to acquire WHSL-FM. The closing of this
acquisition is subject to the satisfaction of certain conditions,
including the receipt of FCC approval. SFX has been selling
advertising on WHSL-FM pursuant to an LMA since January 1996.
(9) WRVW-FM changed its call letters from WYHY-FM.
(10) WRSN-FM changed its call letters from WZZU-FM.
(11) In August 1996, SFX entered into agreements to acquire ABS
Communications L.L.C. which owns or has agreed to acquire each of the
four indicated stations.
(12) Pursuant to the CBS Exchange, SFX has entered into an agreement to
exchange WHFS-FM for two stations operating in the Dallas, Texas
market, KTXQ-FM and KRRW-FM. However, there can be no assurance that
the exchange will be consummated, because a condition to SFX's
obligation to consummate the CBS Exchange is that SFX shall have been
satisfied that its due diligence review of the stations, assets and
liabilities to be acquired and
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assumed by SFX shall not have revealed any fact or circumstance which
shall have caused SFX to believe in good faith that proceeding with
the CBS Exchange would adversely affect SFX; provided, however, that
this condition is irrevocably deemed satisfied if SFX does not
describe any such facts and circumstances in reasonable detail in
writing to CBS Inc. on or prior to October 10, 1996. The failure of
the above condition to be satisfied would allow SFX to terminate the
agreement. See "Business of SFX--Pending Acquisitions and
Dispositions."
(13) Pursuant to the Chancellor Exchange, SFX has agreed to acquire WFYV-FM
and WAPE-FM in exchange for four radio stations currently owned by SFX
(but not listed in the table) that serve the Long Island, New York
market. Chancellor currently provides programming to and sells
advertising on the four Long Island stations pursuant to an LMA with
SFX. SFX has been providing programming to and selling advertising on
WFYW-FM and WAPE-FM since August 1, 1996.
(14) Does not include KTCK-AM, operating in the Dallas, Texas market, which
SFX has agreed to sell to a third party. Also does not include
KRLD-AM, which also operates in the Dallas, Texas market and the Texas
State Networks, which SFX has agreed to exchange for KKRW-FM,
operating in the Houston, Texas market. Also does not include KTXQ-FM
and KRRW-FM, operating in the Dallas, Texas market, which SFX may
acquire in exchange for WHFS-FM, operating in the Baltimore, Maryland
and Washington, D.C. markets, pursuant to the CBS Exchange. See
"Business of SFX--Pending Acquisitions and Dispositions."
(15) Does not include two stations operating in the Houston, Texas market,
KQUE-FM and KNUZ-AM, which MMR has agreed to acquire and then transfer
to SFX. Based upon an audit conducted by an environmental consultant
at one of the sites used in connection with the stations' business,
MMR may elect to terminate the purchase agreement. SFX has been
advised by MMR that, although MMR has not elected to terminate the
purchase agreement, MMR is negotiating an agreement with the seller
and the relevant environmental authorities regarding the cleanup of
the site. There can be no assurance that MMR will be able to enter
into such an agreement. See "Certain Relationships and Related
Transactions--Material Contacts between SFX and MMR."
(16) SFX has entered into an agreement pursuant to which SFX has agreed to
acquire KKRW-FM, operating in the Houston, Texas market, in a
station-for-station exchange for KRLD-FM, operating in the Dallas,
Texas market, and the Texas State Networks.
(17) KPLN-FM changed its call letters from KMKX-FM.
RECENTLY COMPLETED ACQUISITIONS AND DISPOSITIONS
In the Greenville Acquisition, consummated in June 1996, SFX acquired
substantially all of the assets of WROQ-FM, Greenville, South Carolina, for
approximately $14.0 million. Also in June 1996, SFX acquired substantially all
of the assets of WTRG-FM and WRDU-FM, both operating in Raleigh, North
Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating
in Greensboro, North Carolina for approximately $36.8 million in the
Raleigh-Greensboro Acquisitions. MMR initially entered into the acquisition
agreements relating to these stations. SFX financed the purchase of these
stations and MMR transferred the purchased assets to SFX simultaneously with
the acquisition by MMR.
Pursuant to the Jackson Acquisitions, in July 1996, SFX acquired
substantially all of the assets of WJDX-FM, Jackson, Mississippi, for a
purchase price of approximately $3.0 million and, in August 1996, substantially
all of the assets used in the operation of radio stations WSTZ-FM and WZRX-AM,
each operating in Jackson, Mississippi, for a purchase price of approximately
$3.5 million. MMR initially entered into the acquisition agreements relating to
these stations. SFX financed the purchase of these stations and MMR transferred
the purchased assets to SFX simultaneously with the acquisition by MMR.
Pursuant to the Prism Acquisition, in July 1996, SFX acquired from
Prism, a privately-held radio broadcasting company, substantially all of the
assets used in the operation of eight FM and five AM radio stations located in
four markets: Jacksonville, Florida; Raleigh, North Carolina; Tucson, Arizona
and Wichita, Kansas. The purchase price was approximately $82.8 million.
In July 1996, SFX acquired Liberty Broadcasting for a purchase price
of approximately $227.0 million, plus $10.5 million for working capital (the
"Liberty Acquisition"). Liberty Broadcasting was a privately-held radio
broadcasting company which owned and operated or provided programming to or
sold advertising on behalf of 14 FM and six AM radio stations (the "Liberty
Stations") located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia. In July 1996, SFX sold three of the
Liberty Stations operating in the Washington, DC/Baltimore, Maryland
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market (the "Washington Dispositions"), for $25.0 million, of which
approximately $22.0 million was received by SFX at the closing and the
remainder of which will be paid to SFX upon the satisfaction of certain
conditions.
In connection with the Prism Acquisition, SFX purchased from Prism
substantially all of the assets used in the operation of two FM radio stations
and one AM radio station, each operating in Louisville, Kentucky (the
"Louisville Acquisition") for approximately $22.5 million and subsequently sold
these stations to third parties for an aggregate consideration of approximately
$18.5 million (the "Louisville Dispositions"). SFX did not recognize a gain or
loss on the Louisville Dispositions.
The Raleigh-Greensboro Acquisitions, the Jackson Acquisitions, the
Prism Acquisition, the Liberty Acquisition, the Greenville Acquisition and the
Louisville Acquisition are collectively herein referred to as the "Completed
Acquisitions."
PENDING ACQUISITIONS AND DISPOSITIONS
Pursuant to the Greensboro Acquisition, SFX has entered into an asset
purchase agreement to acquire substantially all of the assets of WHSL-FM,
Greensboro, North Carolina, for a purchase price of $6.0 million.
SFX has also (i) entered into an agreement pursuant to which SFX will
exchange radio station KRLD-AM, Dallas, Texas, and the Texas State Networks for
radio station KKRW-FM, Houston, Texas (the "Houston Exchange"), (ii) entered
into an agreement pursuant to which SFX will sell radio station KTCK-AM,
Dallas, Texas for approximately $11.5 million, net of certain payments to the
original seller (the "Dallas Disposition"), and (iii) entered into an agreement
pursuant to which SFX will exchange three FM radio stations and one AM radio
station, each operating in the Long Island, New York market, all of which were
acquired in the Liberty Acquisition, for two FM radio stations, WAPE-FM and
WFYV-FM, both operating in the Jacksonville, Florida market and to be acquired
by Chancellor, and a payment to SFX from Chancellor in the amount of $11.0
million, pursuant to the Chancellor Exchange. The Dallas Disposition and the
Chancellor Exchange are conditioned on the prior receipt of FCC approval and
approval under the HSR Act. SFX has received a request for further information
from the Department of Justice's Antitrust Division regarding the disposition
of KRLD-FM pursuant to the Houston Exchange, and there can be no assurance that
the Department of Justice will allow the Houston Exchange to be consummated.
SFX does not expect to recognize a gain or loss on either the Houston Exchange
or the Chancellor Exchange. Until the consummation of the Chancellor Exchange,
SFX and Chancellor will provide programming and sell advertising pursuant to
local marketing agreements on the Jacksonville radio stations and the Long
Island radio stations, respectively.
In the event that the Merger Agreement is terminated pursuant to
certain provisions thereof, MMR will have the right, subject to the receipt of
prior FCC or HSR Act approval and the receipt of any required consents from
Finova and Huff, to acquire the MMR Liberty Stations from SFX for $100.0
million, in which event SFX will be subject to a substantial tax liability. In
the event the Merger Agreement is terminated pursuant to certain provisions
thereof, SFX will have the right to structure an exchange of certain of MMR's
stations for the MMR Liberty Stations, subject to receipt of any necessary
prior FCC approval, in a transaction which is intended to qualify as a
like-kind exchange under Section 1031 of the Code. See "Certain Relationships
and Related Transactions--Material Contacts Between SFX and MMR".
In August 1996, SFX agreed to acquire substantially all of the assets
used in the operation of radio station WYSR-FM, operating in Albany, New York,
for a purchase price of approximately $1.0 million (the "Albany Acquisition").
Also in August 1996, SFX agreed to acquire a 96% interest in ABS (the "Richmond
Acquisition"). Simultaneously with the consummation of this acquisition, ABS
will acquire WKHK-FM and WBZU-FM, both operating in Richmond, Virginia.
Upon such consummation, SFX will also assume ABS's
agreement to acquire WVGO-FM and WLEE-FM, both of which also operate in
Richmond, Virginia, and will enter into LMAs with respect to WVGO-FM and
WLEE-FM pending the consummation of the acquisition of these stations. The
aggregate purchase price for the four stations is $38.8 million, inclusive of
certain transaction costs. The Richmond Acquisition is conditioned on the prior
receipt of FCC approval and approval under the HSR Act.
In September 1996, SFX agreed to acquire three Charlotte, North
Carolina stations (WSSS-FM, WRFX-FM and WNKS-FM) from EZ Communications in
exchange for WTDR-FM, Charlotte, North Carolina, and $64.8 million, pursuant to
the Charlotte Exchange. EZ Communications is in the process of acquiring
WRFX-FM and WNKS-FM from Evergreen Media Corp. The Charlotte Exchange is
conditioned on the prior receipt of FCC approval and approval under the HSR
Act. SFX has received a civil investigative demand from the Department of
Justice's Antitrust Division
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relating to its investigation of a proposed acquisition of EZ Communications by
a third party, and there can be no assurance as to the impact of this
investigation or the proposed acquisition on the Charlotte Exchange. Edward F.
Dugan, who has been nominated to the SFX Board, will receive a payment from
each of SFX and EZ Communications upon the consummation of the Charlotte
Exchange. See "Certain Relationships and Related Transactions--Relationship
between SFX and Edward F. Dugan."
The Merger, the Greensboro Acquisition, the Richmond Acquisition, the
Albany Acquisition, the Charlotte Exchange, the Houston Exchange and the
Chancellor Exchange are referred to herein collectively as the "Pending
Acquisitions." The Pending Acquisitions and the Completed Acquisitions are
referred to herein collectively as the "Acquisitions." The Dallas Disposition
is referred to herein as the "Pending Disposition." The Pending Disposition,
the Washington Dispositions and the Louisville Dispositions are referred to
herein collectively as the "Dispositions."
The timing and completion of the Pending Acquisitions and the
Dispositions are subject to a number of conditions, certain of which are beyond
SFX's control, and there can be no assurance that such transactions will be
completed during such periods, approved by the FCC or completed on the terms
described herein, or at all. See "Risk Factors--Risks Related to the Merger and
the Pending Acquisitions and Dispositions."
On September 25, 1996, SFX entered into an agreement with CBS Inc.,
pursuant to which SFX agreed to exchange WHFS-FM, serving the Baltimore,
Maryland and Washington, D.C. markets, for KTXQ-FM and KRRW-FM, serving the
Dallas, Texas market (the "CBS Exchange"). This agreement provides that SFX may
conduct due diligence activities in relation to the contemplated exchange of
stations commencing on September 30, 1996. The agreement further provides that
a condition to SFX's obligation to consummate the CBS Exchange is that SFX
shall have been satisfied that its due diligence review of the stations, assets
and liabilities to be acquired and assumed by SFX shall not have revealed any
fact or circumstance which shall have caused SFX to believe in good faith that
proceeding with the CBS Exchange would adversely affect SFX; provided, however,
that this condition is irrevocably deemed satisfied if SFX does not describe
any such facts and circumstances in reasonable detail in writing to CBS Inc. on
or prior to October 10, 1996. The failure of the above condition to be
satisfied would allow SFX to terminate the agreement. The CBS Exchange is
conditioned on the prior receipt of FCC approval and approval under the HSR
Act. There can be no assurance that the CBS Exchange will be consummated.
OTHER RECENT TRANSACTIONS
AGREEMENT WITH SCMC. On April 15, 1996, SFX and SCMC entered into the
SCMC Termination Agreement pursuant to which SCMC assigned to SFX its rights to
receive fees for consulting and marketing services payable by each of MMR and
Triathlon, except for fees relating to certain transactions pending at the date
of such agreement, and SFX and SCMC terminated the arrangement pursuant to
which SCMC performed financial consulting services for SFX. In consideration
therefor, SFX agreed to issue to SCMC warrants to purchase up to 600,000 SFX
Class A Shares at an exercise price, subject to adjustment, of $33.75 per share
(the market price at the time the financial consulting arrangement was
terminated) of which warrants to purchase up to 300,000 shares are immediately
exercisable and the exercise of the remaining warrants are subject to the
approval of Proposal 4, and SFX will forgive, upon the consummation of the
Merger, a $2.0 million loan made to SCMC plus accrued and unpaid interest
thereon. In connection with such agreement, SFX recognized a non-recurring,
non-cash charge to earnings of approximately $5.6 million during the
three-month period ended June 30, 1996, which is one-half of the value of the
warrants (fair value of approximately $9.0 million) and loan forgiveness.
Subsequent to the termination of its current relationship with SCMC, SFX
intends to perform internally the functions performed by SCMC.
REPAYMENT OF OLD CREDIT AGREEMENT. On May 31, 1996, SFX repaid all
amounts outstanding under its Old Credit Agreement.
PREFERRED STOCK OFFERING, NOTE OFFERING, AND NEW CREDIT AGREEMENT. In
May 1996, SFX completed the Note Offering and the Preferred Stock Offering.
Pursuant to its contractual obligations with the original purchasers of the
securities offered in the Note Offering and the Preferred Stock Offering, SFX
filed registration statements with the Commission relating to an exchange offer
for the notes that were the subject of the Note Offering and a "shelf" offering
of the Series D Preferred Shares by the holders thereof. Such registration
statements were declared effective in July 1996 and the exchange offer was
subsequently completed with full participation by the holders of the notes. In
addition, SFX has received a commitment from its lender for a senior credit
facility of $225.0 million and expects to enter into
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a definitive credit agreement (the "New Credit Agreement") with respect to such
facility. There can be no assurance, however, that SFX will be able to enter
into the New Credit Agreement on a timely basis or at all.
TENDER OFFER. Concurrently with the closings of the Preferred Stock
Offering and the Note Offering, SFX completed the Tender Offer and a related
consent solicitation with respect to the Old Notes. SFX purchased approximately
$79.4 million in principal amount of the $80.0 million in principal amount of
the Old Notes outstanding in the Tender Offer. SFX also entered into a
supplemental indenture amending the terms of the indenture pursuant to which
the Old Notes were issued.
AGREEMENTS WITH MESSRS. ARMSTRONG, BENSON AND HICKS. In April 1996,
SFX entered into an agreement (the "Armstrong Agreement") with D. Geoffrey
Armstrong, Chief Financial Officer of SFX, pursuant to which Mr. Armstrong
agreed to become the Chief Operating Officer of SFX concurrently with the
completion of the Merger and defer certain payments due to him under his
employment agreement. SFX also agreed in the Armstrong Agreement to repurchase
certain securities owned by Mr. Armstrong. The $4.6 million paid by SFX
pursuant to the Armstrong Agreement was expensed as a non-recurring charge
during the quarter ended June 30, 1996. In June 1996, Mr. Armstrong orally
agreed to begin serving as the Chief Operating Officer of SFX in June 1996 and
to resign as Chief Financial Officer of SFX upon the consummation of the
Merger. Concurrently with such oral agreement, SFX entered into an employment
agreement with Thomas Benson pursuant to which he agreed to serve as Vice
President of Financial Affairs of SFX and to serve as Chief Financial Officer
of SFX upon the consummation of the Merger. In June 1996, SFX entered into an
agreement (the "Hicks Agreement") with R. Steven Hicks, the former President,
Chief Executive Officer, Chief Operating Officer and a Director of SFX,
pursuant to which Mr. Hicks resigned from all positions held by him in SFX,
sold to SFX all of the securities of SFX then owned by him or which he had the
right to obtain and agreed to refrain from owning for a period of one year any
direct or indirect interest in radio stations in certain markets in the United
States in which SFX currently owns or operates, or subsequent to the Merger,
will own or operate, radio stations in return for payments aggregating $18.6
million. Prior to the execution of the Hicks Agreement it had been publicly
announced that Mr. Hicks would head a new investment group that intended to
acquire radio properties, which properties may be located in certain of SFX's
target markets. SFX recorded a non-recurring charge for the three-months ended
June 30, 1996 of $19.4 million in connection with the Armstrong Agreement and
the Hicks Agreement. See "Remuneration of Management of SFX--Employment
Agreements" and "Certain Relationships and Related Transactions--Agreements
with Armstrong and Hicks."
AGREEMENT WITH MR. FERREL. In July 1996, SFX granted Mr. Ferrel
ten-year options to purchase up to 50,000 SFX Class A Shares at an exercise
price of $33.75 per share. These options are immediately exercisable and were
granted to Mr. Ferrel in consideration for his serving as a consultant to SFX
and in connection with his contemplated employment by SFX as its Chief
Executive Officer. SFX will record a charge to earnings in the quarter ended
September 30, 1996 in connection with the granting of these options of
approximately $350,000. In addition, SFX and Mr. Ferrel are negotiating the
terms of his employment agreement with SFX, the terms of which may provide him
with substantial benefits even if the Merger does not occur. See "Remuneration
of Management of SFX--Employment Agreements" and "Certain Relationships and
Related Transactions--Issuance of Options to Ferrel."
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REMUNERATION OF MANAGEMENT OF SFX
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Chief Executive Officer of
SFX and to the next most highly compensated executive officers who received
salary and bonus of at least $100,000 for 1995 for services rendered in all
capacities to SFX, its subsidiaries and its predecessor, Capstar, for the last
three fiscal years. The Chief Executive Officer and such executive officers are
collectively referred to as the "SFX Named Executive Officers."
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ---------------------- ---------------------
OTHER
ANNUAL RESTRICTED
COMPENSATION STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS ON AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION (1) YEAR ($) ($) ($) ($) (#) ($) ($) (2)
- ----------------------- ---- ------ ------ ------------ ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman, 1995 300,000 0 0 0 60,000 0 0
Chief Executive Officer 1994 250,000 0 0 0 30,000 0 0
1993 250,000 0 0 0 130,000 0 0
R. Steven Hicks (1)(3), 1995 300,000 200,000 0 0 50,000 0 250,000(4)(10)
Former President and 1994 250,000 0 0 0 30,000 0 0
Chief Executive Officer 1993 189,377(5) 0 0 0 130,000 0 0
D. Geoffrey Armstrong, 1995 200,000 0 0 0 50,000 0 150,000(6)(10)
Chief Operating Officer, 1994 150,000 0 0 0 20,000 0 0
Chief Financial Officer 1993 105,000(7) 303,000 (8) 0 0 65,000 0 0
and Treasurer
Richard A. Liese, 1995 52,083(9) 0 0 0 2,000 0 0
Vice President and 1994 0 0 0 0 0 0 0
Assistant General 1993 0 0 0 0 0 0 0
Counsel
</TABLE>
- ---------------------------------
(1) SFX began operations during 1993. Amounts for fiscal year 1993 for
Messrs. Hicks and Armstrong represent reportable compensation from SFX
and Capstar. Mr. Tytel does not receive any compensation from SFX for
serving as Executive Vice President and Secretary but does receive
fees for each SFX Board meeting he attends.
(2) For each of the last three fiscal years the aggregate amount of
perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the salary and bonus for each of the SFX Named
Executive Officers.
(3) Mr. Hicks resigned from all positions with SFX in June 1996. See
"Certain Relationships and Related Transactions --Agreements with
Armstrong and Hicks."
(4) Amount paid to Mr. Hicks pursuant to his employment agreement.
(5) Of this amount, $126,877 was paid to Mr. Hicks by Capstar.
(6) Amount paid to Mr. Armstrong pursuant to his employment agreement, of
which $37,500 was earned on December 31, 1995 while the remaining
$112,500 will be deemed earned in equal parts on April 1, of 1996,
1997 and 1998, respectively. See "--Employment Agreements."
(7) Of this amount, $67,500 was paid to Mr. Armstrong by Capstar.
(8) A bonus of $250,000 was paid to Mr. Armstrong by Capstar prior to the
consummation of SFX's initial public offering in October 1993.
(9) Mr. Liese became a Vice President and Assistant General Counsel of SFX
effective August 1, 1995 and receives an annual salary of $125,000.
(10) Each of Mr. Hicks and Mr. Armstrong would have received options to
purchase a minimum of 100,000 SFX Class A Shares during the term of
their respective employment agreements. Pursuant to the Hicks
Agreement and to the Armstrong Agreement, SFX agreed to repurchase
these rights.
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<PAGE>
EMPLOYMENT AGREEMENTS
SFX has employment agreements with each of Messrs. Sillerman,
Armstrong and Benson, and intends to enter into an employment agreement with
Mr. Ferrel to be effective upon consummation of the Merger.
Mr. Sillerman's employment agreement has a five-year term commencing
on April 1, 1995. The employment agreement provides that he serve as Executive
Chairman of the Board; however, in June 1996, Mr. Sillerman assumed the
position of Chief Executive Officer of SFX. The employment agreement requires
Mr. Sillerman to devote substantially all of his business time to the business
and affairs of SFX but permits him to continue to fulfill his obligations as a
director and officer of other entities, including entities with investments in
broadcasting. Mr. Sillerman currently receives a base annual salary of $300,000
per year, increased annually by 5%. In addition, Mr. Sillerman's employment
agreement provides for (i) an annual cash bonus based upon a formula to be
determined by the SFX Board upon the recommendation of the Compensation
Committee and (ii) annual option grants to acquire at least 50,000 SFX Class A
Shares (the exact number of options to be determined by the SFX Board upon
recommendation of the Compensation Committee) at an exercise price equal to the
fair market price of such stock on the date of grant, such options to be
exercisable during a ten-year period and to vest on a schedule to be determined
by the SFX Board.
Mr. Armstrong entered into a five-year employment agreement with SFX
commencing on April 1, 1995, and currently serves as Chief Operating Officer,
Chief Financial Officer, Executive Vice President and Treasurer of SFX. Mr.
Armstrong receives a base salary of $200,000 per year increased annually by 5%,
certain stock options and aggregate deferred compensation of $150,000, the
components of which were determined by the SFX Board, after and pursuant to the
affirmative recommendation of its Compensation Committee. SFX and Mr. Armstrong
entered into an addendum to Mr. Armstrong's employment agreement pursuant to
which he received deferred compensation in the amount of $150,000, 25% of which
is deemed earned on each of December 31, 1995, April 1, 1996, April 1, 1997 and
April 1, 1998, respectively.
SFX and Mr. Armstrong entered into the Armstrong Agreement, pursuant
to which Mr. Armstrong agreed to serve as the Chief Operating Officer of SFX
and, until the completion of the Merger, interim Chief Financial Officer. In
June 1996, Mr. Armstrong orally agreed to serve as Chief Financial Officer of
SFX until the consummation of the Merger, at which time Thomas Benson will
become the Chief Financial Officer of SFX. Pursuant to the Armstrong Agreement,
the terms of his employment agreement remain in full force and effect except
that SFX agreed to pay to Mr. Armstrong a one-time payment of $4,575,000 in
consideration of his agreement to defer payment pursuant to certain provisions
of his employment agreement and SFX's repurchase of Mr. Armstrong's right to
receive certain options pursuant to his employment agreement. Such payment was
expensed as a non-recurring charge during the quarter ended June 30, 1996.
Pursuant to the Armstrong Agreement, Mr. Armstrong's employment may be
terminated by either party during the one month period commencing on the first
anniversary of the consummation of the Merger upon 30 days' written notice. If
his employment agreement is terminated, Mr. Armstrong will receive a payment of
$1.2 million pursuant to the provisions of his employment agreement which are
currently deferred and SFX will purchase all of his outstanding options under
the Stock Option Plans (as defined herein) for an amount equal to the
difference between (x) the number of such options multiplied by the respective
exercise price of such options and (y) the number of such options multiplied by
the greater of $40.00 and the average trading price of an SFX Class A Share
during the 20 days prior to five days before the effective date of the
termination of the employment agreement. In the event that SFX is required to
purchase Mr. Armstrong's options, based upon a repurchase price of $40.00 per
share, SFX will make a payment to Mr. Armstrong of approximately $3.25 million.
Under each of their employment agreements, in the event that either of
Messrs. Sillerman or Armstrong is (i) terminated "for cause" (as defined in the
agreements) each is to receive his base salary through the date of such
termination and his respective bonus and deferred compensation, if applicable,
for the year in which he was terminated pro rated over the time in which he was
employed by SFX during such year or (ii) terminated without cause or
"constructively terminated without cause" (as defined in the agreements) each
is to receive (1) the base salary accrued but not paid through termination, (2)
the base salary for a period of 36 months or until the end of the contractual
term (March 31, 2000), whichever is longer, provided that he shall be entitled,
at his option, to receive a lump sum payment of such amount reduced by the
present value of such payments using a discount rate of 75% of the prime rate
as published by The Wall Street Journal and (3) a bonus over the balance of the
term of employment (March 31, 2000), based on the bonus received for the year
prior to termination, and deferred compensation, if applicable, provided that
he shall be entitled, at his option, to receive a lump sum payment of such
amount reduced by the present value of such payments using a discount rate of
75% of the prime rate as published by The Wall Street Journal. In addition, Mr.
110
<PAGE>
Sillerman is entitled to options to purchase SFX Class A Shares in an amount
equal to 50,000 shares multiplied by the number of years remaining on the term
of the agreement at an exercise price per share equal to the exercise price of
the last stock option granted prior to termination.
In the event that Mr. Sillerman is terminated without cause or there
is a "constructive termination without cause" following a "change of control"
(as defined in the employment agreements), he is to receive the amounts
referred to above for termination without cause or "constructive termination
without cause" in a lump sum without any discount. In addition, in the event
that these payments constitute a "parachute payment," he is to receive an
amount equal to 50% of any excise tax imposed by Section 4999 of the Code. He
shall, however, forfeit any rights as a result of a termination without cause
or a constructive termination following a change of control if he accepts an
offer to remain with the surviving company in an executive position (other than
as a non-employee director). In addition, upon termination for any reason, any
options held by Mr. Sillerman shall become immediately exercisable and may be
exercised during the balance of the ten-year term of each such outstanding
option. In addition, Mr. Sillerman shall receive ten-year options to purchase
250,000 SFX Class A Shares, which shall be exercisable at the lowest per share
exercise price of any other options Mr. Sillerman shall own as of the date of
the "change of control."
Prior to entering into the Armstrong Agreement, the employment
agreement of Mr. Armstrong contained provisions similar to those described in
the preceding paragraph for Mr. Sillerman.
In June 1996, SFX entered into a three-year employment agreement with
Thomas Benson pursuant to which he agreed to serve as Vice President of
Financial Affairs of SFX and, upon the resignation of Mr. Armstrong as the
Chief Financial Officer of SFX (which is expected to occur upon the
consummation of the Merger), to serve as the Chief Financial Officer of SFX.
Mr. Benson's employment agreement requires him to devote substantially all of
his business time to the business and affairs of SFX. Mr. Benson receives a
base salary of $150,000 per year, which increases annually by 5%. In addition,
Mr. Benson is entitled to receive an annual incentive bonus of at least $25,000
and, during each year of the term of his employment agreement, options or stock
appreciation rights to purchase a minimum of 3,000 SFX Class A Shares at an
exercise price equal to the lowest exercise price of any options granted to any
other employee of SFX during each year of the term of his employment agreement.
On June 24, 1996, Mr. Benson was issued an option to purchase 3,000 shares of
Class A Common Stock at an exercise price of $38.00 per share. Mr. Benson
received a $25,000 bonus upon the execution of his employment agreement.
Mr. Benson's employment agreement provides that, upon a "change of
control" of SFX, Mr. Benson has the right to terminate his employment agreement
and, in such an event, SFX must pay Mr. Benson a lump sum payment equal to the
total consideration he is entitled to receive during the remainder of the term
of the employment agreement. In addition, in such an event, all of Mr. Benson's
outstanding stock options shall immediately vest.
In July 1996, SFX granted Mr. Ferrel ten-year options to purchase up
to 50,000 SFX Class A Shares at an exercise price of $33.75 per share. These
options are immediately exercisable and were granted to Mr. Ferrel in
consideration for agreeing to serve as a consultant to SFX and in connection
with the contemplated employment agreement with SFX. SFX will record a charge
to earnings in the quarter ended September 30, 1996 in connection with these
options of approximately $350,000.
SFX anticipates that it will enter into an employment agreement with
Mr. Ferrel pursuant to which he will agree to serve as the Chief Executive
Officer and a Director of SFX commencing on the consummation of the Merger. Mr.
Ferrel currently owns 40,000 MMR Class A Shares, 40,000 MMR Series B Preferred
Shares and 66,666 MMR Original Preferred Shares which are held in escrow. SFX
and Mr. Ferrel are negotiating a provision of his employment agreement pursuant
to which such escrowed shares, which will be converted into SFX Shares in the
Merger, would be released from escrow commencing with his employment by SFX.
Mr. Ferrel and SFX are also negotiating a provision of his employment agreement
that would require SFX to pay Mr. Ferrel $500,000 to defray the taxes
associated with the early release of such shares from escrow or, if the Merger
does not occur, $125,000.
On June 19, 1996, Mr. Hicks, the former President, Chief Executive
Officer, Chief Operating Officer and a Director of SFX, resigned from all of his
positions with SFX. Mr. Hicks resigned pursuant to an agreement entered into on
such date (the "Amended Hicks Agreement") which superseded a previous agreement
entered into between Mr. Hicks and SFX. The Amended Hicks Agreement provided for
the repurchase by SFX of all of Mr. Hicks' SFX Shares and Mr. Hicks' agreement
not to compete for a period of approximately one year with SFX or MMR in any
market in which SFX or MMR owns and operates, provides programming to or sells
advertising on behalf of any radio stations and up to eight additional markets
in which SFX or MMR has entered into agreements to purchase radio stations on or
before the Merger. Pursuant to the Amended Hicks Agreement, SFX paid Mr. Hicks
an aggregate amount of $18.7 million and agreed to forgive on June 19, 1999 a
$2.0 million loan to Mr. Hicks plus accrued and unpaid interest of $0.3 million,
provided that Mr. Hicks has complied with certain provisions of the Amended
Hicks Agreement.
Prior to entering into the Amended Hicks Agreement, Mr. Hicks was
employed by SFX pursuant to a five-year employment agreement which commenced
April 1, 1995 (the "Hicks Agreement"). Pursuant to the Hicks Agreement, Mr.
Hicks received a base salary of $300,000 per year increased annually by 5% and a
cash bonus based on a formula to be determined by the Board of Directors upon
the recommendation of the Compensation Committee (which was not to be less than
$200,000). In addition, Mr. Hicks was granted options annually to acquire at
least 25,000 SFX Class A Shares (the exact number of options was to be
determined by the SFX Board upon recommendation of the Compensation Committee)
at an exercise price equal to the fair market price of such stock on the date of
such grant, such options were to be exercisable during a ten-year period and to
vest on a schedule to be determined by the Board of Directors. In addition, the
Hicks Agreement entitled Mr. Hicks to receive aggregate deferred compensation
during the term of the employment agreement of $750,000, $250,000 of which was
paid to Mr. Hicks in April 1995 and $100,000 of which was to be paid on March 31
of each year thereafter during the term of the Hicks Agreement.
STOCK OPTION PLANS
The stockholders of SFX have approved and adopted the 1993 Stock
Option Plan, the 1994 Stock Option Plan and the 1995 Stock Option Plan
(collectively, the "Stock Option Plans"). The purpose of the Stock Option Plans
is to provide additional incentive to the officers and employees of SFX and
other individuals who are primarily responsible for the management and growth
of SFX. Each option granted pursuant to the Stock Option Plans is designated at
the
111
<PAGE>
time of grant as either an "incentive stock option" or as a "non-qualified
stock option." The Stock Option Plans are administered by a Stock Option
Committee (the "Committee") appointed by the SFX Board, consisting only of the
SFX Independent Directors. The Committee determines who among those eligible
will be granted options, the time or times at which options will be granted,
the number of shares to be subject to options, the duration of options, any
conditions the exercise of options, and the manner in and price at which
options may be exercised. The Stock Option Committee currently consists of
Messrs. Kramer and O'Grady, the SFX Independent Directors.
The SFX Board is authorized to amend, suspend or terminate the Stock
Option Plans, except that it is not authorized without stockholder approval
(except with regard to adjustments resulting from changes in capitalization) to
(i) increase the maximum number of shares that may be issued pursuant to the
exercise of options granted under the Stock Option Plans, (ii) withdraw the
administration of the Stock Option Plans from the Committee, (iii) change the
eligibility requirements for participation in the Stock Option Plans, (iv)
extend the maximum term of options granted under the Stock Option Plans or the
period during which options may be granted under the Stock Option Plans, (v)
decrease the minimum option exercise price for incentive stock options or (vii)
otherwise materially increase the benefits accruing to participants under the
Stock Option Plans.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
The following table provides information with respect to stock options
granted during the fiscal year ended December 31, 1995 to the SFX Named
Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(2)
------------------------------------------------------------ ---------------------------------
% OF TOTAL
OPTIONS/SARS
GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION 5%($) ($34.61 10%($) ($55.12
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SH) DATE STOCK PRICE) STOCK PRICE)
- --------------------- -------------- ------------- ------------ --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 60,000 25.53% $21.25 5-16-05 801,600 2,032,200
R. Steven Hicks(3) 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
D. Geoffrey 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
Armstrong
Richard L. Liese 2,000 .85% $21.25 5-16-05 26,700 67,740
</TABLE>
- ----------------------------
(1) The options were granted under the 1995 Stock Option Plan effective on
May 16, 1995 and vest in five equal annual installments beginning on
May 16, 1996. The exercise price of the options represented the fair
market value of the underlying stock on the date of grant.
(2) As required by rules of the Commission, the dollar amounts under
columns (f) and (g) represent the hypothetical gain or "option spread"
that would exist for the options based on assumed 5% and 10% annual
compounded rate of stock price appreciation over the full option term.
These assumed rates would result in a price per SFX Class A Share on
May 16, 2005 of $34.61 and $55.12, respectively. If these price
appreciation assumptions are applied to all outstanding SFX Class A
Shares on the grant date, such SFX Class A Shares would appreciate in
the aggregate by approximately $86,281,752 and $192,906,882,
respectively, over the ten-year period ending on May 16, 2005. These
prescribed rates are not intended to forecast possible future
appreciation, if any, of the SFX Class A Shares.
(3) In June 1996, Mr. Hicks resigned from all positions held by him in SFX
and SFX repurchased all of Mr. Hicks' outstanding options. See
"Certain Relationships and Related Transactions --Agreements with
Armstrong and Hicks."
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information with respect to the stock
options exercised during 1995 and to the value as of December 31, 1995 of
unexercised "in-the-money" options held by the SFX Named Executive Officers.
The value of unexercised in-the-money options at fiscal year end is the
difference between the option exercise price and the fair market value of an
SFX Class A Share at fiscal year end, December 31, 1995, multiplied by the
number of options.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS AT FY-END
NAME EXERCISE (#) REALIZED ($) FY-END (#) ($)(1)4
- ------------------------- ------------ ------------ --------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Robert F.X. Sillerman 0 0 43,000/177,000 729,875/2,477,625
R. Steven Hicks(2) 0 0 43,000/167,000 729,875/2,388,875
D. Geoffrey Armstrong 0 0 26,500/108,500 452,562/1,416,437
Richard A. Liese 0 0 0/2,000 0/17,500
</TABLE>
- ---------------------------
(1) Based on $30.125, the closing price on December 29, 1995 of an
underlying SFX Class A Share.
(2) In June 1996, Mr. Hicks resigned from all positions held by him in SFX
and SFX repurchased all of Mr. Hicks' outstanding options. See
"Certain Relationships and Related Transactions --Agreements with
Armstrong and Hicks."
REPORT OF THE SFX BOARD AND ITS COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the SFX Board consists of Mr. Sillerman
and the two Independent Directors, Messrs. Kramer and O'Grady. The Compensation
Committee reviews and makes recommendations to the SFX Board with respect to
SFX's compensation programs and compensation arrangements with respect to
certain officers, including Messrs. Sillerman, Armstrong and Benson. Mr.
Sillerman does not participate in the Compensation Committee's review of, and
recommendations with respect to, the compensation he receives from SFX.
The principal objectives of SFX's executive compensation policies are
to (i) enhance the achievement of preestablished strategic operating goals;
(ii) enhance long-term stockholder value; (iii) align the executive officers'
financial interests with the success of SFX and its stockholders by placing a
substantial component of compensation at risk and in the form of stock-based
compensation; (iv) provide competitive compensation opportunities for
exceptional performance; and (v) attract and retain superior talent and high
quality executives needed to foster SFX's growth and maintain and enhance its
competitive position.
To enhance long-term continuity, SFX attempts to enter into long-term
employment agreements with its executives. The agreements generally provide for
annual compensation principally comprised of base salary and, with respect to
key executives, stock-based compensation in the form of stock options. Base
salary levels are established at levels which management believes to be
substantially below other broadcasting companies of comparable size. To
align an executive's interest with that of the creation of
long-term stockholder value, a substantial portion of an executive's
compensation is stock-based. Stock-based compensation is determined by
reference to whether an executive met his or her preestablished performance
goals, which determination is made with reference to both objective and
subjective tests. These goals, which may vary from year to year, include both
financial objectives, such as revenue or Broadcast Cash Flow targets and
controlling direct and indirect expenses; and non-financial objectives, such as
increasing audience share, conversion of audience share into market share and
acquiring additional radio stations and integration of those stations. The
success of management in accessing the capital markets to provide financing for
acquisitions and a sound balance sheet for SFX is also evaluated as an element
of performance. Robert F.X. Sillerman is an active participant in establishing
performance goals of all the other SFX executives and in monitoring whether
their performance goals have been met. SFX believes that awarding stock-based
compensation based on the achievement of individual preestablished financial and
non-financial goals enables SFX to tailor compensation more directly to an
individual's accomplishments and ensures accountability. To ensure that
executives' interests are most directly aligned with the creation of long-term
stockholder value, stock-based
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<PAGE>
compensation in the form of option grants rather than outright stock awards are
utilized and option grants are at fair market value.
During 1995, Robert F.X. Sillerman relinquished his position as Chief
Executive Officer and became the Executive Chairman of SFX. In addition to
being the Chief Operating Officer, R. Steven Hicks became Chief Executive
Officer in 1995. Consistent with SFX's compensation policies, the annual base
salary of each of Messrs. Sillerman and Hicks was established, pursuant to
employment agreements, at $300,000. SFX believes that this amount is
substantially below the annual base salary of the chief executive officers of
its competitors. In addition, pursuant to the employment agreements each of
Messrs. Sillerman and Hicks was entitled to receive a minimum of 50,000 stock
options. In 1995, Mr. Sillerman and Mr. Hicks were granted 60,000 and 50,000
options, respectively. In addition, for 1995 Mr. Hicks received, pursuant to his
employment agreement, a cash bonus of $200,000 and deferred compensation of
$250,000. In establishing the contractual arrangements with Messrs. Sillerman
and Hicks, the Compensation Committee was mindful that both individuals
established SFX and had extensive experience in the broadcasting industry. In
establishing Mr. Sillerman's compensation levels, the Compensation Committee
considered the expansion of SFX's operations and Mr. Sillerman's pivotal role
in implementing SFX's acquisition strategy and the strong leadership
he has provided. Consistent with rewarding individual performance, SFX had an
arrangement with Mr. Sillerman pursuant to which SFX made certain cash payments
to SCMC in respect of transactions in which Mr. Sillerman and SCMC had a
pivotal role. In 1995, SCMC received (i) $1 million for its role in the sale of
certain securities to Nomura and related matters, (ii) $175,000 for the
acquisition of KYXY-FM, San Diego, California and (iii) $100,000 in respect of
the renegotiation and increase of SFX's bank credit facility. In addition, in
1996, SCMC is to receive $4 million in connection with the Liberty Acquisition,
the Prism Acquisition, and the Additional Acquisitions. SFX received an opinion
from Furman Selz that the Nomura fee was fair, from a financial point of view,
to SFX.
In 1996, SFX and SCMC terminated their cash-based arrangement and R.
Steven Hicks resigned from SFX. See "Certain Relationships and
Related Transactions--Relationship of SFX with SCMC" and "Remuneration of
Management of SFX--Employment Agreements."
Section 162(m) of the Internal Revenue Code, enacted in 1993,
generally disallows a tax deduction to public companies for compensation over
$1.0 million paid to the Named Executive Officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. SFX intends to structure certain stock-based compensation, such as the
SFX 1996 Stock Option Plan, so that the options issuable under the Plan may
qualify as performance-based compensation under Section 162(m); however, SFX
will maintain flexibility in its compensation policies, which may result in
some compensation that is not deductible for federal income tax purposes. In
connection with entering into the Hicks Agreement and the Armstrong Agreement,
the Compensation Committee determined that the circumstances dictated that SFX
was best served by providing compensation which is not fully deductible under
Section 162(m).
SFX BOARD OF DIRECTORS
Robert F.X. Sillerman
Paul Kramer
James O'Grady, Jr.
D. Geoffrey Armstrong
Richard A. Liese
Howard J. Tytel
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<PAGE>
SFX PERFORMANCE GRAPH
Set forth below is a line graph for the period commencing October 7,
1993 (the date on which the SFX Class A Shares were first listed on the Nasdaq
National Market) and ending December 31, 1995 comparing the cumulative "total
return" of $100 invested in each of the SFX Class A Shares, the Standard &
Poor's 500 Stock Index (the "S&P 500") and a group of companies selected as
SFX's peers in the radio broadcast industry (the "Peer Group"). The Peer Group
is comprised of companies which own and operate radio stations and consists of
Broadcasting Partners, Evergreen Media Corp., EZ Communications Inc., Infinity
Broadcasting, MMR and Saga Communications. "Total return" includes dividend
reinvestment and capital appreciation. SFX has not paid any dividends since its
inception in 1992.
COMPARISON GRAPH
COMPANY NAME/INDEX 7-OCT-93 31-DEC-93 31-DEC-94 31-DEC-95
- ------------------------------------------------------------------------------
SFX BROADCASTING INC -CLA 100 83 120 197
S&P 500 INDEX 100 102 104 143
PEER GROUP 100 94 93 161
115
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF SFX
The following table gives information concerning the beneficial
ownership of SFX's capital stock as of the close of business on October 1,
1996, and as adjusted after giving effect to the Merger (subject to the
assumptions set forth in footnote (3) below), by (i) each person known by SFX
to own beneficially more than 5% of any class of SFX's voting stock, (ii) each
SFX Named Executive Officer who is still an employee of SFX and each director
of SFX, and (iii) all executive officers and directors of SFX as a group.
Unless otherwise specified, the named beneficial owner claims sole investment
and voting power as the shares indicated.
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1996
---------------------------------------------------------------------
SFX CLASS A SFX CLASS B
SHARES SHARES
---------------------- ------------------------
PERCENTAGE
OF COMBINED
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT VOTING
OF BENEFICIAL OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS POWER(2)
- --------------------------------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Robert F.X. Sillerman 403,010 (4) 5.9% 856,126 (5) 100% 58.4%
D. Geoffrey Armstrong 45,996 (7) * -- -- *
Howard J. Tytel 1,000 * -- -- *
Richard A. Liese 400 * -- -- *
James F. O'Grady, Jr 200 * -- -- *
Paul Kramer 1,000 * -- -- *
Michael G. Ferrel -- -- -- -- --
All directors and executive officers as a group 451,606 6.9% 856,126 100% 58.6%
(six persons; nine persons after the Merger)
5% STOCKHOLDERS:
Nomura Holdings America Inc. 1,071,429 (10) 16.7% -- -- 7.1%
2 World Financial Center
Building B
New York, NY 10281
Putnam Investments, Inc. 900,571 (11) 14.0% -- -- 6.0%
One Post Office Square
Boston, MA 02109
Mellon Bank Corporation 365,000 (12) 5.7% -- -- 2.4%
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED(3)
------------------------------------------------------------------------
SFX CLASS A SFX CLASS B
SHARES SHARES
---------------------- ------------------------
PERCENTAGE
OF COMBINED
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT VOTING
OF BENEFICIAL OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS POWER(2)
- --------------------------------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Robert F.X. Sillerman 501,627 (6) 5.9% 996,331(5) 94.4% 55.2%
D. Geoffrey Armstrong 45,996 (7) * -- -- *
Howard J. Tytel 13,073 (8) * -- -- *
Richard A. Liese -- -- -- -- --
James F. O'Grady, Jr 200 * -- -- *
Paul Kramer 1,000 * -- -- --
Michael G. Ferrel 80,125 (9) * 21,788 2.1% 1.6%
All directors and executive officers as a group 642,021 7.0% 1,018,121 96.5% 56.9%
(six persons; nine persons after the Merger)
5% STOCKHOLDERS:
Nomura Holdings 1,071,429 (10) 13.3% -- -- 5.8%
America Inc.
2 World Financial Center
Building B
New York, NY 10281
Putnam Investments, Inc. 900,571 (11) 11.2% -- -- 4.8%
One Post Office Square
Boston, MA 02109
Mellon Bank Corporation 365,000 (12) 4.5% -- -- 2.0%
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>
116
<PAGE>
All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding under Rule 13d-3 of the Exchange
Act, except that the SFX Class B Shares owned by Mr. Sillerman are not included
in calculating his ownership of SFX Class A Shares.
- -----------------------
*less than 1%
(1) Unless otherwise set forth above, the address of each stockholder is
the address of SFX, which is 150 East 58th Street, 19th Floor, New
York, New York 10155. The information as to beneficial ownership is
based on statements furnished to SFX by the beneficial owners. As used
in this table, "beneficial ownership" means the sole or shared power
to vote, or to direct the disposition of, a security. Unless noted
otherwise, stockholders possess sole voting and dispositive power with
respect to shares listed on this table. For purposes of this table, a
person is deemed to have "beneficial ownership" of any security that
such person has the right to acquire within 60 days of October 1,
1996. As of October 1, 1996, there were issued and outstanding
6,431,897 SFX Class A Shares and 856,126 SFX Class B Shares. This
table does not include 2,000 non-voting SFX Series B Preferred Shares
and 2,000 non-voting SFX Series C Preferred Shares (which SFX expects
to redeem upon completion of the Dallas Disposition). In addition, for
purposes of this table, "beneficial ownership" of SFX Class A Shares
does not include the number of SFX Class A Shares issuable upon
conversion of SFX Class B Shares even though such shares are
convertible at any time, at the option of the holder thereof, into SFX
Class A Shares.
(2) Calculated based only on the number of SFX Shares owned by the named
stockholders. Does not give effect to options and warrants to acquire
SFX Shares held by the named stockholders.
(3) With respect to the Merger, assumes (i) the SFX Class A Stock Price is
$43.9875, which results in an Exchange Ratio of 0.2842, (ii) 633,334
MMR Class B Shares and 66,666 MMR Original Preferred Shares are
converted into SFX Class B Shares and 4,000,563 MMR Class A Shares and
200,000 MMR Series B Preferred Shares are converted into SFX Class A
Shares (and 1,250 shares of MMR Senior Cumulative Preferred Stock are
redeemed), (iii) each of the 1,055,437 outstanding MMR Class A
Warrants is exercised to purchase one MMR Class A Share, and (iv) each
of the 1,840,000 outstanding MMR Class B Warrants is exchanged for
two-tenths (.2) of a share of an MMR Class A Share. Does not include
SFX Class A Shares issuable upon conversion of the SFX Series D
Preferred Shares.
(4) Includes (i) 55,000 shares which may be acquired pursuant to the
exercise of options which have vested or will vest within 60 days of
October 1, 1996, (ii) 48,010 shares owned of record by SCMC, a
corporation owned principally by and controlled by Mr. Sillerman and
(iii) 300,000 shares issuable upon the exercise of warrants issued
pursuant to the SCMC Termination Agreement (does not include 300,000
shares which will be issuable upon the exercise of warrants issued to
SCMC upon approval of Proposal 4). See "Certain Relationships and
Related Transactions--Relationship of SFX with SCMC." Mr. Sillerman
has sole voting right with respect to all of the shares held of record
by SCMC pursuant to a voting trust which expires on September 30,
2002. None of the shares beneficially owned by Mr. Sillerman may be
voted in the election of SFX Independent Directors. Mr. Sillerman has
agreed not to exercise any rights, options or warrants to acquire SFX
Class A Shares or transfer any SFX Class B Shares until the SFX
Stockholders have approved the increase in the number of authorized
SFX Class A Shares sufficient to ensure the availability of all SFX
Class A Shares issuable upon conversion of the SFX Series D Preferred
Shares, or the Exchange Notes issuable upon the exchange thereof, and
all options, rights and warrants to purchase SFX Class A Shares. If
the 856,126 SFX Class B Shares held by Mr. Sillerman were included in
calculating his ownership of SFX Class A Shares, Mr. Sillerman would
beneficially own 1,259,136 SFX Class A Shares, representing
approximately 16.5% of the class.
(5) Includes (i) 660,068 shares owned of record by Mr. Sillerman who
acquired them from SCP (in a transaction in which Mr. Sillerman
obtained such stock and issued to SCP a nonrecourse purchase money
promissory note pursuant to which SCP receives additional interest
payments equal to all sale proceeds or distributions with respect to
the shares), (ii) 133,333 shares owned of record by Mr. Sillerman that
were received as founders' stock at the time of SFX's initial public
offering in 1993 and (iii) 62,725 shares issued in connection with the
conversion on May 5, 1995 of 62,725 SFX Class A Shares into an equal
number of SFX Class B Shares.
(6) In addition to the holdings specified in footnote 4, includes 12,000
shares which may be acquired pursuant to the exercise of options which
have vested or will vest within 60 days of October 1, 1996.
(7) Includes 36,500 shares which may be acquired pursuant to the exercise of
options which have vested or will vest within 60 days of October 1, 1996.
Mr. Armstrong has agreed not to exercise any rights, options or warrants
to acquire SFX Class A Shares until the SFX Stockholders have approved
the increase in the number of authorized SFX Shares sufficient to insure
the availability of all SFX Class A Shares issuable upon conversion of
the SFX Series D Preferred Shares, or the Exchange Notes issuable upon
the exchange thereof, and all options, rights and warrants to purchase
SFX Class A Shares.
(8) Includes 1,800 shares which may be acquired pursuant to the exercise of
options which have vested or will vest within 60 days of October 1, 1996.
Mr. Tytel has agreed not to exercise any rights, options or warrants to
acquire SFX Class A Shares until the SFX Stockholders have approved the
increase in the number of authorized SFX Class A Shares sufficient to
insure the availability of all SFX Class A Shares issuable upon
conversion of the SFX
117
<PAGE>
Series D Preferred Shares, or the Exchange Notes issuable upon the
exchange thereof, and all options, rights and warrants to purchase SFX
Class A Shares.
(9) Includes 57,800 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of October 1,
1996.
(10) Based on information contained in Schedule 13D filed with the
Commission and dated December 7, 1994. The shares are held of record
by Bedrock Asset Trust I, a Delaware trust established by Nomura
Holdings America Inc. which is controlled by The Nomura Securities
Co., Ltd., a corporation organized under the laws of Japan.
(11) Based on information contained in Amendment No. 3 to Schedule 13G
filed with the Commission on January 23, 1996. Putnam Investments,
Inc., a holding company, through its wholly-owned subsidiaries, Putnam
Investment Management, Inc. and The Putnam Advisory Company, Inc.,
investment advisers under the Investment Advisers Act of 1940, holds,
as of December 31, 1995, shared dispositive power with respect to
900,571 shares, of which it holds shared voting power with respect to
163,746 shares. Of the 900,571 shares, Putnam New Opportunities Fund,
an investment company under the Investment Company Act of 1940, holds
shared voting and dispositive power with respect to 405,000 shares.
Putnam Investments is a wholly-owned subsidiary of Marsh & McLennan
Companies, Inc.
(12) Based on information contained in Schedule 13G filed with the
Commission and dated January 22, 1996. Mellon Bank Corporation owns
365,000 shares as of December 31, 1995, for the benefit of certain
employee benefit plans of its direct and indirect subsidiaries, Berton
Safe Deposit and Trust Company, Mellon Bank, N.A., the Boston Company
Asset Management, Inc. and The Dreyfus Corporation. Mellon Bank
Corporation shares voting and dispositive powers with respect to
varying amounts of shares with Boston Group Holdings, Inc. and the
Boston Company, Inc.
118
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF MMR
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial information of MMR presented below should be read
in conjunction with the information set forth in "Unaudited Pro Forma Condensed
Combined Financial Statements of MMR" and the notes thereto, "MMR's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of MMR and the notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus. The selected financial
information of MMR has been derived from the audited and unaudited historical
financial statements of MMR and from prior owners of the radio stations
acquired by MMR in July 1993. The pro forma summary data as of June 30, 1996
and for the year ended December 31, 1995 and the six months ended June 30, 1996
are derived from the unaudited pro forma condensed combined financial
statements of MMR which, in the opinion of MMR, reflect all adjustments
necessary for a fair presentation of the transactions for which such pro forma
financial information is given. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be achieved for
the fiscal year ending December 31, 1996. The historical consolidated financial
results for MMR are not comparable from period to period because of the
acquisitions and dispositions of various radio stations by MMR during the
periods covered. The selected financial information as of June 30, 1996 and for
the six months ended June 30, 1995 and 1996 have been derived from the
unaudited combined financial statements of MMR included elsewhere in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PREDECESSORS YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------------
FIVE MONTHS
SEVEN MONTHS ENDED (UNAUDITED) (UNAUDITED)
ENDED DECEMBER 31, PRO FORMA (UNAUDITED) (UNAUDITED) PRO FORMA
JULY 29, 1993 1993 1994 1995 1995 (1) 1995 1996 1996 (1)
------------- ------------ ----- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues (2)............... $2,608 $2,203 $7,117 $18,288 $22,982 $7,250 $10,144 $11,510
Station operating expenses..... 1,580 1,300 4,807 11,026 13,928 4,414 6,254 7,054
Depreciation and amortization 182 397 1,146 1,750 2,337 966 810 974
Corporate, general and
administrative expenses..... 80 299 775 1,666 1,666 623 1,275 1,275
Non-cash compensation charge (3) - 790 365 281 1,114 354 130 546
------ ------- ------- -------- ------- ------- --------- --------
Operating income (loss)........ 766 (583) 24 3,565 3,937 893 1,675 1,661
Interest expense, net(4)....... 181 264 766 4,966 7,366 1,850 2,609 3,809
Provision for loss on pending
sale of WRXR................ - - - - - - 1,596 1 ,596
Costs relating to the Merger - - - - - - 3,348 0
Write-off of pending acquisition
and financing costs......... - - - - - - 709 0
Other expense (income)......... 14 (3) 9 (11) (25) - 4 (8)
Income tax expense (benefit)... - 10 15 (59) (59) 73 - -
Extraordinary loss............. - - - 329 - 329 - -
------ ------- ------- -------- -------- ------- --------- --------
Net income (loss).............. $571 $(854) $(766) $(1,660) $(3,345) $(1,359) $(6,591) $(3,736)
====== ======= ======= ======== ======== ======= ======== ========
Net loss per common share... $(.52) $(.25) $ .48) $ (.59) $ (.39) $ (1.89) $ (.66)
Weighted average common shares
outstanding...... 1,629 3,036 3,490 5,699 3,490 3 ,491 5 ,699
SUPPLEMENTAL OPERATING DATA:
Broadcast Cash Flow(5)...... $1,028 $903 $2,310 $ 7,262 $9,054 $2,836 $3,890 $4,456
EBITDA(5)................... 948 604 1,535 5,596 7,388 2,213 2,615 3,181
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, AT JUNE 30, 1996
------------------------------------------- -----------------------------
(UNAUDITED) (UNAUDITED)
1993 1994 1995 ACTUAL PRO FORMA(6)
------- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets....................... $ 2,101 $ 3,010 $ 5,920 $ 5,470 $25,270
Total Assets......................... 16,316 23,328 66,465 64,809 94,509
Current liabilities.................. 1,255 1,636 4,568 6,691 4,843
Long-term debt....................... 7,203 6,609 41,482 40,849 60,849
Stockholders' equity................. 8,561 15,517 14,815 8,376 21,576
</TABLE>
- ----------------------------
(1) The Pro Forma Statements of Operations Data for the year ended
December 31, 1995 and for the six months ended June 30, 1996 give
effect to the following transactions as if they had occurred on
January 1, 1995: (i) the Southern Starr Acquisition, (ii) the MMR
Hartford Acquisition, (iii) the MMR B Dispositions, (iv) the exercise
of all outstanding MMR Class A Warrants and the exchange of all
outstanding MMR Class B Warrants in the MMR Exchange Offer
and (v) the receipt of approximately $20.0 million pursuant to the
SFX Loan. See "Unaudited Pro Forma Condensed Combined Financial
Statements of SFX" and "Certain Relationships and Related
Transactions."
(2) Revenues, net of agency commissions.
(3) Non-cash compensation charge relates to the issuance of MMR Original
Preferred Shares to Messrs. Sillerman and Ferrel which became
convertible into MMR Class A Shares in 1994 and the issuance of MMR
Series A and Series B Preferred Shares in July 1996.
(4) Pro forma interest expense on the $20.0 million received pursuant to
the SFX Loan is based on an assumed interest rate of 12%. A change in
the interest rate of 0.25% would change pro forma interest expense by
approximately $152,000 per annum.
(5) Broadcast Cash Flow means net revenues less station operating
expenses. The difference between Broadcast Cash Flow and EBITDA is
that EBITDA includes corporate expenses. Although Broadcast Cash Flow
and EBITDA are not measures of performance calculated in accordance
with GAAP, MMR believes that Broadcast Cash Flow and EBITDA are
accepted by the broadcasting industry as generally recognized measures
of performance and are used by securities research analysts who report
publicly on the performance of broadcasting companies. Nevertheless,
these measures should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining MMR's
operating performance or liquidity which is calculated in accordance
with GAAP.
(6) Gives effect to the following transactions as if they had occurred on
June 30, 1996: (i) the MMR Hartford Acquisition, (ii) the MMR A
Dispositions, (iii) the exercise of all outstanding MMR Class A
Warrants and the exchange of all outstanding MMR Class B Warrants in
the MMR Exchange Offer and (iv) the receipt of approximately $20.0
million pursuant to the SFX Loan.
120
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF MMR
The Unaudited Pro Forma Condensed Combined Balance Sheet at June 30,
1996 is presented as if MMR had completed the following transactions on June
30, 1996: (i) MMR Hartford Acquisition and the MMR Myrtle Beach Acquisition,
(ii) the sale by MMR of WRXR-FM and WKBG-FM, both operating in Augusta,
Georgia, and the sale of KOLL-FM, Little Rock, Arkansas (collectively, the "MMR
A Dispositions"), (iii) the exercise of all outstanding MMR Class A Warrants and
the exchange of all outstanding MMR Class B Warrants in the MMR Exchange Offer
and (iv) the receipt of approximately $20.0 million pursuant to the SFX Loan.
The Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1995 and six months ended June 30, 1996 are
presented as if MMR had completed the following transactions as of January 1,
1995: (i) the Southern Starr Acquisition, (ii) the MMR Hartford Acquisition,
(iii) the sale by MMR of WRSF-FM, WRXR-FM, WKBG-FM and KOLL-FM (collectively,
the "MMR B Dispositions"), (iv) the exercise of all outstanding MMR Class A
Warrants and the exchange of all outstanding MMR Class B Warrants in the MMR
Exchange Offer and (v) the receipt of approximately $20.0 million pursuant to
the SFX Loan. The MMR Myrtle Beach Acquisition and the MMR Myrtle Beach
Disposition have not been reflected in the Unaudited Pro Forma Condensed
Combined Statement of Operations as it would not have a material impact.
In the opinion of management, all adjustments necessary to fairly
present this pro forma information have been made. The pro forma information
does not purport to be indicative of the results that would have been reported
had such events actually occurred on the dates specified, nor is it indicative
of MMR's future results if the aforementioned transactions are completed. MMR
cannot predict whether the consummation of the Acquisitions or the Dispositions
will conform to the assumptions used in the preparation of the Unaudited Pro
Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Statement of Operations data include
adjustments to station operating expenses to reflect anticipated savings that
management believes it will be able to achieve through the implementation of
its strategy.
There can be no assurance that MMR will be able to achieve such savings.
The Unaudited Pro Forma Condensed Combined Financial Statements are
based upon, and should be read in conjunction with, the historical financial
statements and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
121
<PAGE>
MULTI MARKET RADIO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(in thousands)
<TABLE>
<CAPTION>
MMR
AS MMR A HARTFORD PRO FORMA
REPORTED DISPOSITIONS (A) ACQUISITION ADJUSTMENTS AS ADJUSTED
-------- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 5,470 $ $ $ 5,600 (a) $ 25,270
13,200 (b)
20,000 (b)
(18,000) (b)
(1,000) (c)
Property and equipment, net 3,649 (303) 339 3,685
Intangible assets, net 48,434 (3,797) 4,197 13,464 (b) 63,298
1,000 (c)
Other assets 7,256 (5,000) - 2,256
--------- --------- --------- ------------- ---------
Total assets $ 64,809 $(9,100) $ 4,536 $ 34,264 $ 94,509
========= ========= ========= ============= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities $ 4,843 - - $ 4,843
Other Liabilities 3,500 - - (3,500) (a) 0
Long-term debt 40,849 - - 20,000 (b) 60,849
Deferred taxes 7,241 - - 7,241
Stockholders' equity 8,376 (9,100) 4,536 13,200 (b) 21,576
(4,536) (b)
9,100 (a)
--------- --------- --------- ------------- ---------
Total liabilities and stockholders' equity $ 64,809 $(9,100) $ 4,536 $ 34,264 $ 94,509
========= ========= ========= ============= =========
</TABLE>
a) Represents the sale of WRXR-FM and WKGB-FM which occurred in July 1996
for $5,000,000 and pending sale of KOLL-FM for $4,100,000. In the
aggregate, a loss of approximately $1,596,000 has been recognized
relating to the sales during the six months ended June 30, 1996
principally relating to WRXR-FM and WKBG-FM. $5,600,000 represents
proceeds to be received in connection with the dispositions (total
sale proceeds of $10,050,000 less $4,450,000 received in connection
with the KOLL-FM and WRSF disposition). A deposit of $3,500,000 had
been received by MMR by June 30, 1996 for the sale of KOLL-FM.
b) To reflect the pending MMR Hartford Acquisition for $18,000,000,
including corresponding excess of purchase price paid, $13,464,000
over net book value of assets acquired, and the adjustments to remove
the stockholders' equity of $4,536,000. SFX has loaned MMR
approximately $20.0 million pursuant to the SFX Loan for the purposes
of financing the MMR Hartford Acquisition and for working capital. It
is also assumed that the MMR Class A warrants will be exercised for
net proceeds of approximately $13,200,000.
c) Represents $1,000,000 purchase price of the MMR Myrtle Beach
Acquisition.
122
<PAGE>
MULTI MARKET RADIO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
MMR
AS MMR B HARTFORD PRO FORMA AS
REPORTED DISPOSITIONS (A) ACQUISITION ADJUSTMENTS ADJUSTED
-------- ---------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $10,144 $ (716) $ 2,082 $ $11,510
Station operating expenses 6,254 (810) 1,610 7,054
Depreciation & amortization 810 (95) 91 156 (b) 974
12 (c)
Corporate expenses 1,275 1,275
Non-cash compensation charge 130 416 (g) 546
-------- ---------- -------- ------------ -------
Operating income (loss) 1,675 189 381 (584) 1,661
Interest expense, net 2,609 203 (203)(d) 3,809
1,200 (d)
Provision for loss on pending sale of WRXR and 1,596 1,596
other
Write-off of pending acquisition and financing 709 (709)(e) 0
costs
Costs related to pending merger with SFX 3,348 (3,348)(e) 0
Other (income)/loss 4 (12) (8)
-------- ---------- -------- ------------ -------
Loss before income taxes (6,591) 189 190 2,476 (3,736)
Income tax expense (benefit) 7 (7)(e) 0
-------- ---------- -------- ------------ -------
Net income/(loss) $(6,591) $ 189 $ 183 $ 2,483 $ (3,736)
======== ========== ======== ============ ==========
Net loss per common share ($1.89) ($0.66)
Average common shares outstanding 3,491 5,699
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
MULTI MARKET RADIO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(in thousands, except per share data)
MMR SOUTHERN STARR
AS MMR B HARTFORD FIRST QUARTER PRO FORMA AS
REPORTED DISPOSITIONS (A) ACQUISITION 1995 ADJUSTMENTS ADJUSTED
-------- ---------------- ----------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $18,288 $(2,422) $ 4,424 $ 2,692 $22,982
Station operating expenses 11,026 (2,247) 3,286 1,863 13,928
Depreciation & amortization 1,750 (304) 227 327 312 (b) 2,337
25 (c)
Corporate expenses 1,666 - - - 1,666
- - -
Non-cash compensation charge 281 833 (f) 1,114
------- ------- ------- ------- ---------- -------
Operating income (loss) 3,565 129 911 502 (1,170) 3,937
Interest expense, net 4,966 - 502 - 2,400 (d) 7,366
(502)(d)
Other income (11) - (14) - (25)
------- ------- ------- ------- ---------- -------
Loss before income taxes (1,390) 129 423 502 (3,068) (3,404)
Income tax benefit (59) - 48 - (48)(e) (59)
------- ------- ------- ------- ---------- -------
Net income (loss) before extraordinary item (1,331) 129 375 502 (3,020) (3,345)
======== ======= ======= ======== ========== =======
Net income (loss) per common share, ($0.38) ($0.59)
before extraordinary item
Average common shares outstanding 3,490 5,699
</TABLE>
(a) Reflects the elimination of the operations of stations WRSF-FM sold in
March 1996, WRXR-FM and WKBG-FM sold in July 1996 and pending sale of
KOLL-FM.
(b) Reflects $156,000 and $312,000 for the six months ended June 30, 1996
and year ended December 31, 1995, respectively, in amortization of
intangible assets recorded in connection with the MMR Hartford
Acquisition (using a 40 year amortization period) and change in
amortization periods.
(c) Amortization of $12,000 and $25,000 for the six months ended June 30,
1996 and year ended December 31, 1995, respectively of the intangible
asset recorded in connection with the MMR Myrtle Beach Acquisition
(using a 40 year amortization period).
(d) To record additional interest expense of $1,200,000 and $2,400,000 for
the six months ended June 30, 1996 and year ended December 31, 1995,
respectively, related to the $20,000,000 received pursuant to the SFX
Loan in September 1996, to eliminate MMR Hartford Acquisition interest
of $203,000 and $502,000 for the six months ended June 30, 1996 and
year ended December 31, 1995, respectively. A change in the interest
rate of 0.25% would change pro forma interest expense by approximately
$76,000 and $152,000 for the six months ended June 30, 1996 and the
year ended December 31, 1995, respectively.
