FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _____________ to _________________
Commission File Number 0-22080
MULTI-MARKET RADIO, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3707697
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) No.)
150 East 58th Street
19th Floor
New York, NY 10155
(Address of principal executive offices)
(212) 407-9150
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) , and
(2) has been subject to such filling requirements for the past 90 days.
Yes_X_ No__
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Company's common equity outstanding as of November
12, 1996 is: 5,268,161 shares of Class A Common Stock, par value $.01 per
share; 633,334 shares of Class B Common Stock, par value $.01 per share;
749,460 Redeemable Class B Warrants.
Transitional Small Business Disclosure Format. Yes___ No__X__
1
<PAGE>
MULTI-MARKET RADIO, INC.
FORM 10-QSB
INDEX
Page
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1996 and 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (unaudited) 6
Consolidated Statement of Stockholders' Equity for the
Nine Months ended September 30, 1996 (unaudited) 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan
of Operation. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 3. Defaults Upon Senior Securities 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
2
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash & cash equivalents $7,240,827 $1,258,212
Accounts receivable, net of allowance of
$254,099 in 1996 and $304,162 in 1995 4,312,074 4,232,995
Other current assets 699,365 429,060
---------------- ----------------
Total current assets 12,252,266 5,920,267
Property, plant and equipment, at cost:
Land 385,570 723,070
Buildings and improvements 749,950 762,822
Technical equipment 2,165,840 3,077,350
Furniture and equipment 474,989 524,718
Vehicles 170,433 123,066
---------------- ----------------
3,946,782 5,211,026
Less- accumulated depreciation (492,514) (450,174)
---------------- ----------------
3,454,268 4,760,852
Other assets:
Intangible assets, net 64,131,689 55,745,735
Receivable from affiliate 1,204,013 0
Net assets held for sale 3,202,446 0
Other assets 27,074 37,884
---------------- ----------------
Total Assets $84,271,756 $66,464,738
================ ================
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities to affiliates $0 $175,070
Accounts payable and accrued expenses 1,283,096 1,678,754
Accrued interest 1,041,139 910,596
Current portion of long term debt 2,024,000 1,804,000
Loan from SFX Broadcasting, Inc. 20,369,106 0
---------------- ----------------
Total current liabilities 24,717,341 4,568,420
Deferred taxes 7,240,981 7,303,483
Long term debt 35,256,585 39,677,937
Other liabilities 0 100,045
Deposit on pending radio station sale 3,500,000 0
---------------- ----------------
Total liabilities 70,714,907 51,649,885
Stockholders' equity:
Preferred Stock, par value $.01; 1,200,000 shares
authorized; 67,916 shares issued and outstanding in
1996, and 201,250 in 1995 679 2,012
Class A Common Stock, par value $.01; 15,000,000 shares
authorized; 3,974,663 shares issued and outstanding in
1996, and 2,990,000 in 1995 39,747 29,900
Class B Common Stock, par value $.01; 1,200,000 shares
authorized; 633,334 shares issued and outstanding in 1996 and
140,000 in 1995 6,333 1,400
Class C Common Stock, par value $.01; 700,000 shares
authorized; -0- shares issued and outstanding in 1996,
and 360,000 in 1995 0 3,600
Warrants and options 551,739 551,739
Paid in capital 23,839,487 17,506,509
Accumulated deficit (10,881,136) (3,280,307)
---------------- ----------------
Total Stockholders' Equity 13,556,849 14,814,853
---------------- ----------------
Total Liabilities and Stockholders' Equity $84,271,756 $66,464,738
================ ================
</TABLE>
See notes to consolidated financial
statements.