(e) To eliminate non-recurring expenses associated with the pending
acquisitions of $709,000 for the six months ended June 30, 1996, to
eliminate non-recurring expenses associated with the SFX Merger of
$3,348,000 for the six months ended June 30, 1996 and to
124
<PAGE>
eliminate tax expense of $7,000 and $48,000 for the six months ended
June 30, 1996, and year ended December 31, 1995, respectively.
(f) Reflects non-cash compensation charge for the issuance of shares of
the Series A and Series B Convertible Preferred Stock of MMR. These
shares were issued in July 1996.
125
<PAGE>
MMR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This discussion should be read in conjunction with the financial
statements appearing elsewhere in this Joint Proxy Statement/Prospectus. In
this discussion, 1995 results of operations of MMR include the results of the
Southern Starr Acquisition (the "Southern Starr Stations") subsequent to March
27, 1995, and 1994 results of operations of MMR include the results of WRXR-FM,
operating in Augusta, Georgia, and WKBG-FM, operating in Martinez, Georgia
(collectively, the "Augusta Stations"). MMR sold the Augusta Stations in July
1996.
GENERAL
The performance of a radio station group such as MMR is customarily
measured by its ability to generate Broadcast Cash Flow. Broadcast Cash Flow
means net revenues less station operating expenses. Although Broadcast Cash
Flow is not recognized under GAAP, MMR believes that Broadcast Cash Flow is an
industry-accepted benchmark for evaluating performance and determining purchase
price and is a provision typically found in financial covenants referenced in
lending agreements. However, investors should not consider Broadcast Cash Flow
to be a substitute for operating income, net income, cash flows from operating
activities (as a measure of liquidity) or any other measure for determining
MMR's operating performance or liquidity that is calculated in accordance with
GAAP.
MMR's financial results are dependent on a number of factors,
including the general strength of the local and national economies, population
growth, ability to provide popular programming, local market competition,
relative efficiency of radio broadcasting compared to other advertising media,
signal strength and government regulation and policies.
The principal source of MMR's revenues is the sale of broadcasting
time on its radio stations for advertising. As a result, MMR's revenues are
affected primarily by the advertising rates its radio stations charge.
Correspondingly, the rates are based upon the station's ability to attract
audiences in the demographic groups targeted by its advertisers, as measured
principally by Arbitron. In the broadcasting industry, radio stations often
utilize trade (or barter) agreements which exchange advertising time for goods
or services (such as travel or lodging), instead of for cash. MMR has minimized
its use of trade agreements and has generally sold over 90% of its advertising
time for cash. See "Business of MMR--Advertising."
MMR's stations generally derive in excess of 90% of their revenue from
local advertising in the markets in which they operate. Local advertising is
sold primarily by the stations' sales staff. To generate national advertising
sales, MMR engages independent advertising sales representatives. In the year
ended December 31, 1995, no single customer accounted for more than 10% of the
revenues of any station or more than 2.5% of total revenues of MMR.
MMR's revenues vary throughout the year and, as is typical in the
radio broadcasting industry, MMR's first quarter typically produces the lowest
revenues for the year. MMR has moderated this seasonality with the acquisition
of the Myrtle Beach, Daytona Beach and Biloxi stations, which are in summer
resort areas and, accordingly, experience their strongest revenue periods in
the second and third quarters.
The primary operating expenses incurred in the ownership and operation
of radio stations include employee salaries and commissions, programming
expenses and advertising and promotion expenses. As a result of the
acquisitions and anticipated future acquisitions of stations, as well as
borrowings and anticipated future borrowings under the Finova Loan, MMR also
incurs significant depreciation, amortization and interest expense.
RESULTS OF OPERATIONS OF MMR
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net revenues (total revenues less agency commissions) for the three
months ended June 30, 1996 were $5,317,326, a decrease of 3% compared to net
revenues of $5,453,708 for the three months ended June 30, 1995. This
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decrease is due to the disposition of radio stations WRXR-FM, WKBG-FM, WRSF-FM
and KOLL-FM during 1996. On a pro forma basis, excluding the results of all
stations which MMR has sold or agreed to sell, MMR's net revenues for the
second quarter 1996 would have increased 8% reaching $4,860,314.
Total operating expenses for the three months ended June 30, 1996 were
$4,264,907, a decrease of 5% below the three months ended June 30, 1995
operating expenses of $4,502,763. This decrease is primarily due to the
disposition of WRXR-FM, WKBG-FM, WRSF-FM and KOLL-FM. The decrease in
depreciation and amortization expense is due to the sale of stations in 1996
and the expiration of a two year non-compete agreement related to MMR's
acquisition of WPKX-FM in July 1993. On a pro forma basis, excluding the
results of all stations which MMR has sold or agreed to sell, MMR's station
operating expenses for the second quarter 1996 would have increased 5%,
reaching $2,545,248. Corporate expenses also increased due to higher consulting
and professional fees and higher payroll costs.
Operating income for the three months ended June 30, 1996 was
$1,052,419, an increase of 11% compared to operating income for the three
months ended June 30, 1995 of $950,945, due to the factors discussed above.
Interest expense for the three months ended June 30, 1996 of
$1,270,669 represents a decrease of 17% below the three months ended June 30,
1995 interest expense of $1,538,192. This decrease is due to lower total
borrowings and lower interest rates on MMR's floating rate debt.
Net loss related to radio station disposition of $125,000 represents
the write-off of a $125,000 purchase option fee previously paid, following
management's decision not to purchase WCHZ-FM, operating in Augusta, Georgia.
Write-off of acquisition and financing costs of $139,261 represents
costs associated with MMR's proposed transaction with Liberty that was
terminated upon the execution of the Merger Agreement.
Costs incurred in the quarter ended June 30, 1996, related to the
pending merger with SFX totaled $3,348,678.
Net loss for the three months ended June 30, 1996 was $3,832,194,
compared to a net loss of $655,542 for the three months ended June 30, 1995,
due to the factors discussed above.
Broadcast Cash Flow for the three months ended June 30, 1996 of
$2,156,248 represents a decrease of 6 % from the three months ended June 30,
1995 Broadcast Cash Flow of $2,294,138. This decrease is principally due to the
disposition of radio stations as described above. On a pro forma basis,
excluding the results of all stations which MMR has sold or agreed to sell,
MMR's Broadcast Cash Flow would have increased 11% to $2,315,066 from second
quarter 1995.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net revenues for the six months ended June 30, 1996 were $10,143,466,
an increase of 37% over the six months ended June 30, 1995 net revenues of
$7,250,135. This increase is principally due to the revenues generated by the
Southern Starr Stations, which were acquired on March 27, 1995, including
improved revenue at these stations since their acquisition offset, in part, by
subsequent station dispositions. On a pro forma basis, excluding the results of
all stations which MMR has sold or agreed to sell, MMR's net revenues for the
six months ended June 30, 1996 would have increased 8%, reaching $8,885,029.
Total operating expenses for the six months ended June 30, 1996 was
$8,468,396, an increase of 33% over the six months ended June 30, 1995
operating expenses of $6,357,048. This increase is principally due to the
acquisition of the Southern Starr Stations. Corporate expense also increased
due to the Southern Starr Acquisition, higher consulting and professional fees
and higher payroll costs. On a pro forma basis, excluding the results of all
stations which MMR has sold or agreed to sell, MMR's station operating expenses
for the six months ended June 30, 1996 would have decreased 3% to $4,767,791.
Depreciation and amortization for the six months ended June 30, 1996
was $809,679, or a decrease of $156,408, principally related to the termination
of the WPKX-FM covenant not to compete and the sale of WRXR-FM and WKBG-FM.
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Operating income for the six months ended June 30, 1996 was
$1,675,070, an increase of 88% compared to the six months ended June 30, 1995
of $893,087, due to the factors discussed above.
Net interest expense for the six months ended June 30, 1996 was
$2,609,084, an increase of 41% compared to the six months ended June 30, 1995
of $1,850,506. This increase is principally the result of increased borrowings
associated with the Southern Starr Acquisition.
Net loss for the six months ended June 30, 1996 was $6,591,091,
compared to a net loss of $1,358,883 for the six months ended June 30, 1995.
The increase is primarily due to a provision for loss impairment of net assets
on the sale of WRXR-FM and WKBG-FM, both operating in Augusta, Georgia, and
costs incurred in connection with the Merger with SFX.
Broadcast Cash Flow for the six months ended June 30, 1996 was
$3,889,752, an increase of 37% over the six months ended June 30, 1995,
Broadcast Cash Flow of $2,835,829. This increase is due to the Southern Starr
Acquisition and the improvement of those operations since the acquisition date.
On a pro forma basis, excluding the results of all stations which MMR has sold
or agreed to sell, MMR's Broadcast Cash Flow would have increased 24%, reaching
$4,117,238.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Actual results for the year ended December 31, 1995, include the
results of operations of the Southern Starr Stations subsequent to March 27,
1995, and actual results of operations for the year ended December 31, 1994,
include the results of operations of the Augusta Stations subsequent to March
30, 1994.
Net revenues (total revenues less agency commissions) increased 157%
to $18,287,745 in 1995, from $7,117,038 in 1994. The increase in net revenues
is due primarily to revenues generated by the Southern Starr Stations,
including improved revenues at these stations since their acquisition. The
Southern Starr Stations' net revenues, on a pro forma basis, increased 20% from
$11,132,709 for the year ended December 31, 1994 to $13,394,446 for the year
ended December 31, 1995. Net revenues for WHMP-FM, WHMP-AM and WPKX-FM, each
operating in Myrtle Beach, South Carolina (the "MMR Initial Stations"), on a
pro forma basis, were down slightly from $7,594,848 for the year ended December
31, 1994 to $7,555,011. This decrease was primarily attributable to the Augusta
Stations, which MMR sold on July 10, 1996.
Increases at the MMR Initial Stations were due to improved ratings
performance at WHMP-FM and WHMP-AM, both operating in the Northampton,
Massachusetts market, and continued ratings dominance at WPKX-FM, operating in
Springfield, Massachusetts. These increases were offset by declines at WYAK-FM,
operating in the Myrtle Beach, South Carolina market, and the Augusta Stations,
due to the introduction of a format competitor and the temporary absence of a
station general manager.
Station operating expenses (direct operating expenses, selling, and
general and administrative expenses) increased 129% to $11,026,222 in 1995,
from $4,806,722 in 1994. The increase is primarily attributable to the
inclusion of operating expenses relating to the Southern Starr Stations.
Additionally, expense increases were due to higher commissions, promotional
expenses, and general and administrative expenses. The Southern Starr expenses,
on a pro forma basis, were down .01% from $7,261,123 for the year ended
December 31, 1994 to $7,248,478 for the year ended December 31, 1995. The MMR
Initial Stations' operating expenses increased 5.2% from $5,288,646 for the
year ended December 31, 1994 to $5,563,513 for the year ended December 31,
1995.
Depreciation and amortization increased 53% to $1,750,310 in 1995 from
$1,146,640 in 1994. This increase is primarily attributable to the write-up of
asset values as they relate to the Southern Starr Stations.
Corporate, general and administrative expenses increased 115% to
$1,665,227 in 1995 from $774,856 in 1994. The increases are primarily due to
consulting fees accrued based on the performance of MMR and increases in legal,
accounting, printing and travel expenses in connection with the increased size
of MMR in 1995.
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Non-cash compensation charges related to MMR's Preferred Shares as a
result of MMR attaining certain performance goals decreased to $281,247 in 1995
from $364,933 in 1994.
Operating income for 1995 increased to $3,564,739 in 1995, from
$23,887 in 1994. The increase in operating income is principally due to the
Southern Starr Acquisition.
Net interest expense increased to $4,965,527 in 1995 from $765,829 in
1994. This increase in interest expense in 1995 results from the inclusion of
nine months of borrowings under the Finova Loan and the MMR Senior Subordinated
Debentures which were used to finance the Southern Starr Acquisition in March
1995.
The income tax provisions reflect state income taxes based upon
nominal tax rates. MMR incurred net losses for federal income taxes during both
periods. MMR reflected a benefit in its financial statements for such net
operating loss carryforwards in 1995.
The extraordinary loss of $328,571 during the year ended December 31,
1995 represents the write-off of deferred financing costs associated with the
early extinguishment of MMR's Finova $7.4 million credit agreement (the "MMR
Credit Agreement").
Net loss for the year ended December 31, 1995 was $1,659,930, compared
to a net loss of $765,782 for the year ended December 31, 1994. This increase
in loss is attributable to the increase in MMR's interest expense.
Broadcast Cash Flow increased 214% in 1995 to $7,261,523 from
$2,310,316 in 1994, which is attributable to the Southern Starr Acquisition and
improvements at the Southern Starr Stations and certain of the MMR Initial
Stations.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
In this discussion, 1994 results of operations of MMR include the
results of the Augusta Stations subsequent to March 30, 1994. The 1993 results
of operations reflect: (i) the operations of the prior owners of the MMR
Initial Stations for the seven months ended July 29, 1993; and (ii) the
operations of MMR for the five months ended December 31, 1993.
Net revenues (total revenues less agency commissions) increased 48% to
$7,117,038, from $4,810,933. The increase in net revenues is due primarily to
the operations of the Augusta Stations, which, subsequent to March 30, 1994,
had net revenues of $1,554,880, and to a 16% increase at the MMR Initial
Stations.
Station operating expenses (direct operating expenses, selling, and
general and administrative expenses) increased 67% to $4,806,722, from
$2,879,971. The increase is primarily attributable to the inclusion of
operating expenses relating to the operations of the Augusta Stations,
including certain promotional expenses at WKBG-FM which began broadcasting in
April 1994.
Depreciation and amortization increased 98% to $1,146,640 from
$579,206. This increase is primarily attributable to the write-up of asset
values at the MMR Initial Stations upon their acquisition by MMR and
depreciation and amortization relating to the Augusta Stations.
Corporate expenses decreased 2% to $1,139,789 from $1,168,969.
Corporate expenses for 1993 included a $790,000 non-cash, non-recurring
compensation charge related to the issuance of 140,000 MMR Class B Shares, and
corporate expenses for 1994 include a $364,933 non-cash compensation charge
related to MMR's Preferred Shares, as a result of MMR attaining certain
performance goals. Without such non-cash compensation charges, the corporate
expense increase of $395,887, or 104% over 1993, is attributable to a full year
of operations of MMR in 1994 as compared to five months in 1993. During the
year ended December 31, 1994, MMR would have been in violation of certain
operating cash flow tests under the MMR Credit Agreement, giving effect to
consulting fees and rent due to SCMC. As a result, in accordance with the terms
of MMR's financial consulting agreement with SCMC and the SCMC Sublease
Agreement, the consulting fees and rent were deemed not to have been earned and
were not included in corporate expenses.
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Operating income for 1994 decreased 87% to $23,887, from $182,787. The
decrease in operating income resulted from the inclusion of higher recurring
corporate expenses, depreciation and amortization expense related to the
Initial Stations and the operating expenses of the Augusta Stations.
Net interest expense increased 72% to $765,829 from $445,515. Interest
expense in 1994 included twelve months of borrowings under the MMR Credit
Agreement, which was used to finance a portion of the acquisition of the MMR
Initial Stations, as compared to five months of borrowings under the MMR Credit
Agreement in 1993 and costs associated with the letter of credit obtained in
connection with the Southern Starr Acquisition.
The income tax provisions reflect state income taxes based upon
nominal tax rates. MMR incurred net losses for federal income taxes during both
periods. MMR did not reflect a benefit in its financial statements for such net
operating loss carryforwards due to uncertainties concerning their
realizability. No income taxes were provided for the prior owners of the MMR
Initial Stations as they either operated as Subchapter S corporations or had
incurred net losses for which no benefit was provided.
Broadcast Cash Flow increased 24% in 1994 to $2,342,184 from $1,881,311
in 1993.
LIQUIDITY AND CAPITAL RESOURCES
MMR's sources of funds have been cash flows from operations,
borrowings and sales of equity securities. On March 27, 1995, MMR financed the
Southern Starr Acquisition with $19,422,000 in increased borrowings under the
$26,500,000 Finova Loan Agreement (the "Finova Loan Agreement") and $15,428,750
in net proceeds from the MMR Senior Subordinated Debentures and Huff Warrant
proceeds of $446,250.
Cash flow from operating activities for the six months ended June 30,
1996 was $802,687. Cash flow provided by investing activities for the six
months ended June 30, 1996 was $1,324,189. Cash flow used for financing
activities for the six months ended June 30, 1996 was $857,604.
At June 30, 1996, MMR's debt consists of:
<TABLE>
<CAPTION>
FINOVA HUFF TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of June 30, 1996............. $24,900,000 $15,949,081 $40,849,081
Current portion of long term debt....... 1,848,000 -- 1,848,000
----------- ----------- -----------
Long term debt.......................... $23,052,000 $15,949,081 $39,001,081
=========== =========== ===========
</TABLE>
The Finova Loan bears interest at a floating rate equal to the
Citibank, N.A. base rate plus 2.5%. Interest on the principal balance is
payable monthly in arrears and principal is payable quarterly in arrears
according to a schedule provided by Finova. The final principal payment is due
April 2000. MMR may voluntarily prepay the principal balance at any time
subject to a prepayment premium up to 3% on the amount prepaid. MMR is required
to make mandatory prepayments based upon a calculation of excess cash flow.
The Finova Loan Agreement contains numerous and customary events of
defaults, including material misrepresentations, payment defaults, limitations
on capital expenditures and SCMC fees and defaults which would result from a
shortfall in certain financial ratios.
The MMR Senior Subordinated Debentures contain numerous affirmative
and negative covenants including covenants related to a change in control of
MMR. MMR obtained a waiver from Huff of the change of control covenant with
respect to the conversion, pursuant to MMR's Restated Certificate of
Incorporation, of certain non-voting securities into MMR Class B Shares by
Robert F.X. Sillerman. The term of the debentures is six years and they contain
certain restrictions regarding MMR's right to call and provide Huff with the
option to put debentures in amounts equal to
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various percentages of the proceeds exceeding $1,000,000 realized by MMR from
the exercise of the MMR's Class A and/or MMR Class B Warrants. The amount which
may be put cannot exceed 50% (to be increased to 75% upon certain conditions)
of the existing warrant exercise proceeds. It is expected that the MMR will not
be required to utilize the proceeds from the MMR Warrant Redemption to prepay
the debentures since MMR obtained a waiver from Huff of the put provisions. The
waiver, however, will lapse in the event that the Merger Agreement is
terminated. In the event that warrantholders exercise their MMR Class A
Warrants and purchase, for $7.75 each, MMR Class A Shares rather than have
their warrants redeemed in the MMR Warrant Redemption, and the Merger Agreement
is terminated, MMR may be required to prepay a portion of the debentures. In
such an event, there can be no assurance that MMR will have sufficient funds to
meet its prepayment obligations, in which event the entire principal amount of
debentures may become due and payable. Interest is payable at 10% of the face
amount of the debentures for the first three (3) years, and 16% thereafter.
During the first three years of the term of the debentures, interest may be
paid in kind by the issuance of additional debentures. However, after the first
year, failure to pay interest in cash will result in a default which, while not
giving rise to a right of acceleration, will give Huff the right, subject to
the approval of the FCC, to assert control over MMR's Board of Directors. If
MMR is unable or not permitted to pay the cash interest under the restrictions
on interest payment contained in the Finova Loan or to pay the cash interest in
the three years following the closing, the interest will be paid in kind. Each
$1,000 face amount of debenture is accompanied by 32.28 Huff Warrants. The
warrants are exercisable for a ten-year period at $7.75 per share (subject to
dilution protection) and are callable by MMR at $30.00 per share.
The MMR Senior Subordinated Debentures provide for representation of
the holder on MMR's Board of Directors and each committee of the Board, subject
to election by MMR shareholders. In the event of a default, the holder may have
the right, under certain circumstances and subject to FCC approval, to elect a
majority of the MMR Board of Directors. Messrs. Ferrel, Morrow and Sillerman
have entered into a Shareholders Agreement with Huff pursuant to which their
shares will be voted to effectuate these provisions.
At June 30, 1996, MMR was in compliance with all covenants under the
Finova Loan Agreement and the MMR Senior Subordinated Debentures. The Finova
Loan Agreement contains a covenant which places an annual limitation on the
amount of MMR's corporate overhead. As a result of the significant expansion of
MMR's operations, this covenant was breached during the year ended December 31,
1995, and such breach was subsequently waived by Finova. This covenant, as well
as a similar covenant in the agreement governing the MMR Senior Subordinated
Debentures, was breached by MMR in the third quarter of 1996. Mr. Sillerman had
notified MMR that he intended to convert his non-voting MMR Class C Shares and
MMR Original Preferred Shares into voting MMR Class B Shares upon any such
default and on August 28, 1996 Mr. Sillerman effected such conversion. MMR
obtained a waiver of its default under the Finova Loan Agreement and a waiver
of its default under the agreement governing the MMR Senior Subordinated
Debentures. See "Business of MMR--Change of Control of MMR."
MMR has entered into the Merger Agreement, pursuant to which, subject
to stockholder approval and satisfaction of certain other conditions, MMR
agreed to merge with and into a wholly-owned subsidiary of SFX. In the event
that the Merger Agreement is terminated pursuant to certain provisions thereof,
MMR will have the right, subject to the receipt of prior FCC approval and the
receipt of any required consents from Finova and Huff, to acquire the MMR
Liberty Stations from SFX for $100.0 million, in which event SFX will be
subject to a substantial tax liability. In the event the Merger Agreement is
terminated pursuant to certain provisions thereof, SFX will have the right to
structure an exchange of certain of MMR's stations for the MMR Liberty
Stations, subject to receipt of any necessary prior FCC approval, in a
transaction which is intended to qualify as a like-kind exchange under Section
1031 of the Code. The Merger Agreement also provides that MMR shall pay SFX a
fee of $3.5 million in the event that the Merger Agreement is terminated as a
consequence of (i) MMR accepting a Competing Transaction, (ii) the MMR Board or
the MMR Independent Committee (a) having failed to recommend, withdrawing or
materially modifying its recommendation of the Merger and the Merger Agreement,
except in certain circumstances or (b) recommending or failing to recommend
against accepting a Competing Transaction, (iii) any party (other than SFX,
Acquisition Sub or their affiliates) acquires beneficial ownership of 30% or
more of any class of MMR's capital stock, or (iv) the MMR Stockholders having
failed to approve the Merger, a proposal for a Competing Transaction shall have
been made prior to such termination and any Competing Transaction is
consummated within one year of such termination.. Except in connection with a
termination pursuant to which the Alternate Proposal Fee would otherwise be due
and owing, MMR shall pay SFX a fee of $1.0 million, which amount is inclusive
of certain expenses, if a majority of the combined voting power of MMR votes
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with respect to, but does not vote in favor of, the Merger. See "The Merger
Agreement--Termination; Fees and Expenses." See "Certain Relationships and
Related Transactions--Material Contacts Between SFX and MMR."
MMR completed the sale of WRSF-FM, operating in Nags Head, North
Carolina on March 28, 1996 and realized proceeds of $950,000. MMR recognized a
gain of $68,842 on the sale of WRSF-FM.
On March 15, 1996, MMR entered into an agreement to sell KOLL-FM,
operating in Little Rock, Arkansas to Triathlon for approximately $4.1 million,
of which MMR received a deposit of $3.5 million. MMR and Triathlon have
obtained an appraisal that the station is valued at $4.1 million from a
nationally recognized appraisal firm. MMR entered into a definitive agreement
for this sale on July 15, 1996. MMR will not recognize a gain or loss on the
sale of this station, since it was acquired as part of the Southern Starr
Acquisition on March 27, 1995.
On July 10, 1996, MMR sold the assets of the Augusta Stations to Wilks
Broadcast Acquisitions, Inc. for a price of $5.0 million. MMR has recorded a
provision for loss on the sale of the Augusta Stations of $1,539,838. MMR used
$2,769,607 of the proceeds to pay down the outstanding balance under the Finova
Loan.
On August 29, 1996, MMR consummated the acquisition of radio station
WMYB-FM, operating in Myrtle Beach, South Carolina, for a purchase price of
$1.1 million (the "MMR Myrtle Beach Acquisition"). On September 30, 1996, MMR
agreed to sell WMYB-FM and WYAK-FM, which also operate in Myrtle Beach, South
Carolina, to Pinnacle Broadcasting Company for a price of $5.125 million,
payable over a period of four years (the "MMR Myrtle Beach Disposition").
In September 1996, MMR acquired radio station WKSS-FM, operating in
Hartford, Connecticut, for a purchase price of $18.0 million. In order to fund
the acquisition of WKSS-FM and its working capital needs prior to the
completion of the Merger, MMR entered into a loan agreement with SFX in
September 1996 whereby SFX agreed to lend MMR $18.0 million for the acquisition
of WKSS-FM and up to an additional $5.0 million for its working capital needs
(the "SFX Loan"). Prior to that date, SFX had advanced approximately $2.2
million of such $23.0 million to MMR for working capital, including a
nonrefundable fee of $2.0 million which was paid by SFX to SCMC on behalf of MMR
for investment banking services provided to MMR in connection with the Merger.
See "Certain Relationships and Related Transactions--Relationship of MMR with
SCMC." As of September 30, 1996, SFX had loaned MMR approximately $20.0 million
pursuant to the loan agreement. The SFX Loan bears interest at 12% per annum and
the principal of the SFX Loan will be payable as follows: (i) if the Merger is
consummated, the SFX Loan plus accrued interest shall be due within 30 days
thereafter; (ii) if the Merger is terminated pursuant to certain sections of the
Merger Agreement and MMR exercises its right pursuant to the Merger Agreement to
acquire the MMR Liberty Stations from SFX for an aggregate purchase price of
$100 million, then (a) $750,000 of the outstanding principal of the SFX Loan,
plus accrued interest thereon, shall be due on the date MMR exercises such
option, (b) $17,250,000 of the outstanding principal of the SFX Loan, plus
accrued interest thereon, shall be due upon the closing of such acquisitions and
(c) the balance of the SFX Loan, plus accrued interest thereon, shall be due on
the date the Merger Agreement is terminated; (iii) if the Merger is terminated
pursuant to certain sections of the Merger Agreement and SFX exercises its right
pursuant to the Merger Agreement to exchange the MMR Liberty Stations for
certain of MMR's stations, then (a) $18.0 million of the outstanding principal
of the SFX Loan, plus accrued interest thereon, shall be due on the date of the
closing of such exchange and (b) the balance of the outstanding principal of the
SFX Loan shall be due on the date the Merger Agreement is terminated; and (iv)
if the Merger Agreement is terminated pursuant to certain sections of the Merger
Agreement, the entire outstanding principal of the SFX Loan, plus accrued
interest thereon, shall be due within 45 days of the date of such termination
and $18.0 million of the outstanding principal shall be repaid in full by means
of a transfer to SFX of MMR's ownership interest in the WKSS-FM. To secure the
SFX Loan, MMR pledged the shares of its wholly-owned subsidiary which acquired
the assets of WKSS-FM to SFX. In addition, MMR granted SFX a security interest
in all of the assets of such subsidiary to the extent permitted by law. See
"The Merger Agreement--Other Provisions."
It is anticipated that SFX will repay all amounts outstanding under
the Finova Loan and the MMR Senior Subordinated Debentures simultaneously with
the consummation of the Merger.
MMR expects that the outstanding MMR Class A Warrants to purchase
1,055,437 MMR Class A Shares will be exercised at an exercise price of $7.75
per share prior to the MMR Warrant Redemption. Pursuant to the agreement
governing the MMR Class A Warrants and the MMR Class B Warrants, MMR is
required to pay a fee of 4% of the exercise price for each MMR Class A Warrant
($0.31) or MMR Class B Warrant ($0.46) exercised to either D.H. Blair
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Investment Banking Corp.("D.H. Blair") or Americorp Securities, Inc.
("Americorp"), depending on which firm solicited the exercise of the applicable
warrant. Each of D.H. Blair and Americorp beneficially holds over 5% of the
outstanding MMR Class A Shares. MMR anticipates that such fee will aggregate
approximately $570,400 for the exercise of all MMR Class A Warrants in
connection with the MMR Warrant Redemption. MMR has also commenced the MMR
Exchange Offer.
MMR entered into agreements to acquire WROQ-FM, operating in
Greenville, South Carolina, WSTZ-FM and WZRX-AM, both operating in Jackson,
Mississippi, WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina,
and WMFR-AM, WMAG-FM and WTCK-AM, each operating in Greensboro, North Carolina.
MMR and SFX subsequently agreed that SFX would finance the purchase of such
stations and that MMR would immediately thereafter transfer the purchased
assets to SFX. The acquisitions of WROQ-FM, WTRG-FM, WRDU-FM, WMFR-AM, WMAG-FM
and WTCK-AM were consummated in June 1996, and the acquisitions of WSTZ-FM and
WZRX-AM were consummated in August 1996, and such stations were simultaneously
transferred to SFX.
In August 1995, the MMR Stockholders approved the adoption of a
compensation plan pursuant to which MMR would issue up to 200,000 shares of
Series A Convertible Preferred Stock, par value $0.01 per share, of MMR (the
"MMR Series A Preferred Shares") and 200,000 MMR Series B Preferred Shares.
Such issuance was approved by the stockholders of MMR in August 1995. Of each
such series of convertible preferred stock of MMR, 40,000, 10,000, 5,000,
5,000, 80,000, 40,000 and 20,000 shares were issued in July 1996 to Michael G.
Ferrel, Bruce Morrow, Edward Simon, Myles Schumer, Robert F.X. Sillerman, SCMC
and Howard J. Tytel, respectively.
The terms of the MMR Series A Preferred Shares provided that they
would convert, on a share for share basis, into an equal number of MMR Class A
Preferred Shares in the event that Broadcast Cash Flow equaled or exceeded $5.0
million for the fiscal year ending December 31, 1995, and the terms of the MMR
Series B Preferred Shares provide that they will be converted, on a share for
share basis, into an equal number of shares of MMR Class A Preferred Shares in
the event that Broadcast Cash Flow equals or exceeds $10.0 million for the
fiscal year ending December 31, 1997. However, in no event shall any MMR Series
A Preferred Shares or MMR Series B Preferred Shares be converted unless the
closing sale price of an MMR Series A Preferred Share for the 30 trading days
immediately preceding such conversion exceeds $7.50 per share. The terms of the
MMR Series A Preferred Shares and the MMR Series B Preferred Shares provide
that, if the performance goals are not met, the shares will be redeemed for
$0.01 per share. MMR achieved Broadcast Cash Flow of at least $5.0 million in
1995 and accordingly, all of the MMR Series A Preferred Shares were converted
into an equal number of MMR Class A Shares on July 31, 1996. On July 31, 1996
the holders of the MMR Class A Shares issuable upon conversion of the MMR
Series A Preferred Shares and the holders of the MMR Series B Preferred Shares
entered into an escrow arrangement with respect to such shares. Pursuant to
such escrow arrangement, such shares shall be released from escrow ratably over
a five-year period commencing in April 1997. Such shares may not be transferred
until released from escrow but they may be voted while in escrow. See
"Management of MMR--Preferred Stock Issuance." See "Remuneration of Management
of SFX--Employment Agreements" for a discussion of certain circumstances in
which Mr. Ferrel's shares may be released from escrow upon the consummation of
the Merger.
During the quarter ended September 30, 1996, MMR began to incur
non-cash charges to earnings, which will equal the fair market value of the MMR
Class A Shares issued on July 31, 1996, upon conversion of the MMR Series A
Preferred Shares, amortized over the escrow period. Additional charges will be
incurred beginning in the quarter in which the MMR Series B Preferred Shares
become probable of being converted. Such charges could substantially reduce
MMR's net income for financial reporting purposes during such periods. The
conversion of such stock will also result in dilution to the holders of the MMR
Class A Shares.
MMR expects that cash flow from operations together with borrowings
available under the SFX Loan will be sufficient to fund capital expenditures,
quarterly principal payments under the Finova Loan Agreement and operations
through the expected closing of the Merger. In the event that the Merger is not
consummated, MMR will require additional debt or equity financing to fund the
repayment of the SFX Loan, the payment of any termination fees payable pursuant
to the Merger Agreement, future acquisitions (including the MMR Liberty
Stations), repayment of MMR Senior Subordinated Debentures and repayment of
outstanding debt. There can be no assurance that MMR will be able to secure
additional financing on acceptable terms, if at all, and depending upon the
terms of any such financing, such financing may be restricted by the terms of
the indenture relating to the MMR Senior Subordinated Debentures or the
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Finova Loan Agreement. MMR may be required to pay SFX certain liquidated
damages, or may be entitled to receive liquidated damages from SFX, if the
Merger does not occur.
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BUSINESS OF MMR
GENERAL
MMR is a radio broadcasting company which acquires and operates radio
stations in medium-sized markets primarily located in the eastern United
States. MMR will own and operate or provide programming to or sell advertising
time on behalf of eight FM stations and one AM station (after giving effect to
the MMR Little Rock Disposition, the MMR Myrtle Beach Disposition and the
termination of certain agreements) serving Hartford, Connecticut; New Haven,
Connecticut; Springfield/Northampton, Massachusetts; Daytona Beach, Florida;
and Biloxi, Mississippi. In the event that the Merger Agreement is terminated
pursuant to certain provisions thereof, MMR will have the right, subject to the
receipt of prior FCC approval and the receipt of any required consents from
Finova and Huff, to acquire the MMR Liberty Stations from SFX for $100.0
million, in which event SFX will be subject to a substantial tax liability. In
the event the Merger Agreement is terminated pursuant to certain provisions
thereof, SFX will have the right to structure an exchange of certain of MMR's
stations for the MMR Liberty Stations, subject to any necessary FCC approval,
in a transaction which is intended to qualify as a like-kind exchange under
Section 1031 of the Code. See "The Merger Agreement--Other Provisions."
MMR STRATEGY
GENERAL. MMR seeks to be a dominant radio broadcasting company (i.e.,
one of the top three radio broadcasters in terms of local market revenues) in
medium-sized markets primarily located in the eastern United States. MMR
believes that the benefits of this strategy include: (i) greater control and
flexibility in the pricing of advertising rates, (ii) the ability to more
effectively sell the benefits of radio advertising versus other advertising
media, (iii) the ability to more effectively target and position its stations
and to attract top talent and (iv) a lesser susceptibility to economic
downturns. MMR's focus on medium-sized markets is fundamental to this strategy
by allowing MMR to apply sophisticated programming, promotional and
broadcasting techniques to these markets, which are frequently populated with
fewer and less sophisticated competitors.
MMR also believes that market-dominant stations can better capitalize
on the operating leverage in the radio industry. Since a majority of the costs
of operating a radio station are generally fixed, an increase in advertising
revenue should result in a disproportionate increase in Broadcast Cash Flow,
thereby resulting in an improvement in Broadcast Cash Flow margin.
ACQUISITIONS. MMR believes that one of the primary ways to implement
its market-dominant strategy is by acquiring and operating multiple stations in
an individual market. MMR believes that multiple station ownership in its
markets can enhance its competitive strength by offering advertisers a broader
range of advertising packages, which has the potential to increase revenues as
well as achieve cost savings by eliminating duplicative sales and overhead
expenses.
OPERATIONS. MMR believes that the experience of its management and its
advisors with radio stations in all market sizes can be applied to improve the
financial performance and Broadcast Cash Flow of radio stations located in
medium-sized markets by enhancing revenues while controlling costs.
MMR seeks to enhance billings by implementing or improving upon: (i)
targeted programming designed to increase audience share within specific
demographic groups considered to be particularly attractive to advertisers,
(ii) sales and marketing programs intended to increase both audience share and
the sale of advertising time and (iii) effective advertising rate management
and inventory control. MMR believes that selling advertising time in
medium-sized markets is less dependent on ratings than on aggressive marketing
techniques.
In addition, MMR seeks to reduce expenses by: (i) implementing strict
cost controls at both the station and corporate level, including strict
financial reporting requirements, expense budget limitations and centralized
accounting and purchasing systems, (ii) lowering overhead by combining and
centralizing the administrative functions of its stations and (iii) realizing
economies of scale by operating multiple stations in a single market. In
operating each of its stations, MMR focuses on the development of strong
decentralized local management which is responsible for the day-to-day
operations of the stations and which receives incentive-based compensation
based on such station's financial performance.
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MMR HISTORY
MMR was incorporated in Delaware on August 28, 1992 and began its
operations on July 29, 1993 when it acquired its Springfield/Northampton and
Myrtle Beach stations for approximately $13.5 million with approximately $6.6
million from the proceeds of its initial public offering, net borrowings of
$7.3 million under the MMR Credit Agreement and $1.3 million from the sale of
MMR Class B Shares and MMR Class C Shares to certain of its principal
stockholders and management.
In November 1993, MMR began providing programming to WVCO-FM,
operating in the Myrtle Beach, South Carolina market, pursuant to a letter of
intent granting the owner an option to sell WVCO-FM to MMR for $650,000. On
December 15, 1994, the owner of WVCO-FM exercised this option; however, no sale
was consummated. Pursuant to an LMA, MMR currently provides a substantial
portion of the programming broadcast on WVCO-FM and sells advertising time
during such programming segments for its own account. MMR anticipates the
termination of all agreements with respect to WVCO-FM in December 1996.
On March 30, 1994, MMR acquired for approximately $6.7 million radio
station WRXR-FM, operating in the Augusta, Georgia market, and an option to
acquire radio station WKBG-FM, a station which was under construction in the
Augusta, Georgia market. This acquisition was financed with proceeds from MMR's
second public offering of 1,840,000 units comprised of one MMR Class A Share,
one MMR Class A Warrant and one MMR Class B Warrant.
On March 27, 1995, MMR acquired, through a merger agreement, the
outstanding stock of Southern Starr, which owned radio stations WPLR-FM,
serving New Haven, Connecticut; WKNN-FM, WMJY-FM/WVMI-AM, serving Biloxi,
Mississippi; WGNE-FM, serving Daytona Beach, Florida; KOLL-FM serving Little
Rock, Arkansas; and WYBC-FM, serving New Haven Connecticut - a station on which
advertising time is sold pursuant to a JSA. The total consideration paid for
this acquisition was approximately $35.0 million in cash, which include fees
and repayment of Southern Starr's indebtedness.
MMR financed the Southern Starr Acquisition by increasing its
borrowings by $19,422,000 under the Finova Loan Agreement and with $15,875,000
in net proceeds from the placement of the MMR Senior Subordinated Debentures
and the Huff Warrants. The Huff Warrants' purchase price was $446,250.
CHANGE OF CONTROL OF MMR
Immediately prior to the conversion of stock on August 28, 1996
described in the next paragraph, Mr. Sillerman's beneficial ownership of the
stock of MMR consisted of 227,000 MMR Class A Shares, 360,000 MMR Class C
Shares, 133,334 MMR Original Preferred Shares and 120,000 MMR Series B
Preferred Shares. MMR's Restated Certificate of Incorporation permitted the
holders of the MMR Class C Shares to convert such non-voting (except as
required by law) shares into an equal number of one-vote-per-share MMR Class A
Shares, or on or after July 29, 1998, or earlier after May 15, 1996 in the
event that MMR is in default under any obligation for borrowed money, into an
equal number of MMR Class B Shares, which generally have ten votes per share.
On or after July 29, 1998, or earlier in the event of such default or failure
after May 15, 1996, the holders of the MMR Original Preferred Shares were
permitted to convert such non-voting (except as required by law) shares into an
equal number of ten-votes-per-share MMR Class B Shares. The Finova Loan
Agreement and MMR's agreement governing the MMR Senior Subordinated Debentures
contain covenants which limit MMR's annual corporate overhead expenditures. MMR
has been in default of this covenant in the Finova Loan Agreement in each of
the last two years, in part due to the expansion of MMR through acquisitions
consummated subsequent to entering into the Finova Loan Agreement, and has
received waivers of such default from Finova. In the third quarter of 1996, MMR
again exceeded the limitation on annual corporate overhead expenditures
contained in the Finova Loan Agreement and also exceeded the limitation on
annual corporate overhead expenditures contained in the agreement governing the
MMR Senior Subordinated Debentures.
Because of such defaults, Messrs. Sillerman and Ferrel were permitted
to convert their MMR Class C Shares and MMR Original Preferred Shares into MMR
Class B Shares and on August 28, 1996 Mr. Sillerman exercised his right to
convert his MMR Class C Shares and MMR Original Preferred Shares into MMR Class
B Shares on a share for share basis. As a result of such conversion, Mr.
Sillerman's beneficial ownership of the stock of MMR consists of 227,000 MMR
Class A Shares, 493,334 MMR Class B Shares and 120,000 MMR Series B Preferred
Shares. (Mr. Ferrel
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has informed MMR that, in the event that the Merger is consummated shortly
after the MMR Special Meeting, he does not intend to exercise his conversion
rights with respect to the MMR Original Preferred Shares owned by him.) MMR
obtained a waiver of its default under the Finova Loan Agreement with respect
to exceeding its corporate overhead limit and entering into the SFX Loan for a
payment of $10,000, and also obtained a waiver of its default under the
agreement governing the MMR Senior Subordinated Debentures. Such conversion
will not affect the number or class of the SFX Shares to be received by Mr.
Sillerman in the Merger nor will it permit him to control the outcome of the
stockholder vote on Proposal A. Prior to the conversion, the MMR Original
Preferred Shares held by Messrs. Sillerman and Ferrel were placed in escrow
pursuant to which, in the event that such shares were or are converted into MMR
Class B Shares, Messrs. Sillerman and Ferrel may vote such shares but are
prohibited from transferring such shares prior to July 29, 1998. As a result of
the conversion of his MMR Class C Shares and MMR Original Preferred Shares into
MMR Class B Shares, Mr. Sillerman may be deemed to beneficially own shares
representing 14.7% of the outstanding combined voting power of MMR with respect
to Proposal A, 49.5% of the outstanding combined voting power of MMR with
respect to Proposal B (and 4.7% and 77.9% of the votes in the MMR Class A Share
and MMR Class B Share class votes, respectively, for Proposal B) and 49.5% with
respect to most other matters. See "Remuneration of Management of
SFX--Employment Agreements" for a discussion of circumstances in which Mr.
Ferrel's shares may be released from escrow upon the consummation of the
Merger.
Mr. Sillerman's conversion of his MMR Class C Shares and MMR Original
Preferred Shares into MMR Class B Shares constituted a change of control of MMR
under the Communications Act and the rules and regulations promulgated
thereunder. Prior to his conversion, Mr. Sillerman obtained the approval of the
FCC and the Antitrust Agencies to such action. Mr. Sillerman's ability to
assume voting control of MMR under the statutes and regulations regulating the
ownership of radio stations was made possible as a result of the passage of the
Recent Legislation, which eliminated the limits on the number of radio stations
one person or entity may own nationally and liberalized the limits on the
number of radio stations one person or entity may own locally.
See "Security Ownership of Management and Principal Stockholders of
MMR--Conversion of Stock by Mr. Sillerman."
RECENT ACQUISITIONS, DISPOSITIONS AND OTHER TRANSACTIONS
In March 1996, MMR entered into an agreement to acquire substantially
all of the assets of WAEG-FM and WAEJ-FM, both operating in Augusta, Georgia,
from a seller involved in bankruptcy proceedings, for an aggregate purchase
price of approximately $415,000 plus the assumption of a note with
approximately $450,000 remaining due. Immediately upon consummation of the
acquisition of WAEG-FM and WAEJ-FM, MMR has agreed to sell the stations to
Davis Broadcasting of Augusta, Inc., subject to FCC approval.
On March 15, 1996, MMR entered into an agreement to sell KOLL-FM,
Little Rock, Arkansas, to Triathlon for approximately $4.1 million (the "MMR
Little Rock Disposition"). MMR received a deposit of $3.5 million. MMR and
Triathlon have obtained an appraisal that the station is valued at $4.1 million
from a nationally recognized appraisal firm. MMR entered into a definitive
agreement for this sale on July 15, 1996.
On March 28, 1996, MMR completed the sale of WRSF-FM, Nags Head, North
Carolina, for $950,000.
On July 10, 1996, MMR sold the assets of the Augusta Stations to Wilks
Broadcast Acquisitions, Inc. for $5.0 million. In addition, MMR intends to
allow its JSA with respect to WCHZ-FM, operating in Augusta, Georgia, to expire
in December 1996.
On August 29, 1996, MMR consummated the acquisition of radio station
WMYB-FM, operating in Myrtle Beach, South Carolina, for a purchase price of
$1.1 million. On September 30, 1996, MMR agreed to sell WMYB-FM and WYAK-FM,
which also operates in Myrtle Beach, South Carolina, to Pinnacle Broadcasting
Company for a price of $5.125 million, payable over a period of four years (the
"MMR Myrtle Beach Disposition").
On September 4, 1996, MMR consummated the acquisition of radio station
WKSS-FM, Hartford, Connecticut, for a purchase price of $18.0 million (the "MMR
Hartford Acquisition"). In order to fund the acquisition of WKSS-FM and its
working capital needs prior
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to the completion of the Merger, MMR entered into a loan agreement relating to
the SFX Loan, whereby SFX agreed to lend MMR up to $18.0 million for the
acquisition of WKSS-FM and up to an additional $5.0 million for its working
capital needs, including a $2.0 million non-refundable fee which was paid by SFX
to SCMC on behalf of MMR for investment banking services provided to MMR in
connection with the Merger. See "Certain Relationships and Related
Transactions--Relationship of MMR with SCMC." As of September 30, 1996, SFX had
loaned MMR approximately $20.0 million pursuant to the loan agreement. The SFX
Loan bears interest at 12% per annum and the principal of the
SFX Loan will be payable as follows: (i) if the Merger is consummated, the SFX
Loan plus accrued interest shall be due within 30 days thereafter; (ii) if the
Merger is terminated pursuant to certain sections of the Merger Agreement and
MMR exercises its right pursuant to the Merger Agreement to acquire the MMR
Liberty Stations from SFX for an aggregate purchase price of $100 million, then
(a) $750,000 of the outstanding principal of the SFX Loan, plus accrued
interest thereon, shall be due on the date MMR exercises such option, (b)
$17,250,000 of the outstanding principal of the SFX Loan, plus accrued interest
thereon, shall be due upon the closing of such acquisitions and (c) the balance
of the SFX Loan, plus accrued interest thereon, shall be due on the date the
Merger Agreement is terminated; (iii) if the Merger is terminated pursuant to
certain sections of the Merger Agreement and SFX exercises its right pursuant
to the Merger Agreement to exchange certain of its radio stations for certain
of MMR's radio stations, then (a) $18.0 million of the outstanding principal of
the SFX Loan, plus accrued interest thereon, shall be due on the date of the
closing of such exchange and (b) the balance of the outstanding principal of
the SFX Loan shall be due on the date the Merger Agreement is terminated; (iv)
if the Merger Agreement is terminated pursuant to certain sections of the
Merger Agreement, the entire outstanding principal of the SFX Loan, plus
accrued interest thereon, shall be due within 45 days of the date of such
termination and $18.0 million of the outstanding principal shall be repaid in
full by means of a transfer to SFX of MMR's ownership interest in the WKSS-FM.
To secure the SFX Loan, MMR pledged the shares of its wholly-owned subsidiary
which acquired the assets of WKSS-FM to SFX. In addition, MMR granted SFX a
security interest in all of the assets of such subsidiary to the extent
permitted by law. See "The Merger Agreement--Other Provisions."
THE MMR STATIONS
The following table summarizes certain information with respect to the
radio stations MMR will own and operate or provide programming to or sell
advertising on behalf of, after giving effect to the MMR Little Rock
Disposition, the MMR Myrtle Beach Disposition and the termination of certain
agreements.
<TABLE>
<CAPTION>
STATION RANK 1995 TOTAL
AMONG STATION NUMBER
MARKET TARGET TARGET AUDIENCE REVENUE OF STATIONS
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE RANK IN MARKET
- ----------------------- ------ ----------------- --------------- ------------ -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Hartford, CT 41
WKSS-FM (3)..... Top 40 Adults 18-34 2 6.4% 5 21
Springfield/ 76
Northampton, MA (4)
WHMP-FM......... Alternative Adults 18-34 9* 1.4% 6 16
WHMP-AM......... Talk Adults 35-64 15* 1.1% 10 16
WPKX-FM......... Country Adults 25-54 2 10.5% 2 16
New Haven, CT 95
WPLR-FM......... Album Oriented Rock Adults 18-34 1 8.7% 1 8
WYBC-FM (5)..... Urban AC Adults 18-34 4 4.6% 4 8
SOUTHERN REGION (6)
Daytona Beach, FL 93
WGNE-FM......... Country Adults 25-54 2* 819% 13
Biloxi, MS 134
WKNN-FM......... Country Adults 25-54 1 15.3% 1 20
WMJY-FM......... AC Women 25-54 2 7.1% 6 20
</TABLE>
- ------------------
* Indicates ranking is tied with another station.
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(1) Some stations are licensed to a different community located within the
market they serve.
(2) Due to variations that may exist within the same station programming
format, the demographic target may be different even though the
station format is the same.
(3) In September 1996, MMR acquired WKSS-FM. If the Merger is not
consummated, MMR may be required to transfer this station to SFX. See
"--Recent Acquisitions, Dispositions and Other Transactions".
(4) Northampton is not separately rated by The Arbitron Company and,
accordingly, the number of stations in the market represents the
number of stations in the combined Springfield/Northampton,
Massachusetts market.
(5) MMR sells advertising on WYBC-FM pursuant to a JSA.
(6) Does not include (i) KOLL-FM, Little Rock, Arkansas, which MMR has
agreed to sell, (ii) WCHZ-FM, Augusta, Georgia, on which MMR sells
advertising pursuant to a JSA which terminates in December 1996 and
which MMR does not intend to renew, (iii) WVCO-FM, operating in Myrtle
Beach, South Carolina, on which MMR currently provides programming
pursuant to an LMA which terminates in December 1996 and which MMR
does not intend to renew, (iv) the MMR Liberty Stations, which MMR may
acquire under certain circumstances in the event that the Merger
Agreement is terminated, (v) two stations operating in the Houston,
Texas market, KQUE-FM and KNUZ-AM, which MMR has agreed to acquire,
subject to the satisfaction of certain conditions precedent, and then
transfer to SFX, (vi) WYAK-FM and WMYB-FM, Myrtle Beach, South
Carolina, which MMR has agreed to sell, or (vii) WAEG-FM and WAEJ-FM,
both operating in Augusta, Georgia, which MMR has agreed to acquire
and to sell to a third party. See "--MMR History," "--Recent
Acquisitions, Dispositions and Other Transactions" and "Certain
Relationships and Related Transactions--Material Contacts Between SFX
and MMR."
ADVERTISING
The primary source of MMR's revenues is the sale of broadcasting time
for local, regional and national advertising. A station's sales staff generates
most of its local advertising sales, which comprises approximately 90% of MMR's
revenues. To generate national advertising sales, MMR engages an advertising
representative for each of its stations specializing in national advertising
sales who is compensated on a commission-only basis. Most advertising contracts
are short-term and generally run only for a few weeks.
MMR believes that radio is one of the most efficient, cost-effective
means for advertisers to reach specific demographic groups. Radio is a
precisely targeted medium and is highly flexible due to the short lead time
between production and broadcast and the relative ease of production of
commercials. To ensure that an advertising message will be heard mainly by its
targeted customer base, an advertiser can choose to advertise on a station with
a format that appeals to a specific demographic group. In addition, radio can
more readily reach people in the workplace and in their cars than television
and other media.
Advertising rates charged by radio stations are based primarily on a
station's ability to attract audiences in the demographic groups targeted by
advertisers (as measured by ratings service surveys quantifying the number of
listeners tuned to the station at various times of the day and week), on the
number of stations in the market competing for the same demographic group and
on the supply of and demand for radio advertising time. Rates are generally
highest during morning and afternoon drive-time hours.
The number of advertisements that are broadcast each hour depends on
the format of a particular station. MMR estimates the number of advertisements
broadcast per hour that can maximize available revenue dollars without
jeopardizing listening levels. Although the number of advertisements broadcast
during a given time may vary, the total number of slots available for broadcast
advertising on a particular station generally does not vary significantly from
year to year.
COMPETITION
Radio broadcasting is a highly competitive business. MMR's stations
compete for listeners and advertising revenues directly with other radio
stations within their markets. Radio stations compete for listeners primarily
on the basis of program content and by hiring high-profile talent with appeal
to a particular demographic group. MMR competes for advertising revenues
principally through effective promotion of its stations' listener demographics
and audience shares, and through the number of listeners in a target group that
can be reached for the price charged for the air-time. MMR's stations also
compete for advertising revenues with other media, including broadcast
television, cable
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television, newspapers, magazines, direct mail, coupons and billboard
advertising. By building in each of its markets a strong listenership base
comprised of a specific demographic group, MMR is able to attract advertisers
seeking to reach those listeners. Other factors that affect a station's
competitive position include its authorized power, terrain, assigned frequency,
audience characteristics, local program acceptance and the number and
characteristics of other stations in the market area.
The radio broadcasting industry is also subject to competition from
new media technologies that are being developed or introduced, such as the
delivery of audio programming by cable television systems and by digital audio
broadcasting. See "--Federal Regulation of Broadcasting--Proposed Changes." The
radio broadcasting industry historically has grown despite the introduction of
new technologies for the delivery of entertainment and information, such as
television broadcasting, cable television, audio tapes and compact disks. There
can be no assurance, however, that the development or introduction in the
future of any new media technology will not have an adverse effect on the radio
broadcasting industry. MMR also competes with other radio station groups to
purchase additional stations. Some of these other groups are owned or operated
by companies that are larger and have more financial and other resources than
MMR.
The Recent Legislation will permit other radio broadcasting companies
to enter the markets in which MMR operates or may operate in the future, some
of which may be larger and have more financial resources than MMR. There can be
no assurance that MMR's existing stations or those to be acquired pursuant to
the Acquisitions will be able to maintain or increase their respective current
audience ratings or advertising revenue market share.
MMR's revenues vary throughout the year. As is the case throughout the
radio broadcasting industry, MMR's first quarter generally reflects the lowest
revenues and its fourth quarter generally reflects the highest revenues for
each year.
EMPLOYEES
As of September 30, 1996, MMR had approximately 230 full and part-time
employees. No employees of the stations are represented by labor unions. MMR's
relations with its employees historically have been good.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
determines whether to approve changes in ownership or control of station
licenses; regulates equipment used by stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operation and employment practices of stations; and has the power to impose
penalties for violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of broadcast stations.
FCC LICENSES. Radio stations operate pursuant to broadcasting licenses
that may be granted by the FCC for maximum terms of seven years (the FCC has
proposed in a recent rulemaking raising such maximum terms to eight years as
permitted by the Recent Legislation) and are subject to renewal upon
application to the FCC. During certain periods when renewal applications are
pending, petitions to deny license renewals can be filed by interested parties,
including members of the public. The FCC will grant a renewal application if it
finds that the station has served the public interest, convenience and
necessity, that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC, and that there have
been no other violations by the licensee of the Communications Act or the rules
and regulations of the FCC that, when taken together, would constitute a
pattern of abuse.
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The following table sets forth certain information with respect to
each station that MMR will own and operate, provide programming to pursuant to
an LMA or sell advertising on behalf of pursuant to a JSA, after giving effect
to the MMR Little Rock Disposition, the MMR Myrtle Beach Disposition and the
termination of certain agreements.
<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTER CITY OF LICENSE FREQUENCY POWER FCC AUTHORIZATION
-------------------------- --------------- --------- ----- -----------------
<S> <C> <C> <C> <C>
NORTHEAST REGION
Hartford, CT
WKSS-FM.................... Hartford-Meriden, CT 95.7 MHz 16.5kw 4/1/98
Springfield/Northampton, MA
WHMP-FM.................... Northampton, MA 99.3 MHz 3kw 4/1/98
WHMP-AM.................... Northampton, MA 1400 kHz 1kw 4/1/98
WPKX-FM.................... Enfield, CT 97.9 MHz 2.2kw 4/1/98
New Haven, CT
WPLR-FM.................... New Haven, CT 99.1 MHz 14kw 4/1/98
WYBC-FM.................... New Haven, CT 94.3 MHz 1.8kw 4/1/98
SOUTHERN REGION (1)
Daytona Beach, FL
WGNE-FM.................... Titusville, FL 98.1 MHz 100kw 2/1/03
Biloxi, MS
WKNN-FM.................... Pascagoula, MS 99.1 MHz 95kw 6/1/03
WMJY-FM.................... Biloxi MS 93.7 MHz 100kw 6/1/03
</TABLE>
(1) Does not include (i) KOLL-FM, Little Rock, Arkansas, which MMR has
agreed to sell, (ii) WCHZ-FM, Augusta, Georgia, on which MMR sells
advertising pursuant to a JSA which terminates in December 1996 and
which MMR does not intend to renew, (iii) WVCO-FM, operating in Myrtle
Beach, South Carolina, on which MMR currently provides programming
pursuant to an LMA which terminates in December 1996 and which MMR
does not intend to renew, (iv) the MMR Liberty Stations, which MMR may
acquire under certain circumstances in the event that the Merger
Agreement is terminated, (v) KQUE-FM and KNUZ-AM, both operating in
Houston, Texas, which MMR has agreed to acquire, subject to the
satisfaction of certain conditions precedent, and then transfer to
SFX, (vi) WYAK-FM and WMYB-FM, both operating in Myrtle Beach, South
Carolina, which MMR has agreed to sell, or (vii) WAEG-FM and WAEJ-FM,
both operating in the Augusta, Georgia market, which MMR has agreed to
acquire and to sell to a third party. See "--MMR History," "--Recent
Acquisitions, Dispositions and Other Transactions" and "Certain
Relationships and Related Transactions--Material Contacts Between SFX
and MMR."
OWNERSHIP MATTERS. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast licensee without
the prior approval of the FCC. In determining whether to grant or renew a
broadcast license, the FCC considers a number of factors pertaining to the
licensee, including compliance with various rules limiting common ownership of
media properties, the "character" of the licensee and those persons holding
"attributable" interests therein and compliance with the Communications Act's
limitations on alien ownership.
To obtain the FCC's prior consent to transfer control of or assign a
broadcast license, appropriate applications must be filed with the FCC. If the
transfer or assignment application involves a "substantial change" in ownership
or control, the application is placed on public notice for a period of
approximately 30 days during which petitions to deny the application may be
filed by interested parties, including members of the public. If the transfer
or assignment application does not involve a "substantial change" in ownership
or control, it is a "pro forma" application. The "pro forma" application is
nevertheless subject to having informal objections filed against it. If the FCC
grants a transfer or assignment application, interested parties have
approximately 30 days from public notice of the grant to seek
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reconsideration or review of that grant. The FCC normally has approximately an
additional ten days to set aside on its own motion such grant.
Pursuant to the Recent Legislation, the limit on the number of radio
stations one entity may own nationally has been eliminated and the limits on
the number of radio stations one entity may own locally have been increased as
follows: (i) in a market with 45 or more commercial radio stations, an entity
may own up to eight commercial radio stations, not more than five of which are
in the same service (FM or AM), (ii) in a market with between 30 and 44
(inclusive) commercial radio stations, an entity may own up to seven commercial
radio stations, not more than four of which are in the same service, (iii) in a
market with between 15 and 29 (inclusive) commercial radio stations, an entity
may own up to six commercial radio stations, not more than four of which are in
the same service and (iv) in a market with 14 or fewer commercial radio
stations, an entity may own up to five commercial radio stations, not more than
three of which are in the same service, except that an entity may not own more
than 50% of the stations in such market. FCC ownership rules continue to permit
an entity to own one FM and one AM station locally regardless of market size.
For the purposes of these rules, in general, a radio station being programmed
pursuant to an LMA by an entity is not counted as an owned station for purposes
of determining the programming entity's local ownership limits unless the
entity already owns a radio station in the market of the station with which the
entity has the LMA; a radio station whose advertising time is being sold
pursuant to a JSA is currently not counted as an owned station of the entity
selling the advertising time even if that entity owns a radio station in the
market of the station with which the entity has the JSA. As a result of the
elimination of the national ownership limits and the liberalization of the
local ownership limits effected by the Recent Legislation, radio station
acquisitions may be subject to antitrust review by the Antitrust Agencies even
if approved by the FCC. The Antitrust Agencies have not articulated the
standards that may be applied in an antitrust review in the radio broadcasting
industry.
The Communications Act and FCC rules also prohibit the common
ownership, operation or control (i) of a radio broadcast station and a
television broadcast station serving the same geographic market, subject to a
waiver of such prohibition for stations located in the largest television
markets if certain conditions are satisfied (the Recent Legislation directs the
FCC to extend such waiver policy to the top 50 television markets), and (ii) of
a radio broadcast station and a daily newspaper serving the same geographic
market. Under these rules, absent waivers, MMR would not be permitted to
acquire any daily newspaper or television broadcast station (other than
low-power television) in any geographic market in which it owns broadcast
properties.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding (or through subsidiaries controlling)
broadcast licenses, the interests of officers, directors and those who,
directly or indirectly, have the right to vote 5% or more of the corporation's
stock (or 10% or more of such stock in the case of insurance companies,
investment companies and bank trust departments that are passive investors) are
generally attributable, except that, in general, no minority voting stock
interest will be attributable if there is a single holder of more than 50% of
the combined voting power of the corporation. The FCC has outstanding a notice
of proposed rulemaking that, among other things, seeks comment on whether the
FCC should modify its attribution rules by (i) restricting the availability of
the single majority stockholder exemption and (ii) attributing under certain
circumstances certain interests such as non-voting stock or debt. MMR cannot
predict the outcome of this proceeding or how it will affect MMR's business.
Also, under certain circumstances, the FCC's "cross-interest" policy may
prohibit one party from acquiring an attributable interest in one media outlet
and a substantial non-attributable economic interest in another media outlet in
the same market.
None of MMR's officers or directors have an attributable interest in
any broadcast stations other than those of MMR, except that Edward L. Simon, a
Director of MMR, is the President and Director of South Fork Broadcasting
Corp., which owns WWHB-FM, operating in Hampton Bays, New York. Mr. Sillerman
is directly the controlling stockholder of SFX and also has non-voting common
and preferred stock interests in Triathlon, which has attributable interests in
small and medium markets primarily located in the Midwest and Western United
States. Heretofore, the FCC has not considered Mr. Sillerman's interest in
Triathlon to be an attributable interest. However, Mr. Sillerman's non-voting
stock interests in Triathlon are convertible into a voting stock interest under
certain circumstances, including the receipt of necessary FCC approval. The FCC
is examining, through outstanding rulemaking and adjudicatory proceedings,
whether to change the criteria for considering an interest to be attributable.
Some commentators in the rulemaking proceedings have urged that the test of
attribution should not be voting power but rather influence over the licensee.
Fisher Wayland Cooper Leader & Zaragoza LLP, FCC counsel to MMR, has advised
MMR that, to the extent
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that the FCC adopts this standard, the contractual arrangements between SCMC
and MMR and SCMC and Triathlon may cause Messrs. Sillerman and Tytel's
interests in MMR and Triathlon to be attributable. If the FCC were to determine
that Messrs. Sillerman and Tytel's interests were attributable, then Messrs.
Sillerman and Tytel may be required to reduce the number of their attributable
interests to the then-applicable permissible limits contained in the FCC's
ownership rules, which reduction could have a material adverse effect on MMR.
The Communications Act prohibits the issuance of a broadcast license
to, or the holding of a broadcast license by, any corporation of which more
than 20% of the capital stock is owned of record or voted by Aliens. The
Communications Act also authorizes the FCC, if the FCC determines that it would
be in the public interest, to prohibit the issuance of a broadcast license to,
or the holding of a broadcast license by, any corporation directly or
indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. MMR has been advised that
the FCC staff has interpreted this provision to require a finding that such a
grant or holding would be in the public interest before a broadcast license may
be granted to or held by any such corporation and that the FCC staff has made
such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to the radio station
subsidiaries of MMR by the FCC could be revoked if, among other restrictions
imposed by the FCC, more than 25% of MMR's stock were directly or indirectly
owned or voted by Aliens. MMR's Restated Certificate of Incorporation contains
limitations on Alien ownership and control of MMR that are substantially
similar to those contained in the Communications Act.
LOCAL MARKETING AGREEMENTS. Over the past few years, a number of radio
stations, including certain of MMR's stations, have entered into what have
commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed radio stations
agree to enter into cooperative arrangements of varying sorts, subject to
compliance with the requirements of antitrust laws and with the FCC's rules and
policies. Under these types of arrangements, separately-owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately-owned radio stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question.
The FCC has determined that issues of joint advertising sales should
be left to enforcement by antitrust authorities and has specifically revised
its cross-interest policy to make that policy inapplicable to time brokerage
arrangements. Furthermore, over the past few years, the staff of the FCC's Mass
Media Bureau has held that LMAs are not contrary to the Communications Act,
provided that the licensee of the station which is being substantially
programmed by another entity maintains complete responsibility for and control
over programming and operations of its broadcast station and assures compliance
with applicable FCC rules and policies.
The FCC's multiple ownership rules specifically permit radio station
LMAs to continue to be entered into and implemented, but provide that a station
brokering more than 15% of the time on another station serving the same market
will be considered to have an attributable ownership interest in the brokered
station for purposes of the FCC's multiple ownership rules. As a result, in a
market in which MMR owns a radio station, MMR would not be permitted to enter
into an LMA with another local radio station which it could not own under the
local ownership rules, unless MMR's programming constitutes 15% or less of the
other local station's programming time on a weekly basis. The FCC's rules also
prohibit a broadcast licensee from simulcasting more than 25% of its
programming on another station in the same broadcast service (i.e., AM-AM or
FM-FM) through a time brokerage or LMA arrangement where the brokered and
brokering stations which it owns or programs serve substantially the same area.
JOINT SALES AGREEMENTS. Under a typical JSA, the licensee of one radio
station sells the advertising time of another licensee's radio station.
Currently, JSAs are not deemed by the FCC to be attributable. However, the FCC
has outstanding a notice of proposed rulemaking concerning, among other things,
whether JSAs should be considered attributable interests. The attribution of
radio station JSAs has become less of an issue as a result of the general
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liberalization of the ownership limits on radio stations authorized by the
Recent Legislation. If JSAs become attributable interests as a result of such
rulemaking, MMR would be required to terminate any JSA it might have with a
radio station with which MMR could not have an LMA.
PROGRAMMING AND OPERATION. The Communications Act requires
broadcasters to serve the "public interest." The FCC gradually has relaxed or
eliminated many of the more formalized procedures it had developed in the past
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. A licensee continues to be required,
however, to present programming that is responsive to issues of the station's
community, and to maintain certain records demonstrating such responsiveness.
Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although such complaints may be filed at any time and generally may be
considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, obscene and indecent broadcasts, and technical
operations, including limits on radio frequency radiation. In addition,
licensees must develop and implement affirmative action programs designed to
promote equal employment opportunities, and must submit reports to the FCC with
respect to these matters on an annual basis and in connection with a renewal
application.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
PROPOSED CHANGES. The Congress and/or the FCC have under
consideration, and in the future may consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could affect, directly or
indirectly, the operation, ownership and profitability of MMR's radio broadcast
stations, result in the loss of audience share and advertising revenues for
MMR's radio broadcast stations, and affect the ability of MMR to acquire
additional radio broadcast stations or finance such acquisitions. Such matters
may include: changes to the license renewal process; spectrum use or other fees
on FCC licensees; revisions to the FCC's equal employment opportunity rules and
other matters relating to minority and female involvement in the broadcasting
industry; proposals to change rules relating to political broadcasting;
technical and frequency allocation matters; proposals to permit expanded use of
FM translator stations; proposals to restrict or prohibit the advertising of
beer, wine and other alcoholic beverages on radio; changes in the FCC's
cross-interest, multiple ownership and cross-ownership policies; changes to
broadcast technical requirements; delivery by telephone companies of audio and
video programming to the home through existing phone lines; proposals to limit
the tax deductibility of advertising expenses by advertisers; and proposals to
auction the right to use the radio broadcast spectrum to the highest bidder.
The FCC is currently considering whether to authorize the use of a new
technology, digital audio broadcasting, to deliver audio programming. Digital
audio broadcasting may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. It is not presently known precisely how in the future this
technology may be used by existing radio broadcast stations either on existing
or alternate broadcasting frequencies.
MMR cannot predict what other matters might be considered in the
future by the FCC and/or Congress. The implementation of the Recent Legislation
or any of these proposals or changes may have a material adverse impact on
MMR's business, competitive position or results of operations.
PROPERTIES
MMR's corporate headquarters are located in New York, New York. The
types of properties required to support each of MMR's radio stations include
offices, studios, transmitter sites and antenna sites. The transmitter site for
each station is, consistent with such station's license, generally located so
as to provide maximum market coverage.
MMR typically leases its facilities, although it owns the studio and
transmitter site for WYAK-FM (Myrtle Beach, South Carolina), the studios and
transmitter sites for WHMP-FM and WHMP-AM (both operating in Northampton,
Massachusetts) and the studio and tower site for WKNN-FM and WMJY-FM (both
operating in Biloxi, Mississippi). The lease terms for MMR's offices, studios
and transmission sites range from month-to-month to 5 years
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remaining. MMR does not anticipate any difficulties in renewing any facility
leases or in leasing additional space, if required.
MMR owns substantially all of the equipment used in its radio
broadcasting business. MMR believes that its properties are in good condition
and suitable for its current and foreseeable operations.
All properties of MMR secure indebtedness under the Finova Loan
Agreement (which is anticipated to be repaid prior to the Merger).
LEGAL PROCEEDINGS
In a complaint (Index No. 602056/96) dated April 18, 1996, Paul Pops,
who purports to be a stockholder of MMR, brought suit in the Supreme Court of
the State of New York against MMR, each of the directors of MMR, SFX and Mr.
Sillerman seeking to enjoin the Merger, or, in the alternative, seeking
monetary damages. The suit alleges that the consideration to be paid to the MMR
Stockholders in the Merger is unfair and grossly inadequate. The suit also
alleges that in connection with entering into the Merger Agreement, the
directors of MMR violated their fiduciary duties to MMR and its stockholders
and that SFX aided and abetted such violation. The complaint also alleges that
the action should be certified as a class action representing the interests of
the stockholders of MMR. The defendants filed a motion to dismiss the complaint
for failure to state a cause of action. On September 25, 1996, the parties
entered into a Memorandum of Understanding, pursuant to which the parties have
reached an agreement in principle providing for the settlement of the action.
Pursuant to the Settlement, the plaintiff has agreed that the Exchange Ratio as
set forth in Amendment No. 3 is fair to the public shareholders of MMR. The
Settlement provides for SFX to pay plaintiff's counsel's fees as approved by
the Court. It is anticipated that SFX will pay any such amounts awarded by the
Court. The Settlement is conditioned upon the (i) consummation of the Merger,
(ii) completion of certain confirmatory discovery, and (iii) approval of the
Court. Pursuant to the Settlement, the defendants have denied, and continue to
deny, that they committed any violations of law or have acted in bad faith.
There can be no assurance that the Court will approve the Settlement on the
terms and conditions provided for therein, or at all.
MMR is involved in litigation from time to time in the ordinary course
of its business. In management's opinion there are no other material threatened
or pending legal proceedings against MMR which if adversely decided would have
a material effect on the financial condition or prospects of MMR.
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MANAGEMENT OF MMR
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of MMR are as follows:
Name Age Position
---- --- --------
Bruce Morrow 59 Chairman of the Board of Directors
Michael G. Ferrel 46 Chief Executive Officer, President, Chief
Operating Officer and Director
Richard Heideman 37 Senior Vice President and Director
Manuel Rodriguez 41 Senior Vice President
Jerry D. Emlet 42 Chief Financial Officer
Kenneth J. Harmonay 34 Director
Myles W. Schumer 48 Director
Edward L. Simon 50 Director
Information with respect the business experience of the directors and
executive officers of MMR during the past five years is set forth below.
Bruce Morrow has served as Chairman of the Board of Directors of MMR
since its inception in August 1992, and served as Co-Chief Executive Officer of
MMR from inception until January 1996. Mr. Morrow has been a prominent on-air
radio personality for more than 30 years and was formerly President of
Sillerman-Morrow Broadcasting Group, Inc. Since 1982, Mr. Morrow has hosted a
radio program broadcast two to three times per week on WCBS-FM in New York, New
York. In addition, during the past five years Mr. Morrow has produced and
hosted a number of specials for public radio and television. Mr. Morrow
periodically provides consulting services to radio stations throughout the
United States relating their programming. From 1987 to 1993, Mr. Morrow
produced and hosted "Cruisin' America with Cousin Brucie," a nationally
syndicated radio program. Mr. Morrow was inducted into the Radio Hall of Fame
as a charter member in 1987. In 1993, Mr. Morrow was inducted into Broadcasting
and Cable Magazine's Hall of Fame and received the first Founders Club Award
from the National Music Foundation. Mr. Morrow performs services for MMR on a
part-time basis.
Michael G. Ferrel has served as President and Chief Operating Officer
of MMR and a member of the MMR Board since MMR's inception in August 1992 and
Co-Chief Executive Officer of MMR from January 1994 until January 1996, when he
became the Chief Executive Officer. From 1990 to 1993, Mr. Ferrel served as
Vice President of Goldenberg Broadcasting, Inc., the former owner of radio
station WPKX-FM operating in Springfield, Massachusetts, which was acquired by
MMR in July 1993. From 1984 to 1990, Mr. Ferrel served as Vice President and
General Manager of WGMS-AM and WGMS-FM, both operating in Rockville, Maryland,
and, from 1988 to 1990, Mr. Ferrel served as Chief Operating Officer and was a
part owner of WMME-AM and WMME-FM, both operating in Augusta, Maine. From 1990
to 1994, Mr. Ferrel served as General Manager of WPKX-FM. Mr. Ferrel served as
Chairman of the Washington, D.C. Area Broadcasting Association in 1988.
Richard Heideman has served as Senior Vice President of MMR and a
member of the MMR Board since MMR's inception in August 1992. From 1988 to
1993, Mr. Heideman was Vice President of Northampton Holdings, Inc., the former
owner of WHMP-FM and WHMP-AM (together, the "Northampton Stations"), which were
acquired by MMR in July 1993. From 1988 to 1991, Mr. Heideman also served as
General Sales Manager of the Northampton Stations and, from 1991 to 1992, Mr.
Heideman served as Station Manager of the Northampton Stations. Since 1992 Mr.
Heideman has served as General Manager of the Northampton Stations.
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Manuel Rodriguez has served as Senior Vice President of MMR since
April 1, 1995. Since 1985, Mr. Rodriguez has been the General Manager of
WPLR-FM, operating in New Haven, Connecticut, which was acquired by MMR in
March 1995. It is anticipated that Mr. Rodriguez will become a Regional Vice
President of SFX after the Merger.
Jerry D. Emlet has served as Chief Financial Officer of MMR since
August 1995; prior thereto, he served as Corporate Controller of MMR from April
1995 to August 1995. From July 1990 until April 1995, Mr. Emlet served as
Controller for Hartstone & Dickstein Inc., an investment banking and
broadcasting company. From July 1986 until July 1990, Mr. Emlet held a variety
of positions in the Wheeler Group Division of Pitney Bowes.
Kenneth J. Harmonay has served as a Director of MMR since August 1995.
Since 1989, he has been a senior research analyst at W.R. Huff Asset Management
Co., L.L.C., an investment advisory firm that is an affiliate of Huff.
Mr. Harmonay was selected by Huff to be a director of MMR.
Myles W. Schumer has served as a Director of MMR since July 1993. For
more than the past five years, Mr. Schumer has been a partner at Cornick,
Garber & Sandler, a New York certified public accounting firm. It is
anticipated that, after the consummation of the Merger, Mr. Schumer will become
a director of The Marquee Group, Inc., a Delaware corporation which provides
sports-related services and of which Mr. Sillerman is a founder and significant
shareholder.
Edward L. Simon has served as a Director of MMR since July 1993. For
more than the past five years, Mr. Simon has been President and a Director of
South Fork Broadcasting Corp., the owner of WWHB-FM in Hampton Bays, New York.
MMR has agreed that one of the underwriters of its initial public
offering, and the underwriters of MMR's second public offering, may each
appoint one observer to attend all MMR Board meetings until July 29, 1998 and
March 30, 1997, respectively. The observers have the right to receive notice of
and all information distributed to members of the MMR Board but may not vote on
any matters. Such underwriters have not appointed observers to the MMR Board.
PRINCIPAL EXECUTIVE OFFICERS OF SCMC
Information with respect to Messrs. Sillerman and Tytel, who make
significant contributions the business of MMR through their positions with
SCMC, which provides consulting and advisory services to MMR, is set forth in
"Proposal 5--Election of Directors of SFX--Certain Information Concerning
Directors and Executive Officers." See "Certain Relationships and Related
Transactions--Relationship of MMR with SCMC."
REMUNERATION OF DIRECTORS
Each MMR Independent Director receives a fee of $1,000 for each
meeting of the MMR Board he attends. Additionally, each MMR Independent
Director receives $350 for any committee meeting not held in conjunction with a
meeting of the MMR Board. No other compensation is paid to other directors for
attending MMR Board meetings or committee meetings. All MMR Independent
Directors' fees payable to Mr. Harmonay are paid directly to Huff.
Directors hold office until the next annual meeting of stockholders
following their election, or until their successors are elected and qualified.
Officers are elected annually by the MMR Board and serve at the discretion of
the Board.
On December 7, 1993, pursuant to MMR's 1993 Stock Option Plan, Mr.
Tytel was granted options to acquire 10,000 MMR Class A Shares and Mr.
Sillerman was granted options to acquire 45,000 MMR Class A Shares each at an
exercise price of $8.66 per share, representing 110% of the fair market value
of MMR Class A Shares on the date of grant. The options, exercisable for ten
years, vest in five equal annual installments beginning December 2, 1994.
In December 1993, each of Messrs. Schumer and Simon were granted SARs
in respect of 10,000 MMR Class A Shares at a price per share of $8.66,
representing 110% of the fair market value of MMR Class A Shares on the date of
grant. The SARs are exercisable for ten years, may be settled in either cash or
shares of MMR Class A Shares, at the
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election of MMR, and vest in five equal annual installments beginning December
2, 1994. The SARs become immediately vested in the event that the director is
not nominated for reelection or is not reelected at any annual meeting of
stockholders of MMR.
EXECUTIVE COMPENSATION
The table below sets forth all reportable compensation awarded to,
earned by or paid to Michael G. Ferrel, the Chief Executive Officer, Bruce
Morrow, who served as Co-Chief Executive Officer during 1995, and Manuel
Rodriguez, a Senior Vice President of MMR (collectively, the "MMR Named
Executive Officers"), for services rendered in all capacities to MMR and its
subsidiaries. No other executive officer of MMR received compensation in excess
of $100,000 during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- ----------------------- ----------------
OTHER ANNUAL RESTRICTED LTIP ALL OTHER
NAME AND BONUS COMPENSATION STOCK OPTIONS/ PAYOU COMPENSATION(1)
PRINCIPAL POSITION YEAR SALARY ($) ($) ($) AWARD(S)($) SARS (#) TS($) ($)
- ------------------ ---- ---------- ----- ------------ ----------- --------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce Morrow, 1995 48,000 0 0 0 0 0 0
Chairman of the Board 1994 48,000 0 0 0 5,000 (2) 0 0
1993 20,000 (3) 0 0 0 (4) 20,000 (2) 0 0
Michael G. Ferrel, 1995 155,504 50,000 0 0 0 0 0
Chief Executive Officer, 1994 151,531 50,000 0 0 15,000 (2) 0 0
President and Chief 1993 62,500 (3) 0 0 0 (4) 50,000 (2) 0 0
Operating Officer
Manuel Rodriguez, 1995 (3) 132,500 82,825 60,000 0 0 0 0
Senior Vice President
</TABLE>
(1) The aggregate amount of perquisites and other personal benefits did
not exceed the lesser of $50,000 or 10% of the salary and bonus for
any of the MMR Named Executive Officers in fiscal year 1993, 1994 or
1995.
(2) Options exercisable for shares of MMR Class A Shares.
(3) Officers began receiving a salary when MMR commenced operations on
July 29, 1993. Accordingly, the amounts for 1993 reflect compensation
for only five months.
(4) In connection with the initial capitalization of MMR in July 1993 (i)
Mr. Morrow purchased 130,000 MMR Class B Shares for $0.01 per share
and (ii) Mr. Ferrel purchased 10,000 MMR Class B Shares for $0.01 per
share and 66,666 Original Preferred Shares for $0.05 per share. As a
result of the issuance of MMR Class B Shares to Messrs. Morrow and
Ferrel, MMR recorded a $790,000 non-recurring, non-cash compensation
expense. See "Certain Relationships and Related
Transactions--Transactions Related to the Formation of MMR."
(5) Mr. Rodriguez entered into an employment agreement with MMR effective
April 1, 1995. See "--Employment Agreements."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information with respect the stock
options exercised during 1995 and the value as of December 31, 1995 of
unexercised "in-the-money" options held by the MMR Named Executive Officers.
The value of unexercised "in-the-money" options at year-end is the difference
between the option exercise price and $10.25 (the closing price of an MMR Class
A Share on December 29, 1995) multiplied by the number of options.
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<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS/SARS AT FY- OPTIONS/SARS AT
NAME ON EXERCISE ($) REALIZED ($) END (#) FY-END ($)
- ---- --------------- ------------ ------------------- ---------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------- -------------
<S> <C> <C> <C> <C>
Michael G. Ferrel 0 0 23,000/42,000 63,250/134,250
Bruce Morrow 0 0 9,000/16,000 24,250/49,500
Manuel Rodriguez 0 0 0/0 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
MMR has entered into an employment agreement with Mr. Morrow pursuant
to which Mr. Morrow agreed to serve as MMR's Co-Chief Executive Officer for a
term of five years, commencing on July 29, 1993, for which he received $48,000
per year, payable monthly. In January 1996, this agreement was amended to
provide for Mr. Morrow to serve as MMR's Chairman on similar terms and
conditions.
In July 1993, MMR entered into an employment agreement with Mr. Ferrel
pursuant to which Mr. Ferrel agreed to serve as MMR's President, Chief
Operating Officer and Co-Chief Executive Officer for a term of five years
commencing on July 29, 1993. In February 1996, this agreement was amended to
provide for Mr. Ferrel to serve as Chief Executive Officer, President and Chief
Operating Officer on similar terms and conditions for a term of five years. Mr.
Ferrel's current annual base salary is $200,000, and he will receive annual
increases based on increases in the Consumer Price Index for all Urban
Consumers, for all items in the Springfield, Massachusetts Consolidated
Statistical Area. Mr. Ferrel is eligible to receive an annual bonus of $25,000,
if there are no defaults during the year that have not been waived by MMR's
lenders, and an additional annual bonus of $25,000 upon MMR's achievement of
mutually agreed upon performance goals. Both bonuses were paid to Mr. Ferrel in
1995. In connection with Mr. Ferrel's employment, he received 66,666 MMR
Original Preferred Shares on July 29, 1993. See "Certain Relationships and
Related Transactions--Transactions Related to the Formation of MMR." In
accordance with the employment agreement, upon termination Mr. Ferrel may be
entitled to receive up to six months of additional base salary.
MMR has entered into an employment agreement with Mr. Rodriguez
pursuant to which Mr. Rodriguez has agreed to serve as MMR's Senior Vice
President and the General Manager of radio station WPLR-FM for a term of five
years commencing on April 1, 1995. Mr. Rodriguez's current annual base salary
is $135,000, and he will receive annual increases based on increases in the
Consumer Price Index for all Urban Consumers, for all items in the New Haven,
Connecticut Consolidated Statistical Area. In accordance with the employment
agreement, upon termination Mr. Rodriguez may be entitled to receive up to six
months of additional compensation.
PREFERRED STOCK ISSUANCE
In August 1995, the MMR Stockholders approved the adoption of a
compensation plan pursuant to which MMR would issue up to 200,000 shares of MMR
Series A Preferred Shares and 200,000 MMR Series B Preferred Shares. Such
issuance was approved by the stockholders of MMR in August 1995. On July 31,
1996 MMR issued 200,000 MMR Series A Preferred Shares and MMR Series B
Preferred Shares to certain of its officers, directors and advisors. Of each
such series of convertible preferred stock of MMR, 40,000, 10,000, 5,000,
5,000, 80,000, 40,000 and 20,000 shares were issued to Michael G. Ferrel, Bruce
Morrow, Edward Simon, Myles Schumer, Robert F.X. Sillerman, SCMC and Howard J.
Tytel, respectively.
The terms of the MMR Series A Preferred Shares provided that they
would convert, on a share for share basis, into an equal number of MMR Class A
Shares in the event that Broadcast Cash Flow equaled or exceeded $5.0 million
for the fiscal year ending December 31, 1995, and the terms of the MMR Series B
Preferred Shares provide that they will be converted, on a share for share
basis, into an equal number of shares of MMR Class A Shares in the event that
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Broadcast Cash Flow equals or exceeds $10.0 million for the fiscal year ending
December 31, 1997. However, in no event shall any MMR Series A Preferred Shares
or MMR Series B Preferred Shares be converted unless the closing sale price of
an MMR Class A Share for the 30 trading days immediately preceding such
conversion exceeds $7.50 per share. The terms of the MMR Series A Preferred
Shares and the MMR Series B Preferred Shares provide that, if the performance
goals are not met, the shares will be redeemed for $0.01 per share. MMR
achieved Broadcast Cash Flow of at least $5.0 million in 1995 and, accordingly,
all of the MMR Series A Preferred Shares were converted into an equal number of
MMR Class A Shares on July 31, 1996. On July 31, 1996 the holders of the MMR
Class A Shares issuable upon conversion of the MMR Series A Preferred Shares
and the holders of the MMR Series B Preferred Shares entered into an escrow
arrangement with respect to such shares. Pursuant to such escrow arrangement,
such shares shall be released from escrow ratably over a five-year period
commencing in April 1997. Such shares may not be transferred until released
from escrow but they may be voted while in escrow. See "Remuneration of
Management of SFX--Employment Agreements" for a discussion of certain
circumstances in which Mr. Ferrel's shares may be released from escrow upon the
consummation of the Merger.
During the period in which the shares of MMR Series A Preferred Shares
and MMR Series B Preferred Shares are converted or become probable of being
converted, MMR will begin to incur non-cash charges to earnings, which would
equal the fair market value of the MMR Class A Shares issuable upon such
conversion at such time amortized over the escrow period. Such charge could
substantially reduce MMR's net income for financial reporting purposes during
that period. The conversion of such stock will also result in dilution to the
holders of the MMR Class A Shares.
In the Merger, holders of the MMR Series B Preferred Shares will
receive SFX Class A Shares which are not subject to any Broadcast Cash Flow or
other test.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF MMR
The following table gives information concerning the beneficial
ownership of MMR's capital stock as of the close of business on October 1, 1996
by (i) each person known to MMR to own beneficially more than 5% of any class
of MMR's capital stock, (ii) each MMR Named Executive Officer and director and
(iii) all directors and executive officers and other significant personnel of
MMR as a group. Unless otherwise specified, the named beneficial owner claims
sole investment and voting power as the shares indicated.
<TABLE>
<CAPTION>
MMR CLASS A MMR CLASS B
SHARES (1) SHARES (1)
---------------------------- ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES CLASS SHARES CLASS
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
NAME AND ADDRESS OF BENEFICIAL
OWNER
Bruce Morrow.................................... 20,000 (2) * 130,000 (2) 20.5%
Michael G. Ferrel............................... 66,000 (3) 1.6% 10,000 1.6%
Richard Heideman................................ 4,000 (4) * 0 --
Myles W. Schumer................................ 9,000 (5) * 0 --
Edward L. Simon................................. 9,000 (6) * 0 --
Kenneth J. Harmonay............................. 0 (9) -- 0 --
Robert F.X. Sillerman........................... 227,000 (7) 5.6% 93,334 (7) 77.9%
Howard J. Tytel................................. 26,000 (8) * 0 --
Manuel Rodriguez................................ 1,000 * 0 --
Jerry Emlet..................................... 0 -- 0 --
The Huff Alternative Income Fund, L.P.
30 Schuyler Place
Morristown, NJ 07460........................ 728,202 (9) 15.3% 0 --
Americorp Financial Services, Inc.
33 Whitehall Street
New York, NY 10004.......................... 195,274 (10) 4.7% 0 --
D.H. Blair Holdings, Inc.
44 Wall Street
New York, NY 10005.......................... 595,698 (11) 13.9% 0 --
D.H. Blair & Co. Inc.
44 Wall Street
New York, NY 10005.......................... 221,558 (12) 5.3% 0 --
J. Ezra Merkin
450 Park Avenue
New York, NY 10022......................... 273,300 (13) 6.8% 0 --
Loeb Holding Corporation
61 Broadway
New York, NY 10006.......................... 216,750 (14) 5.2% 0 --
Chilton Investment Partners, L.P................ 172,885 (15) 4.3% 0 --
Alpine Associates, a Limited Partnership
100 Union Avenue
Cresskill, NJ 07626......................... 302,200 (16) 7.6% 0 --
Paulson & Co. Inc
277 Park Avenue
New York, NY 10172......................... 205,500 (17) 5.1% 0 --
Bear Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167......................... 184,160 (18) 4.6% 0 --
All directors, executive officers and significant
personnel as a group
(10 persons).................................... 362,000 (19) 8.2% 633,334 100%
</TABLE>
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- ---------------------
* Less than 1%.
(1) Unless otherwise set forth above, the address of each stockholder is
150 East 58th Street, 19th Floor, New York, New York 10155. The
information as to beneficial ownership is based on statements
furnished to MMR by the beneficial owners. As used in this table,
"beneficial ownership" means the sole or shared power to vote or to
direct the disposition of a security. For purposes of this table, a
person is deemed to have "beneficial ownership" of any security that
such person has the right to acquire within 60 days of October 1,
1996. As of the close of business on October 1, 1996, there were
issued and outstanding 4,000,563 MMR Class A Shares and 633,334 MMR
Class B Shares. For purposes of this table, it is assumed that the MMR
Class B Shares and MMR Series B Preferred Shares are not converted
into MMR Class A Shares. The information in the table includes an
aggregate of 200,000 MMR Class A Shares which were issued upon the
conversion of MMR Series A Preferred Shares pursuant to the terms
thereof upon the achievement by MMR of certain specified performance
tests. The holders of such 200,000 MMR Class A Shares have deposited
such shares into escrow. Such shares shall be released ratably from
escrow over a five-year period commencing in April 1997 and they may
not be transferred until released from escrow, but they may be voted
while in escrow. Such 200,000 MMR Class A Shares were issued to the
following stockholders of MMR: Mr. Morrow (10,000 shares); Mr. Ferrel
(40,000 shares); Mr. Schumer (5,000 shares); Mr. Simon (5,000 shares);
Mr. Sillerman (80,000 shares); SCMC (40,000 shares); and Mr. Tytel
(20,000 shares). The MMR Class B Shares and MMR Series B Preferred
Shares are, under certain circumstances, convertible, on a share for
share basis, into MMR Class A Shares. This table does not include
1,250 shares of MMR Senior Cumulative Preferred Stock which are
expected to be redeemed at or immediately prior to the Effective Time.
(2) Represents (i) options to purchase 10,000 MMR Class A Shares which are
currently exercisable and (ii) 10,000 MMR Class A Shares which are
held in escrow but in respect of which Mr. Morrow retains the power to
vote. Does not include 15,000 MMR Class A Shares issuable upon
exercise of options not exercisable within 60 days. Messrs. Morrow and
Sillerman have entered into an agreement pursuant to which Mr. Morrow
has assigned the economic interest in 70,000 MMR Class B Shares and
has pledged 80,000 MMR Class B Shares held by him to Mr. Sillerman. In
the event Mr. Sillerman exercises his right to purchase the 70,000 MMR
Class B Shares, he will hold approximately 56.3% of the voting power.
(3) Represents (i) options to purchase 26,000 MMR Class A Shares which are
currently exercisable and (ii) 40,000 MMR Class A Shares which are
held in escrow but in respect of which Mr. Ferrel retains the power to
vote. See "Remuneration of Management of SFX--Employment Agreements"
for a discussion of certain circumstances in which Mr. Ferrel's shares
may be released from escrow upon the consummation of the Merger. Does
not include 40,000 MMR Class A Shares issuable upon exercise of
options not exercisable within 60 days. Does not include 66,666 MMR
Original Preferred Shares held by Mr. Ferrel, which are convertible
into MMR Class A Shares or MMR Class B Shares. See "--Conversion of
Stock by Mr. Sillerman."
(4) Represents options to purchase 4,000 MMR Class A Shares which are
currently exercisable. Does not include 1,000 shares issuable upon
exercise of options which are not exercisable within 60 days.
(5) Includes SARs in respect of 4,000 MMR Class A Shares which are
currently exercisable and 5,000 MMR Class A Shares which are held in
escrow but in respect of which Mr. Schumer retains the power to vote.
Does not include SARs in respect of 6,000 shares which are not
exercisable within 60 days.
(6) Represents SARs in respect of 4,000 MMR Class A Shares which are
currently exercisable and 5,000 MMR Class A Shares which are held in
escrow but in respect of which Mr. Simon retains the power to vote.
Does not include SARs in respect of 6,000 shares which are not
exercisable within 60 days.
(7) Includes (i) 67,000 MMR Class A Shares held by Mr. Sillerman; (ii)
options to purchase an aggregate of 40,000 MMR Class A Shares held by
Mr. Sillerman and the Sillerman Companies, Inc. which are currently
exercisable; and (iii) 80,000 MMR Class A Shares issued to Mr.
Sillerman and 40,000 MMR Class A Shares issued to SCMC which are held
in escrow but in respect of which Mr. Sillerman and SCMC,
respectively, retain the power to vote. Does not include 55,000 MMR
Class A Shares issuable upon exercise of options held by Mr. Sillerman
and the Sillerman Companies, Inc. which are not exercisable within 60
days. The number of MMR Class B Shares gives effect to the conversion
of MMR Class C Shares and MMR Original Preferred Shares held by Mr.
Sillerman, as discussed below under "--Conversion of Stock by Mr.
Sillerman."
(8) Represents (i) options to purchase 6,000 MMR Class A Shares which are
currently exercisable and (ii) 20,000 MMR Class A Shares which are
held in escrow but in respect of which Mr. Tytel retains the power to
vote. Does not include 9,000 shares issuable upon the exercise of
stock options which are not exercisable within 60 days.
(9) Represents warrants to purchase 728,202 MMR Class A Shares held by
Huff. Based on Amendment No. 1 to Schedule 13D dated September 29,
1995, WRH Partners, L.L.C., a Delaware limited liability company
("WRH"), is the general partner of Paladin Court Co., Inc., a Delaware
corporation ("Paladin"), and DBC II Corp., a Delaware corporation
("DBC"), is the general manager of WRH. William R. Huff and Donna B.
Charlton are the sole stockholders of Paladin and DBC, respectively.
Each of Huff, WRH, Paladin, DBC, William R. Huff and Donna B. Charlton
share voting and investment power with respect the shares beneficially
owned. The warrants were issued pursuant to a securities purchase
agreement dated March 27, 1995 between MMR and Huff. Kenneth J.
Harmonay, a Director of MMR, is a senior research analyst at W.R. Huff
Asset Management Co., L.L.C., an investment advisory firm that is an
affiliate of Huff. Upon the consummation of the Merger, SFX
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<PAGE>
has agreed to issue Huff warrants to acquire that number of SFX Class
A Shares equal to 175,000 multiplied by the Exchange Ratio. See "The
Merger Agreement--Repayment of Certain Indebtedness."
(10) Based on Amendment No. 1 to Schedule 13G dated June 6, 1995. Americorp
Financial Services, Inc. ("AFSI"), through its wholly-owned
subsidiary, Americorp Securities, Inc. ("ASI"), a broker-dealer
registered under Section 15 of the Exchange Act, holds, as of May 31,
1995, 16,551 MMR Class A Shares and 178,723 MMR Class A Warrants. Drew
E. Schaefer owns the majority of the outstanding capital stock of ASI.
Does not include an aggregate of 160,000 MMR UPOs held by ASI, D.H.
Blair & Co., Inc. and certain individuals affiliated with them. Each
MMR UPO entitles the holder thereof to purchase one MMR Unit during
the period from March 23, 1997 to March 22, 1999, except that upon a
merger involving MMR, the holders of the MMR UPOs have the right to
exercise the MMR UPOs and the warrants included therein and receive
the kind and amount of securities receivable by a holder of MMR Class
A Shares in the merger.
(11) Based on Amendment No. 1 to Schedule 13G dated February 10, 1995. D.H.
Blair Holdings, Inc. ("Holdings"), through its wholly-owned
subsidiary, D.H. Blair Investment Banking Corp., a broker-dealer
registered under Section 15 of the Exchange Act, holds, as of December
31, 1994, 312,706 MMR Class A Shares, 141,496 MMR Class A Warrants and
141,496 MMR Class B Warrants. J. Morton Davis has the sole power to
vote and dispose of these shares. Holdings has agreed to vote the
shares held by it in favor of Proposals A and B.
(12) Based on Amendment No. 3 to Schedule 13G dated January 17, 1996. D.H.
Blair & Co., Inc. ("Blair & Co."), a broker-dealer registered under
Section 15 of the Exchange Act, holds, as of December 31, 1995 as a
market maker, 187,264 MMR Class A Shares, 18,694 MMR Class A Warrants
and 5,600 MMR Class B Warrants. Kenton E. Wood, a citizen of Great
Britain and Chairman of Blair & Co., shares the power to vote and
dispose of these shares with the Board of Directors of Blair & Co.
Does not include an aggregate of 160,000 MMR UPOs held by ASI, Blair &
Co. and certain individuals affiliated with them. Certain relevant
terms of the MMR UPOs are set forth in footnote 10 above.
(13) Based on Amendment No. 1, dated June 19, 1996, to a joint filing on
Schedule 13D of Gabriel Capital, L.P. ("Gabriel"), a private
investment fund, Ariel Fund Limited ("Ariel Fund"), a private
investment fund, Ariel Management Corp. ("Ariel"), a private
investment manager and the investment advisor of Ariel Fund, and J.
Ezra Merkin ("Merkin"), the general partner of Gabriel and the sole
shareholder and president of Ariel. According to Amendment No. 1 to
the Schedule 13D, Gabriel holds 103,582 MMR Class A Shares, Ariel Fund
holds 152,773 MMR Class A Shares and a private discretionary
investment account of Ariel holds 16,945 MMR Class A Shares. Ariel may
be deemed to be the beneficial owner of an aggregate of 169,718 MMR
Class A Shares and to have the sole power to vote and dispose of
16,945 of such shares. As the general partner of Gabriel and the sole
stockholder and president of Ariel, Merkin may be deemed to be the
beneficial owner of an aggregate of 273,300 MMR Class A Shares and to
have the sole power to vote and dispose of 16,945 of such shares.
Gabriel and Ariel have agreed to vote the shares held by them in favor
of Proposals A and B.
(14) According to a Schedule 13D dated June 13, 1996, Loeb Arbitrage Fund
("LAF") holds 183,853 MMR Class A Shares and 19,904 MMR Class A
Warrants and Loeb Partners Corporation ("LPC") holds 11,697 MMR Class
A Shares and 1,296 MMR Class A Warrants. Loeb Holding Corporation
("LHC") is the sole stockholder of the general partner of LAF and the
sole stockholder of LPC. Thomas L. Kempner is the President, the Chief
Executive Officer, a Director and the majority stockholder of LHC.
(15) Based on an agreement, dated as of July 26, 1996, among SFX, Chilton
Investment Partners, L.P. and Richard L. Chilton, Jr. According to
such agreement, Mr. Chilton and Chilton Investment Partners, L.P. are
collectively the record and/or beneficial owners of 172,885 MMR Class
A Shares. These investors have agreed to vote the shares held by them
in favor of Proposals A and B.
(16) According to Amendment No. 1, dated August 23, 1996, to Schedule 13D,
Alpine Associates, A Limited Partnership ("Associates") holds 273,700
MMR Class A Shares and Palisades Partners, L.P. ("Partners") holds
28,500 MMR Class A Shares. According to such Amendment No. 1,
Associates and Partners may be deemed a "group" within the meaning of
the federal securities laws.
(17) Based on a Schedule 13D dated September 16, 1996 filed on behalf of
Paulson Partners L.P., a Delaware limited partnership ("PPLP"),
Paulson International Ltd., a Cayman Islands Corporation ("PIL") and
Paulson & Co. Inc., a Delaware corporation ("PCI"). According to the
Schedule 13D, PPLP holds 134,400 MMR Class A Shares and PIL holds
53,000 MMR Class A Shares. As the general partner of PPLP and the
investment manager of PIL, PCI may be deemed to be the beneficial
owner of 205,500 MMR Class A Shares, including 18,100 MMR Class A
Shares held by a private discretionary account as to which PCI has
investment discretion.
(18) Based on a Schedule 13D dated September 20, 1996, Bear Stearns & Co.
Inc. beneficially owns 184,160 MMR Class A Shares. Bear Stearns & Co.
Inc. has shared voting and investment power with respect to 29,000 of
such shares.
(19) Includes 68,000 MMR Class A Shares, options to purchase 86,000 MMR Class
A Shares which are currently exercisable and SARs in respect of 8,000 MMR
Class A Shares which are currently exercisable. Does not include 111,000
MMR Class A Shares issuable upon the exercise of options, and SARs in
respect of 12,000 MMR Class A Shares, which are not exercisable within 60
days.
STOCKHOLDERS' AGREEMENT
On March 27, 1995, each of Messrs. Sillerman, Ferrel and Morrow (the
"Stockholders"), MMR and Huff entered into an agreement (the "Stockholders'
Agreement") pursuant to which the Stockholders granted irrevocable proxies to
Huff to vote their
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shares of MMR stock for a nominee of Huff in any election of directors and,
subject to FCC approval, to allow Huff to vote their shares in any and all
matters as to which such shares are entitled to vote upon the occurrence of
certain events of default. In addition, MMR and such persons have agreed that
MMR would not take certain actions, including effecting certain business
combinations, without the approval of the holders of a majority of the
outstanding principal amount of the MMR Senior Subordinated Debentures. All of
the arrangements between the Stockholders, MMR and Huff will be terminated in
connection with the redemption of the MMR Senior Cumulative Preferred Stock and
the retirement of the MMR Senior Subordinated Debentures.
CONVERSION OF STOCK BY MR. SILLERMAN
Immediately prior to the conversion of stock on August 28, 1996
described in the next paragraph, Mr. Sillerman's beneficial ownership of the
stock of MMR consisted of 227,000 MMR Class A Shares, 360,000 MMR Class C
Shares, 133,334 MMR Original Preferred Shares and 120,000 MMR Series B
Preferred Shares. MMR's Restated Certificate of Incorporation permitted the
holders of the MMR Class C Shares to convert such non-voting (except as
required by law) shares into an equal number of one-vote-per-share MMR Class A
Shares, or on or after July 29, 1998, or earlier after May 15, 1996 in the
event that MMR is in default under any obligation for borrowed money, into an
equal number of MMR Class B Shares, which generally have ten votes per share.
On or after July 29, 1998, or earlier in the event of such default or failure
after May 15, 1996, the holders of the MMR Original Preferred Shares were
permitted to convert such non-voting (except as required by law) shares into an
equal number of ten-votes-per-share MMR Class B Shares. The Finova Loan
Agreement and MMR's agreement governing the MMR Senior Subordinated Debentures
contain covenants which limit MMR's annual corporate overhead expenditures. MMR
has been in default of this covenant in the Finova Loan Agreement in each of
the last two years, in part due to the expansion of MMR through acquisitions
consummated subsequent to entering into the Finova Loan Agreement, and has
received waivers of such default from Finova. In the third quarter of 1996 MMR
again exceeded the limitation on annual corporate overhead expenditures
contained in the Finova Loan Agreement and also exceeded the limitation on
annual corporate overhead expenditures contained in the agreement governing the
MMR Senior Subordinated Debentures.
Because of such defaults, Messrs. Sillerman and Ferrel were permitted
to convert their MMR Class C Shares and MMR Original Preferred Shares into MMR
Class B Shares and on August 28, 1996 Mr. Sillerman exercised his right to
convert his MMR Class C Shares and MMR Original Preferred Shares into MMR Class
B Shares on a share for share basis. As a result of such conversion, Mr.
Sillerman's beneficial ownership of the stock of MMR consists of 227,000 MMR
Class A Shares, 493,334 MMR Class B Shares and 120,000 MMR Series B Preferred
Shares. (Mr. Ferrel has informed MMR that, in the event that the Merger is
consummated shortly after the MMR Special Meeting, he does not intend to
exercise his conversion rights with respect to the MMR Original Preferred
Shares owned by him.) MMR obtained a waiver of its default under the Finova
Loan Agreement with respect to exceeding its corporate overhead limit and
entering into the SFX Loan for a payment of $10,000, and also obtained a waiver
of its default under the agreement governing the MMR Senior Subordinated
Debentures. Such conversion will not affect the number or class of the SFX
Shares to be received by Mr. Sillerman in the Merger nor will it permit him to
control the outcome of the stockholder vote on Proposal A. Prior to the
conversion, the MMR Original Preferred Shares held by Messrs. Sillerman and
Ferrel were placed in escrow pursuant to which, in the event that such shares
were or are converted into MMR Class B Shares, Messrs. Sillerman and Ferrel may
vote such shares but are prohibited from transferring such shares prior to July
29, 1998. As a result of the conversion of his MMR Class C Shares and MMR
Original Preferred Shares into MMR Class B Shares, Mr. Sillerman may be deemed
to beneficially own shares representing14.7% of the outstanding combined voting
power of MMR with respect to Proposal A, 49.5% of the outstanding combined
voting power of MMR with respect to Proposal B (and 4.7% and 77.9% of the votes
in the MMR Class A Share and MMR Class B Share class votes, respectively, for
Proposal B) and 49.5% with respect to most other matters, giving Mr. Sillerman
control over almost all matters to be voted on by MMR Stockholders (including,
without limitation, the election of a majority of directors). See "Remuneration
of Management of SFX--Employment Agreements" for a discussion of circumstances
in which Mr. Ferrel's shares may be released from escrow upon the consummation
of the Merger.
Mr. Sillerman's conversion of his MMR Class C Shares and MMR Original
Preferred Shares into MMR Class B Shares constituted a change of control of MMR
under the Communications Act and the rules and regulations promulgated
thereunder. Prior to his conversion, Mr. Sillerman obtained the approval of the
FCC and the Antitrust Agencies to such action. Mr. Sillerman's ability to
assume voting control of MMR under the statutes and regulations regulating the
ownership of radio stations was made possible as a result of the passage of the
Recent Legislation, which eliminated the limits on the number of radio stations
one person or entity may own nationally and liberalized the limits on the
number of radio stations one person or entity may own locally.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion is incomplete and should be read in
conjunction with the "Certain Relationships and Related Transactions" section
set forth in the SFX Form 10-K, which section is hereby incorporated by
reference herein. Such incorporated section includes a full description of the
various transactions between SFX and its affiliates as required by the rules
and regulations of the Commission. For a discussion of certain potential
conflicts of interest of certain persons in the Merger, see "Proposals 1 and
A-The Merger--Interests of Certain Persons in the Merger."
MATERIAL CONTACTS BETWEEN SFX AND MMR
On November 13, 1995, SFX and MMR entered into the Exchange Agreement
pursuant to which MMR agreed to acquire seven FM and four AM radio stations
owned by Liberty Broadcasting and to assume a JSA from Liberty Broadcasting
with respect to one FM station following SFX's acquisition of Liberty
Broadcasting, in exchange for ten radio stations identified by SFX to be
acquired by MMR for aggregate consideration of approximately $100.0 million in
a like-kind exchange that was intended to be substantially tax free. Pursuant
to the Merger Agreement, SFX and MMR canceled the Exchange Agreement and MMR
agreed to use its commercially reasonable efforts to transfer to SFX its rights
under the following purchase agreements for the stations originally to be
acquired by MMR and exchanged with SFX. In connection therewith, SFX has
provided MMR with $300,000 and letters of credit in the aggregate amount of
$6.75 million. On December 27, 1995, MMR entered into a purchase agreement to
acquire substantially all of the assets of KQUE-FM and KNUZ-AM, both operating
in Houston, Texas, for a purchase price of $38.0 million. SFX, on behalf of
MMR, deposited in escrow an irrevocable letter of credit in the amount of $2.0
million to secure MMR's obligations under the agreement. Based upon an audit
conducted by an environmental consultant of one of the sites used in connection
with the stations' business, MMR may elect to terminate such purchase
agreement. SFX has been advised by MMR that, although MMR has not elected to
terminate the purchase agreement, MMR is negotiating an agreement with the
seller and the relevant environmental authorities regarding the cleanup of the
site. There can be no assurance that MMR will be able to enter into such an
agreement. On January 26, 1996, MMR entered into an agreement to acquire
substantially all of the assets of WSTZ-FM and WZRX-AM, both operating in
Jackson, Mississippi, for a purchase price of $3.5 million. On January 22,
1996, MMR entered into an agreement to acquire substantially all of the assets
of WROQ-FM, operating in Greenville, South Carolina, for a purchase price of
$14.0 million. On January 18, 1996, MMR entered into an agreement to acquire
substantially all of the assets of WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM),
each operating in Greensboro, North Carolina, for a purchase price of
approximately $32.0 million, subject to adjustment based on the broadcast cash
flow of WTRG-FM and WRDU-FM. The purchase price was subsequently increased to
$36.8 million. SFX and MMR have agreed that, in lieu of MMR using its
commercially reasonable efforts to transfer to SFX its rights under such
agreements to SFX, SFX will finance the purchase of such stations and MMR will
transfer the purchased assets to SFX simultaneously with the purchase of such
stations. The acquisitions of WROQ-FM, WTRG-FM, WRDU-FM, WMFR-AM, WMAG-FM and
WTCK-AM by SFX were consummated in June 1996, and the acquisitions of WSTZ-FM
and WZRX-AM by SFX were consummated in August 1996.
In the event that the Merger Agreement is terminated pursuant to
certain provisions thereof, MMR will have the right, subject to the receipt of
prior FCC approval and the receipt of any required consents from Finova and
Huff, to acquire the MMR Liberty Stations from SFX for $100.0 million, in which
event SFX will be subject to a substantial tax liability. In the event the
Merger Agreement is terminated pursuant to certain provisions thereof, SFX will
have the right to structure an exchange of certain of MMR's stations for the
MMR Liberty Stations, subject to the receipt of any necessary prior FCC
approval in a transaction which is intended to qualify as a like-kind exchange
under Section 1031 of the Code. See "The Merger Agreement--Other Provisions."
In the Merger Agreement, SFX agreed that, if requested by MMR, it
would negotiate in good faith to enter into an agreement to advance up to $18.0
million to MMR to enable MMR to acquire WKSS-FM, Hartford, Connecticut, and up
to $5.0 million to MMR for working capital. In September 1996, SFX and MMR
entered into the $23.0 million SFX Loan. See "MMR's Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business of MMR--Recent Acquisitions, Dispositions and
Other Transactions." Prior to that date, SFX had advanced approximately $2.2
million of such $23.0 million to MMR for working capital, including a $2.0
million non-refundable fee which was paid by SFX to SCMC on behalf of MMR for
investment banking services provided to MMR in connection with the Merger. As of
September 30, 1996, SFX had loaned MMR approximately $20.0 million pursuant to
the loan agreement. See "--Relationship of MMR with
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SCMC." In addition, MMR agreed to make available to SFX, until the earlier of
the termination of the Merger Agreement or the Effective Time, the services of
Mr. Ferrel as a consultant to SFX to the extent that such services do not
conflict with Mr. Ferrel's obligations to MMR. See "Remuneration of Management
of SFX--Employment Agreements."
RELATIONSHIP OF SFX WITH SCMC
SCMC, a corporation controlled by Mr. Sillerman, has been engaged by
SFX from time to time for advisory services with respect to specific
transactions. Each such engagement has been subject to the affirmative
recommendation of the Audit Committee. SCMC has been engaged by and received
fees from SFX for advisory services, including the assumption of certain
obligations such as the provision of legal services. SFX has agreed to pay to
SCMC advisory fees of $4.0 million in connection with the Liberty Acquisition,
the Prism Acquisition and the Additional Acquisitions. In addition, SFX has
paid SCMC, on behalf of MMR, a non-refundable fee of $2.0 million for
investment banking services provided to MMR in connection with the Merger. See
"--Relationship of MMR with SCMC."
SFX and SCMC have entered into the SCMC Termination Agreement,
pursuant to which SCMC has assigned to SFX its rights to receive fees payable
by each of MMR and Triathlon to SCMC in respect of consulting and marketing
services to be performed on behalf of such companies by SCMC, except for fees
related to certain transactions pending at the date of such agreement, and SFX
and SCMC terminated the arrangement pursuant to which SCMC performed financial
consulting services for SFX. MMR currently pays an annual fee of $500,000 to
SCMC, and Triathlon currently pays SCMC an annual fee of $300,000 (which shall
increase to $500,000 at such time as Triathlon has used an amount equal to the
net proceeds of its last public offering in the manner contemplated by the
registration statement filed in connection therewith). In addition, Triathlon
has agreed to advance to SCMC an amount of $500,000 per year in connection with
services to be rendered by SCMC; provided, however, that if the agreement
between SCMC and Triathlon is terminated or an unaffiliated person acquires a
majority of the capital stock of Triathlon, the unearned fees must be repaid at
such time. Pursuant to the SCMC Termination Agreement, SCMC has agreed to
continue to provide consulting and marketing services to each of MMR and
Triathlon until the expiration of their agreements on July 28, 1998 and June 1,
2005, respectively, and not to perform any consulting or investment banking
services for any person or entity, other than MMR or Triathlon, in the radio
broadcasting industry or in any business which uses technology for the audio
transmission of information or entertainment. In consideration of the foregoing
agreements, SFX agreed to issue to SCMC warrants to purchase up to 600,000 SFX
Class A Shares at an exercise price, subject to adjustment, of $33.75 (the
market price at the time the financial consulting arrangement was terminated),
of which a warrant to purchase up to 300,000 shares is immediately exercisable
and the exercise of the remaining warrant is subject to the approval of
Proposal 4, and SFX will forgive upon the consummation of the Merger the $2.0
million loan made by SFX to SCMC on January 23, 1995 plus accrued and unpaid
interest thereon. A warrant to purchase 300,000 SFX Class A Shares has been
issued to SCMC. A warrant to purchase an additional 300,000 SFX Class A Shares
will not be issued until the SFX Stockholders approve Proposal 4. Pursuant to
such agreement, Mr. Sillerman has agreed with SFX that he will supervise,
subject the direction of the SFX Board, the performance of the financial
consulting and other services previously performed by SCMC for SFX. In
addition, SFX anticipates that it will hire certain persons previously employed
by SCMC, including Howard J. Tytel, who provided financial consulting services
to SFX.
On April 15, 1996, Furman Selz delivered its written opinion the SFX
Independent Committee that, as of the date of such opinion, the consideration
to be offered by SFX to SCMC pursuant to the SCMC Termination Agreement was
fair, from a financial point of view, to SFX. In rendering its opinion, Furman
Selz relied on, among other things, a schedule prepared by Mr. Sillerman of
projected fees payable to SCMC by each of SFX, MMR and Triathlon. Furman Selz's
opinion was delivered for the use and benefit of the SFX Independent Committee
in its consideration of the SCMC Termination Agreement and does not constitute
a recommendation to the SFX Stockholders as to how they should vote with
respect to the proposed warrant issuance to SCMC.
Mr. Tytel, a Director and the Executive Vice President and Secretary
of SFX, is Of Counsel to the law firm of Baker & McKenzie. Baker & McKenzie is
counsel in certain matters to SFX, SCMC, SCP, MMR and Triathlon and certain
other affiliates of Mr. Sillerman. Baker & McKenzie compensates Mr. Tytel based
on the fees it receives from providing legal services to SFX, its affiliates
and other clients originated by Mr. Tytel. SFX paid Baker & McKenzie $842,000
for legal services during 1995. It is
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anticipated that the fees paid to Baker & McKenzie during 1996 will be
significantly higher. Mr. Tytel's primary employment is as an officer of SCMC.
AGREEMENTS WITH ARMSTRONG AND HICKS
In April 1996 SFX entered into the Armstrong Agreement with D.
Geoffrey Armstrong, Chief Operating Officer, Chief Financial Officer, Executive
Vice President and Treasurer of SFX, pursuant to which SFX agreed to make
certain payments to Mr. Armstrong in the aggregate amount of $4.6 million,
which amount has been paid. The $4.6 million paid by SFX pursuant to the
Armstrong Agreement was expensed as a non-recurring charge during the quarter
ended June 30, 1996. In the Armstrong Agreement, Mr. Armstrong agreed, among
other things, to serve as the Chief Operating Officer of SFX following the
Merger. In June 1996, Mr. Armstrong orally agreed to begin serving as Chief
Operating Officer of SFX at that time. Pursuant to the Armstrong Agreement, SFX
and Mr. Armstrong each has the right to terminate Mr. Armstrong's employment
with SFX one year after the consummation of the Merger. In the event of such
termination, Mr. Armstrong will receive $1.2 million and SFX will repurchase
all of the stock options granted to Mr. Armstrong pursuant to the Stock Option
Plans (as defined therein). See "Remuneration of Management of SFX--Employment
Agreements."
In June 1996 SFX entered into the Amended Hicks Agreement with R.
Steven Hicks, the former President, Chief Executive Officer, Chief Operating
Officer and a Director of SFX, pursuant to which Mr. Hicks resigned from all
positions held by him in SFX, SFX repurchased all of the securities of SFX then
owned by him and agreed to refrain from owning any direct or indirect interest
in radio stations in certain markets in the United States in return for payments
aggregating $18.6 million. Prior to the execution of the Hicks Agreement, it
had been publicly announced that Mr. Hicks would head a new investment group
that intended to acquire radio properties, which properties may be located in
certain of SFX's target markets. The Hicks Agreement prohibits Mr. Hicks from
owning, for a period of one year from the consummation or abandonment of the
Merger, any direct or indirect interest in radio stations located in
substantially all of the markets in which SFX currently owns radio stations or
in which, following the consummation of the Acquisitions, it will own radio
stations. See "Management of SFX--Employment Agreements."
SFX recorded a non-recurring charge of $19.4 million in the
quarter ended June 30, 1996 in connection with the Armstrong Agreement and the
Hicks Agreement.
ISSUANCE OF OPTIONS TO FERREL
In July 1996, SFX granted Mr. Ferrel ten-year options to purchase up
to 50,000 SFX Class A Shares at an exercise price of $33.75 per share. These
options are immediately exercisable and were granted to Mr. Ferrel in
consideration for his serving as a consultant to SFX and in connection with his
anticipated employment by SFX as its Chief Executive Officer. The exercise
price of these options was below the market price of SFX Class A Shares on the
date of issuance; therefore, SFX will record a charge to earnings in the
quarter ended September 30, 1996 in connection with these options of
approximately $350,000. In addition, SFX and Mr. Ferrel are negotiating the
terms of his employment agreement with SFX, the terms of which may provide him
with substantial benefits even if the Merger does not occur. See "Remuneration
of Management of SFX--Employment Agreements."
RELATIONSHIP BETWEEN SFX AND EDWARD F. DUGAN
Edward F. Dugan, a nominee for director of SFX, is the President and
founder of Dugan Associates Inc., an investment banking firm serving the media
and communications industries. Dugan Associates Inc. is acting as broker in the
Charlotte Exchange between SFX and EZ Communications. Upon closing of the
Charlotte Exchange, each of SFX and EZ Communications has agreed to pay Dugan
Associates Inc. a fee of $324,000. The SFX Board has determined that such
relationship does not prevent Mr. Dugan from serving as an SFX Independent
Director.
TRANSACTIONS RELATED TO THE FORMATION OF MMR
On April 8, 1993, Mr. Morrow and Mr. Ferrel acquired 130,000 shares
and 10,000 shares of MMR Class B Shares, respectively, for $.01 per share. On
July 29, 1993, Mr. Ferrel acquired 66,666 shares of MMR Original Preferred
Shares for $.05 per share in connection with his employment agreement with MMR.
On July 29, 1993, Mr.
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Sillerman acquired 133,334 shares of MMR Original Preferred Shares for $.05 per
share. In addition, on July 29, 1993, Mr. Sillerman acquired 220,000 MMR Class
C Shares for $1,240,000.
WHMP-FM and WHMP-AM were acquired by MMR's wholly-owned subsidiary,
Multi-Market Radio of Northhampton, Inc. on July 29, 1993, from Northampton
Holdings, Inc. ("NHI"), a corporation solely owned by Mr. Sillerman, for a
purchase price of $6,050,000 comprised of $5,250,000 cash and the issuance of
140,000 shares of MMR Class C Shares. The purchase agreement, as amended,
contained a purchase price adjustment by which MMR was to receive a reduction
of the purchase price, in an amount not to exceed $500,000, in the event that
the stations did not achieve certain Broadcast Cash Flow targets for the 12
months ending December 31, 1994. In December 1994 MMR's Board of Directors
approved the release of the purchase price adjustment provided by NHI based
upon: (i) management's satisfaction with the performance of the stations and
(ii) the inherent difficulties in accurately measuring the performance of the
stations as they are now operated by MMR as a duopoly in the
Springfield/Northampton, Massachusetts market.
WPKX-FM was acquired by MMR's wholly-owned subsidiary, Multi-Market
Radio of Springfield, Inc., on July 29, 1993, from Goldenberg Broadcasting,
Inc., a corporation in which Mr. Ferrel owned approximately 33 1/3% of the
outstanding equity. The assets of WPKX-FM were acquired for a cash purchase
price of approximately $5,270,000.
WYAK-FM and WYAK-AM were acquired by MMR's wholly-owned subsidiary,
Multi-Market Radio of Myrtle Beach, Inc., on July 29, 1993, from Jones Eastern
of the Grand Strand, Inc. ("Jones Eastern"), a subsidiary of Jones, a
subsidiary of Jones Eastern Radio Inc. ("Jones Inc."), of which SCMC owns
approximately 80% of the outstanding equity, for a cash purchase price of
$3,000,000. MMR sold WYAK-AM in January 1995 for $65,000, consisting of $25,000
cash and a promissory note in the principal amount of $40,000. In connection
with the acquisition, MMR loaned certain funds to Jones Eastern to enable it to
sell the stations to MMR free of liens. MMR had received an 8% promissory note
(the "Jones Note") from Jones Inc. and its subsidiaries, in the principal
amount of $534,180, which was secured by a junior lien on substantially all of
the assets of Jones Inc. and all of its subsidiaries on which a lien could
lawfully be granted.
WRSF-FM was acquired by MMR's wholly-owned subsidiary, Multi-Market
Radio of Nags Head, Inc., on May 12, 1995 from Jones Inc. a subsidiary of Jones
of which SCMC owns approximately 80% of the outstanding equity, for a purchase
price of $919,210, $534,100 of which represented the cancellation of the Jones
Note. On May 31, 1995, MMR entered into an agreement to sell WRSF-FM to a
non-affiliated third party for $950,000 and entered into a LMA enabling the
purchaser to provide programming on the station.
RELATIONSHIP OF MMR WITH SCMC
SCMC has been MMR's financial advisor since MMR's inception. SCMC is
controlled by Mr. Sillerman, and Messrs. Sillerman and Tytel are officers and
directors of SCMC. Pursuant to a financial consulting agreement with MMR (the
"SCMC Agreement"), SCMC has agreed to serve as MMR's financial consultant and
marketing specialist to provide customary financial and advisory services until
July 28, 1998. In connection therewith, SCMC has agreed to perform, or assist
MMR in, among other things, the following: (i) placement of financing, (ii)
design and implementation of MMR's accounting system, (iii) production of
financial reports and other data for MMR's lenders and investors and as
required under securities laws, (iv) implementation of a cash management
system, (v) periodic analyses of the sales and marketing functions of all radio
stations owned by MMR, (vi) consulting services regarding radio sales,
particularly with regard to national trends and national representation, with
the sales staff of MMR's stations, (vii) formulation and coordination of sales
and marketing promotions by MMR's stations under the direct supervision of
executive officers of MMR, (viii) the maintenance of relationships with
financial institutions participating in the financing of MMR and (ix) providing
training and motivational program materials to the sales management of MMR.
Pursuant to the terms of the SCMC Agreement: (i) any opportunities
involving markets in which MMR owns or acquires radio stations ranked below the
top 70 in terms of population as listed by Arbitron and located in states east
of the Mississippi River, as well as in Hartford, Connecticut and Providence,
Rhode Island (the "Applicable Markets"), that come the attention of SCMC, Mr.
Sillerman or Mr. Tytel will be brought first to MMR for its consideration prior
to any other use of such opportunity by SCMC, Mr. Sillerman or Mr. Tytel or any
of their affiliates or clients and (ii)
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in cases in which SCMC, Mr. Sillerman or Mr. Tytel is rendering advice in a
restructuring or similar circumstance to a radio company owning and operating
stations within the Applicable Markets, SCMC will present to MMR, subject to
any fiduciary or confidentiality obligations of any of their clients, any
opportunity for such a radio station acquisition by MMR, on terms at least as
favorable to MMR as to any other potential buyer.
SCMC also acts as financial adviser to a number of broadcast entities
other than MMR, including SFX and Triathlon, some of which participate in
business opportunities that might be suitable for MMR. Mr. Sillerman is a
principal stockholder, the Chairman of the Board, Chief Executive Officer and a
Director of SFX, and is required to devote the majority of his business time
the affairs of SFX. Mr. Tytel is a Director and Executive Vice President of
SFX. Each of SCMC and Messrs. Sillerman and Tytel are required to offer to SFX
opportunities involving radio stations located in the top 70 Arbitron markets,
and are required to offer to Triathlon opportunities involving stations located
outside the top 70 Arbitron markets and located in states west of the
Mississippi River.
MMR currently compensates SCMC for its services under the SCMC
Agreement at the annual rate of $500,000. MMR has also agreed to reimburse SCMC
for all reasonable out-of-pocket disbursements incurred by SCMC in connection
with the performance of services under the SCMC Agreement and to indemnify SCMC
and its affiliates for any losses which may be incurred in connection with the
SCMC Agreement. Previously, MMR was required to pay SCMC (i) a monthly
consulting fee (not to exceed $5,000 per month per market if MMR owned or
operated more than two stations) subject to adjustment to reflect increases in
the consumer price index and (ii) a monthly sublease fee of $4,000 plus certain
costs related to MMR's use of space from SCMC. Covenants in the instruments
governing the Finova Loan Agreement and the MMR Senior Subordinated Debentures
prohibit such payments under certain circumstances. MMR paid SCMC in respect of
such fees $60,000 for 1993, $0 in 1994 and $279,000 in 1995.
The SCMC Agreement further provides that in connection with investment
banking services, the Board of Directors of MMR shall consider the
appropriateness of retaining SCMC, and in that regard whether SCMC's services
are comparable to other services available to MMR and the fairness of the fees
to be charged by SCMC. In any event, the SCMC Agreement currently provides that
such fees shall not exceed: (i) 1.5% of the total acquisition purchase price in
respect of mergers and acquisitions, (ii) 1.5% of the principal amount in
respect of any senior credit facility, (iii) 4% of the proceeds in respect of
the issuance of any subordinated debt and (iv) 7% of the proceeds of any sale
of equity securities. In addition, MMR is to reimburse SCMC for all reasonable
out-of-pocket disbursements made in connection with the services rendered for
MMR, including, but not limited to, travel and entertainment expenses and legal
and accounting fees. During 1994, SCMC received $257,647 of fees related to the
acquisition of the Augusta Stations and during 1995 SCMC received $1,530,000 of
fees related to the acquisition of Southern Starr and related financings. In
addition, SCMC has received from MMR advisory fees totaling $2.3 million,
consisting of $2.0 million paid as a non-refundable fee in connection with the
Merger and $270,000 in connection with the purchase of WKSS-FM operating in
Hartford, Connecticut. The $2.0 million paid to SCMC in connection with the
Merger was paid by SFX on behalf of MMR. Such funds advanced to MMR by SFX
represent a portion of the SFX Loan. Such $2.0 million payment is nonrefundable
even if the Merger is not consummated.
ADDITIONAL ARRANGEMENTS WITH SCMC, MR. SILLERMAN AND MR. TYTEL
From time to time, Mr. Sillerman or companies controlled by him,
including SCMC, have advanced funds on MMR's behalf. All such advances have
been reimbursed by MMR and no fees or other compensation has been paid to Mr.
Sillerman or his affiliates in connection with such advances. During 1993 such
advances totaled $737,500. No such advances were made by Mr. Sillerman in 1994
or 1995.
In connection with the acquisition of Southern Starr, MMR entered into
an agreement with Mr. Sillerman, pursuant to which he guaranteed and provided
collateral for a $1.3 million letter of credit MMR was required to obtain in
accordance with the terms of that acquisition. In consideration therefor, MMR
has agreed to issue to Mr. Sillerman 26,000 MMR Class A Shares and ten-year
options to acquire 10,000 MMR Class A Shares exercisable at an exercise price
of $2.25 per share.
Mr. Tytel is Of Counsel to the law firm of Baker & McKenzie and was
previously Of Counsel to the law firm of Winston & Strawn. Winston & Strawn
formerly served as counsel to MMR, SCMC and SFX. Baker & McKenzie currently
represents MMR, SCMC, SFX, Triathlon and certain other affiliates of Mr.
Sillerman. Baker & McKenzie
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compensates Mr. Tytel based on the fees it receives from providing legal
services to clients introduced the firm by Mr. Tytel, including MMR, its
affiliates and other clients. MMR paid Baker & McKenzie fees of $520,000
for legal services during 1995. It is anticipated that the fees paid to Baker &
McKenzie during 1996 will be significantly higher.
Kraig G. Fox, MMR's Secretary, is an employee of SCMC and does not
receive any compensation directly from MMR. SCMC compensates Mr. Fox for
services rendered by him on behalf of MMR.
AGREEMENT BETWEEN MESSRS. MORROW AND SILLERMAN
Messrs. Morrow and Sillerman have entered into an agreement pursuant
to which Mr. Morrow has assigned to Mr. Sillerman approximately 54% of all
proceeds paid or payable to Mr. Morrow in connection with any sale or other
disposition of, or dividend or other distribution payable on or with respect
to, his MMR Class B Shares. In addition, Mr. Morrow has also granted to Mr.
Sillerman a right of first refusal with respect to any sale or other
disposition of all of his MMR Class B Shares. Mr. Morrow has also entered into
a pledge agreement with Mr. Sillerman pursuant to which he has pledged 80,000
of his 130,000 MMR Class B Shares to Mr. Sillerman. See "Security Ownership of
Management and Principal Stockholders of MMR."
AGREEMENT BETWEEN MMR AND TRIATHLON
On July 15, 1996, MMR entered into an agreement to sell substantially
all of the assets of KOLL-FM (Little Rock, Arkansas) to Triathlon for a
purchase price of $4.1 million. Each of MMR and Triathlon intends to obtain an
opinion from a nationally-recognized investment banking firm or media brokerage
firm with respect to the fairness of the sale from a financial point of view.
AGREEMENT BETWEEN SFX AND TRIATHLON
On September 1, 1996, SFX entered into a JSA with Triathlon, of which
Robert F.X. Sillerman is a substantial stockholder. The agreement provides that
Triathlon will sell all of the advertising time on SFX's three radio stations
serving the Wichita, Kansas market for a monthly fee which ranges from $75,000
per month to $100,000 per month, and an additional monthly payment of
approximately $175,000 which is subject to adjustment based on the actual
operating expenses of the stations. The agreement has a ten year term with an
option by Triathlon to extend the agreement for an additional ten years upon
payment of a $1.0 million fee to SFX prior to September 1, 2003. The agreement
is subject to termination upon a "change of control" of Triathlon, as defined
in the JSA.
RELATIONSHIP WITH HUFF
Kenneth Harmonay, a Director of MMR who abstained from voting on the
Merger, is an employee of, and was selected for nomination by, Huff. The
approval of Huff, as the holder of certain debt securities of MMR, is required
to consummate the Merger. Pursuant to the Huff Consent, at or prior to the
Effective Time, the MMR Senior Subordinated Debentures and the MMR Senior
Cumulative Preferred Shares held by Huff are to be redeemed for $21.0 million,
representing a substantial premium. In addition, SFX agreed to issue to Huff
warrants exercisable for an amount of SFX Class A Shares equal to the product
of 175,000 multiplied by the Exchange Ratio. See "The Merger
Agreement--Repayment of Certain Indebtedness."
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CERTAIN PAYMENTS TO D.H. BLAIR AND AMERICORP
Pursuant to the agreement governing the MMR Class A Warrants and the
MMR Class B Warrants, MMR is required to pay a fee of 4% of the exercise price
for each MMR Class A Warrant ($0.31) or MMR Class B Warrant ($0.46) exercised
to either D.H. Blair or Americorp, depending on which firm solicited the
exercise of the applicable warrant. Each of D.H. Blair and Americorp
beneficially holds over 5% of the outstanding MMR Class A Shares. MMR
anticipates that such fee will aggregate approximately $570,400 for the
exercise of all MMR Class A Warrants in connection with the MMR Warrant
Redemption.
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COMPARISON OF STOCKHOLDERS' RIGHTS
The following is a summary of certain of the material differences
between the rights of holders of SFX Shares and the holders of MMR Shares. As
both SFX and MMR are organized under the laws of the State of Delaware, such
differences arise from differences between various provisions of the Restated
Certificate of Incorporation and By-Laws of SFX and the Restated Certificate of
Incorporation and By-Laws of MMR.
ELECTION OF DIRECTORS
SFX's Restated Certificate of Incorporation and MMR's Restated
Certificate of Incorporation provides that holders of SFX Class A Shares and
SFX Class B Shares and holders of MMR Class A Shares and MMR Class B Shares,
respectively, vote as a single class on all matters submitted to a vote of the
stockholders, with each SFX Class A Share and each MMR Class A Share entitled
to one vote and each SFX Class B Share and each MMR Class B Share entitled to
ten votes, except (i) for the election of certain directors, (ii) with respect
to any "going private" transaction between the respective companies and certain
individuals or their affiliates and (iii) as otherwise provided by law. Since
the Merger is considered to be a "going private" transaction, as such term is
defined in MMR's Restated Certificate of Incorporation, MMR Class B Shares will
be entitled to one vote per share with respect to the proposal to approve the
Merger Agreement and the Merger.