- 3 -
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Net revenues $5,099,014 $5,161,772
----------- ----------
EXPENSES
Station operating expenses 3,092,578 3,192,381
Depreciation and amortization 411,122 347,939
Corporate general and administrative expenses 569,307 488,672
Non-cash stock compensation 132,464 30,000
---------------- ----------------
Total operating expenses 4,205,471 4,058,992
---------------- ----------------
Operating income 893,543 1,102,780
Interest expense (1,575,498) (1,975,198)
Net loss related to radio station disposition (231,118) 0
Write-off of acquisition costs (10,736) 0
Costs related to pending merger with SFX Broadcasting, Inc. (83,850) 0
Other expenses, net (2,079) (544)
---------------- ----------------
Loss before income taxes (1,009,738) (872,962)
Benefit for income taxes 0 132,000
---------------- ----------------
Net loss ($1,009,738) ($740,962)
================ ================
Per common share
- ----------------------
Net loss ($0.25) ($0.21)
================ ================
Weighted average shares outstanding 4,011,966 3,490,000
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Net revenues $15,242,480 $12,411,907
------------ ------------
EXPENSES
Station operating expenses 9,346,294 7,606,687
Depreciation and amortization 1,220,801 1,314,026
Corporate general and administrative expenses 1,844,309 1,111,927
Non-cash stock compensation 262,464 383,400
---------------- ----------------
Total operating expenses 12,673,868 10,416,040
---------------- ----------------
Operating income 2,568,612 1,995,867
Interest expense, net (4,184,583) (3,825,704)
Net loss related to radio station dispositions (1,827,113) 0
Write-off of acquisition costs (719,573) 0
Costs related to pending merger with SFX Broadcasting, Inc. (3,432,528) 0
Other expenses, net (5,644) (437)
---------------- ----------------
Loss before income taxes and extraordinary item (7,600,829) (1,830,274)
Benefit for income taxes 0 59,000
---------------- ----------------
Loss before extraordinary item ($7,600,829) ($1,771,274)
Extraordinary item - loss on early
extinguishment of debt 0 (328,571)
---------------- ----------------
Net loss ($7,600,829) ($2,099,845)
================ ================
Per common share
- ----------------------
Loss before extraordinary item ($2.07) ($0.51)
Extraordinary item (0.00) (0.09)
---------------- ----------------
Net loss ($2.07) ($0.60)
================ ================
Weighted average shares outstanding 3,666,232 3,490,000
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
September 30, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ($7,600,829) ($1,358,883)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 1,220,801 966,087
Non cash stock compensation 262,464 353,400
Extraordinary item - debt extinguishment 0 328,571
Debt issuance costs 0 (4,040,128)
Net loss on dispositions 1,827,113 0
Write off of pending acquisition and financing costs 719,572 0
Non cash interest expense 735,354 0
Changes in assets and liabilities-
Accounts receivable (79,079) (564,769)
Other current assets (147,659) 36,835
Other assets 10,810 5,168
Liabilities to affiliate (1,379,083) 86,698
Accounts payable and accrued expenses (395,658) 158,669
Accrued interest 130,542 720,104
Deferred taxes (62,502) 0
Other liabilities (100,045) 7,380
---------------- ----------------
Total adjustments 2,742,630 (1,941,985)
---------------- ----------------
Net cash used for operating activities (4,858,199) (3,300,868)
---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from deposits on sale of stations 3,500,000 504,730
Acquisition of net assets of radio stations (18,810,237) (827,714)
Deferred costs - pending acquisitions/financing 0 352,686
Acquisition / financing costs for radio stations purchased (767,648) 0
Acquisition of Southern Starr 0 (31,932,137)
Proceeds from sale of radio stations 5,719,822 48,649
Payments for deposits on radio stations (378,954) 0
Capital expenditures (298,029) (308,139)
---------------- ----------------
Net cash used for investing activities (11,035,046) (32,161,925)
Cash Flows from Financing Activities:
Repayments of long term debt (4,573,608) (6,478,309)
Proceeds from issuance of long term debt 0 41,928,750
Proceeds from loan with SFX Broadcasting, Inc. 20,369,106 0
Proceeds from sale of warrants 0 446,250
Proceeds from exercise of warrants 6,080,362 0
---------------- ----------------
Net cash provided by financing activities 21,875,860 35,896,691
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,982,615 433,898
Cash and cash equivalents at beginning of period 1,258,212 712,502
---------------- ----------------
Cash and cash equivalents at end of period $7,240,827 $1,146,400
================ ================
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Common Common Common Warrants
Stock Stock Stock Stock & Options
-------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,1995 $2,012 $29,900 $1,400 $3,600 $551,739
Proceeds from exercise of warrants 7,847
Non cash stock compensation
Conversion of preferred stock to
Class B Common Stock (1,333) 1,333
Conversion of Class C Common Stock
to Class B Common Stock 3,600 (3,600)
Conversion of Series A Redemable
Preferred Stock 2,000
Net loss
--------------- ----------- ---------- ------------ ----------
Balances at September 30, 1996 $679 $39,747 $6,333 $0 $551,739
============== ============ ========== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Total
Paid-in Accumulated Stockholders'
capital Deficit Equity
-------------- ------------------------------
<S> <C> <C> <C>
Balances at December 31,1995 $17,506,509 ($3,280,307) $14,814,853
Proceeds from exercise of warrants 6,072,516 6,080,363
Non cash stock compensation 262,462 262,462
Conversion of preferred stock to
Class A Common Stock 0
Conversion of Class C Common Stock
to Class B Common Stock 0
Conversion of Series A Redemable
Preferred Stock (2,000) 0
Net loss (7,600,829) (7,600,829)
-------------- -----------------------------
Balances at September 30, 1996 $23,839,487 ($10,881,136) $13,556,849
============== ==============================
</TABLE>
See notes to consolidated financial statements.