SFX's Restated Certificate of Incorporation provides that, in the
election of directors, the holders of SFX Class A Shares, voting as a separate
class, are entitled to elect two-sevenths (2/7ths) of SFX's total number of
directors or, if such number of directors is not a whole number, the next
higher whole number. MMR's Restated Certificate of Incorporation provides that,
in the election of directors, the holders of MMR Class A Shares, voting as a
separate class, are entitled to elect two directors. The holders of SFX Class A
Shares and SFX Class B Shares voting as a single class, and the holders of MMR
Class A Shares and MMR Class B Shares, voting as a single class, with each SFX
Class A Shares and each MMR Class A Share entitled to one vote and each SFX
Class B Share and each MMR Class B Share entitled to ten votes, are entitled to
elect the remaining directors.
CONSIDERATION RECEIVED IN A BUSINESS COMBINATION
SFX's Restated Certificate of Incorporation provides that in any
merger, consolidation or business combination, the consideration to be received
per share by the holders of SFX Class A Shares, SFX Class B Shares and SFX
Class C Shares must be identical for each class of stock, except that in any
such transaction in which shares of common stock are to be distributed, such
shares may differ as to voting rights to the extent that voting rights now
differ among the SFX Class A Shares, SFX Class B Shares and SFX Class C Shares.
MMR's Restated Certificate of Incorporation provides that, except with
respect to voting, holders of all classes of common stock shall be entitled to
the same rights and privileges. The holders of MMR Shares will vote at the MMR
Special Meeting on a proposal to permit holders of MMR Class B Shares and MMR
Original Preferred Shares to receive SFX Class B Shares in the Merger.
PARTICIPATION OF NON-CITIZENS
Each of SFX's Restated Certificate of Incorporation and MMR's Restated
Certificate of Incorporation provides that the respective Boards of Directors
shall have all power necessary to ensure compliance with the alien ownership
restrictions of the Communication Act and of the rules and regulations
promulgated thereunder.
SFX's Restated Certificate of Incorporation further provides that any
shares of SFX's capital stock determined by the SFX Board to be owned
beneficially by an Alien or Aliens shall always be subject to redemption by SFX
by action of the SFX Board to the extent necessary in the judgement of the SFX
Board to comply with the restrictions on alien ownership. The redemption price
of the shares to be so redeemed shall be equal to the lower of (i) the fair
market value of the shares to be redeemed, as determined by the SFX Board in
good faith and (ii) such Alien's purchase price for such shares. In addition,
any such redemption is subject to certain other specified terms and conditions.
MMR's Restated Certificate of Incorporation does not set forth such a
redemption procedure.
162
<PAGE>
COMMITTEES
SFX's By-Laws provide that the SFX Board shall elect both an audit
committee and compensation committee. Each committee shall consist of three
directors, including two of the directors elected by the holders of the SFX
Class A Shares voting as a separate class.
MMR's By-Laws do not require the MMR Board to establish any
committees.
CONVERSION OF CLASS B COMMON STOCK
SFX's Restated Certificate of Incorporation provides that each SFX
Class B Share will convert automatically into one SFX Class A Share upon its
transfer to a party that is not affiliated with SFX. MMR's Restated Certificate
of Incorporation contains a corresponding provision. In addition, SFX's
Restated Certificate of Incorporation provides that each SFX Class B Share
shall be convertible, at the option of its holder, into one fully-paid and
non-assessable SFX Class A Share. MMR's Restated Certificate of Incorporation
contains no corresponding provision.
STOCKHOLDER PROPOSALS
Proposals of SFX Stockholders that are intended to be presented by
such stockholders at SFX's 1997 Annual Meeting must be received by the
Corporate Secretary of SFX no later than June 10, 1997 in order to be included
in the proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, proposals of MMR Stockholders that
are intended to be presented by such stockholders at MMR's 1996 Annual Meeting
must be received by the Corporate Secretary of MMR a reasonable time before the
solicitation of proxies in order to be included in the proxy statement and form
of proxy relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires SFX's directors and
executive officers, and persons who own more than ten percent of a registered
class of SFX's equity securities (collectively, the "Covered Stockholders"), to
file with the Commission initial reports of ownership and reports of changes in
ownership of certain equity securities of SFX. Covered Stockholders are
required to disgorge and return to SFX any profits earned from certain
purchases or sales of SFX securities which occur within six months of each
other. Officers, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish SFX with all Section 16(a) forms which
they file.
To SFX's knowledge, based solely on its review of the copies of such
reports furnished to SFX and written representations, none of the Covered
Stockholders failed to report in a timely manner any transactions subject to
Section 16(a) during 1995.
OTHER MATTERS
Neither the SFX Board nor the MMR Board intends to bring any matters
before the Meetings other than those specifically set forth in the notices of
Meetings and neither knows of any matters to be brought before the respective
Meetings by others. If any other matters properly come before the Meetings, it
is the intention of the persons named in the accompanying proxies to vote such
proxies in accordance with the judgment of the SFX Board and the MMR Board,
respectively.
The SFX Form 10-K is included in SFX's 1995 Annual Report, which
accompanies this Joint Proxy Statement/Prospectus but does not form a part of
the proxy soliciting material. Although the SFX Form 10-K is being provided to
the SFX Stockholders in accordance with applicable rules of the Commission, SFX
notes the following:
SFX will provide each SFX Stockholder without charge, upon the written
request of any such person, a copy of the SFX Form 10-K, required to be filed
with the Commission pursuant to Rule 13a-1 under the Exchange Act for
163
<PAGE>
SFX's most recent fiscal year. Exhibits with the SFX Form 10-K will not be
supplied unless specifically requested, for which there may be a reasonable
charge. Those stockholders wishing to obtain a copy of the SFX Form 10-K should
submit a written request to: Director of Investor Relations, SFX Broadcasting,
Inc., 150 East 58th Street, 19th Floor, New York, NY 10155.
LEGAL MATTERS
The validity of the SFX Shares offered to holders of MMR Shares and
MMR Preferred Shares by this Joint Proxy Statement/Prospectus will be passed
upon by Baker & McKenzie, New York, New York. Mr. Tytel, who has an equity
interest in and is an executive officer and Director of SFX and SCMC, MMR's
financial advisor, is Of Counsel to Baker & McKenzie. Mr. Tytel holds 20,000
MMR Class A Shares, which are held in escrow but in respect of which he retains
the power to vote, options to purchase 5,000 SFX Class A Shares at an exercise
price of $21.25 per share (1,000 of which are exercisable within 60 days of
this Joint Proxy Statement/Prospectus), and options to purchase 15,000 MMR
Class A Shares (10,000 at an exercise price of $7.88 per share, of which 4,000
are currently exercisable, and 5,000 at an exercise price of $5.00 per share,
of which 2,000 are currently exercisable). See "Remuneration of Management of
SFX," "Security Ownership of Management and Principal Stockholders of MMR," and
"Certain Relationships and Related Transactions." Fisher Wayland Cooper Leader
& Zaragoza LLP, Washington, D.C., has represented SFX and MMR with respect to
legal matters under the Communications Act and the rules and regulations
promulgated thereunder by the FCC.
EXPERTS
+ The consolidated financial statements of MMR at December 31, 1995 and
1994, and for the years then ended, the financial statements of WKSS 95.7-FM (a
division of Precision Media Corporation) at December 31, 1995 and 1994 and for
the years then ended and the combined financial statements of WRFX-FM and
WEDJ-FM (divisions of Pyramid Communication, Inc.) at December 31, 1995 and for
the year then ended, included herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports appearing thereto, which
appear elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Southern Starr Broadcasting
Group, Inc. for the nine months ended December 31, 1994 included herein have
been audited by Deloitte & Touche LLP, independent auditors, as set forth in
their report appearing thereon, which appears elsewhere herein, and is included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of SFX and subsidiaries at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, and the financial statements of KKRW-FM (a division of CBS,
Inc.) at December 31, 1995 and 1994, and for the years then ended, all
incorporated herein by reference to the Form 8-K filed by SFX with the
Commission on May 30, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon and incorporated herein by
reference, and have been so incorporated by reference in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Liberty Broadcasting, Inc. at
December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994, and
the nine months ended December 31, 1993 and the combined financial statements
of HMW Communication, Inc.--Selected Operations (combination of six radio
stations to be sold) as of December 31, 1995 and 1994, for the year ended
December 31, 1995, and various periods from January 6, 1994 to December 31,
1994, all incorporated herein by reference to the Form 8-K filed by SFX with
the Commission on May 9, 1996, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their reports thereon and incorporated
herein by reference. Such consolidated financial statements are incorporated by
reference herein in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Prism Radio Partners, L.P. as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, incorporated herein by reference to the Form 8-K filed by SFX with
the Commission on May 9, 1996, have been audited by KPMG Peat Marwick L.L.P.,
independent certified public accountants, the extent and for the period
indicated in their report thereon, which is incorporated herein by reference,
164
<PAGE>
and have been so incorporated by reference in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of ABS Greenville Partners, L.P. at December
31, 1995 and for the year then ended, incorporated herein by reference to the
Form 8-K filed by SFX with the Commission on May 9, 1996, have been audited by
Cheely Burcham Eddins Rokenbrod & Carroll, independent auditors, as set forth
in their report thereon and incorporated herein by reference, and have been so
incorporated by reference in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
165
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Financial Statements of SFX ....................... 85
Pro Forma Condensed Combined Balance Sheet as of June 30, 1996 ................. 86
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1996 ................................................... 91
Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1995 ................................................ 92
Unaudited Pro Forma Condensed Combined Financial Statements of MMR ....................... 122
Pro Forma Condensed Combined Balance Sheet as of June 30, 1996 .................. 123
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1996 .................................................... 124
Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1995 ................................................ 125
HISTORICAL FINANCIAL STATEMENTS
MULTI-MARKET RADIO, INC .........................................................
Report of Independent Auditors ........................................................... F-3
Consolidated Balance Sheets as of June 30, 1996 (unaudited),
December 31, 1995 and 1994 ...................................................... F-4
Consolidated Statements of Operations for the six months
ended June 30, 1996 and 1995 (unaudited) and for
the years ended
December 31, 1995 and 1994 ...................................................... F-5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 (unaudited) and the
years ended
December 31, 1995 and 1994 ...................................................... F-6
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 1996 (unaudited) and for the
years ended December 31, 1995 and 1994 F-7
Notes to Consolidated Financial Statements ............................................... F-8
F-1
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC
Independent Auditor's Report .................................................... F-21
Consolidated Statement of Operations for the nine months
ended December 31, 1994 .................................................. F-22
Consolidated Statement of Cash Flows for the nine months ended
December 31, 1994 ........................................................ F-23
Notes to Consolidated Financial Statements ...................................... F-24
WRFX-FM AND WEDJ-FM (DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
Report of Independent Auditors .................................................. F-30
Combined Balance Sheet at December 31, 1995 ..................................... F-31
Combined Statement of Operations for the year ended December 31, 1995 ........... F-32
Combined Statement of Divisional Surplus for the year ended December 31, 1995 ... F-33
Combined Statement of Cash Flows for the year ended December 31, 1995 ........... F-34
Notes to Combined Financial Statements .......................................... F-35
WKSS 95.7-FM (A DIVISION OF PRECISION MEDIA CORPORATION)
Report of Independent Auditors .................................................. F-38
Balance Sheets at December 31, 1994 and 1995 .................................... F-39
Statements of Income for the years ended December 31, 1994 and 1995 ............. F-40
Statements of Divisional Surplus for the years ended December 31, 1994 and 1995 . F-41
Statements of Cash Flows for the years ended December 31, 1994 and 1995 ......... F-42
Notes to Financial Statements ................................................... F-43
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Multi-Market Radio, Inc.
We have audited the accompanying consolidated balance sheets of
Multi-Market Radio, Inc. as of December 31, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended. 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 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
Multi-Market Radio, Inc. at December 31, 1995 and 1994 and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 14, 1996, except for Note 10
as to which the date is September 30, 1996
F-3
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996
(unaudited) 1995 1994
----------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash & cash equivalents ................................... $ 922,110 $1,258,212 $ 712,502
Accounts receivable, net of allowance of $244,317, $304,162
and $88,957, respectively ........................ 4,162,042 4,232,995 1,460,791
Receivable from affiliate (Note 4) ........................ 0 504,730
Other current assets ...................................... 385,461 429,060 331,889
---------- ---------- ----------
5,469,613 5,920,267 3,009,912
Property, plant equipment, at cost:
Land ............................................. 651,070 723,070 375,760
Building and improvements ........................ 770,883 762,822 112,358
Technical and equipment .......................... 2,123,089 3,077,350 1,239,571
Furniture and equipment .......................... 444,658 524,718 226,525
Vehicles ......................................... 137,811 123,066 73,653
---------- ---------- ----------
4,127,511 5,211,026 2,027,867
Less-accumulated depreciation .................... (478,380) (450,174) (163,876)
---------- ---------- ----------
3,649,131 4,760,852 1,863,991
Other assets:
Deferred costs - pending acquisitions and financing 0 0 307,177
Intangible assets, net (Note 3) .................. 48,433,950 55,745,735 18,094,295
Deposits ......................................... 2,228,954 0 0
Net assets to be sold ............................ 5,000,000 0 0
Other assets ..................................... 27,074 37,884 52,900
---------- ---------- ----------
Total Assets .............................................. 64,808,722 66,464,738 23,328,275
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities to affiliate (Note 7) ......................... $2,581,063 $ 175,070 $ 130,000
Accounts payable and accrued expenses ..................... 1,660,973 1,678,754 784,829
Accrued interest .......................................... 600,466 910,596 182,290
Current portion of long-term debt (Note 5) ................ 1,848,000 1,804,000 538,982
---------- ---------- ----------
Total current liabilities ................................. 6,690,502 4,568,420 1,636,101
Peferred taxes (Note 8) ................................... 7,240,981 7,303,483 105,000
Long-term debt (Note 5) ................................... 39,001,081 39,677,937 6,070,117
Station sales deposits .................................... 3,500,000 0 0
Other ..................................................... 0 100,045 0
---------- ---------- ----------
Total Liabilities ......................................... 56,432,564 51,649,885 7,811,218
Stockholders' Equity (Note 6):
Preferred Stock, par value $.01; 1,200,000 shares
authorized; 201,250 shares issued and outstanding 2,012 2,012 2,000
Class A Common Stock, par value $.01; 15,000,000
shares authorized; 2,992,900 shares issued and
outstanding at June 30, 1996, and 2,990,000
shares issued and outstanding at
December 31, 1995 and 1994 ..................... 29,929 29,900 29,900
Class B Common Stock, par value $.01; 1,200,000
shares authorized; 140,000 shares issued and
outstanding .................................... 1,400 1,400 1,400
Class C Common Stock, par value $.01; 700,000 shares
authorized; 360,000 shares issued and outstanding 3,600 3,600 3,600
Warrants and options ............................. 551,739 551,739 260
Paid-in-capital .................................. 17,658,876 17,506,509 17,100,274
Accumulated Deficit .............................. (9,871,398) (3,280,307) (1,620,377)
---------- ---------- ----------
Total Stockholders' Equity ................................ 8,376,158 14,814,853 15,517,057
---------- ---------- ----------
$64,808,722 $66,464,738 $23,328,275
Total Liabilities and Stockholders' Equity ................ ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Years Ended
Ended December 31,
June 30,
1996 1995
(unaudited) (unaudited) 1995 1994
<S> <C> <C> <C> <C>
Gross Revenues ...................... $11,263,152 $8,025,874 $20,324,494 $7,750,514
Agency commissions .................. (1,119,686) (775,739) (2,036,749) (633,476)
Net revenues ........................ 10,143,466 7,250,135 18,287,745 7,117,038
Station operating expenses .......... 6,253,716 4,414,306 11,026,222 4,806,722
Depreciation and amortization expense 809,679 966,087 1,750,310 1,146,640
Non-cash compensation ............... 130,000 353,400 281,247 364,933
Corporate expenses .................. 1,275,003 623,255 1,665,227 774,856
---------- ---------- ---------- ----------
Total operating expenses ............ 8,468,398 6,357,048 14,723,006 7,093,151
---------- ---------- ---------- ----------
Operating income .................... 1,675,068 893,087 3,564,739 23,887
Net losses related to radio station
dispositions ........................ (1,595,996) 0 0 0
Write-off of pending acquisition and
financing costs ..................... (708,837) 0 0 0
Costs related to pending merger with
SFX Broadcasting, Inc. ........... (3,348,678) 0 0 0
Interest income (expense), net ...... (2,609,084) (1,850,506) (4,965,527) (765,829)
Other income (loss) ................. (3,564) 10 10,429 (8,840)
---------- ---------- ---------- ----------
Loss before income taxes and
extraordinary item .................. (6,591,091) (957,312) (1,390,359) (750,782)
Provision for (benefit from)
income taxes ........................ 0 73,000 (59,000) 15,000
---------- ---------- ---------- ----------
0
Loss before extraordinary item ...... (6,591,091) (1,030,312) (1,331,359) (765,782)
Extraordinary item-loss on early 0 (328,571) (328,571) 0
extinguishment of debt .............. -- -- -- --
---------- ---------- ---------- ----------
Net loss ............................ $(6,591,091) $(1,358,883) $(1,659,930) $ (765,782)
========== ========== ========== ==========
Per common Share ....................
Loss before extraordinary item ...... ($ 1.89) $ (.30) ($ .38) ($ .25)
Extraordinary item .................. ($ .00) $ (.09) ($ .10) ($ .00)
---------- ---------- ---------- ----------
Net loss ............................ ($ 1.89) $ (.39) ($ .48) ($ .25)
========== ========== ========== ==========
Weighted average common shares
outstanding ........................ 3,490,500 3,490,000 3,490,000 3,036,301
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Years Ended
------------------------- ----------------------
Ended June 30, December 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................ $(6,591,091) $(1,358,883) (1,659,930) $ (765,782)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 809,679 966,087 1,750,310 1,146,640
Non-cash compensation ............. 130,000 353,400 281,247 364,933
Extraordinary item-debt 0 328,571 328,571 0
extinguishment ....................
Debt issuance costs ............... 0 (4,040,128) 0 0
Loss on dispositions of radio
stations .......................... 1,664,838 0 0 0
Write off of pending acquisition
and financing costs................ 708,837 0 0 0
Gain on sale of WRSF .............. (68,842) 0 0 0
Deferred taxes .................... 0 0 (202,000) 0
Non-cash interest expense ......... 491,835 0 362,569 50,000
Changes in assets and liabilities,
net of amounts acquired:
Accounts receivable ............... 70,953 (564,769) (696,296) (587,796)
Other current assets .............. 54,759 36,835 165 (221,719)
Other assets ...................... 10,810 5,168 (13,122) (47,698)
Liabilities to affiliates ......... 2,405,993 86,698 45,070 90,000
Accrued interest .................. (310,130) 720,104 728,306 26,290
Deferred taxes .................... (62,502) 0 0 0
Other ............................. (100,045) 7,380 7,380 0
Accounts payable and accrued
expenses .......................... (17,781) 158,669 (108,465) 533,427
---------- ---------- ---------- ----------
Total adjustments .... 5,788,404 (1,941,985) 2,483,735 1,354,077
---------- ---------- ---------- ----------
Net cash provided by operating
activities ........................ (802,687) (3,300,868) 823,805 588,295
---------- ---------- ---------- ----------
Cash flows from Investing Activities:
Deferred acquisition costs .......... 0 352,686 (239,814) (307,177)
Proceeds from deposits on sale of
stations .......................... 3,500,000 504,730 0 0
Acquisition/financing costs for radio
stations purchased ................ (746,723) 0 0 0
Payments for deposits on radio stations (2,228,954) 0 0 0
Receivable from affiliates .......... 0 0 0 (20,929)
Proceeds from disposition of net assets 950,000 48,649 31,831 0
radio station
Acquisition of net assets of radio
stations .......................... 0 (32,759,851) (31,574,156) (6,732,599)
Capital expenditures ................ (150,134) (308,139) (511,097) (162,016)
---------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities .......... 1,324,189 (32,161,925) (32,293,236) (7,222,721)
---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Repayments of long-term debt ........ (880,000) (6,478,309) (7,053,315) (593,623)
Proceeds from issuance of long-term debt
net of issuance costs ............... 0 41,928,750 38,391,977 0
Proceeds from sale of common and
preferred stock, net of equity issuance
costs ............................. 0 0 125,000 7,306,823
Proceeds from exercise of warrants .. 22,396 0 0 0
Proceeds from sale of warrants and
options 0 446,250 551,479 160
---------- ---------- ---------- ----------
Net cash provided by (used
in) financing activities .......... (857,604) 35,896,691 32,015,141 6,713,360
---------- ---------- ---------- ----------
Net increase in cash ................ (336,102) 433,898 545,710 78,934
Cash and cash equivalents at beginning
of period ......................... 1,258,212 712,502 712,502 633,568
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period ............................ 922,110 1,146,400 1,258,212 712,502
========== ========== ========== ==========
<PAGE>
Non-cash Investing Activity:
Satisfaction of promissory note receivable
upon acquisition of radio station assets $ 504,730 $ 0
---------- ----------
Supplemental Information:
Cash payments made during the year for
interest ............................ $3,193,345 507,265
---------- ----------
Cash payments made during the year for
income taxes ........................ $ 17,623 $ 17,623
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND SIX
MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Class A Class B Class C Preferred Warrants Paid-in Accumulated Total
Common Common Common Stock & Options Capital Deficit Stockholders'
Stock Stock Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $11,500 $ 1,400 $ 3,600 $ 2,000 $ 100 $9,396,916 $ (854,595) $ 8,560,921
Issuance of 1,840,000 units
consisting of one share of
Class A Common Stock, one
Redeemable Class A Warrant and
one Redeemable Class B Warrant 18,400 7,288,425 7,306,825
Issuance of options to the
underwriters of the second
public offering 160 160
Issuance of stock options below
fair market value 50,000 50,000
Non-cash compensation (Note 6) 364,933 364,933
Net loss
(765,782) (765,782)
------- ------ ------ ------ ---- ----------- ------------ ------------
Balances at December 31, 1994 29,900 1,400 3,600 2,000 260 17,100,274 (1,620,377) 15,517,057
Issuance of Huff Warrants 551,479 551,479
Sale of Huff Preferred Stock 12 124,988 125,000
Non-cash compensation (Note 6) 281,247 281,247
Net loss
(1,659,930) (1,659,930)
Balances at December 31, 1995 ------- ------ ------ ------ -------- ----------- ------------ -----------
29,900 1,400 3,600 2,012 551,739 17,506,509 (3,280,307) 14,814,853
Proceeds from exercise of
warrants 29 22,367 22,396
Non-cash compensation 130,000 130,000
Net loss
(6,591,091) (6,591,091)
Balances at June 30, 1996
(unaudited) $29,929 $1,400 $3,600 $2,012 $551,739 $17,658,876 $(9,871,398) $8,376,158
======= ====== ====== ====== ======== =========== ============== ==========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Multi-Market Radio, Inc. (the "Company" or "MMR"), a Delaware
corporation, was organized on August 28, 1992 to acquire, own, and operate
radio stations in medium-sized markets in the Eastern United States. The
Company commenced operations in July 1993 when it acquired WHMP-AM(FM) and
WPKX-FM, each operating in the Springfield/Northampton, Massachusetts markets,
and WYAK-AM(FM), operating in the Myrtle Beach, South Carolina market which
were accounted for using the purchase method of accounting. The Company
subsequently sold radio station WYAK-AM in January 1995. The aggregate
purchase price for the July 1993 radio station acquisitions was $14,321,539
and the sale price of WYAK-AM was $65,000. There was no gain or loss recorded
on the sale.
In March 1994, the Company purchased substantially all of the assets
related to WRXR-FM, a station operating in the Augusta, Georgia market and the
rights to acquire WKBG-FM, a station under construction in the Augusta,
Georgia market (the "Augusta Acquisitions"), for an aggregate purchase price
of $6,657,140. WKBG-FM commenced operations in April 1994, and was operated
under a local marketing agreement (LMA) until the acquisition was completed on
February 3, 1995. This acquisition was recorded by the Company using the
purchase method of accounting.
In March 1995, the Company acquired all of the common stock of
Southern Starr Broadcasting Group, Inc. ("SSBG") for $35,000,000 which
included repayment of SSBG's existing indebtedness and acquired six stations
in four markets, consisting of WPLR-FM, operating in the New Haven,
Connecticut market; WKNN-FM, WMJY-FM and WVMI-AM, each operating in the
Biloxi, Mississippi market; WGNE-FM, operating in the Daytona Beach, Florida
market and KOLL-FM, operating in the Little Rock, Arkansas market. These
acquisitions were accounted for using the purchase method of accounting. The
Company sold WVMI-AM for $115,000 in December 1995, and has entered into an
agreement to sell KOLL-FM to Triathlon Broadcasting Company, an affiliate, for
an estimated $ 4,000,000. No gain or loss was recognized on the sale of
WVMI-AM or will be recognized on the sale of KOLL-FM. The Company also sells
advertising pursuant to a JSA on behalf of WYBC-FM, operating in the New
Haven, Connecticut market.
The following supplemental pro forma information is presented as if
the Company had completed the Augusta Acquisitions and the Southern Starr
Acquisitions and the related offerings and borrowings as of January 1, 1994:
1994 1995
(Unaudited) (Unaudited)
Net revenue ........................... $ 18,727,556 $ 20,979,939
Operating income ...................... 2,058,555 4,325,233
Income (loss) before extraordinary item 691,257 (709,544)
Net Loss .............................. (282,964) (1,038,115)
Net loss per Share .................... (.08) (.30)
F-8
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intracompany
accounts and transactions have been eliminated in consolidation. CASH & CASH
EQUIVALENTS
The Company invests excess daily cash balances in overnight
government repurchase agreements. The Company considers such investments to be
cash equivalents.
REVENUE RECOGNITION
The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue is recorded when the advertisements are broadcast.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company provides advertising air time to national, regional and
local advertisers within the geographic areas in which the Company operates.
Credit is extended based on an evaluation of the customer's financial
conditions, and generally advance payment is not required. Anticipated credit
losses are provided for in the consolidated financial statements and
consistently have been within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives ranging from: five to seven years for vehicles and
furniture and equipment, 15 years for technical equipment and 40 years for
real property including related improvements.
INTANGIBLE ASSETS
Intangible assets include the portion of the acquisition purchase
price allocable to FCC licenses and goodwill which are amortized over 40
years, a covenant not to compete associated with the acquisition of WPKX-FM,
which was amortized over 2 years, and deferred financing costs which are being
amortized over the life of the debt.
It is the Company's policy to account for goodwill and all other
intangible assets at the lower of amortized cost or fair value. As part of an
ongoing review of the valuation and amortization of intangible assets,
management assesses the carrying value of the Company's intangible assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the intangibles will not be recoverable as determined by a
non-discounted cash flow analysis of the Company over the remaining
amortization period, the carrying value of the Company's intangibles would be
reduced to its estimated realizable value. As a result, the Company has
determined that goodwill and all other intangible assets are fairly stated at
December 31, 1995.
F-9
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," ("FAS 121") effective for fiscal years beginning after December 15, 1995.
The Company expects that the adoption of FAS 121 will not have a material
effect on its financial statements.
Barter Transactions
Revenue from barter transactions (advertising provided in exchange
for goods and services) is recognized as income when advertisements are
broadcast; the expense relating to goods and services received is recorded
when used. For the years ended December 31, 1994 and 1995, the Company
recorded barter revenue of $723,697 and $1,528,408 respectively, and expenses
of $755,564 and $1,459,443 respectively.
Stock Options
In accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") compensation costs for
stock is recognized in income based on the excess, if any, of the quoted
market price of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire that stock.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," ("FAS 123")
which establishes financial accounting and reporting standards for stock based
employee compensation plans including stock purchase plans, stock options,
restricted stock and stock appreciation rights. The Company has elected to
continue accounting for stock based compensation under the provisions of APB
25. The disclosure requirements of FAS 123 will be effective for the Company's
financial statements beginning in the first quarter of 1996.
Loss Per Common Share
Loss per common share is based upon net loss applicable to common
shares and upon the weighted average number of common shares outstanding
during the period. The conversion of securities convertible into common stock
and the exercise of stock options were not assumed in the calculation of net
loss per common share because the effect would be antidilutive.
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of the Company at
June 30, 1996 and the results of its operations and cash flows for the six
month periods ended June 30, 1996 and 1995. Results for the interim period are
not necessarily indicative of results to be expected for the full year.
3. INTANGIBLE ASSETS
Net intangible assets consist of the following at December 31:
F-10
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1994 1995
------------ ------------
FCC Licenses .......................... $ 17,993,052 $ 46,433,407
Goodwill .............................. 0 7,112,938
Covenant not to compete ............... 1,000,000 1,000,000
Deferred financing costs .............. 480,836 4,236,682
------------ ------------
19,473,888 58,783,027
Less accumulated amortization ......... (1,379,593) (3,037,292)
------------ ------------
Net intangible assets ................. $ 18,094,295 $ 55,745,735
------------ ------------
4. RECEIVABLE FROM AFFILIATE
In connection with the acquisition of the Myrtle Beach Stations in
July 1993, the Company loaned certain funds to Jones Eastern in excess of the
stated $3,000,000 purchase price in order for Jones Eastern to settle certain
liabilities and obtain the release of certain liens on the Myrtle Beach
Stations. The Company had received a promissory note from Jones Inc., the
parent of Jones Eastern, in the amount of $504,730. This amount was satisfied,
including interest at the rate of 8%, upon the sale, by Jones Inc., of its
WRSF-FM, Nags Head, North Carolina station, to the Company on May 12, 1995.
The Company acquired the assets of radio station WRSF-FM (Nags Head, North
Carolina) from Jones Eastern of the Outer Banks, Inc. for $827,714, a portion
of which represents the satisfaction of the aforementioned $504,730 note
receivable. On May 31, 1995, the Company entered into an Agreement to sell the
assets of WRSF-FM to East Carolina Radio, Inc. for $950,000 in cash. This
transaction closed in March 1996. Simultaneous with the execution of this
sales Agreement the Company entered into a local marketing Agreement pursuant
to which the Buyer began providing programming to the radio station.
5. DEBT
At December 31, 1994, the Company's long-term debt consisted of a
term loan in the principal amount of $7,400,000 from FINOVA Credit Corporation
("FINOVA") which was entered into concurrently with the closing of the
Company's initial public offering. This loan was refinanced in March 1995
pursuant to a Loan Agreement with FINOVA (the "Loan Agreement") for
$26,500,000.
In addition to the Loan Agreement, at December 31, 1995, the
Company's debt also included borrowings of $18,431,440 principal amount
Subordinated Original Issue Discount Debentures (the "Subordinated
Debentures") issued to the Huff Alternative Income Fund, L.P. ("Huff").
At December 31, 1995, the Company's debt consists of:
<TABLE>
<CAPTION>
FINOVA HUFF TOTAL
<S> <C> <C> <C>
Net proceeds . . . . . . . . . . . . . . $26,500,000 $15,323,680 $41,823,680
Amortization of discount . . . . . . . . 375,336 375,336
Principal repayments . . . . . . . . . . (717,079) (717,079)
--------- ----------------- ------------
Total 25,782,921 15,699,016 41,481,937
Current portion of long-term debt . . . 1,804,000 1,804,000
------------ ----------------- ------------
Long-term debt . . . . . . . . . . . . . $23,978,921 $ 15,699,016 $39,677,937
=========== ============ ===========
</TABLE>
The Loan Agreement bears interest at 2.5% above the Citibank base
rate over its five-year term. Interest at December 31, 1995 is being paid at
11%. Debt service includes increasing quarterly principal payments and monthly
interest payments. The final payment of $15,418,000 is due April 2000. Under
the terms of the Loan Agreement, the Company obtained interest rate protection
from Chemical Bank in the form of an interest rate cap Agreement which
F-11
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ensures that, for a two-year period, $15,000,000 of the loan is protected
against the base interest rate being in excess of 11%.
The Loan Agreement contains limitations on the Company with respect
to (i) incurrence of additional indebtedness; (ii) corporate overhead (as
defined); (iii) capital expenditures; (iv) specific minimum operating cash
flows (as defined); (v) incurrence of additional liens; (vi) payment of cash
dividends; (vii) acquisitions and mergers; (viii) payments of indebtedness for
borrowed money; (ix) investments; and (x) changes in business, as well as
other customary events of default.
Borrowings under the Loan Agreement is senior debt of the Company's
subsidiaries and is guaranteed by the Company and is secured by substantially
all of the assets and capital stock of the subsidiaries.
The Huff Subordinated Debentures bear interest at 10% of the
principal amount for the first three years, and 16% thereafter. The effective
interest rate of the Subordinated Debentures is 17.73%. During the first three
years of the term of the Debentures, interest may be paid in kind by the
issuance of additional Debentures. However after the first year, failure to
pay interest in cash will result in a default which, while not giving rise to
a right of acceleration, will give Huff the right, subject to the approval of
the FCC, to assert control over the Company's Board of Directors. The Company
timely paid its first semi-annual interest obligation due under the Debentures
on October 16, 1995. The term of the Debentures is six years with principal
due March 27, 2001.
The Huff Subordinated Debentures contain affirmative and negative
covenants including covenants related to a change in control of the Company.
The Debentures contain certain restrictions regarding the Company's right to
call and provides Huff with the option to put Debentures in amounts equal to
various percentages of the proceeds exceeding $1,000,000 realized by the
Company from the exercise of the Company's Class A and/or B warrants. The
amount which may be put cannot exceed 50% (to be increased to 75% upon certain
conditions) of the existing warrant exercise proceeds.
The Subordinated Debentures provide for representation of the holder
on the Company's Board of Directors and each committee of the Board subject to
election by the Company's shareholders. In the event of a default, the holder
may have the right, under certain circumstances and subject to FCC approval,
to elect a majority of the Company's Board of Directors. Messrs. Ferrel,
Morrow and Sillerman have entered into a Shareholders Agreement with Huff
pursuant to which their shares will be voted to effectuate these provisions.
Principal payments on the outstanding long-term debt are due as
follows:
Year ending December 31:
1996..................................... $ 1,804,000
1997..................................... 2,024,000
1998..................................... 2,374,000
1999..................................... 2,798,000
2000 and thereafter...................... 34,611,440
------------
$ 43,611,440
============
At December 31, 1995, the Company was in compliance with all payment
obligations and covenants under the Loan Agreement and Subordinated Debentures
except for the corporate overhead and capital expenditure covenants for the
year ended December 31, 1995 the Company has received waivers for these
violations in 1995.
F-12
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company plans to repay the Loan Agreement and Subordinated
Debentures in full in 1996 (see Note 10). As a result, the Company will incur
prepayment premiums of approximately $794,000 and $4,196,000 on the Loan
Agreement and Subordinated Debentures, respectively.
The Company recorded an extraordinary loss of $328,571 related to the
write-off of deferred financing costs associated with its original term loan,
described above, at the time it entered into the Loan Agreement of $26,500,000
with FINOVA which was used to consummate the Southern Starr acquisition.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's authorized Preferred Stock consists of 200,000 shares
of original Preferred Stock and 1,000,000 shares of other preferred stock. The
Company's original preferred stock is convertible into 200,000 shares of Class
B Common Stock. However, Mr. Ferrel and Mr. Sillerman have agreed that they
will not exercise their right to sell, transfer, or dispose of their original
Preferred Stock at any time prior to July 28, 1998 and will forfeit such stock
if, in the case of Mr. Ferrel, he is no longer employed by the Company, or in
the case of Mr. Sillerman, SCMC is no longer acting as a consultant to the
Company.
The Company recognized a non-cash compensation expense pertaining to
the Preferred Stock which totaled $364,933 in 1994 and $281,247 in 1995.
In September 1995 the Company issued 1,250 shares of Senior Preferred
Stock to the Huff Alternative Income Fund, L.P. in connection with the
Southern Starr transaction and received proceeds of $125,000.
COMMON STOCK
Voting Rights
Holders of the Class A and Class B Common Stock vote as a single
class, with each share of Class A Common Stock entitled to one vote and each
share of Class B Common Stock entitled to 10 votes except (i) for the election
of directors, who are elected as set forth below, (ii) with respect to any
"going private" transaction, as defined, between the Company and any of Bruce
Morrow, Robert F.X. Sillerman, Howard J. Tytel, SCMC or any of their
respective affiliates and (iii) as otherwise provided by law.
In the election of directors, the holders of Class A Common Stock,
voting as a separate class, are entitled to elect the two directors who are
not affiliated with the Company or entities affiliated with Mr. Sillerman. The
holders of Class A Common Stock and Class B Common Stock, voting as a single
class with each share of Class A Common Stock entitled to one vote and each
share of Class B Common Stock entitled to 10 votes, are entitled to elect the
remaining three directors. Holders of Class A Common Stock and Class B Common
Stock are not entitled to cumulative voting in the election of directors.
Holders of Class C Common Stock do not have voting rights other than those
required by applicable law.
Other Provisions
Each share of Class B Common Stock and Class C Common Stock convert
into one share of Class A Common Stock automatically upon its sale or transfer
to a person or entity not employed by or affiliated with the Company.
F-13
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mr. Sillerman is entitled, at his option and for no additional
consideration, to convert his 360,000 shares of Class C Common Stock into
360,000 shares of Class B Common Stock as of any date from and including May
15, 1996. Any such conversion would be subject to prior approval by the
Federal Communications Commission.
UNDERWRITERS WARRANTS
The Company issued 100,000 Warrants to the Underwriters of the
Company's Initial Public Offering each exercisable for one share of the
Company's Class A Common Stock. As a result of antidilution provisions
contained in the Underwriters Agreement, the number of warrants outstanding
has increased to 125,000 at December 31, 1994. The Underwriters' Warrants are
exercisable for a four year period commencing July 22,1994 at an exercise
price of $9.10 per share. The Company also issued 160,000 Unit Purchase
Options to the Underwriters of the Company's Second Public Offering each
convertible into one Unit which consists of one share of Class A Common Stock,
one Redeemable Class A Warrant and one Redeemable Class B Warrant. The
Underwriters Unit Purchase options are exercisable for a two year period
commencing March 23, 1997 at an exercise price of $7.75 per Unit.
HUFF WARRANTS
In connection with the issuance of the Subordinated Debentures to
Huff, the Company also issued ten-year warrants at an exercise price of $7.75
per share for the purchase of 728,000 shares of the Company's Class A Common
Stock. The purchase price for these warrants was $551,479.
Options
On December 2, 1993, the Company's Stock Option Committee granted
options to acquire 130,000 shares of the Company's Class A Common Stock out of
the 1993 Stock Option Plan. The options vest at 20% per year for a five year
period (commencing December 2, 1994) with an exercise price based upon the
Company's stock price at the date of grant of $7.88 per share and are
exercisable for ten years. Messrs. Morrow, Ferrel and Heideman, the Company's
Chairman, President and Senior Vice President, respectively, received options
to acquire 20,000, 50,000 and 5,000 shares, respectively. Messrs. Sillerman
and Tytel, principal executive officers of SCMC, received options to acquire
45,000 and 10,000 shares respectively. In addition, on December 2, 1993 the
Company's Board of Directors granted to each of its two independent directors
stock appreciation rights ("SARs") in respect of 10,000 shares of the
Company's stock with an exercise price of $8.66 per share. The SARs are
exercisable for ten (10) years, may be exercised in either cash or shares of
Class A Common Stock at the election of the Company, and vest in five (5)
equal annual installments beginning December 2, 1994. The SARs become
immediately vested if the director is not nominated for re-election or is not
re-elected.
On June 7, 1994, the Company's Stock Option Committee granted options
to acquire 65,000 shares of the Company's Class A Common Stock out of the 1994
Stock Option Plan. The options vest at 20% per year for a five year period
(commencing June 7, 1995) with an exercise price based upon the Company's
stock price at the date of grant of $5.00 per share and are exercisable for
ten years. Messrs. Morrow, Ferrel, Sillerman and Tytel received options to
acquire 5,000, 15,000, 20,000 and 5,000 shares, respectively; and The
Sillerman Companies, Inc., a company affiliated with Mr. Sillerman, was
granted options to acquire 20,000 shares. At December 31, 1994 and 1995, there
were 30,000 and 32,000 options exercisable, respectively.
The 100,000 authorized shares of the Company's 1995 Stock Option Plan
have not yet been granted.
7. COMMITMENTS AND TRANSACTIONS WITH AFFILIATES
The Company entered into a Financial Consulting and Marketing
Agreement (the "Consulting Agreement") with Sillerman Communications
Management Corporation ("SCMC"), an entity which is principally owned by one
of
F-14
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the organizers of the Company, pursuant to which SCMC agreed to serve for a
period of five years as the Company's financial consultant and marketing
specialist. The Company paid to SCMC as compensation for its services $3,000
per month per market in which the Company owns, operates, provides programming
for or engages in joint sales or similar arrangements with up to two stations,
and $5,000 per month per market in which the Company owns, operates, provides
programming for or engages in joint sales or similar arrangements with more
than two stations, adjusted annually to reflect any percentage increase in the
New York City CPI. Pursuant to an amendment to the Consulting Agreement in
May, 1994, SCMC was not entitled to consulting fees for any period in which
the Company would fail to satisfy the covenants under its credit Agreement,
after giving effect to such fees. During the year ended December 31, 1995, the
Company recorded an expense of $279,000 under the Consulting Agreement. For
the year ended December 31, 1994, no amounts were deemed earned under the
amended Consulting Agreement and, as a result, the Company did not record any
expense for such fees. The Board of Directors have approved a further
amendment to the SCMC Agreement which is being further amended to provide for
a fixed annual compensation, regardless of stations/markets, of $500,000 per
year, effective January 1, 1996.
Under the Agreement, SCMC has agreed to perform, or assist the
Company with, among other things: (i) placement of financing; (ii) design and
implementation of the Company's accounting system; (iii) production of
financial reports and other data for the Company's lenders and investors and
as required under the Securities Act and Exchange Act; (iv) implementation of
a cash management system; (v) periodic analyses of the sales and marketing
functions of all radio stations owned by the Company; (vi) consulting services
to the sales staff of the Company's Stations; (vii) formulation and
coordination of sales and marketing promotions by the Company's radio
stations; (viii) training and providing of motivational programs to the
Company's sales staff; and (ix) preparation and delivery to the Company of
quarterly reports and analyses of regional and national advertising activity
in small and medium-sized radio markets in New England and the Southeast and
economic, employment and industrial trends in such markets. In providing these
services, SCMC incurred, and was not compensated for, certain professional
fees and services.
SCMC and the Company have also agreed in the SCMC Agreement to
consider increasing SCMC's compensation if (i) the time and effort of SCMC for
performing services under the SCMC Agreement exceeds the level that was
originally contemplated by the parties when they entered into the Agreement,
or (ii) the Company acquires additional broadcast properties. The SCMC
Agreement also provides for the payment to SCMC of certain fees in the event
of any financing or mergers and acquisitions, whether or not such transactions
are originated by SCMC, although such fees are subject to the approval of the
Company's independent directors. During the year ended December 31, 1994 SCMC
received approximately $258,000 of fees and expense reimbursements related to
the Augusta Acquisitions and during the year ended December 31, 1995, SCMC
received approximately $1,530,000 of fees and expense reimbursements related
to the Southern Starr Acquisition. The Company has also agreed to reimburse
SCMC for all reasonable out-of-pocket disbursements incurred by SCMC in
connection with the performance of services under the SCMC Agreement and to
indemnify SCMC and its affiliates for any losses which may be incurred in
connection with the SCMC Agreement.
The Company has also entered into a Sublease Agreement with SCMC for
corporate headquarters space in the amount of $4,000 per month adjusted
annually for increases in the CPI. Pursuant to an amendment to the Sublease
Agreement in May 1994, SCMC is not entitled to such fees for any period in
which the Company would fail to satisfy the covenants under the Credit
Agreement, after giving effect to such fees. For the year ended December 31,
1994, no amounts were deemed earned under the amended Sublease Agreement and,
as a result, the Company did not record any expense for the facilities fees.
During the year ended December 31,1995 the Company recorded an expense of
$48,000 under this Agreement.
The Company's Secretary is an employee of SCMC and does not receive
compensation directly from the Company.
F-15
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the acquisition of SSBG, the Company entered into
an Agreement with Mr. Sillerman, whereby he arranged for the issuance of a
$1,300,000 Letter of Credit on the Company's behalf. In consideration for the
issuance of the Letter of Credit, the Company will issue 26,000 shares of
Class A Common Stock or pay $130,000 in cash, at the option of Mr. Sillerman.
Additionally, the Company will issue options to Mr. Sillerman to acquire
10,000 shares of Class A Common Stock exercisable within 10 years of the
issuance of the options at an exercise price of $2.50 per share. The Company
recorded interest expense under this Agreement of $90,000 in 1994 and $40,000
in 1995. The fair value of the options issued ($50,000) has been reflected as
an increase in paid-in capital.
Multi-Market Radio of Northampton, Inc. served as a nonexclusive
radio consultant to SCMC for a monthly fee of $8,000. The Agreement was
terminated on April 30, 1994. During the year ended December 31, 1994, the
Company recorded revenue under this Agreement of $32,000.
The Company's Board of Directors approved the release of the cash
flow guarantee provided by Northampton Holdings, Inc., the seller with respect
to radio stations WHMP-AM/FM, based upon: (i) management's satisfaction with
the performance of the station; and (ii) the inherent difficulties in
accurately measuring the performance of the stations as they are operated by
the Company so as to create a duopoly in the Northampton/Springfield market.
As Mr. Sillerman is the owner of NHI, the release of the guarantee was
approved as an affiliate transaction.
The Company has entered into various other agreements for rental
property and future service contracts as described below.
RENTAL REAL ESTATE, PROPERTY AND FUTURE SERVICE CONTRACTS
The Company leases office space and certain rental property under
various operating leases. The Company is also liable under certain future
service contracts. Future minimum lease payments under these leases and
contracts are payable as follows:
Years ending December 31:
1996..................................... $203,437
1997...................................... 187,741
1998...................................... 181,451
1999...................................... 181,451
2000...................................... 179,689
--------
$933,769
========
Rent expense for the years ended December 31, 1994 and 1995 was
$70,306 and $254,019 respectively.
LOCAL MARKETING AGREEMENTS AND JOINT SELLING AGREEMENTS
In November 1993, the Company began providing programming to WVCO-FM,
in Myrtle Beach, South Carolina licensed to Loris, South Carolina pursuant to
a letter of intent granting the owner an option (the "Option") to sell WVCO-FM
to the Company for $650,000. Pursuant to the local marketing Agreement
("LMA"), the Company provides a substantial portion of the programming
broadcast on WVCO-FM and sells advertising time during such programming
segments for its own account. In consideration for these rights, the Company
agreed to pay certain operating expenses of WVCO-FM and to make certain other
payments based on the combined revenue growth of WYAK-FM and WVCO-FM. On
December 15, 1994, the owner of WVCO-FM exercised the Option to sell the
station to the Company. Payments made by the Company under the LMA were
credited against the purchase price.
F-16
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 9, 1995, the Company entered into a Joint Selling
Agreement with GMR Broadcasting, pursuant to which the Company sells
advertising of station WCHZ-FM, licensed to Harlem, Georgia, in the Augusta,
Georgia market.
8. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting For Income Taxes ("FAS 109"). There
was no significant impact to MMR upon adoption. In accordance with FAS 109,
the Company accounts for income taxes using the liability method. Deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been recognized in the financial statements or tax
returns.
For the periods ended December 31, 1994 and 1995 the Company generated
net operating loss carryforwards ("NOL") of approximately $629,000 and
$1,379,000 respectively, which expire in 2009 and 2010.
The principal components of the Company's deferred tax assets and
liabilities are the following:
1994 1995
---- ----
Deferred Compensation .................... $ 138,700 $ 384,600
Net Operating Loss Carryforwards ......... 264,480 748,600
Allowance for Doubtful Accounts .......... 0 115,600
Accrued Interest ......................... 0 241,900
----------- -----------
403,180 1,490,700
Valuation Allowance ...................... (290,680) (532,800)
----------- -----------
Net Deferred Tax Asset ................... $ 112,500 $ 957,900
----------- -----------
Intangible Assets ........................ $ 207,500 $ 8,177,800
Fixed Assets and Other ................... 10,000 83,600
----------- -----------
Deferred Tax Liabilities ................. 217,500 8,261,400
----------- -----------
Net Deferred Tax Liability ............... $ 105,000 $ 7,303,500
The provision for (benefit from) income taxes consists of the
following:
Current 1994 1995
---- ----
Federal ........................... $ 0 $ 0
State ............................. 15,000 143,000
Deferred
Federal ........................... 0 (169,783)
State ............................. 0 (32,217)
----------- -----------
Total ............................. $ 15,000 $ (59,000)
F-17
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of income tax attributable to continuing
operations computed at the U.S. federal statutory tax rates to income tax
expense is:
1994 1995
---- ----
Benefit at statutory rate ................ $(255,266) $(472,722)
State and local tax ...................... 15,000 110,783
Valuation allowance ...................... 255,266 290,960
Non-deductible expenses .................. 0 11,979
--------- ---------
$ 15,000 $ (59,000)
========= =========
9. DEFINED CONTRIBUTION PLAN
In July 1994, the Company established a 401(k) defined contribution
plan in which most of the Company's employees are eligible to participate. The
Plan presently provides for employer contributions of 25% of the first 4% each
participant defers. Employer contributions for the year ended December 31,
1994 and 1995 totaled $4,438 and $27,266, respectively.
10. ACQUISITIONS AND FINANCINGS
In March 1995, the MMR Board approved the issuance, subject to
stockholder approval, of 200,000 MMR Series A Preferred Shares and 200,000 MMR
Series B Preferred Shares. Such issuance was approved by the stockholders of
MMR in August 1995. In July 1996 MMR issued 200,000 MMR Series A Preferred
Shares and 200,000 MMR Series B Preferred Shares to certain of its officers,
directors and advisors.
The terms of the MMR Series A Preferred Shares provided that they
would convert, on a share for share basis, into an equal number of MMR Class A
Shares in the event that Broadcast Cash Flow equaled or exceeded $5.0 million
for the fiscal year ending December 31, 1995, and the terms of the MMR Series
B Preferred Shares provide that they will be converted, on a share for share
basis, into an equal number of shares of MMR Class A Shares in the event that
Broadcast Cash Flow equals or exceeds $10.0 million for the fiscal year ending
December 31, 1997. However, in no event shall any MMR Series A Preferred
Shares of MMR Series B Preferred Shares be converted unless the closing sale
price of an MMR Class A share for the 30 trading days immediately preceding
such conversion exceeds $7.50 per share. The terms of the MMR Series A
Preferred Shares and the MMR Series B Preferred Shares provide that, if the
performance goals are not met, the shares will be redeemed for $.01 per share.
MMR achieved Broadcast Cash Flow of at least $5.0 million in 1995 and
accordingly, all of the MMR Series A Convertible Preferred Stock converted
into an equal number of MMR Class A Shares in July 1996. In July 1996 the
holders of the MMR Class A Shares issuable upon conversion of the MMR Series A
Preferred Shares and the holders of the MMR Series B Preferred Shares entered
into a escrow arrangement with respect to such shares. Pursuant to such escrow
arrangement, such shares shall be released from escrow ratably over a
five-year period commencing in April 1997. Such shares may not be transferred
until released from escrow but they may be voted while in escrow.
The Company has entered into a plan of merger (the "SFX Acquisition")
dated as of April 15, 1996, as amended on May 6, 1996, July 30, 1996 and
September 30, 1996, with SFX Broadcasting, Inc. ("SFX") pursuant to which SFX
agreed to merge with and into the Company. Following completion of the SFX
Acquisition, the Company will become a wholly-owned subsidiary of SFX. In the
event that the Merger Agreement is terminated pursuant to certain provision
thereof, MMR will have the right, subject to the receipt of prior FCC
approval, to acquire SFX's interests in the MMR Liberty Stations for $100.0
million, in which event SFX will be subject to a substantial tax liability. In
the event the Merger Agreement is terminated pursuant to certain provisions
thereof, SFX will have the right to structure an exchange of certain of MMR's
stations for the MMR Liberty Stations in a transaction which is intended to
qualify as a like-kind exchange under Section 1031 of the Code. SFX and MMR
acknowledged in the Merger
F-18
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agreement that any acquisition with respect to WYSR-FM would be of an interest
in an JSA rather than the station itself. See "The Merger Agreement--Other
Provisions."
MMR is entitled to call its Class A Warrants at a redemption price of
$.01 per MMR Class A Warrant in the event that the trading price of MMR Class
A Series of $10.75 per share, on average, for 20 consecutive trading days. In
the event of a redemption call, it is expected that substantially all of the
holders of the MMR Class A Warrants will exercise such warrants and acquire
MMR Class A Shares rather than be redeemed.
Pursuant to the SFX Acquisition, MMR shall, at the request of SFX,
use all commercially reasonable efforts to commence the exchange ("Exchange
Shares") of MMR Class B Warrants to MMR Class A Shares at a ratio of
two-tenths (.2) of an MMR Class A Share for each MMR Class B Warrant.
Upon consummation of the SFX Acquisition, and subject to certain
conditions, the outstanding securities of the Company will be converted into
shares of common stock of SFX as follows: (i) the shares of the Company's
Class A Common Stock, including the converted Series A Preferred Shares, and
the shares of the Company's Series B Convertible Preferred Stock will be
converted into that number of shares of Class A Common Stock of SFX determined
on the basis of the Exchange Ratio (as defined below) and (ii) the shares of
the Company's Class B Common Stock, the shares of the Company's Class C Common
Stock and the shares of the Company's Original Preferred Stock will be
converted into the number of shares of Class B Common Stock of SFX determined
on the basis of the Exchange Ratio.
The Exchange Ratio is the number of shares of Class A Common Stock or
Class B Common Stock of SFX, as the case may be, to be issued in the SFX
Acquisition equal to the quotient obtained by dividing $12.50 by the average
SFX stock price in the 20 days prior to closing, subject to adjustment.
Upon the completion of the SFX Acquisition, each of the Company's
outstanding options or stock appreciation rights will be assumed by SFX. Each
option will be deemed to constitute an option to acquire, on the same terms
and conditions as were previously applicable, the number of shares of SFX
Class A Common Stock equal to the product of the number of shares of Class A
Common Stock of the Company covered by the option multiplied by the Exchange
Ratio at an exercise price equal to the quotient determined by dividing the
exercise price per share of SFX Class A Common Stock specified for such option
by the Exchange Ratio.
Upon the completion of the SFX Acquisition, each of the Company's
outstanding (i) Class A Warrants and Class B Warrants, if any, (ii) options
issued pursuant to the unit purchase options issued to the underwriters of the
Company's public offering in March 1994, (iii) warrants issued to the
underwriters of the Company's initial public offering in July 1993, (iv) the
Huff Warrants and (v) options issued to Robert F.X. Sillerman outside the
Company's stock option plans, shall be assumed by SFX.
The Merger Agreement provides that, on or prior to the Effective
Time, MMR shall use its best efforts to repay all amounts due under the
Subordinated Debentures and redeem all shares of its Senior
Preferred Shares. All of the Subordinated Debentures and all of the
Senior Preferred Shares are held by Huff. Pursuant to the Huff
Consent Agreement, MMR has agreed to repay and redeem in full, at or
immediately prior to the Effective Time, the Subordinated
Debentures and the Senior Preferred Shares for an aggregate
purchase price of $21.0 million plus accrued and unpaid interest and dividends
through the date of repayment and redemption. In the Huff Consent Agreement,
SFX agreed, among other things, at the Effective Time, to issue to Huff
additional warrants to acquire that number of SFX Class A Shares equal to
175,000 multiplied by the Exchange Ratio. The Huff Consent Agreement contains
Huff's consent to the Merger on the terms and conditions set forth therein. In
addition, on or prior to the Effective Time, MMR must have repaid or provided
for the repayment of all amounts outstanding under the Finova loan agreement.
As of September 30, 1996 there was approximately $21.7 million outstanding
under the Finova Loan. Simultaneously with the consummation of the Merger, it
is anticipated that
F-19
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFX will pay for the redemption of the Subordinated Debentures and the Senior
Preferred Shares and the repayment of the Finova Loan.
On November 13, 1995, the Company and SFX entered into an exchange
Agreement (the "Exchange Agreement") pursuant to which the Company agreed to
acquire seven FM and four AM radio stations owned by Liberty Broadcasting,
Inc. ("Liberty") and to assume a JSA from Liberty with respect to one FM
station following the Acquisition of Liberty by SFX, in exchange for ten radio
stations to be acquired by the Company. Pursuant to the SFX Acquisition, SFX
canceled the Exchange Agreement and the Company agreed to transfer to SFX its
rights under the following purchase agreements for the stations originally to
be acquired by the Company and exchanged with SFX (the "Liberty Transaction").
On January 26, 1996, the Company entered into an Agreement to acquire
substantially all of the assets of WSTZ-FM and WZRX-AM, both operating in
Jackson, Mississippi, for a purchase price of $3.5 million. On January 22,
1996, the Company entered into an Agreement to acquire substantially all of
the assets of WROQ-FM, operating in Greenville, South Carolina, for a purchase
price of $14.0 million (the "WROQ Transaction"). On January 18, 1996 the
Company entered into an Agreement to acquire substantially all of the assets
of WTRG-FM and WRDU-FM, both operating in the Greensboro, North Carolina
market, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating in
the Greensboro, North Carolina market (the "North Carolina Transaction"). On
June 25, 1996, June 28, 1996 and July 1, 1996 the WROQ Transaction, the North
Carolina Transaction and the Liberty Transaction, respectively, were closed
and the respective stations were transferred to SFX.
On July 10, 1996, the Company sold the assets of WRXR-FM and WKBG-FM
to Wilks Broadcast Acquisitions, Inc. ("the Buyer") for a price of $5,000,000.
Additionally, a local marketing Agreement was entered into simultaneously with
the signing of the purchase Agreement pursuant to which the Buyer provided
programming on stations WRXR-FM and WKBG-FM from the date of the Agreement
(March 25, 1996) until the closing of the transaction. The Company recorded a
loss of approximately $1,596,000 related to this transaction in the first six
months of 1996.
In September 1996, the Company acquired substantially all of the
assets of WKSS-FM, Hartford, Connecticut, for an aggregate purchase price of
$18 million. In the SFX acquisition, SFX agreed that, if requested by MMR, it
would negotiate in good faith to enter into an agreement to advance up to
$23.0 million to MMR to finance the WKSS-FM acquisition and for working
capital and other general operating purposes. As of September 1996, SFX has
advanced approximately $20 million.
At June 30, 1996, MMR was in compliance with all covenants under the
Finova Loan Agreement and its Subordinated Debentures. The Finova Loan
Agreement contains a covenant which places an annual limitation on the amount
of MMR's corporate overhead. As a result of the significant expansion of MMR's
operations, this covenant was breached during the year ended December 31, 1995
and such breach was subsequently waived by Finova. This covenant, as well as a
similar covenant in the agreement governing the Subordinated Debentures, was
breached by MMR in the third quarter of 1996. Mr. Sillerman had notified the
Company that he intended to convert his non-voting Class C Common Stock and
Original Preferred Stock into voting Class B Common Stock upon any such
default, and on August 28, 1996, Mr. Sillerman effected such conversion. MMR
obtained a waiver of its default under the Finova Loan Agreement and a waiver
of its default under the agreement governing the Subordinated Debentures.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Southern Starr Broadcasting Group, Inc.
Alexandria, Virginia
We have audited the accompanying consolidated statement of operations
and cash flows of Southern Starr Broadcasting Group, Inc. and its subsidiaries
(the "Company") for the nine months ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of operations and cash flows of
Southern Starr Broadcasting Group, Inc. and subsidiaries for the nine months
ended December 31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Washington, DC
February 20, 1995
(March 9,1995 as to Note 9)
F-21
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended
December 31, 1994
(As Restated)
-------------
Broadcasting revenues ........................................ $ 10,170,288
Less agency commissions ...................................... 1,145,985
-------------
Net revenues ................................................. 9,024,303
-------------
Broadcasting expenses
Programming and other operating expenses ..................... 1,673,623
Selling, general and administrative expenses ................. 4,023,010
-------------
Broadcasting expenses, excluding depreciation and amortization 5,696,633
Depreciation and amortization ................................ 501,379
-------------
Total broadcasting expenses .................................. 6,198, 012
Corporate expenses ........................................... 773,323
-------------
Income from operations ....................................... 2,052,968
Non-operating expense
Interest ..................................................... (474,486)
Other, net ................................................... (882,614)
-------------
(1,357,100)
-------------
Minority interest in loss of consolidated subsidiary ......... (40,429)
-------------
Income before income taxes ................................... 655,439
-------------
Provision (benefit) for income taxes
Current ...................................................... 566,000
Deferred ..................................................... (2,000)
-------------
564,000
-------------
Net income ................................................... $ 91,439
=============
Net income per common share--primary ......................... $ 0.05
=============
Weighted average shares outstanding .......................... 1,720,202
=============
Net income per common share--fully diluted ................... $ 0.05
=============
Weighted average shares outstanding .......................... 1,720,202
=============
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended December
31, 1994
(As Restated)
--------------
<S> <C>
OPERATING ACTIVITIES
Net income ..................................................................... $ 91,439
Adjustments to reconcile net income to net cash provided by operating activities
Minority interest in losses of consolidated subsidiary ......................... 40,429
Depreciation and amortization--property and equipment .......................... 194,809
Amortization of intangibles .................................................... 306,569
Amortization of premiums and discounts ......................................... (3,431)
Barter revenue (over) under barter expense ..................................... (35,874)
Provision for losses on accounts receivable .................................... 141,335
Loss on disposal of fixed assets ............................................... 50,444
Changes in operating assets and labilities:
Increase in accounts receivable ................................................ (770,688)
(Increase) decrease in prepaid expenses and other current assets ............... (54,153)
Increase in other assets and deferred loan costs ............................... (262,528)
Increase in accounts payable ................................................... 314,540
Increase (decrease) in accrued expenses ........................................ 315,532
Increase in deferred revenue ................................................... 50,000
(Decrease) increase in income taxes payable .................................... (235,641)
Increase (decrease) in deferred taxes .......................................... 2,000
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 144,782
--------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ..................................... (1,273,042)
Increase in note receivable .................................................... (79,907)
Purchases of intangible assets ................................................. (1,311,697)
Proceeds from sale of fixed assets ............................................. 2,100
--------------
NET CASH USED IN INVESTING ACTIVITIES .......................................... (2,662,546)
--------------
FINANCING ACTIVITIES
Proceeds from borrowings ....................................................... 4,050,000
Principal payments on borrowings and capital lease obligations ................. (1,979,792)
Residual cash payment for stock dividend ....................................... (332)
--------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................ 2,069,876
--------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (447,888)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................... 1,086,989
CASH AND CASH EQUIVALENTS, END OF YEAR ......................................... $ 639,101
==============
Supplementary Disclosure of Cash Flow Information
Cash paid during year for:
Interest ....................................................................... $ 321,430
Income taxes ................................................................... 807,590
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of
Southern Starr Broadcasting Group, Inc. (the "Company") and its wholly-owned
subsidiaries. In addition, the consolidated financial statements include the
accounts of Southern Starr Limited Partnership, a limited partnership in which
the Company had a 50% ownership interest until the remaining interest was
purchased in June, 1994. All significant intracompany accounts and
transactions have been eliminated.
b. Revenue Recognition
Broadcasting revenues are recognized as advertisements are broadcast.
Revenues under Local Market Agreements are recognized during the period
covered by the agreements.
c. Property and Equipment
Depreciation and amortization are computed on the straight-line basis
over the estimated useful lives of the assets as follows:
Land improvements..................................20 Years
Buildings .........................................15 to 40 Years
Broadcast equipment ..............................5 to 15 Years
Furniture and fixtures ............................5 to 10 Years
Vehicles ..........................................5 Years
Leasehold improvements ...........................Life of Lease
d. Intangible Assets
Amortization is computed on the straight-line basis over periods
ranging from 25 to 40 years.
e. Deferred Loan Costs
Deferred loan costs are being amortized over the life of the loans,
computed using the interest method.
f. Barter Transactions
Revenue from barter transactions (advertising provided in exchange
for goods and services) is recognized as income when advertisements are
broadcast and merchandise or services received are capitalized or charged to
expense when received or used. The Company records barter transactions at the
fair market value of goods or services received.
F-24
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g. Net Income per Common Share
Net income per common share has been computed based on the weighted
average number of common shares and equivalents outstanding during the period.
The weighted average number of common shares outstanding for the nine months
ended December 31, 1994 include common stock equivalents of 134,858.
Fully diluted earnings per share reflects additional dilution related
to stock options when the market price at the end of the period is higher than
the average price for the period.
h. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
(2) ACQUISITION OF RADIO STATIONS
RADIO STATION WGNE-FM -- Pursuant to a Redemption Agreement dated as
of May 5, 1994, Southern Starr Limited Partnership, the owner of WGNE-FM,
Titusville/Daytona Beach, Florida, redeemed the 50% limited partnership
interest owned by the Sheet Metal Workers' National Pension Fund. The effect
of this transaction is that WGNE-FM is currently wholly-owned by the Company,
through the 20% general partnership interest of the Company's subsidiary,
Southern Starr Communications, Inc., and the 80% limited partnership interest
of Southern Starr Broadcasting Group, Inc.
In addition, pursuant to a Loan Purchase Agreement dated as of May 5,
1994, the Company purchased from the Sheet Metal Workers' National Pension
Fund the $1,800,000, promissory note due April 8, 1999, of Southern Starr
Limited Partnership. The purchase price for the promissory note was
$1,840,111, consisting of the $1,800,000 outstanding principal balance plus
accrued interest thereon.
The closing took place on June 20, 1994. The total consideration of
$2,439,808 was paid in cash. The source of funds was a drawdown of $2,550,000
under the Company's $8,000,000 reducing revolving loan from NationsBank. The
Company accounted for the acquisition of the remaining 50% interest by the
purchase method of accounting which resulted in additional goodwill of
approximately $600,000 which is being amortized over approximately 38 years.
RADIO STATIONS WMJY-FM AND WVMI-AM -- Pursuant to an Asset Purchase
Agreement dated March 18, 1994, and an Assignment of Asset Purchase Agreement
dated March 28, 1994, Southern Starr of Mississippi, Inc., a wholly-owned
subsidiary of the Company, purchased the business and substantially all of the
assets and facilities of radio stations WMJY-FM and WVMI-AM, Biloxi,
Mississippi.
F-25
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITION OF RADIO STATIONS (CONTINUED)
The closing took place on August 31, 1994. The purchase price for the
stations was $1,900,00 and was paid in cash. The source of funds for the
purchase was drawn from the Company's existing $8,000,000 credit facility with
NationsBank.
The Company accounted for this acquisition by the purchase method of
accounting. The purchase price was allocated to the net tangible and
intangible assets acquired based on preliminary estimates of their fair values
at the date of acquisition. This allocation consisted of $1,188,000 to
property and equipment, $529,000 to FCC licenses, $5,000 to a non-compete
agreement and the excess of the purchase price over the fair market values of
net assets acquired of $178,000 has been recorded as goodwill. The intangible
assets, consisting of FCC licenses, the non-compete agreement and goodwill are
being amortized on a straight-line basis over their estimated useful lives of
25, 3 and 25 years, respectively. The preliminary purchase price allocation is
subject to change during the one year period subsequent to the acquisition
date, as additional information concerning net asset valuations is obtained.
Therefore, the final allocation may differ from the preliminary allocation.
The following presents pro forma results of operations for the year
ended March 31, 1994, and the nine-month period ended December 31, 1994, as if
the acquisitions of WMJY-FM and WVMI-FM and the remaining 50% interest in
WGNE-FM had been consummated on April 1, 1994.
Nine months
ended
December 31,
1994
--------------
Broadcasting revenues ..... $10,170,288
Net income ................ 81,403
Net income per common share 0.05
(3) BARTER TRANSACTIONS
Barter sales and merchandise and services received under barter trade
agreements were as follows:
<TABLE>
<CAPTION>
Barter Revenue
Barter Barter Over (Under) Fixed Asset
Revenue Expense Barter Expense Additions
------- ------- -------------- -----------
<S> <C> <C> <C> <C>
Nine Months Ended:
December 31, 1994 ..... $579,759 $543,885 $ 35,874 $12,293
</TABLE>
F-26
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
The provision (benefit) for income taxes for the nine months ended
December 31, 1994, consists of the following:
December 31,
1994
--------------
Current:
Federal ...................................................... $ 369,000
State ........................................................ 197,000
--------------
566,000
Deferred ..................................................... (2,000)
--------------
Total Provision .............................................. $ 564,000
==============
The provisions for income taxes differ from the amount computed by
applying the statutory Federal income tax rate due to the following:
December 31, 1994
--------------
Federal income taxes at statutory rates ...................... $ 223,000
State income taxes, net of current federal income tax benefit 130,000
Tax effect of partnership losses allocated for tax ........... (19,000)
Non-deductible merger-related expenses ....................... 199,000
Other ........................................................ 31,000
--------------
$ 564,000
==============
(5) SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
Nine Months Ended
December 31, 1994
-----------------
Amortization of intangible assets and other deferrals:
Amortization of intangible assets ............................ $ 266,231
Amortization of deferred loan costs .......................... 40,338
Advertising and promotion costs .............................. 997,850
Music license fees (royalties) ............................... 257,239
(6) COMMITMENTS AND CONTINGENCIES
Operating Leases
Total rental expense for operating leases was approximately $382,000,
for the nine months ended December 31, 1994.
F-27
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) 401(K) PLAN
Effective January 1, 1992, the Company adopted the Southern Starr
Broadcasting Group, Inc. 401(k) Plan for the purpose of providing retirement
benefits for substantially all of its employees, age 21 or over with one year
of service. Participation in the Plan is voluntary. Subject to the applicable
limitations of the Internal Revenue Code of 1986, as amended, participants in
the 401(k) Plan may elect to make salary deferral contributions of up to 15%
of their annual compensation. The Company matches 50% of the first 4% of an
employee's deferred compensation. Company matched contributions vest to the
employees based upon their number of years of service to the Company.
Contributions to this Plan of $42,615 were charged to expense for the nine
months ended December 31, 1994.
(8) LOCAL MARKET AGREEMENT
On December 28, 1992, the Company entered into a Local Marketing
Agreement ("LMA") for its Little Rock, Arkansas station. Under the terms of
the Agreement, another Little Rock broadcasting company provides programming,
sales and related services for the Company's station. The Company receives a
fee averaging $20,700 per month plus contingent fees equal to 30% of the
Excess Revenue, as defined in the LMA, for a term of thirty-nine months. In
connection with the LMA, the Company entered into an option Agreement for
$50,000 with the other broadcasting company for the sale of the Little Rock
radio station which expired March 31,1994, and was renewed by the buyer for an
additional twelve month option period until March 31, 1995, for $50,000. The
total payments received of $100,000 for these options are reflected in
deferred revenue at December 31, 1994. The purchase price was $1,900,000 if
the option was exercised by March 31, 1994. Thereafter, the purchase price
under the existing option was $2,100,000. Under the Agreement setting forth
the option, the other broadcasting company had two successive rights to renew
the option to acquire the Little Rock radio station for two successive
twelve-month periods (beyond March 31, 1994). Each renewal of option was to be
exercised in writing, on or before February 1, 1994, and February 1, 1995,
respectively. As noted above, the option was renewed for the first successive
twelve-month period. However, no exercise of the renewal of option was
received in writing on or before February 1, 1995. Total LMA fees included in
broadcasting revenues in the statement of operations for the nine-month period
ended December 31, 1994, were approximately $186,000.
In February, 1994, the Company consummated a Local Market Advertising
Time Brokerage Agreement ("LMA") with Yale Broadcasting Company, Inc., whereby
the Company would provide promotional, sales and related services for radio
station WYBC-FM in New Haven, Connecticut. The Company pays a monthly LMA fee
under the Agreement plus contingent fees based upon Excess Revenue, as defined
in the LMA, in consideration for the revenue earned from the sale of
commercial air time on the station, for a term of 36 months. In connection
with the LMA, the Company has entered into a First Refusal Agreement providing
the Company the right of first refusal, for up to one year after the
expiration or termination of the LMA, in the event Yale Broadcasting Company,
Inc. wishes to sell the station. Total LMA payments included in programming
and other operating expenses in the statement of operations for the nine
months ended December 31, 1994, were approximately $90,000.
On March 18, 1994, the Company consummated a Local Market Advertising
Time Brokerage Agreement ("LMA") with TeleSouth Communications, Inc., whereby
the Company would provide programming, sales and related services for radio
stations WMJY-FM and WVMI-AM in Biloxi, Mississippi. The Company paid a
monthly fee under the Agreement in consideration for the revenue earned from
the sale of commercial air time on the station. Total LMA payments included in
programming and other operating expenses in the statement of operations for
the nine months ended December 31, 1994 were approximately $120,000.
Simultaneously, on March 18, 1994, the Company entered into an Asset Purchase
Agreement, for the purchase of the two radio stations for $1,900,000. This
purchase was completed on August 31, 1994 (see Note 2).
F-28
<PAGE>
SOUTHERN STARR BROADCASTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) MERGER AGREEMENT
On August 11, 1994, the Company announced that its Board of Directors
approved an Agreement under which the Company would be acquired by
Multi-Market Radio, Inc. ("MMR"). In the proposed merger transaction,
Multi-Market Radio, Inc. will acquire all 1,856,532 outstanding common shares
and stock options of the Company for $13.75 per share in cash (subject to
downward adjustment if the Company's transaction expenses exceed a specified
limit, the "Transaction Expense Adjustment").
The merger is subject to a number of conditions, including, among
others, approval by the Federal Communications Commission and the affirmative
vote of the stockholders of the Company. The FCC has granted its approval
which will become final 40 days after public notice is deemed issued, unless
the FCC reconsiders on its own motion within the 40-day period or within the
first 30 days of such period on a motion of third parties. A special meeting
of stockholders of the Company was held on March 9, 1995, whereby the
stockholders of record at the close of business on January 30, 1995, approved
the merger. Expenses associated with the proposed merger transaction, totaling
$853,589 for the nine months ended December 31, 1994, have been included in
"other expense" in the accompanying statement of operations. Not all of those
expenses included in "other expense" are necessarily includable in the
"Transaction Expense Adjustment" under the Merger Agreement with MMR referred
to in the above-referenced proxy statement for the special meeting of
shareholders, and the calculation of "other expense" for financial statement
purposes differs from the calculation used to estimate in the proxy statement
the expenses committed to be paid as of December 31, 1994, which count toward
the Transaction Expense Adjustment. In that proxy statement, it was stated
that "the Company's management estimates that, as of December 31, 1994,
excluding the balance of the fee payable at Closing of the Merger, the Company
had committed to pay approximately $700,000 of expenses which count toward the
Transaction Expense Adjustment."
(10) RESTATEMENT
Subsequent to the Company's issuance of its unaudited financial
statements as of and for the nine month period ended December 31, 1994,
management determined that the provision for income taxes and related balance
sheet accounts were misstated as a result of a calculation error. Accordingly,
the accompanying financial statements have been restated to properly reflect
such amounts.
The principal effects of the restatement are as follows:
As
Previously
Reported As Restated
------------ ------------
Consolidated Statement of Operations for the
Nine Months ended December 31, 1994:
Provision for income taxes ............ $464,000 $564,000
Net income (loss) ..................... 191,439 91,439
Net income (loss) per common share:
Primary ............................... 0.11 0.05
Fully Diluted ......................... 0.11 0.05
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Evergreen Communications, Inc.
We have audited the accompanying combined balance sheet of WRFX-FM
and WEDJ-FM (Divisions of Pyramid Communications, Inc.) as of December 31,
1995 and the related statements of operations, divisional surplus and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WRFX-FM and
WEDJ-FM (Divisions of Pyramid Communications, Inc.) as of December 31, 1995,
and the results of their operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 24, 1996
F-30
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C>
ASSETS
Current assets:
Cash ................................................................. $ 37,263
Accounts receivable, net of allowance for doubtful accounts of $53,042 2,554,955
Prepaids and other current assets .................................... 248,676
------------
Total current assets .......................................................... 2,840,894
Property and equipment, net ................................................... 2,083,469
Intangible assets:
Goodwill ............................................................. 431,842
FCC license .......................................................... 6,891,268
Other intangibles .................................................... 6,196,014
------------
13,519,124
Less accumulated amortization ........................................ (4,965,853)
------------
8,553,271
------------
$ 13,477,634
============
LIABILITIES AND DIVISIONAL SURPLUS Current liabilities:
Accounts payable ..................................................... $ 198,236
Accrued talent fees .................................................. 91,205
Accrued sales commissions ............................................ 68,218
Accrued bonus ........................................................ 53,121
Other accrued expenses ............................................... 139,691
------------
Total current liabilities ..................................................... 550,471
Due to related entities ....................................................... 9,597,507
Divisional surplus ............................................................ 3,329,656
------------
Total liabilities and divisional surplus ...................................... $ 13,477,634
============
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Gross revenue ........................ 12,000,990
Less commissions ..................... 1,376,815
-----------
Net operating revenue ................ 10,624,175
Operating expenses:
Sales and promotion ......... 2,824,807
Technical ................... 383,562
Programming and production .. 2,227,526
General and administrative .. 2,186,929
Depreciation and amortization 3,119,981
-----------
10,742,805
-----------
Loss from operations ................. (118,630)
Interest expense, net ................ 6,883
Loss on disposal of equipment ........ 607,893
-----------
Net loss ............................. $ (733,406)
===========
See accompanying notes to combined financial statements.
F-32
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF DIVISIONAL SURPLUS
YEAR ENDED DECEMBER 31, 1995
Divisional surplus at December 31, 1994 4,063,062
Net loss .............................. (733,406)
==========
Divisional surplus at December 31, 1995 3,329,656
==========
See accompanying notes to combined financial statements.
F-33
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
<S> <C>
Cash flows from operating activities
Net loss .......................................................... (733,406)
Adjustment to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization ............................ 3,119,981
Provision for doubtful accounts .......................... 5,412
Loss on disposal of equipment ............................ 607,893
Changes in certain operating assets and liabilities:
Increase in accounts receivable .......................... (702,752)
Decrease in prepaid expenses and other current assets .... 36,072
Decrease in accounts payable ............................. (203,981)
Decrease in accrued expenses and other current liabilities (7,354)
----------
Net cash provided by operating activities ......................... 2,121,865
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of assets ............................................... (325,784)
----------
Net cash used in investing activities ............................. (325,784)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related entities ...................................... (1,896,078)
----------
Net cash used in financing activities ............................. (1,896,078)
==========
Decrease in cash .................................................. (99,997)
Cash balance at beginning of year ................................. 137,260
----------
Cash balance at end of year ....................................... 37,263
==========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS AND ORGANIZATION
Pyramid Communications, Inc. (the "Company") was organized in
November of 1993 for the purpose of owning and acquiring radio stations
throughout the eastern United States. The Company accounts for the activities
of its stations as separate divisions. The accompanying financial statements
have been prepared on a going concern basis, and include the accounts of
WRFX-FM and WEDJ-FM (the "Stations") each of which are a division of the
Company. These divisions are being combined in these financial statements due
to the pending acquisition of these Stations by SFX Broadcasting, Inc. ("SFX")
(See below)
Substantially all of the assets of the Stations are pledged as
collateral under various obligations of the Company.
In March 1994, the Company completed the acquisition of the assets of
KISS Limited Partnership d/b/a Pyramid Broadcasting (the "Partnership") which
included the assets and FCC license of WRFX-FM. In August 1994 the Company
purchased certain assets, including the FCC license of WEDJ-FM (formerly
WAQQ-FM), both stations are located in Charlotte, North Carolina.
In January 1996, the Company, Evergreen Media Corporation
("Evergreen") and Evergreen Media/Pyramid Corporation ("Merger Co.") completed
the Agreement and Plan of Merger, dated as of July 14, 1995 (the "Merger
Agreement") whereby the Company merged with Evergreen.
In September 1996, Evergreen entered into a binding letter of intent
with EZ Communications, Inc. ("EZ"), whereby Evergreen agreed to sell
substantially all of the assets of WEDJ-FM to EZ and to swap the assets of
WRFX-FM in a like-kind exchange. In September 1996, EZ entered into a letter
of intent with SFX whereby EZ agreed to swap the Stations with SFX in a
like-kind exchange.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at assigned or actual cost and
depreciated using the straight-line method over their estimated useful lives
ranging from 3 to 20 years. Maintenance and repairs are charged to expense as
incurred.
INTANGIBLE ASSETS
Intangible assets are recorded at actual or assigned cost and are
being amortized on a straight-line basis. The cost of the FCC licenses and
goodwill are amortized over a 40 year period. The other intangibles, which
consist primarily of the rights in the John Boy and Billy Syndication Network,
are being amortized over a period of one to five years. The recoverability of
intangible assets are evaluated periodically based upon the undiscounted cash
flows generated from the related intangible assets.
F-35
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Sales are recorded when advertisements are aired in accordance with
the terms of sales agreements. Broadcast revenues are reported net of agency
and national commissions. Accounts receivable are not collateralized; however,
the Company reviews the creditworthiness of its customers on an ongoing basis.
TRADE ACTIVITY
Trade (barter) sales, in which available advertising time is given in
exchange for goods or services, are recognized when the bartered advertisement
is broadcast. The transactions are valued at the estimated market value of the
advertisement exchanged, which approximates the fair market value of the goods
or services received. Trade expense is recognized when the goods or services
are received or used. For the year ended December 31, 1995, the Stations
recorded trade revenue of $600,986 and trade expenses of $707,991. A
receivable is recognized when the advertisement has been broadcast, but the
stations have not yet used the goods or services being traded. Conversely, a
payable is recognized when the stations have used the goods or services being
traded, but have not yet broadcast the advertisement.
INCOME TAXES
The Stations are included in the consolidated U.S. federal, state and
local income tax returns of the Company. The provision (or benefit) for income
taxes has been calculated on a separate-company basis consistent with the
liability method prescribed by FASB Statement No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes reflect tax
carryforwards and the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial statement and income
tax purposes, as determined under enacted tax laws and rates. The financial
effect of changes tax laws or rates is accounted for in the period of
enactment.
The Stations generated a current taxable loss in the current year.
Therefore, no current provision has been recorded. The net deferred tax asset
of the Company is offset in full by a valuation allowance. Deferred income
taxes of the Stations are accounted for in divisional surplus.
ADVERTISING
The Stations expense all advertising costs when incurred. Advertising
expense was $342,060 for the year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments such as cash, accounts
receivable, accounts payable and accrued expenses approximates their face
value because of the short-term nature of these instruments.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 is required to be adopted in 1996. The
Stations do not believe the adoption of SFAS No. 121 will have a material
effect on the Station's consolidated financial position or results of
operations.
F-36
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Land and improvements ......................... $ 22,119
Building ...................................... 177,095
Tower and tower equipment ..................... 1,386,519
Furniture and fixtures ........................ 115,087
Leasehold improvements ........................ 355,594
Broadcast and other equipment ................. 941,725
-----------
$ 2,998,139
Less accumulated depreciation ................. (914,670)
-----------
$ 2,083,469
===========
The loss on disposal of equipment resulted primarily from a radio tower that
was donated to Davidson College's radio station.
4. LEASE COMMITMENTS
The Stations have entered into various noncancellable operating
leases for office space, transmitter tower space, vehicles, remote vehicles,
and office equipment. These financing arrangements expire at various dates
through May 2011, and leases contain renewal and/or purchase options.
Lease expense was approximately $323,000 for the year.
Future minimum lease payments for the Stations under noncancelable
operating leases that have an initial or remaining lease term in excess of one
year are as follows:
1996 $291,627
1997 264,171
1998 128,215
1999 150,803
2000 140,268
Thereafter 1,029,365
5. EMPLOYEE CONTRACTS
The Stations entered into various employment agreements with certain
key employees. These employment agreements expire at various dates though
December 1998. Future minimum obligations under these agreements are
approximately $977,000 (1996); $855,000 (1997) and $484,000 (1998). Certain
agreements contain bonus provisions which are contingent upon future
performance.
6. RELATED PARTY
Due to related entities consists primarily of amounts due to the
Company. The Stations remit excess cash to the Company in order to reimburse
it for amounts funded by the Company for the original purchase.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precision Media Corporation
We have audited the accompanying balance sheets of WKSS 95.7--FM (A
Division of Precision Media Corporation) as of December 31, 1995 and 1994 and
the related statements of income, divisional surplus and cash flows for the
two years then ended. 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
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WKSS 95.7--FM (A
Division of Precision Media Corporation), as of December 31, 1995 and 1994,
and the results of its operations and cash flows for the two years then ended
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 20, 1996
F-38
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
BALANCE SHEETS
December 31,
-----------------------
1995 1994
---------- ----------
ASSETS
Current Assets:
Cash ................................. $ 194,489 $ 205,075
Accounts receivable, trade--net of
allowance for doubtful accounts of
$80,952 and $50,193 in 1995 and 1994,
respectively ......................... 971,537 810,042
Due from officer ..................... 14,130 8,580
Prepaid expenses and other
current assets .................... 16,454 16,738
---------- ----------
Total current assets .......................... 1,196,610 1,040,435
Property and equipment:
Leasehold improvements ............... 174,118 174,118
Antennas and transmitters ............ 295,972 294,972
Technical equipment .................. 212,489 192,642
Motor vehicles ....................... 45,279 25,827
Office furniture and equipment ....... 153,169 147,981
---------- ----------
881,027 835,540
Less accumulated depreciation
and amortization .............................. 522,046 481,615
---------- ----------
358,981 353,925
---------- ----------
Broadcast licenses--net of ....................
accumulated amortization $310,663 and $139,343
in 1995 and 1994, respectively ................ 4,100,808 4,272,128
---------- ----------
$5,656,399 $5,666,488
========== ==========
[TABLE CONTINUED FROM ABOVE]
[RESTUBBED]
December 31,
-----------------------
1995 1994
---------- ----------
LIABILITIES AND DIVISIONAL SURPLUS
Current liabilities:
Accounts payable .............................. $ 427,225 $ 301,708
Accrued expenses and other current liabilities 248,329 155,163
Current maturities of intracompany debt ....... 275,000 175,000
Current maturities of capital lease
obligations and other long-term debt........... 11,654 2,343
---------- ----------
Total current liabilities ..................... 962,208 634,214
Intracompany debt, less current portion ....... 3,900,000 4,175,000
Capital lease obligation, and other
long term debt, less current portion .......... 20,370 --
Divisional surplus ............................ 773,821 857,274
---------- ----------
Total liabilities and divisional surplus ...... $5,656,399 $5,666,488
========== ==========
See accompanying notes.
F-39
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1995 1994
-------------- --------------
Gross revenue ............... $ 5,043,570 $ 4,437,949
Less agency commissions ..... 635,278 531,763
Tower rental income ......... 15,600 13,346
----------- -----------
Net operating revenue ....... 4,423,892 3,919,532
Operating expenses:
Selling and promotion ....... 1,447,545 1,298,842
Technical ................... 83,886 79,967
Programming ................. 1,017,499 859,840
General and administrative .. 737,112 602,855
Depreciation and amortization 226,722 203,986
----------- -----------
3,512,764 3,045,490
----------- -----------
Income from operations ...... 911,128 874,042
Interest expense, net ....... (501,614) (460,977)
Other income ................ 14,175 25,235
----------- -----------
Income before income taxes .. 423,689 438,300
Income tax expense .......... 47,665 50,404
----------- -----------
Net income .................. $ 376,024 $ 387,896
=========== ===========
See accompanying notes.
F-40
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
STATEMENTS OF DIVISIONAL SURPLUS
YEAR ENDED DECEMBER 31,
1995 1994
---------- -----------
Divisional surplus, beginning of year 857,274 485,345
Net cash transfers .................. (459,477) (15,967)
Net income .......................... 376,024 387,896
======== ========
Divisional surplus, end of year ..... $773,821 $857,274
======== ========
See accompanying notes.
F-41
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income ............................................. $ 376,024 $ 387,896
Adjustment to reconcile net income to cash provided by
operating activities:
Depreciation and amortization .......................... 226,722 203,986
Provision for doubtful accounts ........................ 30,759 20,944
Changes in certain operating assets and liabilities:
Decrease in accounts receivable ............... (192,254) (218,292)
(Increase) decrease in due from officer ....... (5,550) 2,939
(Increase) decrease in prepaid expenses
and other current assets ..................... 284 (7,660)
Increase (decrease) in accounts payable ....... 125,517 (129,158)
Increase in accrued expenses and other current
liabilities .................................. 93,166 69,380
--------- ---------
Net cash provided by operating activities .............. 654,668 330,035
--------- ---------
Cash flows from investing activities
Purchases of property and equipment .................... (26,035) (20,629)
--------- ---------
Net cash used in investing activities .................. (26,035) (20,629)
--------- ---------
Cash flows from financing activities
Proceeds from issuance of other long-term debt ......... 14,543 15,196
Principal payments on intracompany debt ................ (175,000) (150,000)
Principal payments on capital lease obligation and other
long-term debt ......................................... (19,285) (15,491)
Net intracompany cash transfers ........................ (459,477) (15,967)
--------- ---------
Net cash used in financing activities .................. (639,219) (166,262)
--------- ---------
Increase (decrease) in cash ............................ $ (10,586) $ 143,144
Cash balance at beginning of year ...................... 205,075 61,931
========= =========
Cash balance at end of year ............................ $ 194,489 $ 205,075
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ................. $ 461,425 $ 462,320
========= =========
Cash paid during the year for income taxes ............. $ 2,538 $ 422
========= =========
Supplemental schedule of noncash investing activities:
Capital lease and debt incurred to acquire vehicles .... $ 34,422 $-
========= =========
</TABLE>
See accompanying notes.
F-42
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. NATURE OF BUSINESS
Precision Media Corporation (the "Company") is a corporation engaged in
the business of owning and operating radio stations. The Company acquired a
radio station in Hartford, Connecticut, now known as WKSS 95.7-FM (the
"Station"), on August 27, 1984. The Company also owns and operates several
other radio stations throughout New England and accounts for the activities of
the stations as separate divisions. The accompanying financial statements have
been prepared on a going concern basis and include only the accounts of the
Station, a division of the Company.
Substantially all of the assets of the Station are pledged as
collateral under various obligations of the Company.
On April 1, 1996, the Company entered into an Asset Purchase Agreement
to sell substantially all of the assets relating to the operation of the
Station to Multi-Market Radio, Inc. for approximately $18,000,000 in cash.
2. SIGNIFICANT ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is principally derived from broadcast advertisers within the
greater Hartford area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers
and does not require collateral or other security to support customer
receivables. No one customer accounted for more than 10% of revenues for the
years ended December 31, 1995 and 1994.
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost. Major renewals, additions
and betterments are charged to the property accounts while replacements,
maintenance and repairs which do not improve or extend the lives of the
respective assets are expensed in the year incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets as follows:
ASSETS LIFE IN YEARS
-------------------------------------------------------------------
Leasehold improvements Life of lease
Antennas and transmitters 10
Technical equipment 5-10
Motor vehicles 5
Office furniture and equipment 5-10
F-43
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AMORTIZATION
Amortization of the broadcast license is computed using the
straight-line method over 40 years.
INCOME TAXES
The Company has elected to be taxed as an S corporation as provided in
Section 1362(a) of the Internal Revenue Code. As such, the corporate income or
loss and credits are passed to the stockholders and combined with their
personal income and deductions to determine taxable income on their individual
federal tax returns. The Station is included in the federal income tax return
of the Company.
Business income of an S Corporation is subject to a corporate level tax
on income derived in Connecticut. The corporate tax rate in Connecticut is
approximately eleven and one-half percent (11-1/2%). Accordingly, provisions
of $47,665 and $50,404, have been recorded for the Station's operations on a
stand-alone basis for 1995 and 1994, respectively. Deferred income taxes
attributable to accelerated amortization and depreciation are accounted for in
divisional surplus.
BARTER TRANSACTIONS
Agreements are entered into with various vendors on a regular and
continuing basis which provide that in return for advertising spots on the
Station, merchandise or other services will be furnished by these vendors in
lieu of cash payments. For the years ended December 31, 1995 and 1994, the
Station recorded barter revenue of $199,119 and $236,162, respectively. Barter
expense for the same two years was $240,975 and $209,490. Included in accounts
payable is the fair value of advertising spots due to vendors. Included in
accounts receivable is the fair value of the merchandise or services due to
the Company from vendors.
REVENUE RECOGNITION
Revenue is recognized as advertisements are broadcast.
ADVERTISING
All advertising and promotion costs are expensed as incurred.
3. INTRACOMPANY DEBT
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Intracompany debt payable pursuant to an oral agreement to the corporate
office of Precision Media Corporation in 20 consecutive quarterly
installments of principal ranging from $50,000 to $100,000 through
January 1, 1998 and one final payment of the remaining principal balance
due on April 1, 1998. Interest accrues at the base rate (as defined)
plus 3% payable monthly in arrears. The prevailing interest rate at
December 31, 1995 and 1994 was 11.5% and 10.25%, respectively
Subsequent to December 31, 1995 this note was repaid as part of
a refinancing transaction .............................................. $4,175,000 $4,350,000
Less current maturities ................................................ 275,000 175,000
========= =========
$3,900,000 $4,175,000
========= =========
</TABLE>
F-44
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. OTHER LONG-TERM DEBT
Other long-term debt includes a note payable to Ford Motor Credit
Company with principal due in monthly installments ending October 12, 1999.
5. RETIREMENT PLAN
During 1994, the Company implemented a qualified cash or deferred
plan which covers its employees who work more than one thousand (1,000) hours
annually, have completed three months of service and have attained the age of
twenty-one years. Eligible employees may contribute up to 15% of their
compensation with a maximum dollar limitation of $9,240 for 1995. The Company
may make matching contributions at its discretion. The Station has accrued
$6,502 and none as matching contributions for the years ended December 31,
1995 and 1994, respectively.
6. COMMITMENTS AND CONTINGENCIES
TOWER SPACE INCOME AGREEMENTS
The Company subleases tower space to various corporations for radio
communications purposes for terms ranging from 3 to 18 years through April 30,
2007. The leases require monthly payments by the sublessors ranging from $323
to $3,277.
The Company is required to make additional payments as lessee to the
lessors ranging from 35% to 50% of income received as a sublessor. Tower
rental income, which is presented net of additional rent expenses of $12,235
and $9,582 was $27,835 and $22,928 for the years ended December 31, 1995 and
1994, respectively.
The following is a schedule by year of the future minimum rental
revenue, net of additional rent expense, under the noncancelable income
agreements for the year ending after December 31, 1995:
Year:
1996 $18,774
1997 19,457
1998 20,168
1999 20,910
2000 21,682
Thereafter 157,584
=================
$258,575
=================
CONTRACTUAL COMMITMENTS
The Company leases office space in Hartford, Connecticut under an
operating lease expiring December 1996. In addition to a base monthly rent,
the lease calls for payment of the Company's pro-rata share of operating
expenses of the lessor plus real estate taxes. Rent expense amounted to
$101,602 and $100,942 for the years ended December 31, 1995 and 1994,
respectively.
The Company leases a transmitter site in Meriden, Connecticut under
an operating lease expiring in April 2007. Under the terms of the agreement,
the Company pays additional rent based on income received as a sublessor (see
aforementioned Tower Space Income Agreements). Rent expense amounted to
$34,525 and $34,428 for the years ended December 31, 1995 and 1994,
respectively.
The Company is obligated under various other agreements for music
licenses, software licenses, a network affiliation contract, library services,
new services, advertising, and rating services expiring through March 31,
2001.
F-45
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a schedule by year of the future minimum contractual
obligations noted above for the year ending after December 31, 1995:
Year:
1996
$401,799
1997
184,424
1998
187,600
1999
191,225
2000
203,422
Thereafter
284,595
-----------------
$1,453,065
=================
7. INTERDIVISIONAL TRANSACTIONS
The Company charges the Station for operational expenses such as
payroll taxes, corporate overhead and insurance premiums incurred on the
Station's behalf. It is not practicable to determine the amount of the
expenses that would have been incurred had the Station operated as an
unaffiliated entity. However, management is of the opinion that the amount
allocated to the Station is based on a reasonable allocation method. These
costs are included in general and administrative expenses in the statement of
income. The Station remits excess cash to the Company in order to reimburse it
for these expenditures and to make loans to other divisions. All of these
transactions are conducted on an interest free basis.
F-46
<PAGE>
ANNEX A
GLOSSARY
"Acquisitions" means, collectively, the Completed Acquisitions and the Pending
Acquisitions.
"Acquisition Sub" means SFX Merger Company, a Delaware corporation and a
wholly-owned subsidiary of SFX.
"Additional Acquisitions" means, collectively, the acquisitions by SFX of all
of the assets of radio stations WROQ-FM, operating in Greenville, South
Carolina; WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi; WTRG-FM and WRDU-FM, both operating in Raleigh-Durham, North
Carolina; and WHSL-FM, WMFR-AM, WMAG-FM and WTCK-AM, each operating in
Greensboro, North Carolina.
"Albany Acquisition" means the pending acquisition by SFX of substantially all
of the assets used in the operation of WYSR-FM, operating in Albany, New York.
"Alternate Proposal Fee" has the meaning set forth under "Summary--The Merger."
"Armstrong Agreement" means Amendment No. 1, effective as of April 15, 1996,
to the Amended and Restated Employment Agreement between SFX and D. Geoffrey
Armstrong.
"Augusta Stations" means WRXR-FM, operating in Augusta, Georgia and WKBG-FM,
operating in Martinez, Georgia.
"Average Price" has the meaning set forth under "Summary--The Merger."
"Broadcast Cash Flow" is defined as net revenues (including where applicable,
fees earned by SFX pursuant to the SCMC Termination Agreement) less station
operating expenses.
"Certificate of Designations" means the Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions thereof
relating to the SFX Series D Preferred Shares.
"Chancellor Exchange" means the exchange by SFX of four radio stations
operating in the Long Island, New York market for two radio stations operating
in the Jacksonville, Florida market and a payment to SFX of $11.0 million.
"Charlotte Exchange" means the exchange by SFX of WTDR-FM, Charlotte, North
Carolina, and $64.8 million for WSSS-FM, WRFX-FM and WNKS-FM, each operating in
Charlotte, North Carolina.
"Competing Transaction" has the meaning set forth under "The Merger
Agreement--Non-Solicitation."
"Completed Acquisitions" means, collectively, SFX's recent consummation of the
Liberty Acquisition, the Prism Acquisition, the Jackson Acquisitions, the
Greenville Acquisition, the Louisville Acquisition and the Raleigh-Greensboro
Acquisitions.
"Dallas Disposition" means the sale of radio station KTCK-AM, operating in
Dallas, Texas.
"Determination Date" means the fifth trading day prior to the Effective Time.
"Dispositions" means, collectively, the Washington Dispositions, the
Louisville Dispositions and the Pending Disposition.
"EBITDA" is defined as net income (loss) before (i) extraordinary items, (ii)
provisions for income taxes, (iii) interest (income) expense, (iv) other
(income) expense, (v) cumulative effects of changes in accounting principles,
(vi) depreciation, amortization, duopoly integration costs and acquisition
related costs and (vii) non-recurring charges.
"Effective Time" means the time of the Merger.
A-1
<PAGE>
"Exchange Ratio" means the number of SFX Shares to be received by the MMR
Stockholders for each MMR Share held.
"Financing" means the Note Offering and the Preferred Stock Offering,
collectively.
"Finova Loan" means the loan made pursuant to the Loan Agreement, dated March
27, 1995, between Finova Capital Corporation and certain MMR subsidiaries.
"GAAP" means generally accepted accounting principles.
"Greensboro Acquisition" means the acquisition of substantially all of the
assets of WHSL-FM, operating in Greensboro, North Carolina.
"Greenville Acquisition" means the acquisition on June 25, 1996 of
substantially all of the assets used in the operation of radio station
WROQ-FM, operating in Greenville-Spartanburg, South Carolina.
"Hicks Agreement" means the Amended and Restated Agreement, dated June 19,
1996, by and between SFX and R. Steven Hicks.
"Houston Exchange" means the exchange of SFX's radio station KRLD-AM,
operating in Dallas, Texas, and SFX's Texas State Networks for radio station
KKRW-FM, operating in Houston, Texas.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Huff" means The Huff Alternative Income Fund, LLP.
"Huff Consent Agreement" means the Consent Agreement, dated May 17, 1996,
between SFX, MMR and Huff.
"Huff Warrants" means warrants to acquire 728,201.54 MMR Class A Shares issued
by MMR to Huff.
"Jackson Acquisitions" means, collectively, the acquisitions by SFX of the
assets of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi.
"Jacksonville Acquisition" means the acquisition of WAPE-FM and WFYV-FM, both
operating in Jacksonville, Florida, in the Chancellor Exchange.
"JSA" means a joint sales agreement, pursuant to which advertising is sold on
a radio station.
"Liberty Acquisition" means the acquisition on July 1, 1996 of Liberty
Broadcasting Incorporated, which owned and operated or provided programming to
or sold advertising on behalf of 14 FM and six AM radio stations located in
six markets: Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York;
Providence, Rhode Island; Hartford, Connecticut; Albany, New York and
Richmond, Virginia.
"LMA" means a local marketing agreement, pursuant to which programming is
provided to and advertising is sold on a radio station.
"Long Island Disposition" means the disposition of four radio stations
operating in the Long Island, New York market in the Chancellor Exchange.
"Louisville Acquisition" means the acquisition, consummated in September 1996,
by SFX from Prism of substantially all of the assets used in the operation of
three radio stations operating in the Louisville, Kentucky market.
A-2
<PAGE>
"Louisville Dispositions" means the sale consummated in October 1996, by SFX
of the three stations acquired from Prism Radio Partners L.P. in the
Louisville Acquisition. "Make Whole Notice" has the meaning set forth under
"Summary--The Merger."
"Make Whole Rescission Notice" has the meaning set forth under "Summary--The
Merger."
"Merger" means the merger of Acquisition Sub with and into MMR, as a result of
which MMR will become a wholly-owned subsidiary of SFX.
"Minimum Per Share Amount" has the meaning set forth under "Summary--The
Merger."
"MMR" means Multi-Market Radio, Inc., a Delaware corporation.
"MMR A Dispositions" means, collectively, the sale by MMR of WRXR-FM and
WKBG-FM, operating in Augusta, Georgia, and the sale of KOLL-FM, both operating
in Little Rock, Arkansas.
"MMR B Dispositions" means, collectively, the sale by MMR of WRSF-FM, WRXR-FM,
WKBG-FM and KOLL-FM.
"MMR Class A Shares" means the shares of Class A Common Stock, par value $.01
per share, of MMR.
"MMR Class A Warrants" means the Class A Warrants of MMR, each exercisable to
purchase one MMR Class A Share.
"MMR Class B Shares" means the shares of Class B Common Stock, par value $.01
per share, of MMR.
"MMR Class B Warrants" means the Class B Warrants of MMR, each exercisable to
purchase one MMR Class A Share.
"MMR Class C Shares" means the shares of Class C Common Stock, par value $.01
per share, of MMR.
"MMR Exchange Offer" means the offer by MMR, commenced on or about the date of
the Joint Proxy Statement/Prospectus, to exchange MMR Class A Shares for all
outstanding MMR Class B Warrants, at a ratio of one MMR Class A Share for each
five MMR Class B Warrants.
"MMR Hartford Acquisition" means the acquisition by MMR in September 1996 of
WKSS-FM, Hartford, Connecticut.
"MMR Independent Committee" means the committee of directors of MMR which
evaluated the Merger Agreement on behalf of MMR.
"MMR Initial Stations" means WHMP-FM, WHMP-AM and WPKX-FM, each operating in
Myrtle Beach, South Carolina.
"MMR IPO Warrants" means the warrants issued by MMR to the underwriters of
MMR's initial public offering in July 1993.
"MMR Liberty Stations" has the meaning set forth under "Summary--The Merger."
"MMR Little Rock Disposition" means the pending sale by MMR of KOLL-FM,
operating in Little Rock, Arkansas.
"MMR Myrtle Beach Acquisition" means the acquisition by MMR in August 1996 of
WMYB-FM, operating in Myrtle Beach, South Carolina.
A-3
<PAGE>
"MMR Myrtle Beach Disposition" means the pending sale by MMR of WYAK-FM and
WMYB-FM, operating in Myrtle Beach, North Carolina.
"MMR Original Preferred Shares" means the shares of Original Preferred Stock,
par value $.01 per share, of MMR.
"MMR Preferred Shares" means the MMR Original Preferred Shares and the MMR
Series B Preferred Shares, collectively.
"MMR Senior Cumulative Preferred Shares" means the Senior Cumulative Preferred
Shares, par value $.01 per share, of MMR.
"MMR Senior Subordinated Debentures" means the Senior Subordinated Debentures
due 2001 of MMR.
"MMR Series A Preferred Shares" means the shares of Series A Convertible
Preferred Stock, par value $.01 per share, of MMR.
"MMR Series B Preferred Shares" means the shares of Series B Convertible
Preferred Stock, par value $.01 per share, of MMR.
"MMR Shares" means the MMR Class A Shares and the MMR Class B Shares,
collectively.
"MMR Special Meeting" means the Special Meeting of Stockholders of MMR at
which the MMR Stockholders will vote on the proposals set forth in this Joint
Proxy Statement/Prospectus.
"MMR UPOs" means the unit purchase options issued by MMR in connection with
MMR's public offering in March 1994.
"MMR Warrant Redemption" means the call for redemption, commenced on or about
the date of this Joint Proxy Statement/Prospectus, by MMR of the MMR Class A
Warrants at $.01 per warrant.
"MMR Warrant" means the Sillerman Options, the MMR Class A Warrants, the MMR
Class B Warrants, the MMR UPOs, the MMR IPO Warrants and the Huff Warrants,
collectively.
"New Credit Agreement" means the definitive credit Agreement SFX expects to
enter into pursuant to a commitment from its lender to increase amounts
available under its senior credit facility to $225.0 million.
"Note Offering" means the private placement, completed in May 1996, by SFX of
$450.0 million in aggregate principal amount of its 10.75% Senior Subordinated
Notes due 2006.
"Old Credit Agreement" means SFX's senior credit facility in the amount of
$50.0 million, which was repaid in full on May 31, 1996.
"Old Notes" means the 11.375% Senior Subordinated Notes due 2000 of SFX which
were issued in October 1993, substantially all of which were repurchased by
SFX in the Tender Offer.
"Pending Acquisitions" means, collectively, the Merger, the Richmond
Acquisition, the Albany Acquisition, the Charlotte Exchange, the Greensboro
Acquisition, the Houston Exchange and the Chancellor Exchange.
"Pending Disposition" means the Dallas Disposition.
"Pending Transactions As Of June 30, 1996" means, collectively, (i) the Liberty
Acquisition, including the Washington Dispositions and the Chancellor Exchange;
(ii) the Prism Acquisition, including the Louisville Dispositions; (iii) the
Greensboro Acquisition and the Jackson Acquisitions; (iv) the Charlotte
Exchange; (vii) the Albany Acquisition; and (viii) the Merger, including the MMR
Hartford Acquisition, the MMR Myrtle Beach Acquisition, the MMR A Dispositions,
the exercise of all outstanding MMR Class A Warrants in the MMR Warrant
Redemption and the exchange of all outstanding MMR Class B Warrants in the MMR
Exchange Offer.
"Preferred Stock Offering" means the private placement, consummated in May
1996, by SFX of $149.5 million in aggregate liquidation preference of the SFX
Series D Preferred Shares.
A-4
<PAGE>
"Price Termination Notice" has the meaning set forth under "Summary--The
Merger."
"Prism" means Prism Radio Partners L.P.
"Prism Acquisition" means the acquisition by SFX of substantially all of the
assets of Prism used in the operation of ten FM and six AM radio stations
located in five markets: Louisville, Kentucky; Jacksonville, Florida; Raleigh,
North Carolina; Tucson, Arizona and Wichita, Kansas.
"Raleigh-Greensboro Acquisitions" means the acquisition on June 28, 1996 of
substantially all of the assets used in the operation of radio stations
WMFR-AM, WMAG-FM and WTCK-AM, each operating in the Greensboro, North Carolina
market, and WTRG-FM and WRDU-FM, both operating in the Raleigh, North Carolina
market.
"Recent Acquisitions" means, collectively, the acquisitions by SFX of (i) WTDR
and WLYT-FM, both operating in Charlotte, North Carolina, which was
consummated in February 1996; (ii) KTCK-FM, Dallas, Texas, which was
consummated in September 1995; and (iii) KYXY-FM, San Diego, California, which
was consummated in April 1995.
"Reported Price" means, with respect to each trading day, the average of the
last reported bid and asked prices of the SFX Class A Shares on such trading
day.
"Richmond Acquisition" means the acquisition by SFX of ABS Communications
L.L.C., as a result of which SFX will acquire radio stations WVGO-FM, WLEE-FM,
WKHK-FM and WBZU-FM, each operating in Richmond, Virginia.
"SCMC" means Sillerman Communications Management Corporation, a New York
corporation.
"SFX" means SFX Broadcasting, Inc., a Delaware corporation.
"SFX Annual Meeting" means the 1996 Annual Meeting of Stockholders of SFX, at
which the SFX Stockholders will vote on the proposals set forth in this Joint
Proxy Statement/Prospectus.
"SFX Class A Shares" means the shares of Class A Common Stock, par value $.01
per share, of SFX.
"SFX Class A Stock Price" has the meaning set forth on the cover page of this
Joint Proxy Statement/Prospectus.
"SFX Class B Shares" means the shares of Class B Common Stock, par value $.01
per share, of SFX.
"SFX Class C Shares" means the shares of Class C Common Stock, par value $.01
per share, of SFX.
"SFX Independent Committee" means the committee of directors of SFX which
evaluated the Merger Agreement on behalf of SFX.
"SFX Loan" means the loan of up to $23.0 million which SFX has agreed to make to
MMR pursuant to a loan agreement entered into in September 1996.
"SFX Preferred Shares" means the shares of preferred stock, par value $.01 per
share, of SFX.
"SFX Reports" has the meaning set forth under "Incorporation of Certain
Documents by Reference."
"SFX Series B Preferred Shares" means the Series B Redeemable Preferred Stock,
par value $.01 per share, of SFX.
"SFX Series C Preferred Shares" means the Series C Redeemable Convertible
Preferred Stock, par value $.01 per share, of SFX.
A-5
<PAGE>
"SFX Series D Preferred Shares" means the 6.5% Series D Cumulative Convertible
Exchangeable Preferred Stock due May 31, 2007, par value $.01 per share, of
SFX.
"SFX Shares" means the SFX Class A Shares and the SFX Class B Shares,
collectively.
"Sillerman Options" means the options issued by MMR to Robert F.X. Sillerman
outside MMR's stock option plans.
"Southern Starr" means Southern Starr Broadcasting Group, Inc.
"Southern Starr Acquisition" means MMR's acquisition, consummated in March
1995, of WPLR-FM, operating in New Haven, Connecticut, WKNN-FM, WMJY-FM and
WVMI-AM, each operating in Biloxi, Mississippi, WGNE-FM, operating in Daytona
Beach, Florida and KOLL-FM, operating in Little Rock, Arkansas.
"Southern Starr Stations" means WPLR-FM, operating in New Haven, Connecticut,
WKNN-FM, WMJY-FM and WVMI-AM, each operating in Biloxi, Mississippi, WGNE-FM,
operating in Daytona Beach, Florida, and KOLL-FM, operating in Little Rock,
Arkansas.
"Tender Offer" means the tender offer, commenced in May 1996, by SFX for the
11.375% Senior Subordinated Notes of SFX in which SFX purchased approximately
$79.4 million in principal amount of the $80.0 million principal amount of
such Notes outstanding.
"Transactions" means, collectively, the Acquisitions, the Dispositions, the
Financing and the Tender Offer; the implementation of the Hicks Agreement, the
Armstrong Agreement and the SCMC Termination Agreement; and the repayment of
the Old Credit Agreement.
"Triathlon" means Triathlon Broadcasting Company, a Delaware corporation.
"Washington Dispositions" means the sale by SFX, consummated in July 1996, of
three of the stations acquired from Liberty Broadcasting, each operating in
the Washington, DC/Baltimore, Maryland market.
A-6
<PAGE>
ANNEX B
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
SFX BROADCASTING, INC.,
SFX MERGER COMPANY
AND
MULTI-MARKET RADIO, INC.
DATED AS OF APRIL 15, 1996,
AS AMENDED ON MAY 6, 1996, JULY 30, 1996 AND SEPTEMBER 30, 1996
(COMPOSITE VERSION)
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
ARTICLE I -- THE MERGER
1.01. The Merger ............................................. B-1
1.02. Effective Time; Closing ................................ B-1
1.03. Effect of the Merger ................................... B-2
1.04. Certificate of Incorporation; Bylaws ................... B-2
1.05. Directors and Officers ................................. B-2
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01. Conversion of Securities ............................... B-2
2.02. Exchange of MMR Stock Certificates ..................... B-4
2.03. Stock Transfer Books ................................... B-5
2.04. Stock Options and Stock Appreciation Rights ............ B-6
2.05. Warrants ............................................... B-6
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF MMR
3.01. Organization and Qualification; Subsidiaries ........... B-7
3.02. Certificate of Incorporation and Bylaws ................ B-8
3.03. Capitalization ......................................... B-8
3.04. Authority Relative to this Agreement ................... B-8
3.05. No Conflict; Required Filings and Consents ............. B-8
3.06. Permits; Compliance .................................... B-9
3.07. SEC Filings; Financial Statements ...................... B-9
3.08. Absence of Certain Changes or Events ................... B-10
3.09. Absence of Litigation .................................. B-11
3.10. Employee Benefit Matters ............................... B-11
3.11. Labor Matters .......................................... B-11
3.12. Intellectual Property .................................. B-11
3.13. Taxes .................................................. B-11
3.14. Opinion of Financial Advisor ........................... B-13
3.15. Vote Required .......................................... B-13
3.16. Brokers ................................................ B-13
3.17. Tangible Property ...................................... B-13
3.18. Material Contracts ..................................... B-13
3.19. [Intentionally Omitted] ................................ B-13
3.20. Certain Business Practices ............................. B-13
3.21. Board Recommendation ................................... B-14
3.22. Change in Control ...................................... B-14
3.23. FCC Compliance ......................................... B-14
3.24. Environmental Matters .................................. B-14
3.25. Accounts Receivable .................................... B-15
3.26. Insurance .............................................. B-15
3.27. Real Property and Leases ............................... B-15
3.28. Interested Party Transactions .......................... B-16
(i)
<PAGE>
ARTICLE IV-- REPRESENTATIONS AND WARRANTIES OF SFX
AND ACQUISITION SUB
4.01. Corporate Organization and Qualification ............... B-16
4.02. Certificate of Incorporation and Bylaws ................ B-16
4.03. Capitalization ......................................... B-16
4.04. Authority Relative to this Agreement ................... B-17
4.05. No Conflict; Required Filings and Consents ............. B-17
4.06. SEC Filings; Financial Statements ...................... B-18
4.07. Absence of Certain Changes or Events ................... B-18
4.08. Taxes .................................................. B-18
4.09. Permits; Compliance .................................... B-19
4.10. Absence of Litigation .................................. B-19
4.11. Employee Benefit Matters ............................... B-19
4.12. Labor Matters .......................................... B-19
4.13. Intellectual Property .................................. B-19
4.14. Opinion of Financial Advisor ........................... B-19
4.15. Vote Required .......................................... B-19
4.16. Tangible Property ...................................... B-21
4.17. Certain Business Practices ............................. B-21
4.18. Board Recommendation ................................... B-21
4.19. FCC Compliance ......................................... B-21
4.20. Interested Party Transactions .......................... B-21
ARTICLE V -- CONDUCT OF BUSINESS PENDING THE MERGER
5.01. Conduct of Business by MMR Pending the Merger .......... B-22
5.02. Conduct of Business by SFX Pending the Merger .......... B-22
5.03. Control of Stations .................................... B-22
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.01. Registration Statement; Proxy Statement ................ B-22
6.02. Stockholders' Meetings ................................. B-24
6.03. Appropriate Action; Consents; Filings .................. B-24
6.04. Access to Information .................................. B-25
6.05. Acquisition Proposals ................................. B-25
6.06. Directors' and Officers' Indemnification ............... B-26
6.07. Obligations of Acquisition Sub ......................... B-27
6.08. Public Announcements ................................... B-27
6.09. Delivery of SEC Documents .............................. B-27
6.10. Notification of Certain Matters ........................ B-27
6.11. Further Action ......................................... B-27
6.12. Tax Treatment .......................................... B-27
6.13. FCC Application(s) and Approval ........................ B-28
6.14. Employee Benefit Plans ................................. B-28
6.15. Repayment of Indebtedness; Redemption of
MMR Senior Preferred Stock ........................... B-29
6.16. Warrants; Make Whole Adjustment ........................ B-29
6.17. The Exchange Agreement and Related Matters ............. B-29
6.18. Governance ............................................. B-30
6.19. Withdrawal of Registration Statements .................. B-30
6.20. Consulting Arrangement ................................. B-30
(ii)
<PAGE>
ARTICLE VII -- CONDITIONS TO THE MERGER
7.01. Conditions to the Obligations of Each Party ............ B-30
7.02. Conditions to the Obligations of SFX and Acquisition Sub B-31
7.03. Conditions to the Obligations of MMR ................... B-31
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER
8.01. Termination ............................................ B-32
8.02. Fees and Expenses ...................................... B-34
8.03. Amendment .............................................. B-35
8.04. Waiver ................................................. B-35
ARTICLE IX -- GENERAL PROVISIONS
9.01. Non-Survival of Representations, Warranties and Agreements B-35
9.02. Notices ................................................ B-35
9.03. Certain Definitions .................................... B-36
9.04. Severability ........................................... B-37
9.05. Assignment; Binding Effect; Benefit .................... B-37
9.06. Incorporation of Schedules ............................. B-37
9.07. Specific Performance ................................... B-37
9.08. Governing Law .......................................... B-37
9.09. Headings ............................................... B-37
9.10. Counterparts ........................................... B-37
9.11. Waiver of Jury Trial ................................... B-37
9.12. Entire Agreement ....................................... B-38
9.13. Waiver of Certain Rights ............................... B-38
(iii)
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, AS AMENDED
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as
of April 15, 1996, as amended on May 6, 1996, July 30, 1996 and September 30,
1996 (this "Agreement"), by and among SFX BROADCASTING, INC., a Delaware
corporation ("SFX"), SFX MERGER COMPANY, a Delaware corporation and a direct
wholly-owned subsidiary of SFX ("Acquisition Sub"), and MULTI-MARKET RADIO,
INC., a Delaware corporation ("MMR").
W I T N E S S E T H:
WHEREAS, Acquisition Sub, upon the terms and subject to the
conditions of this Agreement and in accordance with the General Corporation
Law of the State of Delaware ("Delaware Law"), intends to merge with and into
MMR (the "Merger");
WHEREAS, the Board of Directors of MMR (a) has determined
that the Merger is in the best interests of MMR and its stockholders and has
approved and adopted this Agreement and the transactions contemplated hereby
(the "Transactions") and (b) has recommended the approval and adoption of this
Agreement and the approval of the Merger by, and directed that this Agreement
and the Merger be submitted to a vote of, the stockholders of MMR;
WHEREAS, the Board of Directors of SFX (a) has determined
that the Merger is in the best interests of SFX and its stockholders and has
approved and adopted this Agreement and the Transactions and (b) has
recommended the approval and adoption of this Agreement and the approval of
the Merger by, and directed that this Agreement and the Merger be submitted to
a vote of, the stockholders of SFX;
WHEREAS, the Board of Directors of Acquisition Sub has
determined that the Merger is in the best interests of Acquisition Sub and its
stockholder and has approved and adopted this Agreement and the Transactions;
and
WHEREAS, SFX and MMR intend that the Merger constitute a
tax-free "reorganization" to the extent of the receipt of stock within the
meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, SFX, Acquisition Sub and MMR hereby agree as follows:
ARTICLE I -- THE MERGER
SECTION 1.01. THE MERGER . Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law,
at the Effective Time (as hereinafter defined), Acquisition Sub shall be
merged with and into MMR, the separate corporate existence of Acquisition Sub
shall cease and MMR shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). The name of the Surviving Corporation shall be
Multi-Market Radio, Inc.
SECTION 1.02. EFFECTIVE TIME; CLOSING . Unless this
Agreement shall have been terminated and the Transactions abandoned pursuant
to Article VIII, as promptly as practicable (and in any event within five
business days) following the satisfaction or waiver of the conditions set
forth in Article VII (or such other date as may be agreed to in writing by
each of the parties hereto), the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware (the "Secretary") in such
form as is required by, and executed in accordance with the relevant
provisions of, Delaware Law. The term "Effective Time" means the date and time
of the filing of the Certificate of Merger with the Secretary (or such later
time as may be agreed to in writing by each of the parties hereto and
specified in the Certificate of Merger). Immediately prior to
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the filing of the Certificate of Merger, a closing (the "Closing") will be
held at the offices of Baker & McKenzie, 805 Third Avenue, New York, New York
(or such other place and time as the parties hereto may agree).
SECTION 1.03. EFFECT OF THE MERGER . The effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all property, rights, privileges, powers and franchises of MMR
and Acquisition Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of MMR and Acquisition Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS . (a) The
Certificate of Incorporation of MMR, as in effect at the Effective Time and as
amended as set forth below, shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with applicable law.
"ARTICLE IV
The total number of shares of capital stock which the
Corporation shall have authority to issue is one thousand
(1,000), $.01 par value per share, all of which shall be
shares of common stock."
(b) At the Effective Time, the Bylaws of MMR in effect at
the Effective Time shall be the Bylaws of the Surviving Corporation, until
duly amended in accordance with the terms thereof.
SECTION 1.05. DIRECTORS AND OFFICERS . The directors of
Acquisition Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
a successor is elected or appointed and qualified, and the officers of
Acquisition Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified, or as otherwise
provided in the Bylaws of the Surviving Corporation.
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES . (a) At the
Effective Time, by virtue of the Merger and without any action on the part of
Acquisition Sub, MMR or the holders of any of the following shares of capital
stock, and subject to the other provisions of Sections 2.01 and 2.02:
(i) MMR CLASS A COMMON STOCK -- each share of Class A Common
Stock, $.01 par value, of MMR (the "MMR Class A Common
Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive
the number of validly issued, fully paid and non-assessable
shares of Class A Common Stock, $.01 par value, of SFX (the
"SFX Class A Common Stock") equal to the Exchange Ratio (as
defined in Section 2.01(b));
(ii) MMR CLASS B COMMON STOCK -- each share of
Class B Common Stock, $.01 par value, of MMR (the "MMR Class
B Common Stock") issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares (as defined
in Section 2.01(d))) shall be converted into the right to
receive the number of validly issued, fully paid and
non-assessable shares of Class B Common Stock, $.01 par
value, of SFX (the "SFX Class B Common Stock") equal to the
Exchange Ratio;
(iii) MMR CLASS C COMMON STOCK -- each share of
Class C Common Stock, $.01 par value, of MMR (the "MMR Class
C Common Stock") issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares) shall be
converted into the right to receive the
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number of validly issued, fully paid and non-assessable
shares of SFX Class B Common Stock equal to the Exchange
Ratio;
(iv) MMR ORIGINAL PREFERRED STOCK -- each share of Preferred
Stock, $.01 par value, of MMR (the "MMR Original Preferred
Stock") issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares) shall be
converted into the right to receive the number of validly
issued, fully paid and non-assessable shares of SFX Class B
Common Stock equal to the Exchange Ratio; and
(v) MMR SERIES B CONVERTIBLE PREFERRED STOCK --
each share of Series B Convertible Preferred Stock, $.01 par
value, of MMR (the "MMR Series B Preferred Stock") issued
and outstanding immediately prior to the Effective Time
(other than Dissenting Shares) shall be converted into the
right to receive the number of validly issued, fully paid
and non-assessable shares of SFX Class A Common Stock equal
to the Exchange Ratio, which shares of SFX Class A Common
Stock shall be subject to certain mutually acceptable
forfeiture restrictions through February 14, 1998;
provided, however, that in the event that the stockholders of MMR fail to
approve the amendments to the Certificate of Incorporation of MMR as set forth
in Exhibit C, or the National Association of Securities Dealers, Inc. ("NASD")
or the Nasdaq Stock Market does not approve the issuance of SFX Class B Common
Stock in the Merger, then each share of MMR Class B Common Stock, MMR Class C
Common Stock and MMR Original Preferred Stock shall be converted into the
right to receive the number of validly issued, fully paid and non-assessable
shares of SFX Class A Common Stock equal to the Exchange Ratio.
(vi) all shares (other than Dissenting Shares) of MMR Class
A Common Stock, MMR Class B Common Stock, MMR Class C Common
Stock, MMR Original Preferred Stock, and MMR Series B
Preferred Stock (collectively, the "MMR Securities") shall
no longer be outstanding and shall automatically be canceled
and cease to exist, and each certificate previously
evidencing any such shares (other than Dissenting Shares)
shall thereafter represent the right to receive a
certificate representing the shares of SFX Class A Common
Stock or SFX Class B Common Stock (collectively, the "SFX
Common Stock") into which such MMR Securities were converted
in the Merger. The holders of certificates previously
evidencing such MMR Securities outstanding immediately prior
to the Effective Time shall cease to have any rights with
respect to such MMR Securities except as otherwise provided
herein or by Delaware Law. Such certificates previously
evidencing MMR Securities shall be exchanged for
certificates representing whole shares of SFX Common Stock
issued in consideration therefor upon the surrender of such
certificates previously evidencing MMR Securities in
accordance with the provisions of Section 2.02. No
fractional shares of SFX Common Stock shall be issued, and,
in lieu thereof, a cash payment shall be made pursuant to
Section 2.02(e);
(vii) any MMR Securities held in the treasury of
MMR and any MMR Securities owned by SFX or any wholly-owned
subsidiary of SFX or of MMR immediately prior to the
Effective Time shall be canceled and extinguished without
any conversion thereof and no payment shall be made with
respect thereto; and
(viii) each share of common stock, $.01 par value, of
Acquisition Sub (the "Acquisition Sub Common Stock") issued
and outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully
paid and non-assessable share of Common Stock, $.01 par
value, of the Surviving Corporation.
(b) For purposes of this Agreement, subject to adjustments
required by Section 6.16, "Exchange Ratio" shall mean the number of shares of
SFX Class A Common Stock or SFX Class B Common Stock, as the case may be,
equal to the quotient obtained by dividing $12.50 by the average of the
Reported Price (as defined hereafter) for the twenty (20) consecutive trading
days ending on the fifth trading day prior to the Effective Time (such average
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Reported Price being the "SFX Class A Common Stock Price") (the fifth trading
day prior to the Effective Time being referred to as the "Determination
Date"), on the primary exchange on which the SFX Class A Common Stock is
traded, including the Nasdaq National Market; provided, however, that (1) in
the event that the SFX Class A Common Stock Price exceeds $44.00, then the
Exchange Ratio shall be the quotient obtained by dividing (i) the sum of (A)
$12.50, plus (B) the product of (I) thirty percent (30%), multiplied by (II)
the difference between the SFX Class A Common Stock Price and $44.00 by (ii)
the SFX Class A Common Stock Price; or (2) in the event that the SFX Class A
Common Stock Price is less than $32.00 then the Exchange Ratio shall be .3750.
All arithmetic calculations pursuant to this paragraph shall be made through
the fourth decimal place (i.e., to the closest ten-thousandth). For purposes
of this Agreement, "Reported Price" shall mean, with respect to each trading
day, the average of the last reported bid and asked prices of the SFX Class A
Common Stock on such trading day.
(c) If between the date of this Agreement and the Effective
Time, except as otherwise contemplated herein, the outstanding MMR Securities
or SFX Common Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, reclassification,
recapitalization, split, division, combination or exchange of shares, the
Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, reclassification, recapitalization, split, division, combination or
exchange of shares.
(d) If appraisal rights are available under Delaware Law to
holders of shares of MMR Securities in connection with the Merger, any issued
and outstanding share of MMR Securities (other than MMR Class A Common Stock)
which has not been voted for adoption of this Agreement and the Transactions
and with respect to which appraisal shall have been properly demanded in
accordance with Section 262 of Delaware Law ("Dissenting Shares") shall not be
converted into the right to receive the consideration described in Section
2.01(a), and the holders thereof shall have only such rights as are provided
in such Section 262 of Delaware Law, unless and until the holder of any such
share of MMR Securities withdraws such holder's demand for appraisal in
accordance with Section 262(k) of Delaware Law or otherwise loses the right to
such appraisal. If a holder of MMR Securities shall withdraw such holder's
demand for appraisal or shall otherwise lose the right to such appraisal,
then, as of the Effective Time or the occurrence of such event, whichever last
occurs, such holder's MMR Securities shall cease to be Dissenting Shares and
shall be converted into the consideration described in Section 2.01(a),
without interest. Prior to the Effective Time, MMR shall give SFX prompt
notice of any written demands for appraisal or withdrawals of demands for
appraisal received by MMR and, except with the prior written consent of SFX,
shall not settle or offer to settle any such demands.
SECTION 2.02. EXCHANGE OF MMR STOCK CERTIFICATES .
(a) EXCHANGE AGENT. As of or before the Effective Time, SFX
shall deposit, or shall cause to be deposited, with a bank or trust company
organized under the laws of, and having an office in, the United States or any
state thereof (the "Exchange Agent") and designated by SFX and approved by
MMR, which approval shall not be unreasonably withheld, for the benefit of the
holders of MMR Securities, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the whole shares of SFX
Common Stock issuable pursuant to Section 2.01 in exchange for outstanding MMR
Securities and cash in an amount sufficient to permit payment of cash payable
in lieu of fractional shares pursuant to Section 2.02(e) (such certificates
for shares of SFX Common Stock, together with any dividends or distributions
with respect thereto, and cash, being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions from
SFX, be instructed to deliver the SFX Common Stock contemplated to be issued
pursuant to Section 2.01 and cash contemplated by Section 2.02(e) out of the
Exchange Fund.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable
after the Effective Time, SFX will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time evidenced outstanding MMR Securities (other than Dissenting
Shares) (each a "Certificate" and collectively, the "Certificates") (i) a
letter of transmittal and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates evidencing shares of SFX
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive
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in exchange therefor a certificate representing the number of whole shares of
SFX Common Stock which such holder has the right to receive in respect of the
MMR Securities formerly represented by such Certificate (after taking into
account all MMR Securities then held by such holder), together with cash in lieu
of fractional SFX Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and any dividends or distributions to which such holder is
entitled pursuant to Section 2.02(c), and the Certificate so surrendered shall
forthwith be canceled. Subject to Section 2.02(h), under no circumstances will
any holder of a Certificate be entitled to receive any part of the shares of SFX
Common Stock into which the MMR Securities were converted in the Merger until
such holder shall have surrendered such Certificate. In the event of a transfer
of ownership of MMR Securities which is not registered in the transfer records
of MMR, the shares of SFX Common Stock into which such MMR Securities were
converted in the Merger may be issued in accordance with this Article II to
the transferee if the Certificate evidencing such MMR Securities is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.02, each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the certificate representing the
number of whole shares of SFX Common Stock which the holder has the right to
receive in respect of the MMR Securities formerly represented by such
Certificate (after taking into account all MMR Securities then held by such
holder), together with cash in lieu of fractional shares of SFX Common Stock
to which such holder is entitled pursuant to Section 2.02(e) and any dividends
or distributions to which such holder is entitled pursuant to Section 2.02(c).
SFX agrees, from and after the Effective Time, to treat each holder of
Certificates as holding of record the whole number of shares of SFX Common
Stock which such holder has the right to receive pursuant to this Agreement
for purposes of voting and determinations of quorums for voting.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF SFX
COMMON STOCK. No dividends or other distributions declared or made after the
Effective Time with respect to SFX Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of SFX Common Stock into which such MMR Securities
were converted in the Merger, until the holder of such Certificate shall
surrender such Certificate for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of such Certificate, in addition to the
certificates representing shares of SFX Common Stock as provided in Section
2.02(b) (including any cash paid or other distributions pursuant to Section
2.02(e)), without interest, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
the whole shares of SFX Common Stock evidenced by such Certificate.
(d) NO FURTHER RIGHTS IN MMR SECURITIES. All shares of SFX
Common Stock delivered upon conversion of the MMR Securities in accordance
with the terms hereof (including any cash paid or other distributions pursuant
to Sections 2.02(c) and (e)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such MMR Securities.
(e) NO FRACTIONAL SHARES. No certificates or scrip
evidencing fractional shares of SFX Common Stock shall be issued upon the
surrender for exchange of Certificates, but in lieu thereof each holder of MMR
Securities who would otherwise be entitled to receive a fraction of a share of
SFX Common Stock, after aggregating all shares of SFX Common Stock which such
holder would be entitled to receive under Section 2.01, shall receive an
amount equal to the SFX Class A Common Stock Price multiplied by the fraction
of a share of SFX Common Stock to which such holder would otherwise be
entitled, without interest.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the holders of MMR Securities for
one year after the Effective Time shall be delivered to SFX, upon demand, and,
subject to Section 2.02(g), any holders of MMR Securities who have not
theretofore complied with this Article II shall thereafter look only to SFX
for the shares of SFX Common Stock, any cash in lieu of fractional shares of
SFX Common Stock and any dividends or other distributions to which they are
entitled pursuant to this Section 2.02.
(g) NO LIABILITY. Neither SFX nor the Surviving Corporation
shall be liable to any holder of MMR Securities for any shares of SFX Common
Stock (or dividends or distributions with respect thereto) or cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
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(h) LOST CERTIFICATES. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the execution of an indemnity agreement
by such person and/or the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may reasonably direct, as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of SFX Common Stock, cash in lieu of
fractional shares of SFX Common Stock and unpaid dividends and distributions
on shares of SFX Common Stock deliverable in respect thereof pursuant to this
Agreement.
SECTION 2.03. STOCK TRANSFER BOOKS . At the Effective Time,
the stock transfer books of MMR shall be closed and there shall be no further
registration of transfers of MMR Securities thereafter on the records of MMR.
At or after the Effective Time, any Certificates presented to the Exchange
Agent or SFX for any reason shall be converted into the right to receive
shares of SFX Common Stock, cash in lieu of fractional shares of SFX Common
Stock and any dividends or other distributions to which they are entitled
pursuant to Section 2.02.
SECTION 2.04. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS .
(a) Pursuant to the Multi-Market Radio, Inc. 1993 Stock Option Plan (the "1993
Plan"), the Multi-Market Radio, Inc. 1994 Stock Option Plan (the "1994 Plan")
and the Multi-Market Radio, Inc. 1995 Stock Option Plan (the "1995 Plan" and,
together with the 1993 Plan and the 1994 Plan, the "Option Plans"), all
outstanding options issued thereunder (the "Options") shall, as of the
Effective Time, automatically and without any action on the part of the holder
thereof, be assumed by SFX. The holders of such Options shall continue to
have, and be subject to, the same terms and conditions set forth in the stock
option plans and agreements pursuant to which such Options were issued as in
effect immediately prior to the Effective Time, except that (i) such Options
shall be exercisable for that number of whole shares of SFX Class A Common
Stock equal to the product of the number of shares of MMR Class A Common Stock
covered by the Option immediately prior to the Effective Time multiplied by
the Exchange Ratio rounded up to the nearest whole number of shares of SFX
Class A Common Stock, and (ii) the per share exercise price for the shares of
SFX Class A Common Stock issuable upon the exercise of such assumed Option
shall be equal to the quotient determined by dividing the exercise price per
share of MMR Class A Common Stock specified for such Option under the
applicable stock option plan or agreement in effect immediately prior to the
Effective Time by the Exchange Ratio rounding the resulting exercise price
down to the nearest whole cent. The date of grant for such Option shall be the
date on which the Option was originally granted. At the Effective Time, SFX
shall reserve for issuance the number of shares of SFX Class A Common Stock
that will become issuable upon the exercise of such Options pursuant to this
Section 2.04. Nothing in this Section 2.04 shall affect the schedule of
vesting (or the acceleration thereof) with respect to the Options to be
assumed by SFX as provided in this Section 2.04. As soon as practicable after
the Effective Time, SFX shall file a registration statement or registration
statements on Form S-8 (or any successor form), or another appropriate form
with respect to the shares of SFX Class A Common Stock subject to such
options, and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
such Options remain outstanding. It is the intention of the parties that,
subject to applicable law, the Options assumed by SFX qualify following the
Effective Time as "incentive stock options" (as defined in Section 422 of the
Code) to the extent that the Options qualified as incentive stock options
prior to the Effective Time.
(b) At the Effective Time, each outstanding stock
appreciation right ("SAR") issued by MMR shall, as of the Effective Time,
automatically and without any action on the part of the holder thereof, be
assumed by SFX. The holders of such SARs shall continue to have, and be
subject to, the same terms and conditions set forth in the agreements pursuant
to which such SARs were issued as in effect immediately prior to the Effective
Time, except that (i) such SARs shall be exercisable for that number of whole
shares of SFX Class A Common Stock equal to the product of the number of
shares of MMR Class A Common Stock covered by the SAR immediately prior to the
Effective Time multiplied by the Exchange Ratio rounded up to the nearest
whole number of shares of SFX Class A Common Stock, and (ii) the per share
strike price for the shares of SFX Class A Common Stock issuable upon the
exercise of such assumed SAR shall be equal to the quotient determined by
dividing the strike price per share of MMR Class A Common Stock specified for
such SAR under the applicable agreement in effect immediately prior to the
Effective Time by the Exchange Ratio, rounding the resulting strike price down
to the nearest whole cent. SFX may
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elect, in its sole discretion, to pay cash upon exercise of the SARs in lieu
of shares of SFX Class A Common Stock as such amount shall be determined in
accordance with the agreements pursuant to which the SARs were issued. The
date of grant of such SAR shall be the date on which the SAR was originally
granted. At the Effective Time, SFX shall reserve for issuance the number of
shares of SFX Class A Common Stock that will become issuable upon the exercise
of such SARs pursuant to this Section 2.04. Nothing in this Section 2.04 shall
affect the schedule of vesting (or the acceleration thereof) with respect to
the SARs to be assumed by SFX as provided in this Section 2.04. As soon as
practicable after the Effective Time, SFX shall file a registration statement
with respect to the shares of SFX Class A Common Stock subject to such SARs
and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus contained therein) for so long as such SARs remain
outstanding.
SECTION 2.05. WARRANTS . (a) At the Effective Time, each
outstanding (i) Class A Warrant (the "Class A Warrants") and Class B Warrant
(the "Class B Warrants") issued pursuant to that certain Warrant Agreement
dated March 23, 1994 by and among MMR, American Stock Transfer & Trust Company
(the "Warrant Agent"), D.H. Blair Investment Banking Corp. and Americorp
Securities, Inc. (the "Warrant Agreement"), (ii) option issued pursuant to
those certain unit purchase options dated March 23, 1994 (the "Unit Purchase
Options"), (iii) warrant issued to the underwriters of MMR's initial public
offering pursuant to common stock purchase warrants dated July 28, 1993 (the
"IPO Warrants"), (iv) warrant issued to The Huff Alternative Income Fund, L.P.
("Huff") dated March 27, 1995 and September 26, 1995 and exercisable to
purchase 595,000 and 133,201.54 shares, respectively, of MMR Class A Common
Stock (subject to adjustment as therein described) (the "Huff Warrants") and
any additional warrant granted to Huff after the date hereof (the "Additional
Huff Warrant"), and (v) option issued to Robert F.X. Sillerman (each a
"Warrant" and collectively, the "Warrants") shall be assumed by SFX. The
holders of such Warrants shall continue to have, and be subject to, the same
terms and conditions set forth in such Warrant (including, without limitation,
any provision contained therein relating to the repurchase or redemption
thereof), except that (i) such Warrants shall be exercisable for that number
of shares of SFX Class A Common Stock equal to the product of the number of
shares of MMR Class A Common Stock covered by the Warrant immediately prior to
the Effective Time multiplied by the Exchange Ratio, and (ii) the per share
exercise price for the shares of SFX Class A Common Stock issuable upon the
exercise of such assumed Warrant shall be equal to the quotient determined by
dividing the exercise price per share of MMR Class A Common Stock specified
for such Warrant under the applicable Warrant immediately prior to the
Effective Time by the Exchange Ratio rounding the resulting exercise price
down to the nearest whole cent. SFX shall also assume the obligations under
the Registration Rights Agreement, dated as of March 27, 1995 between Huff and
MMR and certain obligations of MMR under the Securities Purchase Agreement,
dated as of March 27, 1995, between Huff and MMR, on terms reasonably
satisfactory to Huff. Notwithstanding anything to the contrary, nothing herein
shall prohibit SFX from issuing fractional shares of SFX Class A Common Stock
upon the exercise of any Warrant.
(b) At or prior to the Effective Time, SFX shall deliver to
the holders of the Warrants appropriate and timely notices setting forth such
holders' rights pursuant to the Warrants and the agreements evidencing the
issuance of the Warrants shall continue in effect on the same terms and
conditions (subject to the assumption by SFX as set forth above).
(c) At the Effective Time, SFX shall reserve for issuance
the number of shares of SFX Class A Common Stock that will become issuable
upon exercise of the Warrants assumed by SFX. SFX shall file a registration
statement on Form S-3 or another appropriate form with respect to the shares
of SFX Class A Common Stock subject to the Warrants assumed by SFX and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus contained therein) for so long as such Warrants remain outstanding.
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ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF MMR
Except as set forth in the disclosure schedule delivered by
MMR to SFX, and signed by MMR and SFX for identification, within ten (10)
business days after the execution and delivery of this Agreement (the "MMR
Disclosure Schedule"), which shall identify exceptions by specific section
references, MMR hereby represents and warrants to SFX and Acquisition Sub
that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES .
MMR is a corporation, and each subsidiary of MMR (each a "MMR Subsidiary" and
collectively, the "MMR Subsidiaries") is a corporation or a partnership, as
the case may be, in each case duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
requisite corporate power and authority (or partnership power and authority)
to own, lease and operate its properties and to carry on its business as it is
now being conducted. MMR and each MMR Subsidiary are duly qualified or
licensed as a foreign corporation (or partnership) to do business, and are in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by them or the nature of their business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. As used in this Agreement, the
term "Material Adverse Effect" means, with respect to any person, any change
or effect that, individually or when taken together with all other changes or
effects that have occurred on or prior to the date of determination of the
occurrence of the Material Adverse Effect and which are continuing as of that
date, is or is reasonably likely to be materially adverse to the financial
condition, business, results of operations or prospects of such person and its
subsidiaries, taken as a whole. As of the date hereof, a true and correct list
of all MMR Subsidiaries, together with the jurisdiction of organization of
each MMR Subsidiary and the percentage of the outstanding capital stock (or
other ownership interest) of each MMR Subsidiary owned by MMR and each other
MMR Subsidiary, is set forth in Section 3.01 of the MMR Disclosure Schedule.
Except as disclosed in Section 3.01 of the MMR Disclosure Schedule, MMR does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS . MMR
has heretofore made available to SFX a complete and correct copy of the
Certificate of Incorporation and Bylaws, each as amended to date, of MMR and
each MMR Subsidiary. Neither MMR nor any MMR Subsidiary is in violation of any
provision of its Certificate of Incorporation or Bylaws or other
organizational document, as applicable.
SECTION 3.03. CAPITALIZATION . The authorized capital stock
of MMR consists of 15,000,000 shares of Class A Common Stock, 1,200,000 shares
of Class B Common Stock, 700,000 shares of Class C Common Stock and 1,200,000
shares of preferred stock. As of the date hereof (a) 3,216,500 shares of MMR
Class A Common Stock were issued and outstanding, (b) 140,000 shares of MMR
Class B Common Stock were issued and outstanding, (c) 360,000 shares of MMR
Class C Common Stock were issued and outstanding, (d) 200,000 shares of MMR
Original Preferred Stock were issued and outstanding, (e) 1,250 shares of
Senior Cumulative Preferred Stock, $.01 par value, of MMR (the "MMR Senior
Preferred Stock") were issued and outstanding, and (f) 200,000 shares of MMR
Series B Preferred Stock were issued and outstanding; all of which are validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Except as set forth in Sections 2.04 and 2.05 hereof or Section 3.03 of the
MMR Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of, or other equity interests in, MMR or any
MMR Subsidiary obligating MMR or any MMR Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, MMR or any MMR
Subsidiary. Subject to the terms of Sections 2.02, 2.04 and 2.05, after the
Effective Time, neither SFX nor the Surviving Corporation will have any
obligation to issue, transfer or sell any SFX Common Stock or securities
convertible into SFX Common Stock or common stock or other securities of the
Surviving Corporation or any securities convertible into common stock or other
securities of the Surviving Corporation. Except as contemplated by this
Agreement, there are no outstanding contractual obligations of MMR or any MMR
Subsidiary to repurchase, redeem or otherwise acquire any MMR Securities or
any capital stock of, or any equity interest in, any MMR Subsidiary. Each
outstanding share of capital stock of, or other equity interest in, each MMR
Subsidiary is duly authorized, validly issued, fully paid and
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nonassessable and, except as described in Section 3.03 of the MMR Disclosure
Schedule, each such share or interest owned by MMR or another MMR Subsidiary
is free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on MMR's or such other MMR
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT . MMR has
all necessary corporate power and authority to execute and deliver this
Agreement and, with respect to the Merger, upon the approval and adoption of
this Agreement by MMR's stockholders in accordance with this Agreement and
Delaware Law, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by MMR and the
consummation by MMR of the Transactions have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the
part of MMR are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and
adoption of this Agreement by the stockholders of MMR as set forth in Section
3.15 and the filing and recordation of an appropriate Certificate of Merger
with the Secretary as required by Delaware Law and with respect to certain
amendments to the Certificate of Incorporation of MMR, the approval by the
stockholders of MMR as set forth in Exhibit C). This Agreement has been duly
and validly executed and delivered by MMR and, assuming the due authorization,
execution and delivery of this Agreement by SFX and Acquisition Sub,
constitutes a legal, valid and binding obligation of MMR, enforceable against
MMR in accordance with its terms.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS .
(a) The execution and delivery of this Agreement by MMR do not, and the
performance of this Agreement by MMR will not, subject to, (x) with respect to
the Merger, obtaining the requisite approval and adoption of this Agreement by
MMR's stockholders in accordance with this Agreement and Delaware Law, and (y)
obtaining the consents, approvals, authorizations and permits and making the
filings described in Section 3.05(b) of the MMR Disclosure Schedule, in
Section 3.05(b) or Section 8.01(l)(B) of this Agreement, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of MMR or any MMR
Subsidiary, (ii) conflict with or violate any domestic (federal, state or
local) or foreign law, rule, regulation, order, judgment or decree
(collectively, "Law" or "Laws") applicable to MMR or any MMR Subsidiary or by
which any property or asset of MMR or any MMR Subsidiary is bound or affected,
or (iii) except as specified in Section 3.05(a)(iii) of the MMR Disclosure
Schedule, result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any right of termination, unilateral amendment, acceleration or
cancellation of, or give to others any right to invalidate or terminate any
purchase or other right to acquire property under, or result in the creation
of a lien or other encumbrance on any property or asset of MMR or any MMR
Subsidiary or require the consent of any third party pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which MMR or any MMR Subsidiary
is a party or by which MMR or any MMR Subsidiary or any property or asset of
MMR or any MMR Subsidiary is bound or affected, except for such conflicts,
violations, breaches, defaults, rights, liens and consents which individually
or in the aggregate would not reasonably be expected to have a Material
Adverse Effect on MMR.
(b) The execution and delivery of this Agreement by MMR do
not, and the performance of this Agreement by MMR will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
pursuant to the Securities Exchange Act of 1934, as amended (the"Exchange
Act"), the Securities Act of 1933, as amended (the "Securities Act"), state
securities or "blue sky" laws ("Blue Sky Laws"), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the
Communications Act (as hereinafter defined), and filing and recordation of an
appropriate Certificate of Amendment to MMR's Certificate of Incorporation and
Certificate of Merger with the Secretary as required by Delaware Law, (ii) as
specified in Section 3.05(b) of the MMR Disclosure Schedule and (iii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not reasonably be likely to have a
Material Adverse Effect on MMR and would not prevent or delay consummation of
the Transactions, or otherwise prevent MMR from timely performing its
obligations under this Agreement.
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SECTION 3.06. PERMITS; COMPLIANCE . Except as disclosed in
Sections 3.06 and 3.24 of the MMR Disclosure Schedule, each of MMR and the MMR
Subsidiaries is now and on the Effective Time will be in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any United States
(federal, state or local) or foreign government, or governmental, regulatory
or administrative authority, agency or commission or court of competent
jurisdiction ("Governmental Authority") legally necessary for MMR or any MMR
Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted, except for those which the failure to
possess would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect on MMR (the "MMR Permits") and, as of the date
hereof, no suspension or cancellation of any of the MMR Permits is pending or,
to the knowledge of MMR, threatened. Except as disclosed in Section 3.06 of
the MMR Disclosure Schedule, neither MMR nor any MMR Subsidiary is in conflict
with, or in default or violation of, or, with the giving of notice or the
passage of time, would be in conflict with, or in default or violation of, (i)
any Law applicable to MMR or any MMR Subsidiary or by which any property or
asset of MMR or any MMR Subsidiary is bound or affected, except in the case of
any such conflict, default or violation which would not reasonably be expected
to have a Material Adverse Effect, or (ii) any of the MMR Permits.
SECTION 3.07. SEC FILINGS; FINANCIAL STATEMENTS . (a) MMR
has filed all forms, reports and documents required to be filed by it with the
Securities and Exchange Commission (collectively, the "MMR SEC Reports"). The
MMR SEC Reports (i) were prepared in all material respects in accordance with
the requirements of the Securities Act and the Exchange Act, as the case may
be, and the rules and regulations thereunder and (ii) did not, at the time
they were filed (or at the effective date thereof in the case of registration
statements), contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading. No MMR Subsidiary is currently required to
file any form, report or other document with the Securities and Exchange
Commission (the "SEC").
(b) Each of the financial statements (including, in each
case, any notes thereto) contained in the MMR SEC Reports was prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis ("U.S. GAAP") throughout the periods indicated (except
as may be indicated in the notes thereto and except that financial statements
included with quarterly reports on Form 10-QSB do not contain all U.S. GAAP
notes to such financial statements) and each fairly presented in all material
respects the financial position, results of operations and changes in
stockholders' equity and cash flows of MMR as at the respective dates thereof
and for the respective periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which were
not and are not expected, individually or in the aggregate, to have a Material
Adverse Effect on MMR).
(c) Except (i) to the extent set forth on the audited
consolidated balance sheet of MMR as of December 31, 1995, including the notes
to the audited financial statements of which such balance sheet is a part and
which is included in MMR's Form 10-KSB for the year ended December 31, 1995
(the "MMR December 31, 1995 Balance Sheet"), (ii) as set forth in Section
3.07(c) of the MMR Disclosure Schedule or (iii) as disclosed in any SEC Report
filed by MMR after December 31, 1995, neither MMR nor any MMR Subsidiary has
any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet, or in the notes thereto, prepared in accordance with U.S. GAAP, except
for liabilities and obligations incurred in (x) the ordinary course of
business consistent with past practice since December 31, 1995 which would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on MMR or (y) connection with this Agreement.
(d) MMR has heretofore made available to SFX complete and
correct copies of all amendments and modifications (if any) that have not been
filed by MMR with the SEC to all agreements, documents and other instruments
that previously had been filed by MMR as exhibits to the MMR SEC Reports and
are currently in effect.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS . Since
December 31, 1995, except in the ordinary course and in a manner consistent
with MMR's past practice or as contemplated by, or disclosed pursuant to,
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this Agreement, including Section 3.08 of the MMR Disclosure Schedule, there
has not been (a) any amendment or other change to the Certificate of
Incorporation or Bylaws of MMR or any MMR Subsidiary, (b) any issuance, sale,
pledge, disposal, grant, encumbrance, or authorization of the issuance, sale,
pledge, disposition, grant or encumbrance by MMR or any MMR Subsidiary of (i)
any shares of their capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
such capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of MMR or any MMR Subsidiary (except for
the issuance of shares of capital stock issuable pursuant to Options and
Warrants outstanding on December 31, 1995 and the authorization and issuance
of the Additional Huff Warrant), or (ii) any of their assets, (c) any
declaration, setting aside, making or payment of any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of their capital stock by MMR or any MMR Subsidiary, (d) any
reclassification, combination, split or division by MMR or any MMR Subsidiary
of any of their capital stock or redemption, purchase or other acquisition,
directly or indirectly, of any of their capital stock or securities or
obligations convertible into or exchangeable or exercisable for such capital
stock, (e) any commitment or incurrence by MMR or any MMR Subsidiary of any
capital expenditure in excess of $100,000, (f) any incurrence of any
indebtedness for borrowed money in excess of $100,000 or issuance of any debt
securities or assumption, guarantee or endorsement, or otherwise becoming
responsible as an accommodation, for the obligations of any person, or making
of any loans or advances, (g) any acquisition by MMR or any MMR Subsidiary
(including, without limitation, by merger, consolidation or acquisition of
stock or assets) of any interest in any corporation, partnership, other
business organization or any division thereof or any assets, (h) any contract
or agreement entered into or amended by MMR or any MMR Subsidiary material to
their businesses, results of operations or financial condition except for
advertising, programming, and similar contracts consistent with past
practices, (i) any increase in the compensation payable or to become payable
to any director, officer or other employee, or consultant or advisor, of MMR
or any MMR Subsidiary, or grant of any bonus to, or grant of any severance or
termination pay to, except pursuant to existing compensation and benefit
plans, practices or arrangements that have been previously disclosed to SFX,
or any employment or severance agreement entered into with, any director,
officer or other employee, or consultant or advisor, of MMR or any MMR
Subsidiary that has a potential duration of more than 90 days or that involves
an aggregate payment of more than $50,000, or any collective bargaining
agreement entered into or amended, (j) any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation or other plan, trust or fund established, adopted, entered into
or amended for the benefit of any director, officer or class of employees of
MMR or any MMR Subsidiary, (k) any settlement or compromise by MMR or any MMR
Subsidiary of any pending or threatened litigation which would reasonably be
expected to have a Material Adverse Effect on MMR or which relates to the
Transactions, (l) any event or events (whether or not covered by insurance),
individually or in the aggregate, having a Material Adverse Effect on MMR, or
(m) any change by MMR or any MMR Subsidiary in its accounting methods,
principles or practices.
SECTION 3.09. ABSENCE OF LITIGATION . Section 3.09 of the
MMR Disclosure Schedule sets forth each instance in which any of MMR and the
MMR Subsidiaries (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the knowledge of
MMR and the MMR Subsidiaries, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator, which has not otherwise been
disclosed in the MMR SEC Reports and which would reasonably be expected to
have a Material Adverse Effect on MMR. Neither MMR nor any MMR Subsidiary nor
any property or asset of MMR or any MMR Subsidiary is in violation of any
order, writ, judgment, injunction, decree, determination or award.
SECTION 3.10. EMPLOYEE BENEFIT MATTERS . Except as set forth
in Section 3.10 of the MMR Disclosure Schedule, there are no material employee
benefit or compensation plans, agreements or arrangements, including "employee
benefit plans" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and including, but not limited to,
plans, agreements or arrangements relating to former employees to which MMR or
any of the MMR Subsidiaries is a party (together, the "MMR Benefits Plans").
To the best knowledge of MMR, no default exists with respect to the
obligations of MMR or any of the MMR Subsidiaries under such MMR Benefit
Plans, which default, alone or in the aggregate, would have a Material Adverse
Effect on MMR. All MMR Benefit Plans have been administered in accordance, and
are in compliance, with the applicable
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provisions of ERISA, except where such failure to administer or comply would
not have a Material Adverse Effect on MMR.
SECTION 3.11. LABOR MATTERS . Neither MMR nor any MMR
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by MMR or any MMR Subsidiary.
SECTION 3.12. INTELLECTUAL PROPERTY . MMR and the MMR
Subsidiaries own or have valid, binding and enforceable rights to use each
patent, invention, copyright, trademark, industrial model, process, design and
all registrations and applications for any of the foregoing used, employed or
exploited in the business of MMR or any MMR Subsidiary without any known
conflict with the rights of others.
SECTION 3.13. TAXES . (a) Except as otherwise disclosed in
Section 3.13(a) of the MMR Disclosure Schedule: MMR and each of the MMR
Subsidiaries has filed (or received an appropriate extension of time to file)
all federal, state, local, and foreign Tax Returns required to be filed by
them prior to the Effective Time. From 1992 through the Effective Time, MMR
and the MMR Subsidiaries filed consolidated U.S. federal income tax returns as
members of an affiliated group, the common parent of which is MMR. All such
Tax Returns were true and correct in all material respects. MMR and each of
the MMR Subsidiaries has paid all Taxes shown to be due on such Tax Returns,
and has made appropriate provisions in the MMR December 31, 1995 Balance Sheet
for any Taxes not yet due, or which are being contested in good faith. MMR and
each of the MMR Subsidiaries has disclosed on all Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income tax within the meaning of Section 6662 of the Code or any similar
provision of state, local or foreign law. MMR and each of the MMR Subsidiaries
has withheld and paid over to the appropriate Governmental Authority all Taxes
required by law to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder, or
other third party, except for amounts which would not, individually or in the
aggregate, have a Material Adverse Effect. MMR and each of the MMR
Subsidiaries has made all payments of estimated Taxes required to be made
under federal, state, local or foreign law. All tax deficiencies asserted or
assessed against MMR and each of the MMR Subsidiaries have been paid or
finally settled. Neither MMR nor any of the MMR Subsidiaries expects any
federal, state, local or foreign taxing authority to assess any additional
Taxes for any period for which Tax Returns have been filed. No claims have
ever been made by any tax authority in a jurisdiction where MMR and each of
the MMR Subsidiaries do not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. Neither MMR nor any of the MMR Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a tax assessment or deficiency. There is no
pending or, to the knowledge of MMR, threatened action, audit, proceeding or
investigation for the assessment or collection of any Taxes. There are no
requests for rulings, subpoenas or requests for information pending with
respect to any taxing authority. Any adjustments of Taxes made by any federal
taxing authority in any examination which is required to be reported to a
state, local, or foreign taxing authority has been reported, and any
additional Taxes due with respect thereto have been paid. No power of attorney
has been granted by MMR or any of the MMR Subsidiaries, and is currently in
force, with respect to any matter relating to Taxes. There are no liens (other
than liens for Taxes that are not yet due or which are being contested in good
faith) on any assets of MMR or any of the MMR Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax, except for
liens which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as otherwise disclosed in Section 3.13(b) of the
MMR Disclosure Schedule: Neither MMR nor any of the MMR Subsidiaries has made
an election under Section 341(f) of the Code. Neither MMR nor any of the MMR
Subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
Neither MMR nor any of the MMR Subsidiaries has been a United States real
property holding company within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii). No excess
loss account (within the meaning of Treas. Reg. ss. 1.1502-19) exists with
respect to any of the MMR Subsidiaries. Neither MMR nor any of the MMR
Subsidiaries has, or will have, as of the Effective Time, any deferred gain or
loss arising from deferred intercompany transactions within the meaning of
Treas. Reg. ss. 1.1502-13. Neither MMR nor any of the MMR Subsidiaries was
acquired in a "qualified stock purchase" under Section 338(d)(3) of the Code
and no election under Section 338(g) of the Code, protective carryover basis
election, or offset prohibition election
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is applicable to MMR or any of the MMR Subsidiaries. Neither MMR nor any of
the MMR Subsidiaries has participated in or cooperated with any international
boycott within the meaning of Section 999 of the Code. Neither MMR nor any of
the MMR Subsidiaries is required to include in income any adjustment pursuant
to Section 481(a) of the Code (or any similar provision of law or regulations)
by reason of a change in accounting method, nor is any taxing authority
considering such change in accounting method. Neither MMR nor any of the MMR
Subsidiaries has disposed of any property which has been accounted for tax
purposes under the installment method. Neither MMR nor any of the MMR
Subsidiaries is a party to any interest rate swap, currency swap or similar
transaction. The net operating loss and other carryovers available to MMR and
each of the MMR Subsidiaries as of the most recent practicable date will be
set forth in Section 3.13(b) of the MMR Disclosure Schedule. As of the
Effective Time but prior to the Merger, the ability of MMR and each of the MMR
Subsidiaries to use their net operating losses and carryovers will not have
been affected by Sections 382, 383 or 384 of the Code or by the SRLY or CRCO
limitations of Treas. Reg. ss.ss. 1.1502-21 or 1.1502-22. Neither MMR nor any
of the MMR Subsidiaries owns any interest in an entity which is characterized
as a partnership for U.S. federal income tax purposes. Neither MMR nor any of
the MMR Subsidiaries would be liable for any increase in Tax under Section 47
of the Code, were such entity to dispose of all of its assets on the Effective
Time. As of the Effective Time, neither MMR nor any of the MMR Subsidiaries
will have sustained an "overall foreign loss" within the meaning of Section
904(f) of the Code. As of the Effective Time, neither MMR nor any of the MMR
Subsidiaries will have any "non-recapture net section 1231 losses" within the
meaning of Section 1231(c) of the Code. No election under Section 1504(d) of
the Code has been made with respect to MMR or any of the MMR Subsidiaries.
(c) Regarding the Merger: Neither MMR nor any of the MMR Subsidiaries
is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of
the Code. Except as set forth on Section 3.13(c) of the MMR Disclosure
Schedule, neither MMR nor any of the MMR Subsidiaries is under the
jurisdiction of a court in Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code. Neither MMR or any of the MMR Subsidiaries
holds stock of SFX and will not hold stock of SFX prior to the Merger.
(d) For purposes of this Section 3.13, the following terms will have
the following meanings:
(i) "Tax" or "Taxes" shall mean any and all federal, state,
local, foreign, and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax
imposed in connection therewith or with respect thereto), whether imposed on
MMR or any of the MMR Subsidiaries, including, without limitation, taxes
imposed on, or measured by, income, franchise, profits, or gross receipts, and
also ad valorem, value added, sales, use, service, real or personal property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer,
and gains taxes and customs duties.
(ii) "Tax Return" shall mean returns, reports, information
statements, or other documentation (including any additional or supporting
material) filed or maintained, or required to be filed or maintained in
connection with the calculation, determination, assessment or collection of
any Tax.
SECTION 3.14. OPINION OF FINANCIAL ADVISOR . MMR has
received the written opinion of Oppenheimer & Co., Inc. (the "MMR Banker") on
the date of this Agreement to the effect that, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the holders of
MMR's Class A Common Stock (excluding for purposes of such opinion, Robert
F.X. Sillerman, Bruce Morrow and Michael Ferrel).
SECTION 3.15. VOTE REQUIRED . (a) Assuming the redemption of
all outstanding MMR Senior Preferred Stock at or prior to the Effective Time,
the affirmative vote of the holders of a majority of the voting power of the
then outstanding shares of MMR Class A Common Stock and MMR Class B Common
Stock (with each class entitled to one vote per share in connection with the
Merger) is the only vote of the holders of any class or series of capital
stock of MMR necessary to approve the Merger. (b) The affirmative vote of the
holders of a majority of the outstanding shares of MMR Class A Common Stock,
MMR Class B Common Stock and MMR Class C Common Stock, each voting separately
as a class, is the only vote of the holders of any class or series of capital
stock of MMR necessary
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to approve the amendments to the Certificate of Incorporation of MMR as set
forth on Exhibit C, which amendments are required in order to issue SFX Class
B Common Stock in respect of the MMR Class B Common Stock and MMR Class C
Common Stock.
SECTION 3.16. BROKERS . No broker, finder or investment
banker (other than the MMR Banker and Sillerman Communications Management
Corporation ("SCMC")) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of MMR or any MMR Subsidiary.
SECTION 3.17. TANGIBLE PROPERTY . MMR and the MMR
Subsidiaries have good title to, or a valid leasehold interest in, the
tangible personal properties and assets used by them or shown on the MMR
December 31, 1995 Balance Sheet or acquired after the date thereof, which are
free and clear of any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) mechanic's, materialmen's and similar liens,
(b) liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, (d)
liens which would not reasonably be expected to have a Material Adverse Effect
on MMR, (e) liens and encumbrances identified and reflected on the MMR
December 31, 1995 Balance Sheet and (f) mortgages, pledges, liens,
encumbrances, charges or other security interests that do not, individually,
or in the aggregate, adversely affect the current use of such property.
SECTION 3.18. MATERIAL CONTRACTS . Section 3.18 of the MMR
Disclosure Schedule lists each contract which is required by its terms or is
currently expected to result in the payment or receipt by MMR or any MMR
Subsidiary of more than $50,000 per year or $150,000 in the aggregate over the
term of the contract or which is not terminable by MMR without the payment of
any penalty or fine on not more than three months' notice (collectively,
"Material Contracts"), to which MMR or any MMR Subsidiary is a party, other
than contracts which have been filed as an exhibit to or have been
incorporated by reference in any MMR SEC Report. Each Material Contract is in
full force and effect and, to the knowledge of MMR, is enforceable against the
parties thereto (other than MMR or any such MMR Subsidiary) in accordance with
its terms and no condition or state of facts exists that, with notice or the
passage of time, or both, would constitute a default by MMR or any MMR
Subsidiary or, to the best knowledge of MMR, any third party under such
Material Contracts, except for such defaults which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect
on MMR. MMR or the applicable MMR Subsidiary has duly complied in all material
respects with the provisions of each Material Contract to which it is a party.
SECTION 3.19. [Intentionally Omitted]
SECTION 3.20. CERTAIN BUSINESS PRACTICES . As of the date of
this Agreement, neither MMR nor any MMR Subsidiary, nor any director, officer,
or, to the knowledge of MMR, any authorized agent or employee of MMR or any
MMR Subsidiary has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
made any other unlawful payment, or (iv) violated any of the provisions of
Section 999 of the Code or Section 8 of the Export Administration Act, as
amended.
SECTION 3.21. BOARD RECOMMENDATION . At a meeting duly
called and held in compliance with Delaware Law, (a) the Independent Committee
of the Board of Directors of MMR has unanimously adopted a resolution
approving the Merger and recommended that the Board of Directors of MMR
approve this Agreement and the Transactions, (b) the Board of Directors of MMR
has unanimously (with one abstention) adopted a resolution (i) approving the
Merger, based on a determination that the Merger is in the best interests of
the MMR stockholders, and (ii) approving and adopting this Agreement and the
Transactions and recommending approval and adoption of this Agreement and the
Transactions by the stockholders of MMR.
SECTION 3.22. CHANGE IN CONTROL . Except as set forth in
Section 3.22 of the MMR Disclosure Schedule, neither MMR nor any MMR
Subsidiary is a party to any contract, agreement or understanding which is
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currently expected to result in the payment or receipt by MMR or any MMR
Subsidiary of $50,000 or more individually and $100,000 or more in the
aggregate which contains a "change in control," "potential change in control"
or similar provision. Except as set forth in Section 3.22 of the MMR
Disclosure Schedule, the consummation of the Transactions does not result in
any payment (whether of severance pay or otherwise) becoming due from MMR or
any MMR Subsidiary to any person.
SECTION 3.23. FCC COMPLIANCE . MMR and the MMR Subsidiaries
hold, as of the date of this Agreement, and immediately prior to the Effective
Time, MMR and the MMR Subsidiaries will hold, the Federal Communications
Commission (the "FCC") licenses as set forth in Section 3.23 of the MMR
Disclosure Schedule (the "FCC Licenses"), and such licenses are now and at the
Effective Time will be in full force and effect. The FCC Licenses are the only
material FCC licenses, permits and authorizations necessary for or used in
connection with the operation of the radio stations (the "Stations") set forth
in Section 3.23 of the MMR Disclosure Schedule.
Except as set forth in Section 3.23 of the MMR Disclosure
Schedule, the Stations are being operated in all material respects in
accordance with the Communications Act of 1934, as amended (the
"Communications Act"), the FCC rules, regulations and policies (the "FCC
Rules"), and FCC and court interpretations thereof, all as in effect on the
date of this Agreement. Except as set forth in Section 3.23 of the MMR
Disclosure Schedule, (i) no application, action or proceeding is pending or,
to the best of MMR's knowledge, threatened against MMR or the MMR Subsidiaries
that may result in the revocation, nonrenewal or suspension of any of the FCC
Licenses, or the imposition of any administrative sanction with respect
thereto, and (ii) to the best of MMR's knowledge, there is no fact which would
disqualify MMR or any of the MMR Subsidiaries from obtaining the approval of
the FCC as provided for in this Agreement or from completing the transactions
contemplated by this Agreement. All material applications, reports and other
disclosures required by the FCC with respect to the Stations other than the
applications to obtain the FCC consents as provided in Section 6.13 have been
duly filed with the FCC.
SECTION 3.24. ENVIRONMENTAL MATTERS . (a) For purposes of
this Agreement, the following terms shall have the following meanings: (i)
"Hazardous Substances" means (A) those substances defined in or regulated
under the following federal statutes and their state counterparts, as each may
be amended from time to time, and all regulations thereunder: the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act, the Toxic Substances
Control Act and the Clean Air Act, (B) petroleum and petroleum products,
byproducts and breakdown products including crude oil and any fractions
thereof, (C) natural gas, synthetic gas, and any mixtures thereof, (D)
polychlorinated biphenyls, (E) any other chemicals, materials or substances
defined or regulated as toxic or hazardous or as a pollutant or contaminant or
as a waste under any applicable Environmental Law, and (F) any substance with
respect to which a federal, state or local agency requires environmental
investigation, monitoring, reporting or remediation, and (ii) "Environmental
Laws" means any federal, state, foreign, or local law, rule or regulation, now
or hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including without
limitation, those relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances or (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances.
(b) Except as described in Section 3.24(b) of the MMR
Disclosure Schedule and except as would not, individually or in the aggregate,
be reasonably likely to have a Material Adverse Effect on MMR: (i) MMR and
each MMR Subsidiary are in compliance with all applicable Environmental Laws,
(ii) MMR and each MMR Subsidiary have obtained all permits, approvals,
identification numbers, licenses or other authorizations required under any
applicable Environmental Laws ("Environmental Permits") and are in compliance
with their requirements, (iii) such Environmental Permits are transferable to
the Surviving Corporation pursuant to the Merger without the consent of any
Governmental Authority, (iv) to the best of MMR's knowledge there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Substances are being or have
been treated, stored or disposed of on any owned or leased real property or on
any real property formerly owned, leased
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or occupied by MMR or any MMR Subsidiary, (v) there is, to the knowledge of
MMR, no friable asbestos or asbestos-containing material on any owned or
leased real property in violation of applicable Environmental Laws, (vi) MMR
and the MMR Subsidiaries have not released, discharged or disposed of
Hazardous Substances on any owned or leased real property or on any real
property formerly owned, leased or occupied by MMR or any MMR Subsidiary in an
amount requiring remediation, (vii) other than routine operational matters
neither MMR nor any of the MMR Subsidiaries is undertaking, and neither MMR
nor any of the MMR Subsidiaries has completed, any investigation or assessment
or remedial or response action relating to any such release, discharge or
disposal of or contamination with Hazardous Substances at any site, location
or operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law, and (viii) there are
no pending or, to the knowledge of MMR, past or threatened actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to
Environmental Laws, any Environmental Permits or any Hazardous Substances
("Environmental Claims") against MMR or any MMR Subsidiary or any of their
property, and there are no existing circumstances that can reasonably be
expected to form the basis of any such Environmental Claim, including without
limitation with respect to any off-site disposal location presently or
formerly used by MMR or any MMR Subsidiaries or any of their predecessors.
(c) MMR and the MMR Subsidiaries have made available to SFX
or Acquisition Sub copies of any environmental reports, studies or analyses in
its possession or under its control relating to owned or leased real property
or the operations of MMR or the MMR Subsidiaries.
SECTION 3.25. ACCOUNTS RECEIVABLE . All of the accounts
receivable reflected in the MMR December 31, 1995 Balance Sheet or created
thereafter, to MMR's knowledge, are valid receivables subject to no setoffs or
counterclaims (except for such setoffs and counterclaims which would not be
reasonably likely to have a Material Adverse Effect on MMR), are current and
collectible and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth in the
MMR December 31, 1995 Balance Sheet as adjusted for operations and
transactions through the Effective Time in accordance with the past custom and
practice of MMR and the MMR Subsidiaries.
SECTION 3.26. INSURANCE . Section 3.26 of the MMR Disclosure
Schedule sets forth a list of each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage
and bond and surety arrangements) to which any of MMR or any MMR Subsidiary
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past one year. With respect to each such insurance policy
designated as "current": (a) the policy is in full force and effect, (b) MMR
has not received notice from any insurance carrier of the intention of such
carrier to discontinue any such policy, (c) neither any of MMR or any MMR
Subsidiary nor, to the knowledge of MMR, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy, and (d) no party to the
policy has repudiated any provision thereof. Section 3.26 of the MMR
Disclosure Schedule lists any self-insurance arrangements affecting any of MMR
and the MMR Subsidiaries. All material assets and risks of MMR and each MMR
Subsidiary are covered by valid and currently effective insurance policies in
such types and amounts as are consistent with customary practices and
standards of companies engaged in business and operations similar to those of
MMR or such MMR Subsidiary.
SECTION 3.27. REAL PROPERTY AND LEASES .
(a) Section 3.27(a) of the MMR Disclosure Schedule lists and
describes briefly all real property that any of MMR and each MMR Subsidiary
owns. With respect to each such parcel of owned real property and except as
noted in Section 3.27(a) of the MMR Disclosure Schedule: (i) the identified
owner has good and marketable title to the parcel of real property, free and
clear of any liens or encumbrances, easement, covenant, or other restriction,
except for installments of special assessments not yet delinquent, recorded
easements, covenants, and other restrictions, and utility easements, building
restrictions, zoning restrictions, and other easements and restrictions
existing generally with respect to properties of a similar character which do
not affect materially and adversely the current use, occupancy, or
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value, or the marketability of title, of the property subject thereto, (ii)
there are no leases, subleases, licenses, concessions, or other agreements,
written or oral, granting to any party or parties the right of use or
occupancy of any portion of the parcel of real property that would interfere
with MMR's use of such property, and (iii) there are no outstanding options or
rights of first refusal to purchase, lease or occupy the parcel of real
property, or any portion thereof or interest therein which would interfere
with MMR's use of such property.
(b) Section 3.27(b) of the MMR Disclosure Schedule lists and
describes briefly all real property leased or subleased to any of MMR and any
MMR Subsidiary. With respect to each lease and sublease (i) the lease or
sublease is legal, valid, binding and enforceable against MMR or such MMR
Subsidiary, and in full force and effect in all material respects, (ii) except
as set forth in Section 3.27(b) of the MMR Disclosure Schedule to the
knowledge of MMR, no party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification,
or acceleration thereunder, (iii) to the knowledge of MMR, no party to the
lease or sublease has repudiated any material provision thereof, (iv) there
are no material disputes, oral agreements, or forbearance programs in effect
as to the lease or sublease, (v) none of MMR or any MMR Subsidiary has
assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold, and (vi) all facilities leased or
subleased thereunder have received all approvals of governmental authorities
(including material licenses and permits) legally required in connection with
the operation thereof, and have been operated and maintained in accordance
with applicable laws, rules, and regulations in all material respects.
SECTION 3.28. INTERESTED PARTY TRANSACTIONS . Except as set
forth in Section 3.28 of the MMR Disclosure Schedule, between the MMR December
31, 1995 Balance Sheet and the date hereof, no event has occurred that would
be, and has not been, required to be reported as a "Certain Relationship or
Related Transaction" pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SFX
AND ACQUISITION SUB
Except as set forth in the Disclosure Schedules delivered by
SFX to MMR, and signed by MMR and SFX for identification, within ten (10)
business days after the execution and delivery of this Agreement (the "SFX
Disclosure Schedules"), which shall identify exceptions by specific section
references, SFX and Acquisition Sub hereby, jointly and severally, represent
and warrant to MMR that:
SECTION 4.01. CORPORATE ORGANIZATION AND QUALIFICATION . SFX
and Acquisition Sub are corporations duly organized, validly existing and in
good standing under the laws of the jurisdiction of their incorporation and
have the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate their properties and to carry
on their respective businesses as they are now being conducted, except where
the failure to have such governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect on SFX. SFX and Acquisition Sub
are duly qualified or licensed as a foreign corporation to do business, and
are in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by them or the nature of their respective
businesses makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing as would not,
individually or in the aggregate, have a Material Adverse Effect on SFX.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS . SFX
has heretofore made available to MMR a complete and correct copy of the
Certificate of Incorporation and Bylaws of SFX, and the Certificate of
Incorporation and Bylaws of Acquisition Sub, each as amended to date. Neither
SFX nor Acquisition Sub is in violation of any provision of its Certificate of
Incorporation or Bylaws.
SECTION 4.03. CAPITALIZATION . The authorized capital stock
of SFX consists of 10,000,000 shares of SFX Class A Common Stock, 1,000,000
shares of SFX Class B Common Stock, 1,200,000 shares of SFX Class C Common
Stock, par value $.01 per share, and 10,010,000 shares of preferred stock, par
value $.01 per share. As of the
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date of this Agreement, (a) 6,458,215 shares of SFX Class A Common Stock were
issued and outstanding, all of which are validly issued fully paid and
nonassessable and not subject to preemptive rights, (b) 1,000,000 shares of
SFX Class B Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable and not subject to preemptive rights, (c)
no shares of SFX Class C Common Stock were issued and outstanding, (d) 2,000
shares of Series B Redeemable Preferred Stock were issued and outstanding, and
(e) 2,000 shares of Series C Redeemable Preferred Stock were issued and
outstanding. The authorized capital stock of Acquisition Sub consists of 1,000
shares of common stock, of which, as of the date of this Agreement, 100 shares
are issued and outstanding and held by SFX. Except as contemplated by this
Agreement or as set forth in Section 4.03 of the SFX Disclosure Schedule, as
of the date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of SFX or any subsidiary of SFX, including
Acquisition Sub (each a "SFX Subsidiary" and collectively, "SFX
Subsidiaries"), obligating SFX or any SFX Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, SFX or any SFX
Subsidiary. There are no outstanding contractual obligations of SFX or any SFX
Subsidiary to repurchase, redeem or otherwise acquire any shares of SFX Common
Stock, or any capital stock of, or any equity interests in, any SFX
Subsidiary. The shares of SFX Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, SFX's Certificate of
Incorporation or Bylaws or any agreement to which SFX is a party or by which
SFX is bound and will, when issued, be registered under the Securities Act and
the Exchange Act and registered or exempt from registration under applicable
Blue Sky Laws.
SECTION 4.04. AUTHORITY RELATIVE TO THIS AGREEMENT . Each of
SFX and Acquisition Sub has all necessary corporate power and authority to
execute and deliver this Agreement and, with respect to the Merger, to perform
its obligations hereunder and to consummate the Transactions. The execution
and delivery of this Agreement by SFX and Acquisition Sub and the consummation
by SFX and Acquisition Sub of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of SFX or Acquisition Sub are necessary to authorize
this Agreement or to consummate the Transactions (other than, with respect to
the issuance of SFX Common Stock pursuant to the Merger, the applicable rules
and regulations of the Nasdaq Stock Market, and with respect to the Merger,
the filing and recordation of an appropriate Certificate of Merger with the
Secretary as required by Delaware Law and with respect to certain amendments
in the Certificate of Incorporation of SFX, the approval by the stockholders
of SFX as set forth in Exhibit D). This Agreement has been duly and validly
executed and delivered by SFX and Acquisition Sub and, assuming the due
authorization, execution and delivery of this Agreement by MMR, constitutes a
legal, valid and binding obligation of each of SFX and Acquisition Sub
enforceable against each of SFX and Acquisition Sub in accordance with its
terms.
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS .
(a) The execution and delivery of this Agreement by SFX and Acquisition Sub do
not, and the performance of this Agreement by SFX and Acquisition Sub will
not, subject to obtaining the consents, approvals, authorizations and permits
and making the filings described in Section 4.05(b) of the SFX Disclosure
Schedule or in Section 4.05(b) of this Agreement, and subject to obtaining the
approval of the stockholders of SFX with respect to the amendments to the
Certificate of Incorporation of SFX as set forth in Exhibit D, (i) conflict
with or violate the Certificate of Incorporation or Bylaws of either SFX or
any SFX Subsidiary, (ii) conflict with or violate any Law applicable to SFX or
any SFX Subsidiary or by which any property or asset of any of them is bound
or affected or (iii) except as specified in Section 4.05(a)(iii) of the SFX
Disclosure Schedule, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of SFX or any SFX Subsidiary or require the consent of
any third party pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which SFX or any SFX Subsidiary is a party or by which SFX or any SFX
Subsidiary or any property or asset of any of them is bound or affected,
except for any such conflicts, violations, breaches, defaults or other
occurrences which would not, individually or in the aggregate, reasonably be
likely to have a Material Adverse Effect on SFX or prevent SFX and Acquisition
Sub from timely performing their respective obligations under this Agreement
and consummating the Transactions.
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(b) The execution and delivery of this Agreement by SFX and
Acquisition Sub do not, and the performance of this Agreement by SFX and
Acquisition Sub will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) pursuant to the Exchange Act, the
Securities Act, Blue Sky Laws, the HSR Act, the Communications Act and FCC
Rules and filing and recordation of an appropriate Certificate of Amendment to
SFX's Certificate of Incorporation and Certificate of Merger with the
Secretary as required by Delaware Law, (ii) as specified in Section 4.05(b) of
the SFX Disclosure Schedule, and (iii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not reasonably be likely to have a Material Adverse
Effect on SFX and would not prevent or delay consummation of the Transactions,
or otherwise prevent SFX or Acquisition Sub from performing their respective
obligations under this Agreement.
(c) On the Closing Date, SFX will be legally and financially
qualified under the Communications Act and the FCC Rules, and as of the date
hereof has neither knowledge nor reason to know of any fact, event, condition,
occurrence or circumstance, pertaining to SFX, that would cause any material
delay in the FCC's grant of the transfer of control applications.
SECTION 4.06. SEC FILINGS; FINANCIAL STATEMENTS . (a) SFX
has filed all forms, reports and documents required to be filed by it with the
SEC (collectively, the "SFX SEC Reports"). The SFX SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (ii) did not, at the time they were filed (or at
the effective date thereof in the case of registration statements), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. No SFX Subsidiary is currently required to file any form, report
or other document with the SEC under Section 12 of the Exchange Act.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the SFX SEC Reports
was prepared in accordance with U.S. GAAP throughout the periods indicated
(except as may be indicated in the notes thereto and except that financial
statements included with interim reports do not contain all U.S. GAAP notes to
such financial statements) and each fairly presented in all material respects
the consolidated financial position, results of operations and changes in
stockholders' equity and cash flows of SFX and its consolidated subsidiaries
as at the respective dates thereof and for the respective periods indicated
therein (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected, individually or in
the aggregate, to have a Material Adverse Effect on SFX).
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS . Since
December 31, 1995, except in the ordinary course and in a manner consistent
with SFX's past practice or as contemplated by, or disclosed pursuant to, this
Agreement, including Section 4.07 of the SFX Disclosure Schedule, or disclosed
in any SFX SEC Report filed since December 31, 1995, there has not been (a)
any event or events (whether or not covered by insurance), individually or in
the aggregate, having a Material Adverse Effect on SFX, (b) any material
change by SFX in its accounting methods, principles or practices, (c) any
entry by SFX or any SFX Subsidiary into any commitment or transaction material
to SFX or any SFX Subsidiary, (d) any declaration, setting aside or payment of
any dividend or distribution in respect of any capital stock of SFX or any
redemption, purchase or other acquisition of any of its securities or (e)
other than pursuant to SFX's benefit plans, any increase in or establishment
of any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Acquisition Sub has
not and will not have incurred, directly or indirectly, through any subsidiary
or affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
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SECTION 4.08. TAXES . (a) Except as otherwise disclosed in
Section 4.08(a) of the SFX Disclosure Schedule: SFX and each of the SFX
Subsidiaries has filed (or received an appropriate extension of time to file)
all federal, state, local, and foreign Tax Returns required to be filed by
them prior to the Effective Time. From 1992 through the Effective Time, SFX
and the SFX Subsidiaries filed consolidated U.S. federal income tax returns as
members of an affiliated group, the common parent of which is SFX. All such
Tax Returns were true and correct in all material respects. SFX and each of
the SFX Subsidiaries has paid all Taxes shown to be due on such Tax Returns,
and has made appropriate provisions in the audited consolidated balance sheet
of SFX as of December 31, 1995 including the notes to the audited financial
statements of which such balance sheet is a part (the "SFX December 31, 1995
Balance Sheet") for any Taxes not yet due or which are being contested in good
faith. SFX and each of the SFX Subsidiaries has disclosed on all Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662 of the
Code or any similar provision of state, local or foreign law. SFX and each of
the SFX Subsidiaries has withheld and paid over to the appropriate
Governmental Authority all Taxes required by law to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party, except for amounts
which would not, individually or in the aggregate, have a Material Adverse
Effect. SFX and each of the SFX Subsidiaries have made all payments of
estimated Taxes required to be made under federal, state, local or foreign
law. All tax deficiencies asserted or assessed against SFX and each of the SFX
Subsidiaries has been paid or finally settled. Neither SFX nor any of the SFX
Subsidiaries expects any federal, state, local or foreign taxing authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. No claims have ever been made by any tax authority in a jurisdiction
where SFX and each of the SFX Subsidiaries do not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. Neither SFX nor any of the
SFX Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a tax assessment or
deficiency. There is no pending or, to the knowledge of SFX, threatened
action, audit, proceeding or investigation for the assessment or collection of
any Taxes. There are no requests for rulings, subpoenas or requests for
information pending with respect to any taxing authority. Any adjustments of
Taxes made by any federal taxing authority in any examination which is
required to be reported to a state, local, or foreign taxing authority have
been reported, and any additional Taxes due with respect thereto have been
paid. No power of attorney has been granted by SFX or any of the SFX
Subsidiaries, and is currently in force, with respect to any matter relating
to Taxes. There are no liens (other than liens for Taxes that are not yet due,
or which are being contested in good faith) on any assets of SFX or any of the
SFX Subsidiaries that arose in connection with any failure (or alleged
failure) to pay any tax, except for liens which would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) Except as otherwise disclosed in Section 4.08(b) of the
SFX Disclosure Schedule: Neither SFX nor any of the SFX Subsidiaries has made
an election under Section 341(f) of the Code. Neither SFX nor any of the SFX
Subsidiaries has participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code. Neither SFX nor any of the SFX
Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar provision of law or regulations) by
reason of a change in accounting method, nor is any taxing authority
considering such change in accounting method. Neither SFX nor any of the SFX
Subsidiaries has disposed of any property which has been accounted for tax
purposes under the installment method. As of the Effective Time but prior to
the Merger, the ability of SFX and each of the SFX Subsidiaries to use their
net operating losses and carryovers will not have been affected by Sections
382, 383 or 384 of the Code or by the SRLY or CRCO limitations of Treas. Reg.
ss.ss. 1.1502-21 or 1.1502-22. As of the Effective Time, neither SFX nor any
of the SFX Subsidiaries will have sustained an "overall foreign loss" within
the meaning of Section 904(f) of the Code.
(c) Regarding the Merger:
(i) Neither SFX nor any of the SFX Subsidiaries is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(ii) Neither SFX nor any of the SFX Subsidiaries is under
the jurisdiction of a court in Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
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(iii) Neither SFX or any of the SFX Subsidiaries
holds stock of MMR and will not hold stock of SFX prior to the Merger.
(d) For purposes of this Section 4.08, the following terms
will have the following meanings:
(i) "Tax" or "Taxes" shall mean any and all federal,
state, local, foreign, and other taxes, levies, fees, imposts, duties and
charges of whatever kind (including any interest, penalties or additions to
the tax imposed in connection therewith or with respect thereto), whether
imposed on SFX or any of the SFX Subsidiaries, including, without limitation,
taxes imposed on, or measured by, income, franchise, profits, or gross
receipts, and also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
social security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer, and gains taxes and customs duties.
(ii) "Tax Return" shall mean returns, reports, information
statements, or other documentation (including any additional or supporting
material) filed or maintained, or required to be filed or maintained in
connection with the calculation, determination, assessment or collection of
any Tax.
SECTION 4.09. PERMITS; COMPLIANCE . Except as disclosed in
Section 4.09 of the SFX Disclosure Schedule, each of SFX and the SFX
Subsidiaries is now and as of the Effective Time will be in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Authority legally necessary for SFX or any SFX Subsidiary to own, lease and
operate its properties or to carry on its business as it is now being
conducted, except for those which the failure to possess would not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on SFX (the "SFX Permits") and, as of the date hereof, no
suspension or cancellation of any of the SFX Permits is pending or, to the
knowledge of SFX, threatened. Except as disclosed in Section 4.09 of the SFX
Disclosure Schedule, neither SFX nor any SFX Subsidiary is in conflict with,
or in default or violation of, or, with the giving of notice or the passage of
time, would be in conflict with, or in default or violation of, (i) any Law
applicable to SFX or any SFX Subsidiary or by which any property or asset of
SFX or any SFX Subsidiary is bound or affected, except in the case of any such
conflict, default or violation which would not reasonably be expected to have
a Material Adverse Effect, or (ii) any of the SFX Permits.
SECTION 4.10. ABSENCE OF LITIGATION . Section 4.10 of the
SFX Disclosure Schedule sets forth each instance in which any of SFX and the
SFX Subsidiaries (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the knowledge of
SFX and the SFX Subsidiaries, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator, which has not otherwise been
disclosed in the SFX SEC Reports and which would reasonably be expected to
have a Material Adverse Effect on SFX. Neither SFX nor any SFX Subsidiary nor
any property or asset of SFX or any SFX Subsidiary is in violation of any
order, writ, judgment, injunction, decree, determination or award.
SECTION 4.11. EMPLOYEE BENEFIT MATTERS . Except as set forth
in Section 4.11 of the SFX Disclosure Schedule, there are no material employee
benefit or compensation plans, agreements or arrangements, including "employee
benefit plans" as defined in Section 3(3) of ERISA, and including, but not
limited to, plans, agreements or arrangements relating to former employees to
which SFX or any of the SFX Subsidiaries is a party (together, the "SFX
Benefit Plans"). To the best knowledge of SFX, no default exists with respect
to the obligations of SFX or any of the SFX Subsidiaries under such SFX
Benefit Plans, which default, alone or in the aggregate, would have a Material
Adverse Effect on SFX. All SFX Benefit Plans have been administered in
accordance, and are in compliance, with the applicable provisions of ERISA,
except where such failure to administer or comply would not have a Material
Adverse Effect on SFX.
SECTION 4.12. LABOR MATTERS . Neither SFX nor any SFX
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by SFX or any SFX Subsidiary.
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SECTION 4.13. INTELLECTUAL PROPERTY . SFX and the SFX
Subsidiaries own or have valid, binding and enforceable rights to use each
patent, invention, copyright, trademark, industrial model, process, design and
all registrations and applications for any of the foregoing used, employed or
exploited in the business of SFX or any SFX Subsidiary without any known
conflict with the rights of others.
SECTION 4.14. OPINION OF FINANCIAL ADVISOR . SFX has
received the written opinion of Furman Selz L.L.C. (the "SFX Banker") on the
date of this Agreement to the effect that the Exchange Ratio to be offered by
SFX in the Merger is fair from a financial point of view to SFX's stockholders
(other than Robert F.X. Sillerman and his affiliates) as of the date thereof.
SECTION 4.15. VOTE REQUIRED . The affirmative vote of the
holders of a majority of the voting power of the then outstanding shares of
SFX Class A Common Stock and SFX Class B Common Stock is the only vote of the
holders of any class or series of capital stock of SFX necessary to approve
the Merger. The affirmative vote of the holders of a majority of the
outstanding shares of SFX Class A Common Stock and SFX Class B Common Stock,
voting separately as a class, is the only vote of the holders of any class or
series of capital stock of SFX necessary to approve the amendments to the
Certificate of Incorporation of SFX as set forth on Exhibit D which amendments
are required in order to increase the authorized shares of SFX Class A Common
Stock and SFX Class B Common Stock to be issued in exchange for the MMR
Securities or to be reserved for issuance upon the exercise of the Options and
Warrants.
SECTION 4.16. TANGIBLE PROPERTY . SFX and the SFX
Subsidiaries have good title to, or a valid leasehold interest in, the
tangible personal properties and assets used by them or shown on the SFX
December 31, 1995 Balance Sheet or acquired after the date thereof, which are
free and clear of any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) mechanic's, materialmen's and similar liens,
(b) liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, (d)
liens which would not reasonably be expected to have a Material Adverse Effect
on SFX, (e) liens and encumbrances identified and reflected on the SFX
December 31, 1995 Balance Sheet, and (f) mortgages, pledges, liens,
encumbrances, charges or other security interests that do not individually, or
in the aggregate, adversely affect the current use of such property.
SECTION 4.17. CERTAIN BUSINESS PRACTICES . As of the date of
this Agreement, neither SFX nor any SFX Subsidiary, nor any director, officer,
or, to the knowledge of SFX, any agent or employee of SFX or any SFX
Subsidiary has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
made any other unlawful payment, or (iv) violated any of the provisions of
Section 999 of the Code or Section 8 of the Export Administration Act, as
amended.
SECTION 4.18. BOARD RECOMMENDATION . At a meeting duly
called and held in compliance with Delaware Law, (a) the Independent Committee
of the Board of Directors of SFX has unanimously adopted a resolution
approving the Merger and recommended that the Board of Directors of SFX
approve the Merger, (b) the Board of Directors of SFX has unanimously adopted
a resolution (i) approving the Merger, based on a determination that the
Merger is in the best interests of the SFX stockholders, and (ii) approving
and adopting this Agreement and the Transactions and recommending approval and
adoption of this Agreement and the Transactions by the stockholders of SFX.
SECTION 4.19. FCC COMPLIANCE . SFX and the SFX Subsidiaries
hold, as of the date of this Agreement, and immediately prior to the Effective
Time, SFX and the SFX Subsidiaries will hold, the FCC licenses as set forth in
Section 4.19 of the SFX Disclosure Schedule (the "SFX FCC Licenses"), and such
licenses are now and at the Effective Time will be in full force and effect.
The SFX FCC Licenses are the only material FCC licenses, permits and
authorizations necessary for or used in connection with the operation of the
radio stations (the "SFX Stations") set forth in Section 4.19 of the SFX
Disclosure Schedule. Except as set forth in Section 4.19 of the SFX Disclosure
Schedule, the SFX Stations are being operated in all material respects in
accordance with the Communications Act, the
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FCC Rules and FCC and court interpretations thereof, all as in effect on the
date of this Agreement. Except as set forth in Section 4.19 of the SFX
Disclosure Schedule (i) no application, action or proceeding is pending or, to
the best of SFX's knowledge, threatened against SFX or the SFX Subsidiaries
that may result in the revocation, nonrenewal or suspension of any of the SFX
FCC Licenses, or the imposition of any administrative sanction with respect
thereto, and (ii) to the best of SFX's knowledge there is no fact which would
disqualify SFX or any of the SFX Subsidiaries from obtaining the approval of
the FCC as provided for in this Agreement or from completing the transactions
contemplated by this Agreement. All material applications, reports and other
disclosures required by the FCC with respect to the SFX Stations have been
duly filed with the FCC.
SECTION 4.20. INTERESTED PARTY TRANSACTIONS . Except as set
forth in Section 4.20 of the SFX Disclosure Schedule, between the SFX December
31, 1995 Balance Sheet and the date hereof, no event has occurred that would
be required to be, and has not been, reported as a "Certain Relationship or
Related Transaction" pursuant to Item 404 of Regulation S-K promulgated by the
SEC
ARTICLE V -- CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY MMR PENDING THE MERGER
. MMR covenants and agrees that, between the date of this Agreement and until
the earlier of the (x) date on which this Agreement is terminated and (y)
Effective Time, except as set forth in Section 5.01 of the MMR Disclosure
Schedule or as contemplated in this Agreement, including but not limited to
Section 5.03 below, unless SFX shall otherwise agree in writing (which
agreement shall not be unreasonably withheld and shall not be exercised in a
manner inconsistent with the Communications Act and FCC Rules), (a) the
business of MMR and the MMR Subsidiaries shall be conducted only in, and MMR
and the MMR Subsidiaries shall not take any action except in, the ordinary
course of business consistent with past practice and in accordance with all
applicable Laws, (b) MMR shall use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of MMR and the MMR
Subsidiaries and to preserve the current relationships of MMR and the MMR
Subsidiaries with customers, suppliers and other persons with which MMR or any
MMR Subsidiary has significant business relations, and (c) MMR shall not and
shall not permit any MMR Subsidiary to engage in any practice, take any
action, or enter into any transaction of the kind described in Section 3.08
above, except as otherwise contemplated herein.
SECTION 5.02. CONDUCT OF BUSINESS BY SFX PENDING THE MERGER
. SFX covenants and agrees that, between the date of this Agreement and until
the earlier of the (x) date on which this Agreement is terminated and (y)
Effective Time, except as set forth in Section 5.02 of the SFX Disclosure
Schedule or as contemplated in this Agreement, unless MMR shall otherwise
agree in writing (which agreement shall not be unreasonably withheld and shall
not be exercised in a manner inconsistent with the Communications Act and FCC
Rules), (a) the businesses of SFX and Acquisition Sub shall be conducted only
in, and SFX shall not, and shall cause Acquisition Sub not to, take any
action, except in the ordinary course of business consistent with past
practice and in accordance with all applicable Laws, and (b) SFX shall use all
reasonable efforts to preserve substantially intact its business organization
and to preserve the current relationships of SFX and the SFX Subsidiaries with
customers, suppliers and other persons with which SFX or any SFX Subsidiary
has significant business relations, and (c) SFX shall not and shall not permit
any SFX Subsidiary to amend, supplement or otherwise modify the Termination
and Assignment Agreement dated as of the date hereof between SFX and SCMC or
enter into any other arrangement with SCMC, engage in any practice, take any
action, or enter into any transaction of the kind described in Section 4.07,
except as otherwise contemplated herein. Notwithstanding anything herein to
the contrary, nothing contained in this Agreement shall prohibit SFX from (i)
consummating the Asset Purchase Agreements and other acquisitions with respect
to which definitive agreements have been executed as of the date hereof, (ii)
entering into transactions, on an arm's length basis, in connection with the
consummation of such acquisitions, including, without limitation, debt and/or
equity financing, (iii) entering into local market agreements or radio station
swaps on an arm's length basis, or (iv) entering into severance, employment or
related agreements with executive officers of SFX in connection with the
Transactions including, without limitation, with R.
Steven Hicks and Geoff Armstrong.
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SECTION 5.03. CONTROL OF STATIONS. Between the date of this
Agreement and the Closing Date, MMR will supervise, or direct, the operations
of the Stations, including programming, employees, finances, and operational
policies. Such operations shall be the sole responsibility of, and in the
complete discretion of, MMR and the MMR Subsidiaries, subject to Section 5.01
above.
ARTICLE VI -- ADDITIONAL AGREEMENTS
SECTION 6.01. REGISTRATION STATEMENT; PROXY STATEMENT . (a)
Within 120 days after the execution of this Agreement, SFX and MMR shall
prepare and file with the SEC a preliminary proxy statement or a registration
statement on Form S-4 (together with all amendments thereto, the "Registration
Statement") including therein a combined proxy statement to be sent to the
stockholders of MMR and SFX (the "Proxy Statement") and prospectus, in
connection with the registration under the Securities Act of the shares of SFX
Common Stock to be issued to the holders of the MMR Securities pursuant to the
Merger. SFX and MMR shall cooperate with each other in connection with any
other filings with the SEC that either is obligated to make as a result of the
Transactions. SFX and MMR each shall use all reasonable efforts to cause the
Registration Statement to become effective as promptly as practicable, and,
prior to the effective date of the Registration Statement, SFX shall take all
or any action required under any applicable federal or state securities laws
in connection with the issuance of shares of SFX Common Stock pursuant to the
Merger. Each of MMR and SFX shall pay its own expenses incurred in connection
with the Registration Statement, Proxy Statement, SFX's Stockholders' Meeting
(as defined hereinafter) and MMR's Stockholders' Meeting (as defined
hereinafter), including, without limitation, the fees and disbursements of
their respective counsel, accountants and other representatives, except that
MMR and SFX each shall pay one-half of any printing expenses incurred in
connection therewith. MMR shall furnish all information concerning MMR as SFX
may reasonably request in connection with such actions and the preparation of
the Registration Statement and Proxy Statement. As promptly as practicable
after the Registration Statement shall have become effective, SFX and MMR
shall mail the Proxy Statement to their respective stockholders. The Proxy
Statement shall include the unanimous recommendation of the Independent
Committees and the recommendation of the Boards of Directors of MMR and SFX in
favor of the Merger, unless otherwise required by the applicable fiduciary
duties of the directors as determined by such directors in good faith after
consultation with independent legal counsel.
No amendment or supplement to the Proxy Statement or the
Registration Statement will be made by SFX or MMR without the approval of the
other party, which shall not be unreasonably withheld. SFX and MMR each will
advise the other, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the SFX Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
SFX shall promptly prepare and submit to the Nasdaq Stock
Market a listing application covering the shares of SFX Class A Common Stock
issuable in the Merger, and shall use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such SFX Class A
Common Stock, subject to official notice of issuance, and MMR shall cooperate
fully with SFX with respect to such listing. SFX shall use its reasonable best
efforts to list, prior to the Effective Time, shares of SFX Class A Common
Stock issuable upon exercise of the Warrants on the Nasdaq National Market.
(b) SFX represents, warrants and agrees that the information
supplied by SFX for inclusion in the Registration Statement and the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of MMR, (iii) the time
of MMR's Stockholder Meeting, (iv) the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein, or necessary in order to make the
statements therein not false or misleading. If at any time prior to the
Effective Time any event or circumstance relating to SFX or any SFX
Subsidiary, or their respective officers or directors, should be discovered by
SFX which should be set forth
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in an amendment or a supplement to the Registration Statement or Proxy
Statement, SFX shall promptly inform MMR. Notwithstanding the foregoing, SFX
and Acquisition Sub make no representation or warranty with respect to any
information supplied by MMR or any of its representatives which is contained
in the Registration Statement or Proxy Statement. All documents that SFX is
responsible for filing with the SEC in connection with the Transactions will
comply as to form and substance in all material aspects with the applicable
requirements of the Securities Act and the rules and regulations promulgated
thereunder and the Exchange Act and the rules and regulations promulgated
thereunder.
(c) MMR represents, warrants and agrees that the information
supplied by MMR for inclusion in the Registration Statement and the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of SFX, (iii) the time
of SFX's Stockholder Meeting, and (iv) the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein, or necessary in order
to make the statements therein not false or misleading. If at any time prior
to the Effective Time any event or circumstance relating to MMR or any MMR
Subsidiary, or their respective officers or directors, should be discovered by
MMR which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, MMR shall promptly inform SFX.
Notwithstanding the foregoing, MMR makes no representation or warranty with
respect to any information supplied by SFX or Acquisition Sub or any of their
representatives in the Registration Statement or Proxy Statement. All
documents that MMR is responsible for filing with the SEC in connection with
the Transactions will comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations promulgated thereunder and the Exchange Act and the rules and
regulations promulgated thereunder.
(d) MMR, SFX and Acquisition Sub each hereby (i) consents to
the use of its name and, on behalf of its subsidiaries and affiliates, the
names of such subsidiaries and affiliates, and to the inclusion of financial
statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by
applicable securities laws), in the Registration Statement and the Proxy
Statement, (ii) agrees to use all reasonable efforts to obtain the written
consent of any person or entity retained by it which may be required to be
named (as an expert or otherwise) in the Registration Statement or the Proxy
Statement, and (iii) agrees to cooperate fully, and agrees to use all
reasonable efforts to cause its subsidiaries and affiliates to cooperate
fully, with any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) above in
connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, to be disclosed by
applicable securities laws in the Registration Statement or the Proxy
Statement.
SECTION 6.02. STOCKHOLDERS' MEETINGS . 1. MMR shall call a
meeting of its stockholders ("MMR's Stockholder Meeting") as promptly as
practicable for the purpose of voting upon the approval of this Agreement, the
Merger and the matters set forth on Exhibit C hereto, and MMR shall use all
commercially reasonable efforts to hold MMR's Stockholder Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. Unless otherwise required under applicable fiduciary duties of
MMR's directors, as determined in good faith after consultation with
independent legal counsel, MMR shall use all commercially reasonable efforts
to solicit from its stockholders proxies in favor of the approval of this
Agreement, the Merger and the matters set forth on Exhibit C hereto, and shall
take all other action reasonably necessary or advisable to secure the vote or
consent of stockholders required by Delaware Law to obtain such approvals.
2. SFX shall call a meeting of its stockholders ("SFX's
Stockholder Meeting") as promptly as practicable for the purpose of voting
upon the approval of this Agreement, the Merger and the matters set forth on
Exhibit D hereto, and SFX shall use all commercially reasonable efforts to
hold SFX's Stockholder Meeting as soon as practicable after the date on which
the Registration Statement becomes effective. Unless otherwise required under
applicable fiduciary duties of SFX's directors, as determined in good faith
after consultation with independent legal counsel, SFX shall use all
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement, the Merger and the matters set forth
on Exhibit D hereto, and shall take all other action
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reasonably necessary or advisable to secure the vote or consent of
stockholders required by Delaware Law to obtain such approvals.
3. Each of MMR and SFX shall use commercially reasonable
efforts to hold their respective Stockholders' Meetings on the same day (and
at or about the same time of day).
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS . (a)
MMR, SFX and Acquisition Sub shall use their commercially reasonable efforts
to (i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary, proper or advisable under applicable Laws or
required to be taken by any Governmental Authority or otherwise to consummate
and make effective the Transactions as promptly as practicable, (ii) obtain
from all applicable Governmental Authorities all consents, licenses, permits,
waivers, approvals, authorizations or orders legally required to be obtained
or made by SFX or MMR or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation
of the Transactions, including, without limitation, the Merger, and (iii) as
promptly as practicable, make all necessary filings, and thereafter make any
other required submissions, with respect to this Agreement and the Merger
required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities Laws, (B) the rules and regulations of
the Nasdaq National Market, (C) Delaware Law, (D) the HSR Act and any related
governmental request thereunder, (E) the Communications Act, and (F) all other
applicable Laws; provided that SFX and MMR shall cooperate fully with each
other in connection with the making of all such filings, including providing
copies of all such documents to the non-filing party and its advisors prior to
filing and, if requested, accepting all reasonable additions, deletions or
changes suggested in connection therewith. MMR and SFX shall use reasonable
best efforts to furnish to each other all information required for each
application or other filing to be made pursuant to the rules and regulations
of all applicable Laws (including all information required to be included in
the Proxy Statement and the Registration Statement) in connection with the
Transactions.
(b) (i) Each of SFX and MMR shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, their commercially reasonable
efforts to obtain any third party consents (including those set forth in
Section 3.05(a)(iii) of the MMR Disclosure Schedule and Section 4.05(a)(iii)
of the SFX Disclosure Schedule), (A) legally necessary to consummate the
Transactions, (B) disclosed or required to be disclosed in the MMR Disclosure
Schedule or the SFX Disclosure Schedule or (C) required to prevent a Material
Adverse Effect from occurring prior to or after the Effective Time; provided,
however, that as used in this Agreement "commercially reasonable efforts"
shall not require any party to undertake extraordinary or unreasonable
measures to obtain any approvals or consents, including, without limitation,
the initiation or prosecution of legal proceedings.
(ii) In the event that SFX or MMR shall fail to obtain any
third party consent described in subsection (b)(i) above, it shall use its
commercially reasonable efforts, and shall take any such actions reasonably
requested by the other party, to minimize any adverse effect upon MMR and SFX,
their respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
(iii) With respect to the consents which may be required
from Huff in connection with the consummation of the Transactions and the
Merger, it is acknowledged that Huff has not granted any such consents nor
waived any other rights it may have and has notified MMR to that effect.
Without limiting the generality of the foregoing, no action (or abstention
from action) of the Huff designee to the MMR Board of Directors is, or shall
be construed to be, such a consent or waiver.
(c) From the date of this Agreement until the earlier of the
(x) termination of this Agreement and (y) Effective Time, each party shall
promptly notify the other party of any, or to the best knowledge of the first
party, threatened, action, proceeding or investigation by or before any
Governmental Authority or any other person (i) challenging or seeking material
damages in connection with the Merger, the conversion of MMR Securities into
SFX Common Stock pursuant to the Merger or the Transactions or (ii) seeking to
restrain or prohibit the consummation of
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the Merger, the Transactions or otherwise limit the right of SFX to own
or operate all or any portion of the businesses or assets of MMR, which in
either case is reasonably likely to have a Material Adverse Effect on MMR
prior to the Effective Time, or a Material Adverse Effect on SFX and the
Acquisition Sub (including the Surviving Corporation) after the Effective
Time. SECTION 6.04.
ACCESS TO INFORMATION. (a) From the date
hereof until the earlier of the (x) termination of this Agreement and (y)
Effective Time, SFX and MMR will each provide to the other, during normal
business hours and upon reasonable notice, access to all information and
documents which the other may reasonably request regarding the business,
assets, liabilities, employees and other aspects of the other party, other
than information and documents that in the opinion of such other party's
counsel may not be disclosed under applicable Law.
(b) Each of the parties hereto shall provide to the other
monthly unaudited financial statements to the extent that such financial
statements are currently prepared. Such monthly financial statements shall be
provided within 15 days of the end of each month.
(c) MMR shall cooperate fully (with SFX responsible for all
reasonable costs and expenses) with SFX in connection with certain finances
SFX will undertake. In connection therewith, at the request of SFX, MMR (with
SFX responsible for all reasonable costs and expenses) will cause its
officers, directors, employees, representatives, consultants and advisors to
assist in the preparation of offering memoranda and pro forma financial
information and to participate in any road show presentations SFX shall
undertake in connection therewith, provided that such assistance shall not
unreasonably interfere with the performance by any of such officers,
directors, employees, representatives, consultants or advisors of services for
MMR. In furtherance of the foregoing, MMR shall cause its auditors to provide
and allow the filing of consents and "comfort letters" and other documentation
as may be required for the inclusion of any financial statements of MMR
prepared at the request of SFX, to allow such financial statements to be used
in public or private financing documents.
SECTION 6.05. ACQUISITION PROPOSALS . Neither MMR nor any
MMR Subsidiary shall initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as hereinafter
defined), or enter into discussions or negotiate with any person or entity in
furtherance of such inquiries to obtain a Competing Transaction, or enter into
an agreement with respect to any Competing Transaction or agree to or endorse
any Competing Transaction, or authorize or permit any of the officers,
directors or employees of MMR or any MMR Subsidiary or any investment banker,
financial advisor, attorney, accountant or other representative retained by
MMR or any MMR Subsidiary to take any such action, and MMR shall promptly
notify SFX of all relevant terms and conditions of any such inquiries and
proposals received by MMR or any MMR Subsidiary or by any such officer,
director, investment banker, financial advisor or attorney (including the
identity of the person from whom such inquiry or proposal was received), and
if such inquiry or proposal is in writing, MMR shall deliver or cause to be
delivered to SFX a copy of such inquiry or proposal; provided, however, that
nothing contained in this Agreement shall prohibit the Board of Directors of
MMR or its representatives from (i) furnishing information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide proposal in writing by such person or entity to
acquire MMR pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially
all of the assets of MMR or any MMR Subsidiary, if, and only to the extent
that (A) the Board of Directors of MMR, after consultation with independent
legal counsel and the MMR Banker, determines in good faith that such action is
required for the Board of Directors of MMR to comply with its fiduciary duties
to stockholders imposed by Delaware Law and (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity MMR (x) provides as promptly as practicable written notice to SFX of
MMR's intention to furnish such information to, or begin such discussions or
negotiations with, such person or entity and (y) obtains from such person or
entity a confidentiality agreement, or (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
following involving MMR or any MMR Subsidiary: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction (other than
the transactions contemplated by this Agreement), (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 25%
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or more of the assets of MMR and the MMR Subsidiaries, taken as a whole, in a
single transaction or series of transactions, (iii) any tender offer or exchange
offer for 25% or more of any outstanding class of capital stock of MMR or the
filing of a registration statement under the Securities Act in connection
therewith, (iv) the acquisition by any person of "beneficial ownership" or the
right to acquire beneficial ownership of, or the formation of any "group" (as
such terms are defined under Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) which beneficially owns, or has the
right to acquire beneficial ownership of, 30% or more of the then outstanding
shares of any class of capital stock of MMR (other than persons affiliated
with Robert F.X. Sillerman), or (v) any public announcement of a proposal,
plan or intention to do any of the foregoing.
SECTION 6.06. DIRECTORS' AND OFFICERS' INDEMNIFICATION . (a)
From and after the Effective Time, the Surviving Corporation shall indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date of this Agreement or who becomes prior to the Effective Time, an
officer or director of MMR or any of the MMR Subsidiaries, or an employee of
MMR or any of the MMR Subsidiaries who acts as a fiduciary under any employee
benefit plan of MMR or any of the MMR Subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees), claims, damages, liabilities or amounts that are paid in
settlement of, or otherwise in connection with, any threatened or actual
claim, action, suit, proceeding or investigation (a "Claim"), based in whole
or in part on or arising in whole or in part out of the fact that the
Indemnified Party (or the person controlled by the Indemnified Party) is or
was a director, officer or such an employee of MMR or any of the MMR
Subsidiaries and pertaining to any matter existing or arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, any Claim arising out of this Agreement or any of the
Transactions), whether asserted or claimed prior to, at or after the Effective
Time, in each case to the fullest extent permitted under Delaware Law or the
Surviving Corporation's charter and by-laws, and shall pay any expenses, as
incurred, in advance of the final disposition of any such action or proceeding
to each Indemnified Party to the fullest extent permitted under Delaware Law
or the Surviving Corporation's charter and by-laws; provided, however, that
the Surviving Corporation shall not be liable for any settlement effected
without its written consent (which shall not be unreasonably withheld).
Without limiting the foregoing, in the event any such claim is brought against
any of the Indemnified Parties, such Indemnified Parties may retain counsel
(including local counsel) satisfactory to them and which shall be reasonably
satisfactory to SFX, and the Surviving Corporation shall pay all fees and
expenses of such counsel for such Indemnified Parties. The Indemnified Parties
as a group shall retain only one law firm (plus appropriate local counsel) to
represent them with respect to each such Claim unless there is, as determined
by counsel to the Indemnified Parties, under applicable standards of
professional conduct, a conflict or a reasonable likelihood of a conflict on
any significant issue between the positions of any two or more Indemnified
Parties, in which event each such Indemnified Party shall be entitled to
retain separate legal counsel at the expense of the Surviving Corporation. SFX
hereby unconditionally and irrevocably guarantees the full and prompt payment
and performance of any and all of the Surviving Corporation's obligations
under this Section 6.06.
(b) For a period of six (6) years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by MMR
covering all of the individuals currently covered thereby (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors) with respect to claims arising
from facts or events which occurred at or prior to the Effective Time;
provided, however, that the Surviving Corporation shall not be required to pay
annual premiums for such insurance in excess of 200% in the aggregate of MMR's
current annual premium unless SFX continues to maintain its directors' and
officers' liability insurance despite a comparable increase; and provided
further, that if the premium for such coverage exceeds such amount, the
Surviving Corporation shall purchase a policy with the greatest coverage
available for such 200% of the annual premium.
SECTION 6.07. OBLIGATIONS OF ACQUISITION SUB . SFX shall
take all action necessary to cause Acquisition Sub to perform its obligations
under this Agreement and to consummate the Merger on the terms and subject to
conditions set forth in this Agreement and hereby irrevocably and
unconditionally guarantees all such obligations of Acquisition Sub.
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SECTION 6.08. PUBLIC ANNOUNCEMENTS . (a) SFX and MMR shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or any Transaction and
shall not issue any such press release or make any such public statement prior
to such consultation and (b) prior to the Effective Time, MMR will not issue
any other press release or otherwise make any public statements regarding its
business, except, in each case, as may be required by Law or any listing
agreement with the Nasdaq Stock Market to which MMR or SFX is a party.
SECTION 6.09. DELIVERY OF SEC DOCUMENTS . Each of MMR and
SFX shall promptly deliver to the other true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement.
SECTION 6.10. NOTIFICATION OF CERTAIN MATTERS . MMR shall
give prompt notice to SFX, and SFX shall give prompt notice to MMR, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate and (ii) any failure of MMR, SFX or
Acquisition Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
6.10 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 6.11. FURTHER ACTION . At any time and from time to
time, each party to this Agreement agrees, subject to the terms and conditions
of this Agreement, to take such actions and to execute and deliver such
documents as may be necessary to effectuate the purposes of this Agreement at
the earliest practicable time; provided, however, that this Section shall not
require either party to undertake extraordinary or unreasonable measures in
connection therewith, including, without limitation, the initiation or
prosecution of legal proceedings.
SECTION 6.12. TAX TREATMENT . (a) Section 6.12 of the MMR
Disclosure Schedule lists the names and addresses of those persons who are, in
MMR's reasonable judgment, "affiliates" of MMR within the meaning of Rule 145
under the Securities Act (each, an "MMR Affiliate"). MMR shall use all
commercially reasonable efforts to obtain Affiliate Agreements in the form of
Exhibit B hereto ("Affiliate Agreements") from (i) at least 30 days prior to
the Effective Time, each of the officers, directors and stockholders of MMR
specified in Section 6.12 of the MMR Disclosure Schedule and (ii) any person
who may be deemed to have become an MMR Affiliate (under Rule 145 under the
Securities Act) after the date of this Agreement and on or prior to the
Effective Time as soon as practicable after the date on which such person
attains such status. Each party hereto shall use its best efforts to cause the
Merger to qualify as a reorganization qualifying under the provisions of
Section 368(a) of the Code, including, without limitation, that SFX agrees
that it will cause MMR, in its new capacity as a subsidiary of SFX, to (i)
continue MMR's historic business and (ii) use a significant portion of its
historic business assets in such business.
(b) Both on the date that is two days prior to the date the
Proxy Statement is first mailed to stockholders of SFX and MMR and on the date
that the Merger is consummated, SFX and MMR shall receive an opinion of Baker
& McKenzie, reasonably satisfactory in form and substance to MMR, its counsel
Paul, Hastings, Janofsky & Walker and SFX, based, in each case, upon
representation letters substantially in the form of Exhibits E-1 and E-2,
dated on or about the date of such opinion, and such other facts and
representations as counsel may reasonably deem relevant, to the effect that
(i) the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
(ii) SFX, Acquisition Sub and MMR will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, and (iii) the stockholders
of MMR shall not recognize any gain or loss for U.S. federal income tax
purposes as a result of the Merger, other than to the extent such stockholders
receive cash in lieu of fractional shares or payments pursuant to dissenter's
rights.
SECTION 6.13. FCC APPLICATION(S) AND APPROVAL .
(a) COMMISSION ORDER. Consummation of the Transactions is
subject to and conditioned upon prior receipt from the FCC of its consent in
writing to the transfer of control of the license of the Stations from MMR
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to SFX, which consent shall have become final before the date of the Merger,
provided that the parties may mutually agree in writing to waive this finality
requirement. Notwithstanding all other provisions in this Agreement to the
contrary, if any, however, except as to finality, such requirement of
receiving FCC consent shall not be waiveable by the parties. The FCC's
consent(s) shall be deemed to have become final when each such consent has
been granted and published, has not been vacated, reversed, stayed, set aside,
annulled or suspended, the time for the filing by anyone other than the FCC of
any protest, petition to deny, request for stay, petition for rehearing or
reconsideration, application for review or appeal of each such consent has
expired, no such protest, petition to deny, request for stay, petition for
rehearing or reconsideration, application for review or appeal is pending
before the FCC or a court of competent jurisdiction and the statutory or
regulatory time within which the FCC may review each such consent on its own
motion has expired and the FCC has not undertaken such review, and in the
event of review, reconsideration, or appeal that does not result in such FCC
consent being reversed, stayed, enjoined, set aside, annulled or suspended,
the statutory or regulatory time for further review, reconsideration, or
appeal has expired. As used in this Agreement, the term "Commission Order"
refers to either (i) such FCC consent(s) (collectively as to all such
consents) when they are deemed to have become final or, (ii) if such finality
has been waived by agreement of all the parties in writing, such FCC
consent(s) (collectively as to all such consents) without finality.
(b) APPLICATION(S) FOR CONSENT. The parties to this
Agreement agree to proceed as expeditiously as practicable to file or cause to
be filed an application or applications requesting FCC consent (collectively,
the "Consent Application") to the transfer of control of the licenses of the
Stations from MMR to SFX, as contemplated by this Agreement. The parties agree
that the Consent Application shall be duly filed with the FCC not later than
forty-five (45) business days after the date of this Agreement, and that such
Consent Application shall be prosecuted in good faith and with due diligence.
The failure of either party to timely file or prosecute in good faith and with
due diligence its portion of the Consent Application shall be deemed a
material breach of this Agreement. MMR and SFX each agree to pay, when due,
one-half (1/2) of the filing fee(s) for the Consent Application.
(c) CONDITIONS. If the Consent Application as approved by
the FCC imposes any condition on any party hereto, such party shall use its
best efforts to comply with such condition; provided, however, that none of
the parties hereto shall be required hereunder to comply with any conditions
that would have a Material Adverse Effect upon it, except for any Equal
Employment Opportunity conditions. If administrative or judicial
reconsideration or review is sought with respect to the FCC Consents, MMR and
SFX shall oppose such efforts to obtain reconsideration or review.
SECTION 6.14. EMPLOYEE BENEFIT PLANS . SFX and MMR agree
that the MMR Benefits Plans in effect at the date of this Agreement shall, to
the extent practicable, remain in effect until otherwise determined after the
Effective Time and, to the extent such MMR Benefit Plans are not continued, it
is the current nonbinding intent of the parties that employee benefit plans of
SFX which are no less favorable, in the aggregate, to the employees covered by
such plans shall be provided.
SECTION 6.15. REPAYMENT OF INDEBTEDNESS; REDEMPTION OF MMR
SENIOR PREFERRED STOCK . On or prior to the Effective Time, MMR shall use its
best efforts to (a) repay all amounts outstanding under the Loan Agreement
(the "Finova Loan") dated March 27, 1995 between Finova Capital Corporation
and certain MMR Subsidiaries, and (b) repay all amounts due under the Senior
Subordinated Debentures due 2001 ("Subordinated Debentures") issued to Huff
and redeem all shares of the MMR Senior Preferred Stock.
SECTION 6.16. WARRANTS; MAKE WHOLE ADJUSTMENT . (a) Subject
to applicable laws, MMR shall, at the request of SFX, use all commercially
reasonable efforts to (a) commence an offer to exchange MMR Class A Common
Stock for all outstanding Class B Warrants, which offer shall not be greater
than 0.2 (two-tenths) shares of MMR Class A Common Stock for each such Class B
Warrant and (b) cooperate with SFX in connection with the solicitation of the
purchase of all of the outstanding Unit Purchase Options and IPO Warrants. Any
documents prepared by MMR to effectuate such offer to exchange and
solicitations shall be in form and substance reasonably satisfactory to SFX
and its counsel.
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In the event that MMR is unsuccessful in obtaining the exchange of at
least 50% of the outstanding Class B Warrants at the ratio set forth above on
or prior to the Determination Date, the Exchange Ratio set forth in Section
2.01(b) above shall be adjusted downward to the extent necessary to reduce the
total dollar value of the SFX Class A Common Stock and SFX Class B Common
Stock that would have otherwise been received by MMR security holders on the
Effective Date (in each case calculated with reference to the SFX Class A
Common Stock Price) by a dollar amount equal to the product of $2.50 times the
number of Class B Warrants outstanding immediately after such exchange in
excess of such 50% number. In calculating the total value of SFX Class A
Common Stock and SFX Class B Common Stock received by MMR security holders,
each share of SFX Class B Common Stock shall be deemed to have the same value
as a share of SFX Class A Common Stock.
(b) In the event that SFX delivers the Make Whole Notice (as
defined in and subject to the conditions of Section 8.01(l)) to MMR and does
not deliver a Make Whole Rescission Notice (as defined in Section 8.01(l)),
the Exchange Ratio (x) shall be determined pursuant to Section 2.01(b) if the
SFX Class A Common Stock Price equals or exceeds $27.33, and (y) if the SFX
Class A Common Stock Price is less than $27.33, shall be increased such that,
on the Determination Date, the product of the (a) Exchange Ratio as so
adjusted, multiplied by (b) SFX Class A Common Stock Price shall be an amount
equal to $10.25 (such amount being referred to as the "Minimum Per Share
Amount").
SECTION 6.17. THE EXCHANGE AGREEMENT AND RELATED MATTERS .
(a) SFX and MMR hereby agree that the exchange contemplated by that certain
Exchange Agreement dated November 13, 1995 between SFX and MMR (the "Letter
Agreement") is hereby canceled effective on and as of the date hereof and,
except as provided herein, all rights and obligations arising thereunder are
hereby terminated without any further action or liability on the part of
either party. Each of MMR and Multi-Market Radio Acquisition Corporation
("MMRAC") shall use all commercially reasonable efforts to obtain consents and
shall assign its rights under the following agreements to SFX or a
wholly-owned subsidiary of SFX, and SFX or such subsidiary shall assume any
and all obligations under such agreements and shall relieve MMR of all
obligations thereunder: (i) the Asset Purchase Agreement dated as of December
27, 1995 between Texas Coast Broadcasters, Inc. and MMR, (ii) the Asset
Purchase Agreement dated as of January 26, 1996 between Lewis Broadcasting
Corporation and MMRAC, (iii) the Asset Purchase Agreement dated January 22,
1996 between ABS Greenville Partners, L.P. and MMRAC and (iv) the Asset
Purchase Agreement dated January 18, 1996 between HMW Communications, Inc. and
MMRAC (collectively, the "Asset Purchase Agreements"). SFX shall reimburse MMR
for any costs and expenses incurred by MMR in connection with obtaining such
consents.
(b) In the event that this Agreement is terminated pursuant
to Section 8.01(a), (b), (c)(ii), (c)(iii), (f), (g), (h), (j), (l), (m) or
(n), MMR will have the right but not the obligation to acquire, subject to FCC
approval, radio stations WHCN(FM), Hartford, Connecticut; WMRQ(FM), Waterbury,
Connecticut; WPOP-AM, Hartford, Connecticut; WSNE(FM), Taunton, Massachusetts;
WHJY(FM), Providence, Rhode Island; WHJJ-AM, Providence, Rhode Island;
WGNA(FM), Albany, New York; WPYX(FM), Albany, New York; WTRY-AM, Troy, New
York; WGNA-AM, Albany, New York; WYSR(FM), Rotterdam, New York and WMXB(FM),
Richmond, Virginia (collectively, the "Liberty Stations") for $100 million in
cash payable in full at the closing. To exercise its right to purchase the
Liberty Stations, MMR shall give written notice of such exercise to SFX within
forty-five (45) days following the termination of this Agreement. Such notice
shall be accompanied by a $1.0 million cash deposit to secure its obligation
to purchase the Liberty Stations. MMR shall further deposit $2.0 million cash
within twenty (20) business days thereafter. In the event that MMR exercises
its right to acquire the Liberty Stations, the parties shall use their best
efforts to cause such acquisition to be consummated as soon as practicable and
in any event within nine months following the termination of this Agreement.
In the event that this Agreement is terminated pursuant to Section 8.01(a),
(b), (f), (h), (j) or (l), SFX shall have the right to structure an exchange
of stations (the "Exchange") for the Liberty Stations, intended to qualify as
a like-kind exchange under Section 1031 of the Code and MMR and SFX shall use
their best efforts to consummate the Exchange as soon as practicable and in
any event within nine months following the termination of this Agreement.
Notwithstanding the foregoing, the parties acknowledge that, in the event MMR
acquires radio station WYSR(FM) under this Section 6.17, such acquisition will
be of an interest in a joint sales agreement with respect to WYSR(FM) rather
than that station itself, so long as SFX's interest in such station is limited
to a joint sales agreement.
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If requested by MMR, SFX shall negotiate in good faith to
enter into an agreement to advance up to $18 million to MMR to enable MMR to
acquire WKSS-FM, Hartford, Connecticut and up to $5 million to MMR for working
capital and other general operating expenses.
SECTION 6.18. GOVERNANCE . At or prior to the Effective
Time, SFX's Board of Directors shall amend SFX's Bylaws to increase the number
of directors constituting the entire Board of Directors by two. At or prior to
the Effective Time, SFX shall take all action necessary to cause (i) Michael
Ferrel to be named a director and Chief Executive Officer of SFX, and (ii) an
additional Independent Director (as defined in SFX's Certificate of
Incorporation) to be appointed to the Board of Directors of SFX.
SECTION 6.19. WITHDRAWAL OF REGISTRATION STATEMENTS . Upon
written request of SFX, MMR shall cause its Registration Statement on Form
SB-2 (Reg. No. 333-1712) in respect of 5,750,000 shares of MMR Class A Common
Stock and its Registration Statement on Form SB-2 (Reg. No. 333-1892) in
respect of $110,000,000 Senior Subordinated Notes due 2006 to be withdrawn in
accordance with the rules of the SEC.
SECTION 6.20. CONSULTING ARRANGEMENT . Commencing July 30,
1996 and continuing until the earlier of the (x) termination of this Agreement
and (y) the Effective Time, MMR will make available to SFX the services of
Michael G. Ferrel, the President and Chief Executive Officer of MMR, on a
consulting basis to the extent that such services do no conflict with Mr.
Ferrel's obligations to MMR. Neither Mr. Ferrel nor MMR shall receive any
compensation for such services.
ARTICLE VII -- CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY .
The obligations of MMR, SFX and Acquisition Sub to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Transactions contemplated hereby
shall have been approved and adopted by the affirmative vote of the
stockholders of MMR in accordance with Delaware Law and MMR's Certificate of
Incorporation and Bylaws;
(b) this Agreement and the Transactions contemplated hereby
shall have been approved and adopted by the affirmative vote of the
stockholders of SFX in accordance with Delaware Law and SFX's Certificate of
Incorporation and By-laws and the rules of the Nasdaq Stock Market.
(c) the Certificate of Incorporation of SFX shall have been
amended as set forth in Exhibit D, provided, however, that SFX may waive this
condition only with the approval of the Independent Committee of SFX;
(d) no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute, rule or regulation which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger;
(e) the Registration Statement shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect;
(f) SFX and MMR shall have received from the Nasdaq Stock
Market evidence that the shares of SFX Class A Common Stock to be issued to
the stockholders of MMR in the Merger shall be listed on the Nasdaq National
Market immediately following the Effective Time;
(g) any applicable waiting period under the HSR Act relating
to the Merger shall have expired or been terminated;
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(h) all applicable consents to the Merger from the FCC shall
have been received and be final, or SFX and MMR shall have agreed in writing
to waive the finality requirement pursuant to Section 6.13(a) above;
(i) SFX and MMR shall have received the tax opinions
provided for in Section 6.12;
(j) SFX shall have entered into an agreement to amend the
employment agreement of D. Geoffrey Armstrong dated as of April 1, 1995; and
(k) all other consents, authorizations, orders and approvals
of (or filings or registrations with) any third party or governmental
commission, board or other regulatory body required in connection with the
execution, delivery and performance of this Agreement shall have been obtained
or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on
the business of MMR or SFX (or their respective subsidiaries), taken as a
whole, following the Effective Time, and the agreement described in Section
8.01(l)(B) shall have been reached and the transactions contemplated therein
consummated prior to the Effective Time.
SECTION 7.02. CONDITIONS TO THE OBLIGATIONS OF SFX AND
ACQUISITION SUB . The obligations of SFX and Acquisition Sub to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) MMR shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Effective Time and each of
the representations and warranties of MMR contained in this Agreement shall be
true and correct in all material respects as of the Effective Time as though
made on and as of the Effective Time, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, and SFX shall have received a certificate of
an executive officer of MMR to that effect;
(b) SFX shall have received from each MMR Affiliate and any
other person who may be deemed to have become an affiliate of MMR (under Rule
145 under the Securities Act) after the date of this Agreement and at or prior
to the Effective Time a signed Affiliate Agreement;
(c) since the date of this Agreement, no material adverse
change in the financial condition, results of operations or business of MMR
and the MMR Subsidiaries, taken as a whole, shall have occurred, and neither
MMR nor any MMR Subsidiary shall have suffered any damage, destruction or loss
materially affecting the business or properties of MMR and the MMR
Subsidiaries, taken as a whole;
(d) SFX shall have received evidence reasonably satisfactory
to it that MMR has repaid or provided for the repayment at the Effective Time
of the Finova Loan; and
(e) SFX shall have received a written fairness opinion from
the SFX Banker dated as of the date of the Proxy Statement, provided, however,
that SFX will only be able to waive this condition with the approval of the
Independent Committee of SFX.
SECTION 7.03. CONDITIONS TO THE OBLIGATIONS OF MMR . The
obligations of MMR to consummate the Merger are subject are subject to the
satisfaction of the following further conditions:
(a) SFX and Acquisition Sub shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them at or prior to the
Effective Time and each of the representations and warranties of SFX and
Acquisition Sub contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, as though made on and as of the
Effective Time, except that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date and MMR shall have received a certificate of an executive officer of SFX
to that effect;
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(b) since the date of this Agreement, no material adverse
change in the financial condition, results of operations or business of SFX
and the SFX Subsidiaries, taken as a whole, shall have occurred, and SFX and
the SFX Subsidiaries shall not have suffered any damage, destruction or loss
materially affecting the business or properties of SFX and the SFX
Subsidiaries, taken as a whole; and
(c) MMR shall have received a written fairness opinion from
the MMR Banker dated as of the date of the Proxy Statement, provided, however,
that MMR will only be able to waive this condition with the approval of the
Independent Committee of MMR.
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION . This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior
to the Effective Time, notwithstanding any requisite approval and adoption of
this Agreement and the Transactions, as follows:
(a) by mutual written consent duly authorized by the Boards
of Directors (including the Independent Committees) of each of SFX and MMR;
(b) by either SFX or MMR, if either (i) the Effective Time
shall not have occurred on or before December 31, 1997; provided, however,
that the right to terminate this Agreement under this Section 8.01(b) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; provided further, however,
that such December 31, 1997 deadline shall be extended to and including June
30, 1998 in the event that all other conditions to the consummation of the
Merger shall have been satisfied but (x) the FCC has granted its consent to
the Merger and (y) a third party petition seeking reconsideration or review of
such consent is permitted to be filed, or FCC review of such consent is
permitted to be taken pursuant to 47 C.F.R. ss. 1.117, or (ii) there shall be
any Order which is final and nonappealable preventing the consummation of the
Merger, except if the party relying on such Order has not complied with its
obligations under Section 6.03(a);
(c) by SFX, if (i) the Independent Committee or the Board of
Directors of MMR fails to recommend, withdraws, or materially modifies or
materially changes, their recommendations of this Agreement or the Merger in a
manner adverse to SFX or shall have resolved to do any of the foregoing, (ii)
the Independent Committee or the Board of Directors of MMR shall have
recommended to the stockholders of MMR a Competing Transaction or shall have
failed to recommend against accepting a Competing Transaction or take no
position with respect thereto or shall have resolved to do any of the
foregoing, or (iii) any person (other than SFX, Acquisition Sub or any
affiliate thereof) shall have acquired "beneficial ownership" or the right to
acquire beneficial ownership of, or any "group" (as such terms are defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder), shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, more than 30% of the then
outstanding shares of any class of capital stock of MMR;
(d) by SFX, if the stockholders of MMR shall have failed to
approve and adopt this Agreement, the Merger and other Transactions at a
meeting duly convened therefor;
(e) by SFX, upon a breach of any representation, warranty,
covenant or agreement on the part of MMR set forth in this Agreement, or if
any representation or warranty of MMR shall have become untrue, in either case
such that the conditions set forth in Section 7.02 would not be satisfied (a
"Terminating MMR Breach"); provided, however, that, if such Terminating MMR
Breach is curable by MMR through the exercise of its best efforts and for so
long as MMR continues to exercise such best efforts, SFX may not terminate
this Agreement under this Section 8.01(e);
(f) by MMR, if the stockholders of SFX shall have failed to
approve and adopt this Agreement, the Merger and other Transactions at a
meeting duly convened therefor;
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(g) by MMR, upon breach of any representation, warranty,
covenant or agreement on the part of SFX set forth in this Agreement, or if
any representation or warranty of SFX shall have become untrue, in either case
such that the conditions set forth in Section 7.03 would not be satisfied
("Terminating SFX Breach"); provided, however, that, if such Terminating SFX
Breach is curable by SFX through best efforts and for so long as SFX continues
to exercise such best efforts, MMR may not terminate this Agreement under this
Section 8.01(g);
(h) by MMR or the Independent Committee of MMR, upon (1) the
revocation by the MMR Banker of its written fairness opinion if such
revocation was (A) (i) directly related to the material misstatement or
omission contained in the information provided to the MMR Banker by SFX, and
(ii) MMR does not directly or indirectly solicit such a revocation or (B) a
direct result of a Material Adverse Effect with respect to SFX or (2) failure
of the MMR Banker to confirm its written fairness opinion at the time the
Proxy Statement is first mailed to MMR stockholders;
(i) by SFX or the Independent Committee of SFX, upon (1) the
revocation by the SFX Banker of its written fairness opinion if such
revocation was (A)(i) directly related to the material misstatement or
omission contained in the information provided to the SFX Banker by MMR, and
(ii) SFX does not directly or indirectly solicit such a revocation or (B) a
direct result of a Material Adverse Effect with respect to MMR or (2) failure
of the SFX Banker to confirm its written fairness opinion at the time of the
Proxy Statement is first mailed to SFX stockholders;
(j) by MMR or the Independent Committee of MMR within ten
(10) business days of the delivery of the SFX Disclosure Schedules, if such
schedules contain information inconsistent with information contained in the
SFX SEC Reports or if such schedules contain information which was omitted
from the SFX SEC Reports filed prior to the date hereof and such inconsistent
or omitted information would, in the reasonable good faith determination of
the Independent Committee of MMR after consultation with its advisors
supported (if practicable) by a written evaluation by the MMR Banker,
reasonably be expected to have a Material Adverse Effect on SFX;
(k) by SFX or the Independent Committee of SFX within ten
(10) business days of the delivery of the MMR Disclosure Schedules, if such
schedules contain information inconsistent with information contained in the
MMR SEC Reports or if such schedules contain information which was omitted
from the MMR SEC Reports filed prior to the date hereof and such inconsistent
or omitted information would, in the reasonable good faith determination of
the Independent Committee of SFX after consultation with its advisors
supported (if practicable) by a written evaluation by the SFX Banker
reasonably be expected to have a Material Adverse Effect on MMR;
(l) (A) by MMR or the Independent Committee of MMR, in the
event that (i) the Reported Price for the SFX Class A Common Stock for any
seven (7) consecutive trading days (the "Average Price") during any period
commencing with the first trading day following June 15, 1996 and ending on
the Determination Date shall be less than $27.33 and (ii) MMR has delivered
written notice to SFX of its intention to terminate this Agreement (the "Price
Termination Notice") within forty-eight (48) hours following the date on which
the Average Price is less than $27.33; provided, that SFX, upon the
recommendation of the Independent Committee of SFX, shall have the right, but
not the obligation, to deliver, within forty-eight (48) hours after the
receipt of the Price Termination Notice, a written notice pursuant to which
SFX agrees that MMR stockholders shall receive no less than the Minimum Per
Share Amount (the "Make Whole Notice"); and provided, further, that SFX, upon
the recommendation of the Independent Committee of SFX, shall, subject to the
next succeeding sentence, have the right to rescind such Make Whole Notice by
delivery of an additional notice (the "Make Whole Rescission Notice") in the
event that the Average Price at any time following the delivery of the Make
Whole Notice is at least $0.25 less than the Average Price as set forth in,
and which triggered, the Price Termination Notice (such Average Price at the
time of the first Make Whole Rescission Notice being referred to as the
"Reduced Average Price," which term, after any subsequent decline of the
Average Price of at least an additional $0.25, shall thereafter be deemed the
"Reduced Average Price"). The Make Whole Rescission Notice shall be effected
by delivery of written notice to MMR within forty-eight (48) hours following
the date on which a particular Reduced Average Price occurred, it being
understood that in the event SFX elects not to deliver a Make Whole Rescission
Notice within such 48-hour period with respect to any particular Reduced
Average Price, then SFX shall retain the right to deliver a Make Whole
Rescission Notice with respect to any subsequent Reduced Average Price. In
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the event SFX either fails to deliver the Make Whole Notice within the
forty-eight (48) hour period following the receipt of a Price Termination
Notice or delivers a Make Whole Rescission Notice, this Agreement shall
terminate forthwith. (B) by MMR or the Independent Committee of MMR during the
period commencing on the end of the fifteenth (15th) business day following
the delivery of the SFX Disclosure Schedules (the "Huff Termination Date") and
ending on the twentieth (20th) business day following the delivery of the SFX
Disclosure Schedules if a binding, definitive agreement is not reached, by the
close of business on the Huff Termination Date, with respect to the repayment
and redemption in full at or prior to the Effective Time of the Subordinated
Debentures and the MMR Senior Preferred Stock;
(m) by MMR, if MMR accepts a Competing Transaction; or
(n) by MMR, if the Independent Committee or the Board of
Directors of SFX fails to recommend, withdraws or materially changes their
recommendation of this Agreement or the Merger in a manner adverse to MMR or
shall have resolved to do any of the foregoing.
SECTION 8.02. FEES AND EXPENSES . (a) MMR shall pay SFX a
fee (an "Alternative Proposal Fee") of $3,500,000, which amount is inclusive
of all of Specified Expenses (as hereinafter defined) and all other costs and
expenses, if:
(i) this Agreement is terminated pursuant to Section 8.01(m) or (c)
(except in the event a termination occurs pursuant to Section
8.01(c)(i) due to the occurrence of an event described in Section
8.01(g), (h)(1), (j), (l) or (n)); or
(ii) (A) this Agreement is terminated pursuant to Section 8.01(d) as
a result of the failure of the stockholders of MMR to approve the
Merger, (B) a proposal for Competing Transaction shall have been made
prior to such termination, and (C) any Competing Transaction is
thereafter consummated within 12 months of such termination.
(b) SFX shall pay MMR a fee (the "MMR Termination Fee") of
$1,000,000, which amount is inclusive of all of the Specified Expenses, if the
majority of the combined voting power of SFX votes with respect to, but does
not vote in favor of, the Merger.
(c) Except in connection with a termination pursuant to
which the Alternative Proposal Fee would otherwise be due and owing, MMR shall
pay SFX a fee (the "SFX Termination Fee") of $1,000,000, which amount is
inclusive of all of the Specified Expenses, if the majority of the combined
voting power of MMR votes with respect to, but does not vote in favor of, the
Merger.
(d) SFX shall be entitled to receive its Specified Expenses
(but not the Alternative Proposal Fee) in immediately available funds in the
event that this Agreement is terminated pursuant to Section 8.01(e), (i) or
(k). MMR shall be entitled to receive its Specified Expenses in immediately
available funds in the event that this Agreement is terminated pursuant to
Section 8.01(g), (h) or (j). In addition, MMR shall also be entitled to
receive in immediately available funds one-half (1/2) of its out-of-pocket
expenses incurred in connection with the transactions contemplated by Section
6.16 in the event that this Agreement is terminated pursuant to Section
8.01(f), (g), (h), (j) or (l).
(e) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to Section 8.01, all obligations of the
parties hereto shall terminate except the obligations of the parties pursuant
to this Section 8.02 and Sections 6.17, 8.03, 8.04, 9.02, 9.05, 9.08, 9.11 and
9.13.
No termination of this Agreement pursuant to Section
8.01(e), (g), (h) or (i) shall prejudice the ability of a non-breaching party
from seeking damages from any other party for any breach of this Agreement,
including, without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity. Notwithstanding the foregoing, if SFX is required
to file suit to seek the Alternative Proposal Fee or either SFX or MMR is
required to file suit to seek
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its Specified Expenses or to recover its Termination Fee, and it ultimately
succeeds on the merits, it shall be entitled to all expenses, including
attorneys' fees, which it has incurred in enforcing its rights under this
Section 8.02.
(f) As used herein, "Specified Expenses" means all
reasonable out-of-pocket expenses and fees actually incurred or accrued by a
party or on its behalf in connection with the Transactions prior to the
termination of this Agreement (including, without limitation, all fees and
expenses of counsel, financial advisors, banks or other entities providing
financing to such party (including financing, commitment and other fees
payable thereto), accountants and other experts and consultants to such party
and its affiliates, and all printing and advertising expenses) and in
connection with the negotiation, preparation, execution, performance and
termination of this Agreement, the structuring of the Transactions, any
agreements relating thereto and any filings to be made in connection
therewith; provided however in no event shall Specified Expenses include the
expenses incurred under Section 6.16 hereof.
(g) Except as set forth in this Section and in Sections
6.01, 6.13(a) and the last sentence of Section 6.17(a), all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid
by the party incurring such expenses, whether or not any Transaction is
consummated.
SECTION 8.03. AMENDMENT . This Agreement may be amended by
the parties hereto by action taken by or on behalf of their respective
Independent Committees and Boards of Directors at any time prior to the
Effective Time; provided, however, that, after the approval and adoption of
this Agreement and the Transactions by the stockholders of MMR, no amendment
may be made which would violate Delaware Law. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER . At any time prior to the Effective
Time, any party hereto with the consent of its Independent Committee and Board
of Directors may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE IX -- GENERAL PROVISIONS
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS . The representations, warranties and agreements in this
Agreement and any certificate delivered pursuant hereto by any person shall
terminate at the Effective Time, except that the agreements set forth in
Articles I and II and Sections 6.06, 6.18 and 6.19 and the agreements
delivered pursuant to this Agreement shall survive the Effective Time
indefinitely.
SECTION 9.02. NOTICES . All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, facsimile, telegram or telex or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 9.02):
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if to SFX or Acquisition Sub:
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Attention: Robert F.X. Sillerman
Facsimile: (212) 753-3188
with copies to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Attention: Howard M. Berkower
Facsimile: (212) 759-9133
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Morton A. Pierce
Facsimile: (212) 259-6333
if to MMR:
Multi-Market Radio, Inc.
One Monarch Place
Suite 220
Springfield, Massachusetts 01144
Attention: Michael G. Ferrel
Facsimile: (413) 732-7851
with a copy to:
Paul, Hastings, Janofsky & Walker
399 Park Avenue, 31st Floor
New York, New York 10022
Attention: William F. Schwitter
Facsimile: (212) 319-4090
SECTION 9.03. CERTAIN DEFINITIONS . Unless the context
requires otherwise, for purposes of this Agreement, the term:
(a) "affiliate" of a specified person means a person who,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or
(B) the right to vote pursuant to any agreement, arrangement or understanding,
(iii) which are beneficially owned, directly or indirectly, by any other
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<PAGE>
persons with whom such person or any of its affiliates or associates or any
person with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any such shares, or (iv) pursuant to Section 13(d) of
the Exchange Act and any rules or regulations promulgated thereunder;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in New York, New York;
(d) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary), owns
or has rights to acquire, directly or indirectly, more than 50% of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.04. SEVERABILITY . If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of Law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.05. ASSIGNMENT; BINDING EFFECT; BENEFIT . Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
except for the provisions of Article II (including, without limitation,
provisions relating to the holders of any Warrants) and Section 6.06
(collectively, the "Third Party Provisions"), nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.06. INCORPORATION OF SCHEDULES . The MMR
Disclosure Schedule and the SFX Disclosure Schedule referred to herein and
signed for identification by the parties hereto and all exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein. For purposes of this
Agreement, any disclosure made (i) on any Schedule to this Agreement shall be
deemed included in any other Schedule to which such disclosure is relevant and
(ii) in any MMR or SFX SEC Reports filed prior to the date hereto shall be
deemed to have been disclosed for all purposes relevant, and shall be deemed
included in all Schedules annexed, to this Agreement.
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SECTION 9.07. SPECIFIC PERFORMANCE . The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
SECTION 9.08. GOVERNING LAW. EXCEPT TO THE EXTENT THAT
DELAWARE LAW IS MANDATORILY APPLICABLE TO THE MERGER AND THE RIGHTS OF THE
STOCKHOLDERS OF MMR AND ACQUISITION SUB, THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE RULES OF CONFLICTS OF LAW THEREOF. ALL ACTIONS AND PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN
ANY COURT SITTING IN THE CITY OF NEW YORK, STATE OF NEW YORK.
SECTION 9.09. HEADINGS . The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.10. COUNTERPARTS . This Agreement may be executed
and delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
SECTION 9.11. WAIVER OF JURY TRIAL . Each of SFX, MMR and
Acquisition Sub hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the actions of SFX,
MMR or Acquisition Sub in the negotiation, administration, performance and
enforcement thereof.
SECTION 9.12. ENTIRE AGREEMENT . This Agreement, the MMR
Disclosure Schedule, the SFX Disclosure Schedule, the Exhibits attached
hereto, and all documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon any party hereto unless made in
writing and signed by all parties hereto.
SECTION 9.13. WAIVER OF CERTAIN RIGHTS . (a) SFX hereby
waives any right to terminate this Agreement, during the period prior to the
delivery of the MMR Disclosure Schedule to SFX, to the extent that such right
is based upon any purported breach of any representation or warranty of MMR,
except if any such purported breach relates to a representation or warranty
which is not qualified by reference to the MMR Disclosure Schedule.
(b) MMR hereby waives any right to terminate this Agreement,
during the period prior to the delivery of the SFX Disclosure Schedule to MMR,
to the extent that such right is based upon any purported breach of any
representation or warranty of SFX, except if any such purported breach relates
to a representation or warranty which is not qualified by reference to the SFX
Disclosure Schedule.
(c) The information contained in the disclosure schedules
will be deemed to have been disclosed for all relevant purposes as of the date
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, SFX, Acquisition Sub and MMR have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
SFX BROADCASTING, INC.
By /s/ Robert F.X. Sillerman
---------------------------------------------
Robert F.X. Sillerman, Executive Chairman
SFX MERGER COMPANY
By /s/ Robert F.X. Sillerman
---------------------------------------------
Robert F.X. Sillerman, President
MULTI-MARKET RADIO, INC.
By /s/ Michael G. Ferrel
---------------------------------------------
Michael G. Ferrel, Chief Executive Officer
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ANNEX C
PROPOSED AMENDMENTS TO SFX'S RESTATED CERTIFICATE OF INCORPORATION
Section 4.1 of SFX's Restated Certificate of Incorporation currently
reads as follows:
"4.1 Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 22,210,000 shares, consisting of
the following:
(a) 10,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Shares");
(b) 1,000,000 shares of Class B Common Stock, par value $.01
per share (the "Class B Shares");
(c) 1,200,000 shares of Class C Common Stock, par value $.01
per share (the "Class C Shares" and together with the Class A Shares
and Class B Shares, the "Common Shares"); and
(d) 10,010,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Shares")."
If Proposal 2 is approved by the SFX Stockholders, Section 4.1 of
SFX's Restated Certificate of Incorporation will be changed to read as
follows:
"4.1 Authorized Shares. The total number of shares of stock
which the Corporation shall have authority to issue is 112,210,000
shares, consisting of the following:
(a) 100,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Shares");
(b) 1,000,000 shares of Class B Common Stock, par value $.01
per share (the "Class B Shares");
(c) 1,200,000 shares of Class C Common Stock, par value $.01
per share (the "Class C Shares" and together with the Class A Shares
and Class B Shares, the "Common Shares"); and
(d) 10,010,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Shares")."
If Proposal 3 is approved by the SFX Stockholders, Section 4.1 of
SFX's Restated Certificate of Incorporation will be changed to read as
follows:
"4.1 Authorized Shares. The total number of shares of stock
which the Corporation shall have authority to issue is 31,210,000
shares, consisting of the following:
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(a) 10,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Shares");
(b) 10,000,000 shares of Class B Common Stock, par value
$.01 per share (the "Class B Shares");
(c) 1,200,000 shares of Class C Common Stock, par value $.01
per share (the "Class C Shares" and together with the Class A Shares
and Class B Shares, the "Common Shares"); and
(d) 10,010,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Shares")."
If Proposals 2 and 3 are approved by the SFX Stockholders, Section
4.1 of SFX's Restated Certificate of Incorporation will be changed to read as
follows:
"4.1 Authorized Shares. The total number of shares of stock
which the Corporation shall have authority to issue is 121,210,000
shares, consisting of the following:
(a) 100,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Shares");
(b) 10,000,000 shares of Class B Common Stock, par value
$.01 per share (the "Class B Shares");
(c) 1,200,000 shares of Class C Common Stock, par value $.01
per share (the "Class C Shares" and together with the Class A Shares
and Class B Shares, the "Common Shares"); and
(d) 10,010,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Shares")."
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ANNEX D
PROPOSED AMENDMENTS TO MMR'S RESTATED CERTIFICATE OF INCORPORATION
If Proposal B is approved, a new Section 5.7 will be added to the end
of Article Five of MMR's Restated Certificate of Incorporation. Such new
Section 5.7 will read as follows:
"5.7 Consideration in Merger, Consolidation, etc. In any merger,
consolidation or business combination in which the shares of capital
stock of the Corporation are to be issued shares of common stock, all
classes and series of capital stock of the Corporation shall receive
the same consideration, except that the holders of any class or
series of capital stock of the Corporation which is generally
entitled to ten votes per share, or which is convertible into such a
class or series, may receive shares which have ten votes per share."
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<PAGE>
ANNEX E
SFX BROADCASTING, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purposes of the SFX Broadcasting, Inc. (the
"Company") 1996 Stock Option Plan (the "Plan") are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to key employees, officers, and consultants of
the Company and its subsidiaries and to promote the success of the Company's
business.
2. The Plan. Two types of stock options may be granted under
the Plan: incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder ("ISOs"), and options that do not qualify as incentive stock
options ("NQSOs"). All options shall be exercisable to purchase shares of
Class A Common Stock, $.01 par value (the "Class A Common Stock") of the
Company. Collectively, ISOs and NQSOs are referred to herein as "Options".
Subject to Section 6(a), ISOs may be awarded only to
employees of the Company and its subsidiaries, within the meaning of Code
Section 424(f), including employees who may serve as officers and directors.
NQSOs may be awarded only to employees who may serve as
officers and directors, and anyone other than non-employee Directors whom the
Committee administering the Plan pursuant to Section 3 determines provides
substantial service to the Company.
To the extent that any Option is not designated as an ISO,
or even if so designated it does not qualify as an ISO, it shall be treated as
a NQSO.
3. Administration. The Plan shall be administered by a
committee (the "Committee") selected by the Board of Directors (the "Board")
of not fewer than two Outside Directors. An Outside Director shall mean a
director within the meaning of Code Section 1.162-27. The Committee shall act
by a majority of its members at the time in office and eligible to vote on any
particular matter, and such action may be taken either by a vote at a meeting
or in writing without a meeting. Subject to the provisions of the Plan, the
Committee shall from time to time and at its discretion (i) grant Options,
(ii) determine which employees and other individuals performing substantial
services ("Grantees") may be granted Options under the Plan; (iii) determine
whether any Option shall be an ISO or NQSO; (iv) determine the number of
shares subject to each Option: (v) determine the term of each Option granted
under the Plan; (vi) determine the date or dates on which the Option shall be
exercisable; (vii) determine the exercise price of any Option; (viii)
determine the fair market value of the Class A Common Stock subject to the
Options; (ix) determine the terms of any Agreement pursuant to which Options
are granted; (x) amend any such Agreement with the consent of the Grantee;
(xi) establish such procedures as it deems appropriate for a recipient of an
award hereunder to designate a beneficiary to whom any benefits payable in the
event of his or here death are to be made; and (xii) determine any other
matters specifically delegated to it under the Plan or necessary for the
proper administration of the Plan.
The Committee shall also have the final authority to
interpret and construe the terms of the Plan and of any Option and such
interpretation and construction by the Committee shall be final, binding and
conclusive upon all persons including, without limitation, the Company,
shareholders of the Company, the Plan, and all persons claiming an interest in
the Plan.
No member of the Committee or Director shall be liable for
any action, interpretation or construction made in good faith with respect to
the Plan or any Option granted hereunder.
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4. Effectiveness and Termination of Plan. This Plan shall terminate on
the earliest of:
a. The tenth anniversary of the effective
date as determined under this Section 4;
b. The date when all shares of the Class A
Common Stock reserved for issuance under the Plan, shall
have been acquired through exercise of Options granted under
the Plan; or
c. Such earlier date as the Board of
Directors may determine. This Plan shall become effective as
of the date of adoption thereof by the Board of Directors of
the Company, or the date this Plan is approved by the
stockholders, whichever is earlier. Any Option outstanding
under the Plan at the time of its termination shall remain
in effect in accordance with its terms and conditions and
those of the Plan.
5. The Stock. The aggregate number of shares of Class A Common Stock
which may be issued under the Plan shall be 300,000 shares. Such number of
shares may be set aside out of the authorized but unissued shares of Class A
Common Stock not reserved for any other purpose or out of shares of Class A
Common Stock held in or acquired for the treasury of the Company. All or any
shares of Class A Common Stock subject under this Plan to an Option which, for
any reason, terminates unexercised as to such shares, may again be subjected
to an Option under the Plan. No Grantee may receive grants in respect of more
than 100,000 shares of Class A Common Stock.
6. Grant Terms and Conditions of Options. Options may be
granted by the Committee at any time and from time to time prior to the
termination of the Plan. Each Option granted under the Plan shall be evidenced
by an Agreement in a form approved by the Committee. The terms and conditions
of such Option Agreement need not be identical with respect to each Grantee,
but each Option Agreement will evidence on its face whether it is an ISO or a
NQSO. For purposes of this Section, an Option shall be deemed granted on the
date the Committee selects an individual to be a Grantee, determines the
number of shares to be issued pursuant to such Option and specifies the terms
and conditions of the Option. Except as hereinafter provided, Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
a. Grantee. Subject to Section 2 hereof, the
Grantees of any Options hereunder shall be such key
employees of the Company and its subsidiaries,
within the meaning of-Code Section 424(f), as determined by
the Committee, who have substantial responsibility in the
direction of the Company and its subsidiaries, and any other
person or entity whom the Committee determines provides
substantial and important services to the Company except
that in no event shall a non-employee Director of the
Company be a Grantee under this Plan.
b. Price and Exercise. The purchase price of the
shares of Class A Common Stock upon exercise of an ISO shall
be no less than the fair market value of the shares at the
time of grant of an ISO; provided, however, if an ISO is
granted to a person owning stock of the Company possessing
more than 10% of the total combined voting power of all
classes of stock of the Company as defined in Code Section
422 ("10% Shareholder"), the purchase price shall be equal
to 110% of the fair market value of the shares. The fair
market value of the Class A Common Stock shall be the
closing price of publicly traded Class A Common Stock on the
national securities exchange on which the Class A Common
Stock is listed (if the Class A Common Stock is so listed)
or on the NASDAQ National Market System (if the Class A
Common Stock is regularly quoted on the NASDAQ National
Market System), or, if not so listed or regularly quoted,
the mean between the closing bid and asked prices of
publicly traded Class A Common Stock in the over-the-counter
market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized
quotation service selected by the Company, or as determined
by the Committee in a manner consistent with the provisions
of the Code.
The purchase price of the shares of Class A Common Stock
upon exercise of a NQSO may be any price set by the Committee; provided that
the exercise price of any grant to an employee required to be named on the
Summary Compensation Table of the Company's annual proxy statement under the
rules and regulations promulgated
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under the Securities Exchange Act of 1934, as amended, shall not be lower than
the fair market value of the underlying Class A Common Stock on the date of
grant. This shall constitute a performance goal under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
The notice of the exercise of any Option shall be
accompanied by payment in full of the Option price. The purchase price shall
be paid in United States dollars in cash or by certified or cashier's check
payable to the order of the Company at the time to purchase. At the discretion
of the Committee, the purchase price may be paid with: (i) stock of the
Company (Class A Common Stock already owned by, and in the possession of, the
Grantee); or (ii) any combination of United States dollars or stock of the
Company. Anything contained herein to the contrary notwithstanding, any
required withholding tax shall be paid by the Grantee in full in United States
dollars in cash or by certified or cashier's check at the time of exercise of
the Option. Shares of stock of the Company used to satisfy the exercise price
of an Option shall be valued at their fair market value as determined by the
Committee, as of the close of business on the day immediately preceding the
date of exercise.
In lieu of the notice of exercise procedures set forth
above, the Committee may prescribe certain exercise or other exercise methods
pursuant to which a broker or financial intermediary assists in the exercise
by an amount of shares sufficient to provide the exercise price plus any
required withholdings.
If required by the Company, such notice of exercise of an
Option shall be accompanied by the Grantee's written representation that the
shares being acquired are purchased for investment and not for distribution;
acknowledging that such shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); and agreeing that such shares may
not be sold or transferred unless there is an effective Registration Statement
for them under the 1933 Act, or, in the opinion of counsel, such sale or
transfer is not in violation of the 1933 Act.
The purchase price shall be subject to adjustment but only
as provided in Section 7 hereof.
c. Vesting. Options shall vest in accordance with
the schedule established for each Grantee; provided,
however, an Option may be immediately exercisable in
accordance with Section 6(g) below.
d. Forfeiture. Notwithstanding anything contained
herein to the contrary, the right (whether or not vested) of
a Grantee to exercise his or her outstanding Options, if
any, shall be forfeited if (i) the Grantee shall enter into
a business or employment which the Committee determines to
be detrimentally competitive with the Company or
substantially injurious to the Company's financial
interests; or (ii) the Grantee is discharged from employment
with the Company for cause; (iii) the Grantee performs acts
of willful malfeasance or gross negligence in a matter of
material importance to the Company.
e. Additional Restrictions on Exercise of an ISO.
The aggregate fair market value of Class A Common Stock
(determined at the time an ISO is granted) for which an ISO
is exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company and its
subsidiaries or parent) shall not exceed $100,000.
f. Duration of Options. Options may be granted for
terms of up to but not exceeding ten (10) years from the
effective date the particular Option is granted; provided,
however, that ISOs granted to a 10% Shareholder may be for a
term of up to but not exceeding five (5) years from the
effective date the particular ISO is granted.
If the stockholders of the Company have not approved the
adoption of the Plan prior to the end of one (l) year from the date the Plan
is approved by the Board of Directors of the Company, any ISOs granted under
the Plan prior to such date shall be null and void and the Company shall
rescind the issuance of any shares of Class A Common Stock issued upon the
exercise of such ISOs by a Grantee prior to such date. In the event of such
rescission, the Company shall refund the price paid per share of Class A
Common Stock by the Grantee upon exercise of the ISO upon receipt of the
certificate representing such shares.
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<PAGE>
g. Termination of Employment. Upon the termination of a Grantee's
employment with the Company, his or her rights to exercise an Option then held
by such Grantee shall be only as follows:
i. Retirement. If the Grantee's employment is terminated
because he or she has attained the age which the Company may from
time to time establish as the retirement age for any class of its
employees, or in accordance with the age specified in an employment
Agreement with a Grantee he or she may, with the consent of the
Company within three months following such termination, exercise the
Option with respect to all or any part of the shares subject thereto,
regardless of whether the Grantee had the right to purchase such
shares at the time of termination of employment. However, in the
event of his or her death prior to the end of the three-month period
after the aforesaid termination of his or here employment, his or her
estate shall have the right to exercise the Option within one (1)
year following such termination with respect to all or any part of
the shares subject thereto, regardless of whether the Grantee had the
right to purchase such shares at the time of termination of
employment.
ii. Death. In the case of a Grantee who dies while employed
by the Company, his or her estate shall have the right for a period
of one (1) year following the date of such death to exercise the
Option to the extent the Grantee had the right to purchase such
shares on the day immediately prior to his or her death.
iii. Disability. In the case of a Grantee whose employment
with the Company is terminated by disability, as defined in Code
Section 22(e)(3), he or she shall have the right for a period of one
(1) year of the disability to exercise the Option to the extent the
right had occurred prior to the date of his or her disability.
iv. Other Reasons. In the case of a Grantee whose employment
is terminated for any reason other than those provided above under
"Retirement", "Death", or "Disability", the Grantee or his or her
estate (in the event of his or her death after such termination) may,
within the 30-day period following such termination, exercise the
Option to the extent the right to exercise had occurred prior to such
termination. Notwithstanding the foregoing, the Committee shall have
the authority, on a case by case basis, with respect to any Grantee
whose employment is terminated for any reason whatsoever, to
accelerate the vesting of any options outstanding on the date
employment is terminated and to permit the Grantee to exercise any
such Options during the remaining term of such options.
For purposes of this Section 6(g), "termination of
employment" shall mean the termination of a Grantee's employment with the
Company or a subsidiary or a parent. A Grantee employed by a subsidiary shall
also be deemed to have a termination of employment if the subsidiary ceases to
be a subsidiary of the Company and the Grantee does not immediately thereafter
become an employee of the Company or of a subsidiary or the parent. Any other
Grantee who is not otherwise an employee of the Company shall be considered to
have terminated employment when substantial services, as determined by the
Committee, are no longer provided to the Company by the Grantee.
Also for purposes of this Section 6(g), a Grantee's "estate"
shall mean his or her legal representatives upon his or her death or any
person who acquires the right to exercise an Option by reason of the Grantee's
death. The Committee may in its discretion require the transferee of a Grantee
to supply it with written notice of the Grantee's death or disability and to
supply it with a copy of the will (in the case of the Grantee's death) or such
other evidence as the Committee deems necessary to establish the validity of
the transfer of an Option.
h. Transferability of Option and Shares Acquired Upon Exercise
of Option. Options shall not be transferred other than to members of the
holder's family, trusts and charities. Any other transfers are permissible
upon prior written approval of the Committee. Except as limited by applicable
securities laws and the provisions of Sections 6(b), 6(j), 8 and 14 hereof,
shares of Class A Common Stock acquired upon exercise of Options hereunder
shall be freely transferable. Notwithstanding the foregoing, the option
agreement accompanying the issuance
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<PAGE>
of any ISO shall limit the transferability of such ISO to the extent required by
the then applicable tax provisions governing the qualification of ISOs.
i. Modifications, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan the Committee
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender or outstanding Options (up to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised). The Committee shall not, however,
with respect to ISOs, modify any outstanding Options so as to specify a lower
Option price or accept the surrender of outstanding Options and authorize the
granting of new Options in substitution therefor specifying a lower price.
Notwithstanding the foregoing, no modification of an Option shall, without the
consent of the Grantee, alter or impair any rights or obligations under any
Option theretofore granted under the Plan.
j. Shares Held for Investment. Each Option Agreement may
contain an undertaking that, upon demand by the Committee for such a
representation, the Grantee, or any person acting under Section 6(g), shall
deliver to the Committee at the time of any exercise of an Option a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an option shall be a condition
precedent to the right of the Grantee or such other person to purchase any
shares of Class A Common Stock.
k. Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms,
as the Committee shall deem appropriate.
7. Adjustment for Changes in the Stock.
a. In the event the shares of Class A Common Stock, as
presently constituted, shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split, reverse split, combination of
shares, or otherwise) or if the number of such shares of Class A Common Stock
shall be increased through the payment of a stock dividend, then there shall
be substituted for or added to each share of Class A Common Stock theretofore
appropriated or thereafter subject or which may become subject to an Option
under this Plan, the number and kind of shares of stock or other securities
into which each outstanding share of Class A Common Stock shall be so changed,
or for which each such share shall be exchanged, or to which each such share
shall be entitled, as the case may be. Outstanding Options shall also be
appropriately amended as to price and other terms as may be necessary to
reflect the foregoing events. In the event there shall be any other change in
the number or kind of the outstanding shares of the Class A Common Stock, or
of any stock or other securities into which such Class A Common Stock shall
have been changed, or for which it shall have been exchanged, then, if the
Board of Directors shall, in its sole discretion, determine that such change
equitably requires as adjustment in any Option theretofore granted or which
may be granted under the Plan, such adjustments shall be made in accordance
with such determination.
b. Fractional shares resulting from any adjustment in Options
pursuant to Section 7 may be settled in cash or otherwise as the Committee
shall determine. Notice of any adjustment shall be given by the Company to
each holder of an Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
8. Securities Law Requirements. No Option granted pursuant
to this Plan shall be exercisable in whole or in part, nor shall the Company
be obligated to sell any shares of Class A Common Stock subject to any such
Option, if such exercise and sale would, in the opinion of counsel for the
Company, violate the Securities Act of 1933 (or other Federal or State
statutes having similar requirements), as it may be in effect at that time. In
this regard, the Committee may demand the representations described in Section
6(b) and Section 6(j).
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<PAGE>
Each Option shall be subject to the further requirement
that, if at any time the Committee shall determine in its discretion that the
listing or qualification of the shares of Class A Common Stock subject to such
Option under any securities exchange requirements or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary
as a condition of, or in connection with, the granting of such Option or the
issue of shares thereunder, such Option may not be exercised in whole or in
part, unless such listing, qualification, consent or approval shall have been
affected or obtained free of any conditions not acceptable to the Board of
Directors.
No person who acquires shares of Class A Common Stock under
the Plan may, during any period of time that such person is an affiliate of
the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission under the Securities Act of 1933, sell such shares of
Class A Common Stock, unless such offer and sale is made (i) pursuant to an
effective registration statement under the Securities Act of 1933, which is
current and includes the shares to be sold, or (ii) pursuant to an appropriate
exemption from the registration requirement of the Securities Act of 1933,
such as that set forth in Rule 144 promulgated under the Securities Act of
1933.
9. Amendment of the Plan.
The Board of Directors may amend the Plan at any time,
except that approval of the holders of a majority of the outstanding voting
stock of the Company is required for amendments which:
i. decrease the minimum Option price for ISOs;
ii. extend the term of the Plan beyond ten years;
iii. extend the maximum terms of the Options granted hereunder
beyond ten years;
iv. withdraw the administration of the Plan from the Committee
appointed pursuant to Section 3;
v. expand the class of eligible employees, and other Grantees;
vi. increase the aggregate number of shares of Class A Common
Stock which may be issued pursuant to the provisions of the Plan; or
vii. change the material terms of the performance goal within the
meaning of Code Section 162(m).
Notwithstanding the foregoing, the Board of Directors may,
without the need for stockholders' approval, amend the Plan in any respect to
qualify ISOs as incentive stock options under Code Section 422.
10. No Obligation to Exercise Option. The
granting of an Option shall impose no obligation upon the
Grantee (or upon a transferee of a Grantee) to exercise such
Option.
11. No Limitation on Rights of the Company. The grant of any
Option shall not in any way affect the right or power of the Company to make
adjustments, reclassification, or changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
12. Plan Not a Contract of Employment. The Plan is not a
contract of employment, and the terms of employment of any recipient of any
award hereunder shall not be affected in any way by the Plan or related
instruments except as specifically provided therein. The establishment of the
Plan shall not be construed as conferring any legal rights upon any recipient
of any award thereunder for a continuation of employment, nor shall it
interfere with
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<PAGE>
the right of the Company or any subsidiary to discharge any recipient of
any award hereunder and to treat him or her without regard to the effect which
such treatment might have upon him or her as the recipient of any award
hereunder.
13. Expenses of the Plan. All of the expenses of the Plan shall be paid
by the Company.
14. Compliance with Applicable Law. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to be
issued or delivered any certificates for shares of Class A Common Stock
pursuant to the exercise of an Option, unless and until the Company is advised
by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any exchange upon which shares of Class A Common Stock are
traded. The Company shall in no event be obligated to register any securities
pursuant to the Securities Act of 1933 (as now in effect or as hereinafter
amended) or to take any other action in order to cause the issuance and
delivery of such certificates to comply with any such law, regulation or
requirement. The Committee may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such law,
regulations and requirements, that the recipient of any award hereunder make
such covenants, agreements and representations as the Committee, in its sole
discretion, deems necessary or desirable, including, without limitation, a
written representation from a stockholder that the shares are being purchased
for investment and not for distribution, acknowledging that such shares have
not been registered under the Securities Act of 1933, as amended and agreeing
that such shares may not be sold or transferred unless there is an effective
Registration Statement for them under the 1933 Act, or, in the opinion of
counsel to the Company, that such sale or transfer is not in violation of the
Securities Act of 1933.
15. Effect Upon Other Compensation. Nothing contained herein shall
prevent the Company or any subsidiary from adopting other or additional
compensation arrangements for its employees or directors.
16. Grantee to Have No Rights as a Stockholder. No Grantee
of any Option shall have any rights as a stockholder with respect to any
shares subject to his or her Option prior to the date on which he or she is
recorded as the holder of such shares on the records of the Company. No
Grantee of any Option shall have the rights of a stockholder until he or she
has paid in full the Option price.
17. Notice. Notice to the Committee shall be deemed given if in writing
and mailed to the Secretary of the Company at its principal executive offices
by first class, certified mail at the then principal office of the Company.
18. Governing Law. Except to the extent preempted by Federal
law, this Plan and all Option agreements entered into pursuant thereto shall
be construed and enforced in accordance with, and governed by, the laws of the
State of Delaware, determined without regard to its conflict of interest
rules.
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ANNEX F
Furman Selz LLC
230 Park Avenue
New York, New York 10169
October 4, 1996
Special Committee of the Board of Directors
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Gentlemen:
We understand that SFX Broadcasting, Inc. ("SFX" or the "Company"),
SFX Merger Company, a wholly-owned subsidiary of the Company ("Newco"), and
Multi-Market Radio, Inc. ("MMR") have entered into an Amended and Restated
Agreement and Plan of Merger dated as of April 15, 1996, as amended by
Amendment No. 1 thereto, dated as of May 6, 1996, Amendment No. 2 thereto,
dated as of July 30, 1996, and amendment No. 3 thereto, dated as of September
30, 1996, each of which has been furnished to us (collectively, the
"Agreement"), whereby, among other things, Newco will be merged with and into
MMR in a transaction (the "Merger") in which:
(i) each share of Class A Common Stock, $.01 par value, of MMR (the "MMR
Class A Common Stock") issued and outstanding immediately prior to
the Effective Time (as defined in Section 1.02 of the Agreement)
shall be converted into the right to receive the number of validly
issued, fully paid and non-assessable shares of Class A Common
Stock, $.01 par value, of SFX (the "SFX Class A Common Stock") equal
to the Exchange Ratio (as defined below);
(ii) each share of Class B Common Stock, $.01 par value, of MMR (the "MMR
Class B Common Stock") issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares (as defined in
Section 2.01 (d) of the Agreement)) shall be converted into the
right to receive the number of validly issued, fully paid and
non-assessable shares of Class B Common Stock, $.01 par value, of
SFX (the "SFX Class B Common Stock") equal to the Exchange Ratio;
(iii) each share of Class C Common Stock, $.01 par value, of MMR (the "MMR
Class C Common Stock") issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares) shall be converted
into the right to receive the number of validly issued, fully paid
and non-assessable shares of SFX Class B Common Stock equal to the
Exchange Ratio;
(iv) each share of Preferred Stock, $.01 par value, of MMR (the "MMR
Original Preferred Stock") issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares) shall be
converted into the right to receive the number of validly issued,
fully paid and non-assessable shares of SFX Class B Common Stock
equal to the Exchange Ratio;
(v) each share of Series B Convertible Preferred Stock, $.01 par value,
of MMR (the "MMR Series B Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than Dissenting
Shares) shall be converted into the right to receive the number of
validly issued, fully paid and non-assessable shares of SFX Class A
Common Stock equal to the Exchange Ratio, which shares
<PAGE>
of SFX Class A Common Stock shall be subject to certain mutually
acceptable forfeiture restrictions through February 14, 1998;
provided, however, that in the event that shareholders of MMR fail to approve
the amendments to the Certificate of Incorporation of MMR as set forth in
Exhibit C of the Agreement, or the National Association of Securities Dealers,
Inc. or the Nasdaq Stock Market does not approve the issuance of SFX Class B
Common Stock in the Merger, then each share of MMR Class B Common Stock, MMR
Class C Common Stock and MMR Original Preferred Stock shall be converted into
the right to receive the number of validly issued, fully paid and
non-assessable shares of SFX Class A Common Stock equal to the Exchange Ratio;
(vi) at the Effective Time each outstanding (a) Class A Warrant (the "MMR
Class A Warrants") and Class B Warrant (the "MMR Class B Warrants")
issued pursuant to that certain Warrant Agreement dated March 23,
1994 by and among MMR, American Stock Transfer & Trust Company, D.H.
Blair Investment Banking Corp. and Americorp Securities, Inc., (b)
option issued pursuant to those certain unit purchase options dated
March 23, 1994 (the "Unit Purchase Options"), (c) warrant issued to
the underwriters of MMR's initial public offering pursuant to common
stock purchase warrants dated July 28, 1993 (the "IPO Warrants"),
(d) warrant issued to The Huff Alternative Income Fund, L.P.
("Huff") dated March 27, 1995 and September 26, 1995 and exercisable
to purchase 595,000 and 133,201.54 shares, respectively, of MMR
Class A Common Stock (subject to adjustment as therein described)
(the "Huff Warrants") and any additional warrant granted to Huff
after the date of the Agreement (the "Additional Huff Warrant"), and
(e) option issued to Robert F.X. Sillerman (each a "Warrant" and
collectively, the "Warrants") shall be assumed by SFX. The holders
of such Warrants shall continue to have, and be subject to, the same
terms and conditions set forth in such Warrant (including, without
limitation, any provision contained therein relating to the
repurchase or redemption thereof), except that (1) such Warrants
shall be exercisable for that number of whole shares of SFX Class A
Common Stock equal to the product of the number of shares of MMR
Class A Common Stock covered by the Warrant immediately prior the
Effective Time multiplied by the Exchange Ratio and (2) the per
share exercise price for the shares of SFX Class A Common Stock
issuable upon the exercise of such assumed Warrant shall be equal to
the quotient determined by dividing the exercise price per share of
MMR Class A Common Stock specified for such Warrant under the
applicable Warrant immediately prior to the Effective Time by the
Exchange Ratio rounding the resulting exercise price down to the
nearest whole cent; and
(vii) (a) subject to applicable laws, at the request of SFX, MMR shall use
all commercially reasonable efforts to (1) commence an offer to
exchange MMR Class A Common Stock for all outstanding MMR Class
B Warrants, which offer shall not be greater than 0.2
(two-tenths) shares of MMR Class A Common Stock for each such
MMR Class B Warrant and (2) cooperate with SFX in connection
with the solicitation of the purchase of all of the outstanding
Unit Purchase Options and IPO Warrants.
In the event that MMR is unsuccessful in obtaining the exchange
of at least 50% of the outstanding MMR Class B Warrants at the
ratio set forth above on or prior to the Determination Date (as
defined in the Agreement), the Exchange Ratio set forth herein
shall be adjusted downward to the extent necessary to reduce
the total dollar value of the SFX
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<PAGE>
Class A Common Stock and SFX Class B Common Stock that would
have otherwise been received by MMR security holders on the
Effective Date (in each case calculated with reference to the
SFX Class A Common Stock Price) by a dollar amount equal to the
product of $2.50 times the number of MMR Class B Warrants
outstanding immediately after such exchange in excess of such
50% number. In calculating the total value of SFX Class A
Common Stock and SFX Class B Common Stock received by MMR
security holders, each share of SFX Class B Common Stock shall
be deemed to have the same value as a share of SFX Class A
Common Stock.
(b) In the event that SFX delivers a Make Whole Notice (as defined
in and subject to the conditions of Section 8.01(l) of the
Agreement) to MMR and does not deliver a Make Whole Recission
Notice (as defined in Section 8.01(l) of the Agreement), the
Exchange Ratio (1) shall be determined pursuant to the
definition in the following paragraph if the SFX Class A Common
Stock Price equals or exceeds $27.33 and (2) if the SFX Class A
Common Stock Price is less than $27.33, shall be increased such
that, on the Determination Date (as defined in the Agreement),
the product of the (A) Exchange Ratio as so adjusted,
multiplied by (B) the SFX Class A Common Stock Price shall be
an amount equal to $10.25.
Subject to adjustments required by clause (vii) above, "Exchange
Ratio" shall mean the number of shares of SFX Class A Common Stock or SFX
Class B Common Stock, as the case may be, equal to the quotient obtained by
dividing $12.50 by the average of the Reported Price (as defined hereafter)
for the twenty (20) consecutive trading days ending on the fifth trading day
prior to the Effective Time (as defined in the Agreement) (such average
Reported Price being the "SFX Class A Common Stock Price"), on the primary
exchange on which the SFX Class A Common Stock is traded, including the Nasdaq
National Market; provided, however, that (1) in the event that the SFX Class A
Common Stock Price exceeds $44.00, then the Exchange Ratio shall be the
quotient obtained by dividing (i) the sum of (A) $12.50 plus (B) the product
of (I) thirty percent (30%), multiplied by (II) the difference between the SFX
Class A Common Stock Price and $44.00 by (ii) the SFX Class A Common Stock
Price; or (2) in the event that the SFX Class A Common Stock Price is less
than $32.00 then the Exchange Ratio shall be .3750. For purposes of the
Agreement, "Reported Price" shall mean, with respect to each trading day, the
average of the last reported bid and asked prices of the SFX Class A Common
Stock on such trading day.
The terms and conditions of the Merger are set forth in more detail
in the Agreement.
We further understand that pursuant to the Letter Agreement dated
April 15, 1996 between the Company and Huff (the "Huff Agreement") immediately
prior to the Effective Time, and as a condition of the MMR Merger, MMR shall
(i) repay and redeem in full, in cash, all outstanding Subordinated Original
Issue Discount Debentures of MMR and Senior Cumulative Preferred Stock, $.01
par value, of MMR for an aggregate purchase price of $21.0 million, plus
accrued and unpaid interest and dividends to the date of repayment and
redemption, and (ii) issue to Huff (a) 100,000 warrants to purchase MMR Class
A Common Stock at an exercise price of $11.75, (b) 25,000 warrants to purchase
MMR Class A Common Stock at an exercise price of $12.00, (c) 25,000 warrants
to purchase MMR Class A Common Stock at an exercise price of $12.25, and (d)
25,000 warrants to purchase MMR Class A Common Stock at an exercise price of
$12.50.
F-3
<PAGE>
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the stockholders of the Company
(other than Robert F.X. Sillerman and his affiliates), of the Exchange Ratio
to be offered in the Merger.
In connection with rendering our opinion as set forth below, we have,
among other things:
(i) reviewed the Agreement and certain related documents and the
financial terms of the Merger set forth therein;
(ii) reviewed the disclosure schedules provided by MMR and SFX
pursuant to the Agreement;
(iii) reviewed the Huff Agreement and the financial terms set forth
therein;
(iv) reviewed the Termination and Assignment Agreement dated as of
April 15, 1996 (the "SCMC Agreement") between the Company and
Sillerman Communications Management Company ("SCMC");
(v) reviewed the draft Joint Proxy Statement / Prospectus of SFX
and MMR dated October 3, 1996;
(vi) reviewed the Company's Annual Reports on Form 10-K for the
fiscal years ended December 31, 1994 and 1995, Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996 and certain other filings with the Securities and
Exchange Commission made by the Company, including proxy
statements, Form 8-Ks, the prospectus dated September 30, 1993
relating to the initial public offering of SFX Class A Common
Stock, the prospectus dated September 30, 1993 relating to the
public offering of 11-3/8% Senior Subordinated Notes of the
Company (the "11-3/8% Notes"), the prospectus dated June 28,
1995 relating to the public offering of SFX Class A Common
Stock and the offer to purchase and solicitation of consents
with respect to the 11-3/8% Notes;
(vii) reviewed the Company's offering memorandum relating to the
offering of 10-3/4% Senior Subordinated Notes due 2006 of the
Company dated May 22, 1996 and the offering circular relating
to the offering of 6-1/2% Series D Cumulative Convertible
Exchangeable Preferred Stock due May 31, 2007 of the Company
dated May 22, 1996;
(viii) reviewed MMR's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1994 and 1995, Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996 and June 30, 1996
and certain other filings with the Securities and Exchange
Commission made by MMR, including proxy statements, Form 8-Ks,
the preliminary prospectus dated February 27, 1996 relating to
the public offering of MMR Class A Common Stock, and the
preliminary prospectus dated March 1, 1996 relating to the
public offering of Senior Subordinated Notes due 2006 of MMR;
(ix) reviewed (a) the Stock Purchase Agreement, dated as of November
15, 1995, among Liberty Broadcasting, Incorporated, Joseph
Littlejohn & Levy Fund, L.P., Michael R. Craven, James B.
Thompson and the Company, (b) the Asset Purchase Agreement,
F-4
<PAGE>
dated as of February 9, 1996, by and between Prism Radio
Partners, L.P. and the Company and (c) the Asset Purchase
Agreement, dated December 27, 1995, by and between Texas Coast
Broadcasters, Inc. and MMR, the Asset Purchase Agreement, dated
as of January 26, 1996, by and between Lewis Broadcasting
Corporation and Multi-Market Radio Acquisition Corporation
("MMRAC"), the Asset Purchase Agreement, dated as of January
18, 1996, by and between HMW Communications, Inc. and MMRAC,
and the Asset Purchase Agreement, dated as of January 22, 1996,
between ABS Greenville Partners, L.P. and MMRAC (collectively,
the "Swap Agreements") with the assumption that the Swap
Agreements have been assigned to SFX;
(x) reviewed the Letter Agreement dated November 13, 1995 between
SFX and MMR;
(xi) reviewed (a) the Asset Exchange Agreement, dated May 1, 1996,
by and between SFX Broadcasting of Texas (KRLD), Inc., SFX
Broadcasting of Texas (KRLD) Licensee, Inc., SFX Broadcasting
of Texas (TSN), Inc., SFX Broadcasting of Texas (TSN) Licensee,
Inc., SFX Broadcasting of the Southwest, Inc., SFX, and CBS,
Inc. and (b) the Exchange Agreement, dated July 1, 1996,
between Chancellor Broadcasting Company and SFX;
(xii) reviewed (a) the Letter Agreement, dated August 9, 1996,
between SFX and Kenneth A. Brown, ABS Communications, Inc., ABS
Communications, L.L.C., ABS Richmond Partners, L.P., ABS
Richmond Partners II, L.P., EBF, Inc. and EBF Partners and (b)
the Letter Agreement, dated August 28, 1996, between SFX and EZ
Communications, Inc.
(xiii) reviewed the $23,000,000 Loan Agreement, dated September 14,
1996, between MMR and SFX (the "Loan Agreement");
(xiv) reviewed certain other publicly available information
concerning the Company and the trading market for the SFX Class
A Common Stock;
(xv) reviewed certain other publicly available information
concerning MMR and the trading market for the MMR Class A
Common Stock, MMR Class A Warrants, MMR Class B Warrants and
MMR Units (which consist of one share of MMR Class A Common
Stock, one MMR Class A Warrant and one MMR Class B Warrant);
(xvi) reviewed certain non-public information relating to the Company
and MMR, including financial forecasts and projections for
each, furnished to us by the Company and MMR;
(xvii) reviewed certain publicly available information, including
research reports, concerning certain other companies engaged in
businesses which we believe to be comparable to the Company and
MMR and the trading markets for certain of such companies'
securities;
(xviii) reviewed the financial terms of certain recent mergers and
acquisitions which we believe to be relevant;
F-5
<PAGE>
(xix) conducted discussions with certain members of senior management
of the Company and MMR concerning their respective businesses
and operations, assets, present condition and future prospects;
and
(xx) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered
such other factors, as we have deemed in our sole judgment, to
be necessary, appropriate or relevant to render the opinion set
forth herein.
We have assumed and relied, without independent verification, upon
the accuracy and completeness of the financial and other information obtained
from public sources or provided to us by the Company (including with respect
to the proposed transaction with CBS Radio described in the Company's Press
Release dated September 26, 1996) or MMR and reviewed by us for purposes of
arriving at our opinion, and we have not assumed any responsibility for
independent verification of such information or undertaken any obligation to
verify such information. In addition, with respect to the financial forecasts
and projections of the Company and MMR used in our analysis, the management of
the Company or MMR, as the case may be, has informed us that such forecasts
and projections are reasonable and we have assumed that they represent the
best current judgment of the management of the Company or MMR, as the case may
be, as to the future financial condition and operating results of the Company
and MMR, respectively, and have assumed that such forecasts and projections
have been reasonably prepared based on such current judgment. We assume no
responsibility for and express no view as to such forecasts and projections or
the assumptions on which they are based. We have further assumed that the
Merger will be tax-free to the stockholders of both SFX and MMR.
Our opinion assumes that SFX will not deliver a Make Whole Notice to
MMR.
In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company or MMR and have not
made, obtained or assumed any independent evaluations or appraisals of any
such properties and facilities or of the assets or liabilities of the Company
or MMR.
We have also taken into account our assessment of general economic,
market and financial conditions and our experience in similar transactions, as
well as our experience in securities valuation in general. Our opinion
necessarily is based upon conditions as they exist and can only be evaluated
on the date hereof, and does not represent an opinion as to what the trading
price of the SFX Class A Common Stock will be when the Merger is consummated
or at any other time.
As you are aware, we have performed various investment banking
services for the Company in the past, including acting as a managing
underwriter for the Company's initial public offering of SFX Class A Common
Stock in September 1993, acting as a managing underwriter in the Company's
offering of SFX Class A Common Stock in June 1995, and providing to the
Company fairness opinions regarding certain related party transactions, and in
each case have received customary fees for such services. In addition, at your
request, Furman Selz has provided the Special Committee with opinions as to
the fairness of the consideration to be offered by the Company in connection
with a transaction pursuant to the SCMC Agreement (the "SCMC Transaction"),
the fairness of a fee to be paid by the Company to SCMC (the "SCMC Fee") based
upon SCMC's role as financial advisor to SFX in connection with various
transactions, and the fairness of the loan consideration contemplated by the
Loan Agreement (the "SFX/MMR Loan"). Furman Selz has received a fee for its
services to the Special Committee in connection with this opinion and opinions
related to the SCMC Transaction and the SCMC Fee pursuant to an engagement
letter dated April 11, 1996 entered into between
F-6
<PAGE>
Furman Selz and the Company, and will receive a fee for its opinion related to
the SFX/MMR Loan pursuant to an engagement letter dated as of September 6,
1996 entered into between Furman Selz and the Company. In addition, the
Company has agreed to reimburse Furman Selz for certain out-of-pocket expenses
and to indemnify Furman Selz for certain liabilities arising from the delivery
of this opinion. In the ordinary course of our business, we may actively trade
in the equity securities of the Company and MMR for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, as investment bankers, it is
our opinion on the date hereof that the Exchange Ratio to be offered in the
Merger is fair, from a financial point of view, to the stockholders of the
Company (other than Robert F.X. Sillerman and his affiliates).
This opinion is for the use and benefit of the Special Committee in
its consideration of the Merger. This opinion is not intended to be and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to or whether to accept the consideration to be
offered to such stockholder in connection with the proposed Merger. We were
not requested to opine as to, and this opinion does not in any manner address,
SFX's underlying business decision to proceed with or effect the Merger, or
the relative merits of the Merger as compared to any alternative business
strategies which might exist for SFX or the effect of any other transaction in
which SFX might engage or any agreements which might be concluded between SFX
and MMR after the date hereof. This opinion may be included in its entirety in
any proxy statement/prospectus with respect to the Merger, but it may not be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Very truly yours,
/s/ Furman Selz LLC
FURMAN SELZ LLC
F-7
<PAGE>
ANNEX G
Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
October 4, 1996
PERSONAL AND CONFIDENTIAL
Independent Committee of the Board of Directors
Multi-Market Radio, Inc.
150 East 58th Street, 19th Floor
New York, NY 10155
Gentlemen:
You have asked Oppenheimer & Co., Inc. ("Oppenheimer") to
render an opinion (the "Opinion") as to the fairness, from a financial point
of view, to the holders of the Class A Common Stock of Multi-Market Radio,
Inc. ("MMR") other than the Sillerman Group (as hereinafter defined) of the
Class A Exchange Ratio (as hereinafter defined) in connection with the
proposed merger (the "Transaction") of MMR with and into SFX Merger Company
("Merger Sub"), a wholly owned subsidiary of SFX Broadcasting, Inc. ("SFX")
pursuant to the terms and conditions set forth in the Amended and Restated
Agreement and Plan of Merger dated as of April 15, 1996 (the "Agreement")
among MMR, SFX and Merger Sub as further amended by Amendment No. 3 thereto,
proposed to be dated as of the date hereof ("Amendment No. 3"). The Sillerman
Group includes Robert F.X.
Sillerman, Bruce Morrow and Michael G. Ferrel.
As more fully described in the Merger Agreement and
Amendment No. 3, at the closing of the Transaction, among other things (i)
Merger Sub will merge with and into MMR, (ii) each outstanding share of Class
A Common Stock, $.01 par value, of MMR (the "MMR Class A Common Stock") shall
be converted into the right to receive that number of shares of Class A Common
Stock, $.01 par value, of SFX ("SFX Class A Common Stock") determined in
accordance with the Class A Exchange Ratio and (iii) the outstanding equity
securities of MMR (other than the MMR Class A Common Stock) will be converted
into the right to receive equity securities of SFX. For purposes of the
Opinion, the Class A Exchange Ratio means the number of shares, or fraction of
a share, of SFX Class A Common Stock equal to $12.50, subject to adjustment as
provided in the Agreement.
In arriving at our Opinion we have, among other things:
(i) reviewed the Agreement, as amended as of May 6,
1996 and July 30, 1996;
(ii) reviewed proposed Amendment No. 3;
<PAGE>
(iii) reviewed MMR's Equity Registration Statement on
Form SB-2 dated February 27, 1996 and the related
exhibits and MMR's High Yield Registration
Statement on Form SB-2 dated March 1, 1996 and the
related exhibits;
(iv) reviewed SFX's $450 million Senior Subordinated
Notes Offering Memorandum and 2.6 million share
Series D Cumulative Convertible Exchangeable
Preferred Stock Offering Circular, both dated
May 22, 1996;
(v) reviewed SFX's and MMR's draft Preliminary Proxy
Statement on Schedule 14A dated August 1, 1996;
(vi) reviewed SFX's draft dated October 3, 1996 of its
Registration Statement on Form S-4;
(vii) reviewed MMR's and SFX's annual reports to
stockholders and annual reports on Form 10K for the
three fiscal years ended December 31, 1995,
including SFX's amended report on Form 10-K for the
fiscal year ended December 31, 1995, and quarterly
reports on Form 10-Q for fiscal years ended
December 31, 1994 and 1995 and for the quarters
ended March 31 and June 30, 1996;
(viii) reviewed SFX's draft High Yield Registration
Statement on Form S-3 dated March 8, 1996;
(ix) reviewed MMR's and SFX's proxy statements dated
July 25, 1995 and April 18, 1995 respectively;
(x) reviewed and analyzed MMR's and SFX's audited
financial statements for the fiscal years ended
December 31, 1993, 1994 and 1995 and for the three
month periods ended March 31, 1995 and March 31,
1996, and June 30, 1995 and June 30, 1996;
(xi) held discussions with Michael G. Ferrel (Chief
Executive Officer, President, Chief Operating
Officer and a Director of MMR), Jerry D. Emlet
(Chief Financial Officer of MMR), and D. Geoffrey
Armstrong (who was then serving as Executive Vice
President, Treasurer and Chief Financial Officer of
SFX);
(xii) reviewed MMR projections provided by MMR for the
fiscal years ending December 31, 1996 through
December 31, 2002 and the revised MMR projections
provided by MMR for the fiscal years ending
December 31, 1996 through December 31, 1997;
(xiii) reviewed SFX projections provided by SFX dated
March 18, 1996 for the fiscal years ending December
31, 1996 through December 31, 2000 and the revised
SFX projections provided by SFX for the fiscal
years ending December 31, 1996 through December 31,
1997;
(xiv) held discussions with other members of senior
management of each of MMR and SFX;
G-2
<PAGE>
(xv) reviewed the financial forecasts for MMR prepared
by senior management of MMR;
(xvi) reviewed the financial forecasts for SFX prepared
by senior management of SFX;
(xvii) reviewed current and historical market prices and
trading data of the MMR Class A Shares and the SFX
Class A
(xviii) reviewed financial and market data for certain public
companies considered comparable to MMR and SFX;
(xix) reviewed and analyzed recent mergers and
acquisitions of radio broadcast companies it deemed
comparable to MMR and SFX;
(xx) reviewed and analyzed other information and data
regarding specific assets and liabilities of MMR;
(xxi) held discussions with legal advisors to MMR and
accounting and tax advisors to MMR regarding
various legal, accounting and tax issues;
(xxii) performed discounted cash flow analyses of MMR and
SFX based upon certain assumptions of future
performance provided by the managements of MMR and
SFX;
(xxiii) reviewed historical and projected financial
information of stations being acquired by MMR from
Liberty Broadcasting;
(xxiv) reviewed projected financial information of
stations being acquired by SFX from Liberty
Broadcasting, Prism, HMW Communications, Inc.,
Texas Coast Broadcasters, Inc., Chancellor
Broadcasting Company, Lewis Broadcasting Corp. and
CBS, Inc.;
(xxv) evaluated the financial impact on SFX's financial
statements of a combination of MMR and SFX;
(xxvi) reviewed the SCMC Termination Agreement;
(xxvii) reviewed the Securities Purchase Agreement between
MMR and Huff dated March 27, 1995 and the financial
terms set forth therein;
(xxviii) reviewed the $23 million Loan Agreement between MMR
and SFX;
(xxix) considered its previous discussion with MMR's
auditors, Ernst & Young LLP; and
(xxx) performed such other analyses and reviewed such
other information as it deemed appropriate.
G-3
<PAGE>
In rendering our opinion, we relied upon and assumed,
without independent verification or investigation, the accuracy and
completeness of all of the financial and other information provided to us by
MMR and SFX and their respective representatives and advisors. With respect to
the forecasts regarding MMR and SFX's future financial condition and operating
results provided to us as described in clauses (xii), (xiii), (xv) and (xvi)
above, we assumed, at the direction of the Independent Committee, without
independent verification or investigation, that such forecasts were reasonably
prepared on bases reflecting the best available information, estimates and
judgement of MMR's and SFX's respective managements, subject to certain
modifications and adjustments made to the forecasts of both MMR and SFX
following discussions with the senior management of both companies. We have
assumed, without independent verification, the accuracy of the advice and
conclusions of MMR's legal counsel and accountants with respect to accounting
and tax matters as provided to Oppenheimer by MMR's management, including
without limitation, the treatment of the Transaction as a tax free
reorganization for federal income tax purposes and the accounting for the
transaction as a purchase. We express no opinion as to what the value of the
SFX Class A Common Stock actually will be when issued to holders of the MMR
Class A Common Stock pursuant to the Transaction or the price at which the SFX
Class A Common Stock will trade subsequent to the Transaction. In addition, we
have neither made nor obtained any independent evaluations or appraisals of
the assets or liabilities of MMR or SFX.
Our Opinion is based upon analyses of the foregoing factors
in light of our assessment of general economic, financial and market
conditions as of the date hereof that can be evaluated by us as of such date.
Oppenheimer, as part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed
and unlisted securities and private placements. Oppenheimer was a co-manager
in the proposed MMR Common Stock offering, which was the subject of the Equity
Registration Statement referred to in (iii) above. Oppenheimer has been
engaged to render financial advisory services to the Independent Committee of
the Board of Directors of MMR in connection with the Transaction and to
prepare and deliver this opinion letter, and will receive a fee for its
services, the receipt of which was not dependent on the nature of the Opinion
rendered. Oppenheimer may actively trade the securities of MMR and SFX for its
own account or for the account of its customers and accordingly may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our Opinion
that, as of the date hereof the Class A Exchange Ratio is fair, from a
financial point of view, to the holders of the Class A Common Stock of MMR
(excluding for purposes of such Opinion the Sillerman Group).
This Opinion is for the exclusive use of the Independent
Committee of the Board of Directors of MMR and other members of the Board of
Directors of MMR and may not be relied upon by any other person or entity. It
is our understanding that this Opinion will be contained in a Joint Proxy
Statement/Prospectus and a Registration Statement of SFX on Form S-4 that will
be filed with the Securities and Exchange Commission and distributed to the
shareholders of MMR and SFX. Neither this Opinion nor the services provided by
Oppenheimer in connection herewith may be publicly disclosed or referred to in
any manner by MMR without the prior written approval of Oppenheimer.
Very truly yours,
/s/ Oppenheimer & Co, Inc.
OPPENHEIMER & CO., INC.
G-4
<PAGE>
ANNEX H
Furman Selz LLC
230 Park Avenue
New York, New York 10169
April 15, 1996
Special Committee of the Board of Directors
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Gentlemen:
We understand that SFX Broadcasting, Inc. ("SFX" or the "Company")
and Sillerman Communications Management Company ("SCMC") propose to enter into
a transaction (the "SCMC Transaction") to be effected by a Termination and
Assignment Agreement dated April 15, 1996 (the "SCMC Agreement") which has
been furnished to us whereby, among other things:
(i) SCMC will, upon execution and delivery of the SCMC Agreement,
assign and transfer to SFX (the "Assignment") all of SCMC's right, title and
interest in and to receive any fees pursuant to the SCMC/MMR Agreement (as
defined herein) and the SCMC/Triathlon Agreement (as defined herein) by which
SCMC provides financial consulting and other services to Multi-Market Radio,
Inc. ("MMR") and Triathlon Broadcasting Company ("Triathlon"), respectively;
(ii) SFX and SCMC will agree that SCMC's business arrangement with
SFX pursuant to which it regularly performs financial consulting and other
services for SFX in return for the payment of fees for those services by SFX
(the "SCMC/SFX Arrangement") shall be terminated and canceled;
(iii) SCMC will agree that it will not enter into any agreement with
any person or entity in the radio broadcasting industry or in any business
which uses technology for the audio transmission of information or
entertainment which requires SCMC to perform services in the nature of
consulting or investment banking;
(iv) SFX agrees to grant to SCMC a six year warrant to purchase up to
600,000 shares of Class A Common Stock, $.01 par value, of SFX (the "Class A
Common Stock") having an exercise price per share of Class A Common Stock
equal to the last reported bid price of the Class A Common Stock on the date
prior to the announcement of the SCMC Transaction (or, if such date is not a
day on which the Class A Common trades, the immediately preceding trading
date); and
(v) SFX agrees to forgive and extinguish the loan payable by SCMC to
SFX in the principal amount of $2,000,000, evidenced by that certain
promissory note dated January 23, 1995, together with all accrued interest
thereon.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the Company, of the consideration
to be offered by the Company in the SCMC Transaction.
In connection with rendering our opinion as set forth below, we have,
among other things:
(i) reviewed the SCMC Agreement and the financial terms set forth
therein;
<PAGE>
(ii) reviewed the Company's Annual Reports on Form 10-K for the
fiscal years ended December 31, 1994 and 1995 and certain other filings with
the Securities and Exchange Commission made by the Company, including proxy
statements, Form 8-Ks, the prospectus dated September 30, 1993 relating to the
initial public offering of Class A Common Stock, the prospectus dated
September 30, 1993 relating to the public offering of 11-3/8% Senior
Subordinated Notes of the Company, and the prospectus dated June 28, 1995
relating to the public offering of Class A Common Stock;
(iii) reviewed MMR's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1994 and 1995 and certain other filings with the Securities
and Exchange Commission made by MMR, including proxy statements, Form 8-Ks,
the preliminary prospectus dated February 28, 1996 relating to the public
offering of Class A Common Stock, $.01 par value, of MMR and the preliminary
prospectus dated March 1, 1996 relating to the public offering of Senior
Subordinated Notes due 2006 of MMR;
(iv) reviewed Triathlon's Quarterly Report on Form 10-Q for the
period ended December 31, 1995 and certain other filings with the Securities
and Exchange Commission made by Triathlon, including Form 8-Ks, the prospectus
dated September 7, 1995 relating to the initial public offering of Class A
Common Stock, $.01 par value of Triathlon, and the prospectus dated March 4,
1996 relating to the offering of depositary shares of Triathlon;
(v) reviewed certain other publicly available information concerning
the Company and the trading market for the Class A Common Stock;
(vi) reviewed certain non-public information relating to the Company,
including financial forecasts and projections, furnished to us by the Company;
(vii) reviewed certain publicly available information, including
research reports, concerning certain other companies engaged in businesses
which we believe to be comparable to the Company and the trading markets for
certain of such companies' securities;
(viii) conducted discussions with certain members of senior
management of the Company and SCMC concerning their respective businesses and
operations, assets, present condition and future prospects;
(ix) reviewed certain non-public information related to SCMC,
including financial forecasts and projections, furnished to us by the Company
and the management of SCMC, including assumptions as to how the operations of
SCMC would be managed and the cost of such operations assuming completion of
the SCMC Transaction and the incremental compensation cost to SFX of Robert
F.X. Sillerman, the Chief Executive Officer of SCMC and Executive Chairman of
the Company, as forecast by the compensation committee of the Company, and
approved by the Board of Directors of the Company;
(x) reviewed a schedule, furnished to us by Mr. Sillerman on April 4,
1996, of historical and projected fees paid or payable to SCMC by each of SFX,
MMR and Triathlon under the SCMC/SFX Arrangement, the SCMC/MMR Agreement and
the SCMC/Triathlon Agreement and conducted discussions with Mr. Sillerman and
members of the Special Committee with respect thereto;
(xi) reviewed the Amended and Restated Employment Agreement, dated
April 1, 1995, between SFX and Mr. Sillerman;
H-2
<PAGE>
(xii) reviewed the Amended and Restated Financial Consulting
Agreement, dated February 1, 1996, by and between SCMC and Triathlon (the
"SCMC/Triathlon Agreement") and the Amended and Restated Financial Consulting
and Marketing Agreement, dated March 24, 1995, by and between SCMC and MMR
(the "SCMC/MMR Agreement");
(xiii) reviewed the minutes of certain meetings of the Board of
Directors of SFX relating to maintaining an Office of the Chairman in New
York, New York; and
(xiv) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered such other
factors, as we have deemed in our sole judgment, to be necessary, appropriate
or relevant to render the opinion set forth herein.
We have assumed that the retention of SCMC to perform the services
and receive the fees projected by Mr. Sillerman in his letter of April 4, 1996
under the SCMC/SFX Arrangement, the SCMC/MMR Agreement and the SCMC/Triathlon
Agreement would have been confirmed by resolutions of the Boards of Directors
of the respective projected payers thereof prior to the rendition of the
services by SCMC, thereby creating legally binding obligations to pay such
fees to SCMC.
We have assumed and relied, without independent verification, upon
the accuracy and completeness of the information obtained from public sources
or provided to us by the Company or SCMC and reviewed by us for purposes of
arriving at our opinion, and we have not assumed any responsibility for
independent verification of such information or undertaken any obligation to
verify such information. In addition, we have assumed that the Company's and
SCMC's forecasts and projections furnished to us represent the best current
judgment of the Company's and SCMC's management as to the future financial
condition and operating results of the Company and SCMC, and the Company's and
SCMC's management has informed us that such forecasts and projections have
been reasonably prepared based on such current judgment. We have further
assumed that Mr. Sillerman's projections as to the fees that would be payable
to SCMC by each of SFX, MMR and Triathlon were prepared based upon his good
faith, current judgment. We assume no responsibility for and express no view
as to such forecasts and projections or the assumptions on which they are
based. Further, following the consummation of the SCMC Transaction, we have
assumed that SFX will continue to fulfill the role of SCMC as advisor to MMR
and Triathlon, that Mr. Sillerman will continue to fulfill the role at SFX
that he performed at SCMC with respect to SFX, MMR and Triathlon, and that Mr.
Sillerman's responsibilities as Executive Chairman of SFX will include the
fulfillment of duties, in the ordinary course of business, previously
performed by SCMC with respect to SFX, MMR and Triathlon.
In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company or SCMC and have
not made, obtained or assumed any independent evaluations or appraisals of any
such properties and facilities or of the assets or liabilities of the Company
or SCMC.
We have also taken into account our assessment of general economic,
market and financial conditions and our experience in similar transactions, as
well as our experience in securities valuation in general. Our opinion
necessarily is based upon conditions as they exist and can only be evaluated
on the date hereof.
As you are aware, we have performed various investment banking
services for the Company in the past, including acting as a managing
underwriter for the Company's initial public offering of Class A Common Stock
in September 1993, acting as a managing underwriter in the Company's offering
of Class A Common Stock in June 1995,
H-3
<PAGE>
and providing to the Company fairness opinions regarding certain related party
transactions, and in each case have received customary fees for such services.
In addition, you have requested Furman Selz to provide the Special Committee
with opinions as to the fairness, from a financial point of view, to the
stockholders of the Company (other than Mr. Sillerman and his affiliates) of
the exchange ratio to be offered in a transaction pursuant to an Agreement and
Plan of Merger among SFX, SFX Merger Company and MMR (the "MMR Merger") and
the fairness to the Company of a fee to be paid by the Company to SCMC (the
"SCMC Fee") based upon SCMC's role as financial advisor to SFX in connection
with various transactions. Furman Selz will receive a fee for its services to
the Special Committee in connection with this opinion and any opinions related
to the MUIR Merger and the SCMC Fee pursuant to an engagement letter dated
April 11, 1996 entered into between Furman Selz and the Company. In addition,
the Company has agreed to reimburse Furman Selz for certain out-of-pocket
expenses and to indemnify Furman Selz for certain liabilities arising from the
delivery of this opinion. In the ordinary course of our business, we may
actively trade in the equity securities of the Company, MMR and Triathlon for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
Based upon and subject to the foregoing, as investment bankers, it is
our opinion on the date hereof that the consideration to be offered by the
Company in the SCMC Transaction is fair, from a financial point of view, to
the Company.
This opinion is for the use and benefit of the Special Committee in
its consideration of the SCMC Transaction. We were not requested to opine as
to, and this opinion does not in any manner address, SFX's underlying business
decision to proceed with or effect the SCMC Transaction, or the relative
merits of the SCMC Transaction as compared to any alternative business
strategies which might exist for SFX or the effect of any other transaction
between SFX and SCMC or any agreements which might be concluded between SFX
and SCMC after the date hereof. Moreover, we are expressing no opinion herein
as to the prices at which the Class A Common Stock will trade at any time.
This opinion may not be summarized, excerpted from or otherwise publicly
referred to without our prior written consent.
Very truly yours,
/s/ Furman Selz LLC
FURMAN SELZ LLC
H-4
<PAGE>
[GRAPHIC OMITTED]
THE EXCHANGE AGENT
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
By Facsimile:
(718) 921-8334
Confirm by Telephone:
(212) 936-5100
THE INFORMATION AGENT
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Telephone:
(800) 223-2064
Telephone (Banks/Brokers):
(212) 440-9800
TABLE OF CONTENTS
PAGE
----
Offering Circular Summary............................................... 3
Risk Factors Relating to MMR............................................ 10
Purpose and Effects of the Exchange Offer............................... 17
The Exchange Offer...................................................... 19
Description of MMR Shares............................................... 24
Description of MMR Class B Warrants..................................... 27
Certain Federal Income Tax
Considerations..................................................... 28
Legal Matters........................................................... 29
Joint Proxy Statement/Prospectus
of SFX Broadcasting, Inc. and
Multi-Market Radio, Inc...........................................Annex 1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS OFFERING CIRCULAR AND THE LETTER OF
TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MMR. THIS OFFERING CIRCULAR DOES
NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF MMR SINCE SUCH DATE.
<PAGE>
MMR
MULTI-MARKET RADIO, INC.
LETTER OF TRANSMITTAL
TO ACCOMPANY CLASS B WARRANTS
EXCHANGE AGENT:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
BY FACSIMILE: BY MAIL, BY HAND AND OVERNIGHT COURIER: CONFIRM BY TELEPHONE:
(718) 921-8334 40 WALL STREET, 46TH FLOOR (212) 936-5100
NEW YORK, NEW YORK 10005
(718) 921-8200
</TABLE>
Ladies and Gentlemen:
Surrendered herewith are Class B Warrants (the "MMR Class B Warrants") of
Multi-Market Radio, Inc. ("MMR") numbered and registered as listed below in
exchange for shares of Class A Common Stock, par value $.01 per share, of MMR
(the "MMR Class A Shares") on the basis of one MMR Class A Share for each
five (5) MMR Class B Warrants properly tendered and accepted by MMR for
exchange. In addition, no fractional shares of MMR Class A Shares will be
issued in the Exchange Offer and any holder entitled to receive a fractional
share will be entitled to receive only cash in lieu thereof. See Instruction 2.
The exchange offer (the "Exchange Offer") is being made pursuant to the
Offering Circular, dated October 4, 1996, of MMR (the "Offering Circular").
ITEMS A AND D OF THIS LETTER OF TRANSMITTAL MUST BE COMPLETED IN ALL
CASES.
PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS ON THE REVERSE HEREOF
ITEM A. (REQUIRED)
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS PLEASE FILL IN
OF REGISTERED OWNER NUMBERS AND AMOUNTS
- ----------------------- ----------------------------------------
NUMBER OF
WARRANT CERTIFICATE MMR CLASS B
NUMBER WARRANTS
- ----------------------- ----------------------- ---------------
- ----------------------- ----------------------- ---------------
- ----------------------- ----------------------- ---------------
- ----------------------- ----------------------- ---------------
- ----------------------- ----------------------- ---------------
TOTAL
- ----------------------- ----------------------- ---------------
</TABLE>
The undersigned represents and warrants to MMR that the undersigned is the
lawful owner(s) of the above described MMR Class B Warrants and that the
undersigned holds the MMR Class B Warrants free and clear of all liens,
charges or encumbrances whatsoever.
<PAGE>
IF THE NAME AND ADDRESS SHOWN ARE NOT CORRECT, PLEASE INDICATE CHANGES.
THE ABOVE DESCRIBED MMR CLASS B WARRANTS ARE SURRENDERED BY YOU FOR THE
ACTION INDICATED BELOW:
ITEM B.
SPECIAL ISSUANCE INSTRUCTIONS
FOR MMR CLASS A SHARES
To be completed ONLY if the certificate representing MMR Class A Shares and
the payment in lieu of fractional shares is to be issued in a name other than
as indicated in Item A above (see Instructions 3 and 4).
Issue to:
Name
- -----------------------------------------------------------------------------
(Type or Print)
Address:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Zip Code)
- -----------------------------------------------------------------------------
(Social Security Number or Taxpayer I.D. Number)
ITEM C.
SPECIAL MAILING INSTRUCTIONS
To be completed ONLY if the certificate representing MMR Class A Shares and
the payment in lieu of fractional shares is to be mailed to an address other
than as indicated in Item A above (see Instructions 3 and 4).
Mail to:
Name
- -----------------------------------------------------------------------------
(Type or Print)
Address:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Zip Code)
ITEM D. (REQUIRED)
REQUIRED SIGNATURES
The signature(s) on this Letter of Transmittal must correspond exactly with
the name(s) on the MMR Class B Warrants or the name(s) of the person(s) to
whom the MMR Class A Shares have been properly assigned and transferred (see
Instructions 1, 3 and 4).
PLEASE
SIGN HERE
Dated:
- -----------------------------------------------------------------------------
Signature:
- -----------------------------------------------------------------------------
Title (if applicable):
- -----------------------------------------------------------------------------
Social Security Number or Taxpayer I.D. Number:
- -----------------------------------------------------------------------------
PLEASE SIGN
HERE IF
JOINT
OWNERSHIP
Signature:
- -----------------------------------------------------------------------------
Title (if applicable):
- -----------------------------------------------------------------------------
Social Security Number or Taxpayer I.D. Number:
- -----------------------------------------------------------------------------
Telephone: ( )
- -----------------------------------------------------------------------------
ITEM E.
SIGNATURE(S) GUARANTEED, IF REQUIRED
(SEE INSTRUCTIONS 3 AND 4)
Firm
- -----------------------------------------------------------------------------
(Please Print)
By
- -----------------------------------------------------------------------------
(Authorized Signature)
Title
- -----------------------------------------------------------------------------
INSTRUCTIONS
1. GENERAL
Please do not send certificates representing the MMR Class B Warrants
("MMR Class B Warrant Certificates") directly to MMR. Your MMR Class B Warrant
Certificate(s), together with your signed and completed Letter of Transmittal
and any required supporting documents (see Instructions 3 and 4 below), should
be mailed or otherwise delivered to American Stock Transfer & Trust Company, the
Exchange Agent, at the address indicated on the front hereof. The method of
delivery is at your option and risk, but, if mail is used, registered insured
mail, return receipt requested, is suggested.
Items A and D of this Letter of Transmittal must be completed in all cases.
If MMR Class A Shares issued in the Exchange Offer promptly after the
Expiration Date are to be mailed to an address other than that shown in Item A
on the front hereof, you MUST complete Item C of this Letter of Transmittal.
2. ISSUANCE OF MMR CLASS A SHARES
To receive your MMR Class A Shares, your MMR Class B Warrant Certificates
and a completed Letter of Transmittal must be received by American Stock
Transfer & Trust Company at the address indicated on the front hereof. Your MMR
Class A Shares will be sent to you when your MMR Class B Warrant Certificates
and Letter of Transmittal have been received by American Stock Transfer & Trust
Company, provided, however, that only cash in lieu of fractional shares of MMR
Class A Shares will be issued in the Exchange Offer.
If the certificate representing MMR Class A Shares and the payment in lieu
of fractional shares is to be issued in the same name(s) as the name(s) in which
the surrendered MMR Class B Warrant Certificates are registered, complete Items
A and D on the front hereof.
If the certificate representing MMR Class A Shares or the payment in lieu
of fractional shares is to be issued in a different name(s) as the name(s) in
which the surrendered MMR Class B Warrant Certificates are registered, see
Instruction 3 and complete Items A, B and D on the front hereof.
3. CERTIFICATE TO BE ISSUED IN A DIFFERENT NAME
If a certificate for MMR Class A Shares ("New Share Certificate") is to be
issued in a name other than that of the registered holder(s) of the MMR Class B
Warrants, the MMR Class B Warrant Certificate must be properly endorsed on the
back thereof or be accompanied by appropriate stock powers, properly executed by
the registered holder(s), so that the endorsements or stock powers are signed
exactly as the name(s) of the registered holder(s) appear on the MMR Class B
Warrant Certificate, and the signature(s) of the registered holder(s) on the
Letter of Transmittal must be properly guaranteed. See Instruction 4. To request
issuance of MMR Class A Shares in a different name, complete Items A, B, D and E
on the front hereof.
MMR will pay all transfer taxes, if any, applicable to the transfer of MMR
Class B Warrants to it or its order pursuant to the Exchange Offer. If, however,
MMR Class A Shares issued pursuant to the Exchange Offer are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the MMR Class B Warrants tendered, or if tendered MMR Class
B Warrant Certificates are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer and sale of the MMR Class B Warrants to MMR
or its order pursuant to the Exchange Offer, the amount of such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to the tendering holder.
4. SIGNATURE BY OTHER THAN REGISTERED HOLDER/GUARANTEE OF SIGNATURE
If the Letter of Transmittal is signed in Item D by an executor,
administrator, trustee, guardian, attorney or the like, the Letter of
Transmittal and MMR Class B Warrant Certificates must be accompanied by evidence
satisfactory to American Stock Transfer & Trust Company of the authority of that
person to sign the Letter of Transmittal.
If the Letter of Transmittal is signed in item D by someone other than the
registered holder(s) or one of the persons described in the preceding paragraph,
the MMR Class B Warrant Certificate must be properly endorsed or accompanied by
appropriate stock powers, properly executed by the registered holder(s), so that
the endorsements or
stock powers are signed exactly as the name(s) of the registered holder(s)
appear on the MMR Class B Warrant Certificate, and the signature(s) must be
properly guaranteed by a financial institution (a commercial bank, savings and
loan association, credit union or brokerage house) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program.
Complete Items A, B, D and E on the front hereof. See Instruction 3.
5. JOINT HOLDERS OR MMR CLASS B WARRANTS REGISTERED IN DIFFERENT NAMES
If MMR Class B Warrants are tendered by joint holders, all such persons
must sign the Letter of Transmittal in Item D on the front hereof. If MMR Class
B Warrants are registered in different names or forms of ownership, a separate
Letter of Transmittal must be completed, signed and returned for each different
registration.
6. LOST OR DESTROYED MMR CLASS B WARRANT CERTIFICATES
If your MMR Class B Warrant Certificate(s) has been either lost or
destroyed, notify American Stock Transfer & Trust Company of this fact promptly
at the address set forth on the front hereof or by telephoning 1-718-921-8200
(Shareholder Relations). You will then be instructed as to the steps you must
take in order to surrender your MMR Class B Warrant Certificates for exchange.
7. BACKUP WITHHOLDING
Under federal income tax law, American Stock Transfer & Trust Company may
be required to withhold 31 percent of payments to holders presenting their MMR
Class B Warrant Certificate(s) for exchange who have failed to furnish a social
security or other taxpayer identification number to American Stock Transfer &
Trust Company, have furnished an incorrect number, have failed to report
interest or dividends correctly or under certain circumstances have failed to
provide a statement, certified to be correct under penalty of perjury, as to
their correct social security or other taxpayer identification number and that
they are not subject to backup withholding. Certification may be made to
American Stock Transfer & Trust Company on Substitute Form W-9, a copy of which
appears below. Stockholders who have questions about their status under the law
should contact their attorneys, tax advisors, or the Internal Revenue Service.
8. QUESTIONS ON HOW TO SUBMIT YOUR MMR CLASS B WARRANT CERTIFICATES
Questions and requests for assistance on how to submit your MMR Class B
Warrant Certificates should be directed to American Stock Transfer & Trust
Company, the Exchange Agent, at the address set forth on the front hereof or by
telephoning 1-718-921-8200 (Shareholder Relations). General inquiries should be
directed to the Information Agent, Georgeson & Company Inc. at 1-800-223-2064.
<PAGE>
COMPLETE AND SIGN SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S)
REQUIRED ON THE FRONT HEREOF.
PAYER'S NAME: MULTI-MARKET RADIO, INC.
A SUBSTITUTE FORM W-9 MUST BE COMPLETED BY ALL WARRANTHOLDERS
SUBSTITUTE
Form W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for
Taxpayer
Identification Number
(TIN)
Part 1--PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND CERTIFY
BY SIGNING AND DATING BELOW
CERTIFICATION--UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE
SIGNATURE________________________DATE_____________
Social Security Number
OR________________________________________________
Employer identification number
PART 2--
Awaiting TIN [ ]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
[GRAPHIC OMITTED]
OFFER TO EXCHANGE SHARES
OF ITS CLASS A COMMON STOCK
FOR ANY AND ALL OF ITS
REDEEMABLE CLASS B WARRANTS
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Multi-Market Radio, Inc. ("MMR") is offering, upon the terms
and subject to the conditions set forth in the enclosed Offering Circular,
dated October 4, 1996 (the "Offering Circular"), and Letter of Transmittal
(which together constitute the "Exchange Offer"), to exchange one share of its
Class A Common Stock, par value $.01 par share (the "MMR Class A Shares"), for
five (5) of its Class B Warrants (the "MMR Class B Warrants"). Each MMR Class B
Warrant entitles the holder thereof to purchase one MMR Class A Share for
$11.50 until March 22, 1999. As of October 3, 1996, there were 1,840,000 MMR
Class B Warrants outstanding. Consummation of the Exchange Offer is subject
only to a number of customary conditions described in the Prospectus, any or
all of which may be waived by MMR.
Subject to the terms and conditions of the Exchange Offer,
MMR will accept all MMR Class B Warrants that are validly tendered prior to
5:00 P.M., New York City time, on the Expiration Date (as defined below), and
will issue MMR Class A Shares and pursuant to the Exchange Offer promptly after
the Expiration Date provided, however, that only cash in lieu of fractional
shares of MMR Class A Shares will be issued in the Exchange Offer.
We are asking you to contact clients for whom you hold MMR
Class B Warrants registered in your name or in the name of your nominee or who
holds MMR Class B Warrants registered in their own names.
MMR will not pay any fees or commissions to any broker or
dealer or other person for soliciting tenders of MMR Class B Warrants pursuant
to the Exchange Offer other than as set forth in the Offering Circular. You
will be reimbursed for customary mailing and handling expenses incurred by you
in forwarding any of the enclosed materials to you clients. MMR will pay all
transfer taxes, if any, applicable to the transfer and exchange of MMR Class B
Warrants to it or its order, except as otherwise provided in Instruction 3 of
the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Offering Circular.
2. The Letter of Transmittal for your use and for the
information of your clients.
<PAGE>
3. A form letter which may be sent to your clients for whose
account you hold MMR Class B Warrants registered in your name or the name of
your nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
4. Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
5. Guaranteed Delivery Form.
6. A return envelope addressed to American Stock Transfer &
Trust Company, the Exchange Agent.
Your prompt action is requested. The Exchange Offer will
expire at 5:00 P.M., New York City time, on November 6, 1996, unless the
Exchange Offer is extended by MMR (the "Expiration Date"). Tenders of MMR Class
B Warrants may be withdrawn at any time prior to 5:00 P.M., New York City time,
on the Expiration Date.
To participate in the Exchange Offer, certificates for MMR
Class B Warrants and a duly executed and properly completed Letter of
Transmittal (or facsimile thereof), together with all other required documents,
must be delivered to the Exchange Agent as indicated in the Letter of
Transmittal and the Offering Circular prior to 5:00 P.M., New York City time,
on the Expiration Date.
If holders of MMR Class B Warrants wish to tender, but it is
impracticable for them to forward their MMR Class B Warrants or any other
required document prior to 5:00 P.M., New York City time, on the Expiration
Date, a tender may be effected by following the guaranteed delivery procedure
described in the Offering Circular under the caption "The Exchange
Offer--Guaranteed Delivery Procedure."
All questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Offering Circular and the
Letter of Transmittal, may be directed to MMR's Information Agent, Georgeson &
Company Inc., at 800-223-2064.
Very truly yours,
MULTI-MARKET RADIO, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF MMR, THE EXCHANGE AGENT OR THE INFORMATION AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH
RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
OFFERING CIRCULAR OR THE LETTER OF TRANSMITTAL.
- 2 -
<PAGE>
[GRAPHIC OMITTED]
OFFER TO EXCHANGE
SHARES OF ITS CLASS A COMMON STOCK
FOR ANY AND ALL OF ITS
REDEEMABLE CLASS B WARRANTS
To Our Clients:
Enclosed for your consideration are an Offering Circular dated October
4, 1996 (the "Offering Circular "), and Letter of Transmittal (which together
constitute the "Exchange Offer") relating to the offer by Multi-Market Radio,
Inc. ("MMR") to exchange one share of its Class A Common Stock, par value $.01
per share (the "MMR Class A Shares"), for five (5) of its Class B Warrants (the
"MMR Class B Warrants"). Each MMR Class B Warrant entitles the holder thereof
to purchase one MMR Class A Share for $11.50 until March 22, 1999. As of
October 1, 1996, there were 1,840,000 MMR Class B Warrants outstanding.
Consummation of the Exchange Offer is subject to a number of customary
conditions described in the Prospectus, any or all of which may be waived by
MMR.
Subject to the terms and conditions of the Exchange Offer, MMR will
accept all MMR Class B Warrants that are validly tendered prior to 5:00 P.M.,
New York City time, on the Expiration Date (as defined below), and will issue
MMR Class A Shares promptly after the Expiration Date provided, however, that
only cash in lieu of fractional shares of MMR Class A Shares will be issued in
the Exchange Offer.
This material is being forwarded to you as the beneficial owner of MMR
Class B Warrants carried by us for your account but not registered in your
name. A tender of such MMR Class B Warrants may only be made by us as the
holder of record and pursuant to your instructions.
Accordingly, we request instructions as to whether you would like us to
tender any or all such MMR Class B Warrants held by us for your account,
pursuant to the terms and conditions set forth in the Offering Circular and
Letter of Transmittal. However, we urge you to read these documents carefully
before instructing us to tender any or all of your MMR Class B Warrants on your
behalf.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender your MMR Class B Warrants on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at 5:00 P.M., New York City time, on November 6, 1996, unless the
Exchange Offer is extended by MMR (the "Expiration Date"). Tenders of MMR Class
B Warrants may be withdrawn at any time prior to 5:00 P.M., New York City time,
on the Expiration Date.
If you would like us to tender any or all of your MMR Class B Warrants
on your behalf, please so instruct us by completing, executing, detaching and
returning to us the attached instruction form. The accompanying Letter of
Transmittal are furnished to you for your information only and may not be used
by you to tender MMR Class B Warrants.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter, the Offering
Circular describing the Exchange Offer by Multi-Market Radio, Inc. to acquire
all of its outstanding MMR Class B Warrants and the related Letter of
Transmittal.
This will instruct you whether to tender the number of MMR Class B
Warrants indicated in the appropriate space below held by you for the account
of the undersigned, pursuant to the terms and conditions set forth in the
Offering Circular and Letter of Transmittal.
[ ] Please TENDER ___________ MMR Class B Warrants held by you
for my account on the appropriate Letter of Transmittal.
[ ] Please DO NOT TENDER any Class B Warrants held by you for
my account.
DATE: _____________________
------------------------------
Signature:
------------------------------
Name:
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED,
YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL
YOUR MMR CLASS B WARRANTS PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE
OFFERING CIRCULAR AND THE LETTER OF TRANSMITTAL.
- 2 -
<PAGE>
[GRAPHIC OMITTED]
GUARANTEED DELIVERY FORM
FOR TENDER OF CLASS B WARRANTS
As set forth under the caption "The Exchange Offer--Guaranteed
Delivery Procedure" in the Offering Circular (as such term is defined on the
reverse hereof), this Guaranteed Delivery Form or one substantially equivalent
hereto must be used to accept the Exchange Offer (as such term is defined on
the reverse hereof) if Class B Warrants (the "MMR Class B Warrants") to
purchase one share of Class A Common Stock, par value $.01 per share, of
Multi-Market Radio, Inc., a Delaware corporation, are not immediately available
or if time will not permit all required documents to reach the Exchange Agent
(as such term is defined below) prior to 5:00 P.M., New York City time, on the
Expiration Date (as such term is defined in the Offering Circular). Such form
may be delivered by hand or sent by facsimile transmission or mail to the
Exchange Agent. See "The Exchange Offer--Guaranteed Delivery Procedure" in the
Offering Circular.
The Exchange Agent (the "Exchange Agent") for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY FACSIMILE: BY MAIL, BY HAND AND OVERNIGHT CONFIRM BY TELEPHONE:
COURIER:
(718) 921-8334 40 WALL STREET, 46TH FLOOR (212) 936-5100
NEW YORK, NEW YORK 10005
(718) 921-8200
Delivery of this Guaranteed Delivery Form to an address other than as
set forth above, or transmission of instructions via a facsimile number other
than the one listed above, will not constitute a valid delivery.
This Guaranteed Delivery Form is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal (as such term is defined
in the Offering Circular) is required to be guaranteed by an Eligible
Institution (as such term is defined on the reverse hereof) in accordance with
Instruction 4 of the Letter of Transmittal such signature guarantee must appear
in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
Gentlemen:
The undersigned hereby tenders to Multi-Market Radio, Inc., a Delaware
corporation, upon the terms and subject to the conditions set forth in its
Offering Circular, dated October 4, 1996 (the "Offering Circular"), and the
related Letter of Transmittal (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, the number of MMR Class B Warrants set
forth below, all pursuant to the guaranteed delivery procedure set forth under
the caption "The Exchange Offer--Guaranteed Delivery Procedure" in the Offering
Circular. By so tendering, the undersigned hereby does make, at and as of the
date hereof, the representations and warranties of a tendering holder of MMR
Class B Warrants as set forth in the Letter of Transmittal.
Number of MMR Class B Warrants Name(s) of Holder(s) of Record:
Tendered:
--------------------------- -------------------------------------
Certificate Number(s): -------------------------------------
(Please Print)
- -------------------------------------
- ------------------------------------- Address:
----------------------------
----------------------------
Area Code and Tel. No.:
--------------
-------------------------------------
-------------------------------------
Signature(s)
Dated: , 1996
------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees delivery to the Exchange Agent, at its address
set forth on the reverse hereof, of the certificate(s) representing the number
of MMR Class B Warrants tendered hereby, in proper form for transfer, with
delivery of a properly completed and duly executed Letter of Transmittal and
all other documents required by the Offering Circular and the Letter of
Transmittal, within five New York Stock Exchange, Inc. trading days after the
Expiration Date.
- ---------------------------------- ----------------------------------
Name of Firm Authorized Signature
- ---------------------------------- ----------------------------------
Address Title
- ---------------------------------- Name:_____________________________
Zip Code Please Type or Print
- ---------------------------------- Dated:______________________, 1996
Area Code and Telephone Number
The Eligible Institution that completes this Form must communicate the
Guarantee to the Exchange Agent and must deliver the Letter of Transmittal, the
certificates representing the MMR Class B Warrants and all other documents, if
any, required by the Offering Circular and the Letter of Transmittal to the
Exchange Agent within the time periods set forth herein. Failure to do so could
result in a financial loss to such Eligible Institution.
DO NOT SEND WARRANT CERTIFICATES WITH THIS FORM--
THEY SHOULD BE SENT WITH THE LETTER OF TRANSMITTAL
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE
THE PAYER. -- Social Security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer.
- -----------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: NAME AND
SOCIAL SECURITY
NUMBER OF --
- -----------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first individual on
the account(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the minor is
account) the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a state or local
government, school
district, or prison) that
receives agricultural
program payments
- ------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show your individual name. You may also enter your business name.
You may use your Social Security number or employer identification number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted
from backup withholding on ALL payments include the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under Section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
o The United States or any agency or instrumentality
thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency or
instrumentality thereof.
o A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under Section 584(a) of the Code.
o An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1) of the Code.
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under Section 1441
of the Code.
o Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
o Payments of patronage dividends where the amount
received is not paid in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup
withholding including the following:
o Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the taxpayer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exemptinterest dividends under
Section 852 of the Code).
o Payments described in Section 6049(b)(5) of the Code to
nonresident aliens.
o Payments on tax-free covenant bonds under Section 1451
of the Code.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Substitute Form
W-9 to avoid possible erroneous backup withholding. FILE
THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE
"EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE
PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO
BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8
(CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N of the Code.
PRIVACY ACT NOTICE. -- Section 6109 of the Code require most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payers who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER NUMBER. -- If you fail to furnish your taxpayer
identification number to a payer, you are subject to a penalty of $50 for each
such failure unless your failure is due to reasonable cause and not to willful
neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO
WITHHOLDING. -- If you make a false statement with no
reasonable basis which results in no imposition of backup
withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. --
Falsifying certifications or affirmations may subject you to
criminal penalties including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT
YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
- 2 -
<PAGE>
MMR
MULTI-MARKET RADIO, INC.
150 EAST 58TH STREET
19TH FLOOR
NEW YORK, NEW YORK
OCTOBER 4, 1996
RE: THE CLASS B WARRANTS OF MULTI-MARKET RADIO, INC.
------------------------------------------------
Dear Class B Warrantholder:
Enclosed you will find materials relating to an offer from Multi-Market
Radio, Inc. ("MMR") to the holders of its outstanding Class B Warrants. The
materials consist of (1) an Offering Circular, (2) a Letter of Transmittal for
the Class B Warrants, (3) a Guaranteed Delivery Form and (4) Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
The Offering Circular sets forth the terms and conditions of the offer and
includes financial and other information concerning MMR. The Letter of
Transmittal, which is to be used by you in the event you wish to participate in
the offer, contains detailed instructions as to the steps to be taken by you.
We urge you to consider carefully the offer. Inquiries and requests for
assistance may be directed to your broker or bank or to MMR's Information Agent,
Georgeson & Company Inc., at 800-223-2064.
Very truly yours,
MULTI-MARKET RADIO, INC.
By: /s/ Michael G. Ferrel
------------------------------
Michael G. Ferrel
President, Chief Executive Officer and
Chief Operating Officer