- 7-
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
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 September 30, 1996 and the results of operations and cash
flows for the periods presented. Results for the interim period are not
necessarily indicative of results to be expected for the full year. For
further information, refer to the consolidated financial statements and notes
thereto included in the Multi-Market Radio, Inc. Annual Report (Form 10- KSB)
for the year ended December 31, 1995.
2. Recent Developments
Merger with SFX Broadcasting, Inc.
Multi-Market Radio, Inc. ("MMR" or the "Company") has entered into an Agreement
and Plan of Merger, dated as of April 15, 1996, as amended (the "Merger
Agreement"), pursuant to which, subject to stockholder approval and
satisfaction of certain other conditions, MMR agreed to merge (the "Merger")
with a wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX"). In the event
that the Merger Agreement is terminated, except in certain circumstances, MMR
will have the right, subject to the receipt of FCC approval to acquire SFX's
interests in the MMR Liberty Stations (as defined in the Merger Agreement) for
$100 million, or, in certain circumstances, to acquire SFX's interests in the
MMR Liberty Stations pursuant to an exchange intended to qualify as a like-kind
exchange under Section 1031 of the Internal Revenue Code of 1986. The merger is
expected to close during November 1996.
Myrtle Beach Acquisition and Disposition
On August 27, 1996, the Company acquired substantially all the assets of
WMYB-FM, operating in Myrtle Beach, South Carolina, for $1.1 million. On
September 30, 1996 the Company entered into an a agreement to sell WYAK-FM and
WMYB-FM, both operating in Myrtle Beach, South Carolina, to a third party in
exchange for a note payable over four years with a face value of $5,125,000
(present value $4,252,000). The Company expects to record a gain of at least $1
million on the sale. The sale is subject to numerous conditions including
approval of the FCC. The Company anticipates finalizing this transaction
in early 1997. The Company does not intend to renew a local marketing
agreement ("LMA") to operate WVCO-FM, operating in Myrtle Beach, South Carolina,
which will expire in December 1996.
Augusta Disposition
On July 10, 1996 the Company sold the assets of WRXR-FM and WKBG-FM (the
"Augusta Stations") for $5 million. A loss of $1,827,114 was recognized during
the nine months ended September 30, 1996 in connection with this transaction.
The Company does not intend to renew the joint selling agreement ("JSA")
pursuant to which it sells advertising on WCHZ-FM, operating in Augusta,
Georgia. The JSA
8
<PAGE>
expires in December 1996.
WAEG-FM and WAEJ-FM Disposition
On June 4, 1996 the Company entered into an LMA with Davis Broadcasting, Inc.
("Davis") whereby Davis began providing services to WAEG-FM and WAEJ-FM
operating in Augusta, Georgia. Davis also agreed to assume the Company's
obligations to acquire the stations.
WKSS-FM Acquisition
On September 4, 1996, the Company acquired substantially all of the assets of
WKSS-FM, operating in Hartford, Connecticut, for a purchase price of $18
million.
In order to fund the acquisition of WKSS-FM and its working capital needs, the
Company entered into a loan agreement with SFX pursuant to which SFX agreed to
loan the Company up to $18.0 million for the acquisition of WKSS-FM and up to
an additional $5.0 million for working capital. The SFX Loan (as such term is
hereinafter defined) bears interest at a rate of 12%.
Pending Disposition of KOLL-FM
On March 15, 1996, MMR entered into a binding letter of intent to sell KOLL-FM,
operating in Little Rock, Arkansas to Triathlon Broadcasting Company
("Triathlon"), an affiliate, for $4.1 million. MMR and Triathlon have obtained
an appraisal that the station is valued at $4.1 million from a nationally
recognized appraisal firm. MMR received a deposit of $3.5 million which will be
credited towards the purchase price of the station and expects to complete the
sale of KOLL-FM during the quarter ended December 31, 1996. MMR entered into a
definitive agreement with Triathlon on July 15, 1996. No gain or loss on the
sale of this station will be recorded.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Financial Condition at September 30, 1996:
Working Capital $ (12,465,075)
Total Assets 84,271,756
Debt Balance 57,649,691
Stockholders' Equity 13,556,849
Results of Operations
The Company's financial results are dependent upon a number of factors,
including the general strength of the economy, population growth, ability to
provide programming, local market competition, relative efficiency of radio
broadcasting compared to other advertising media, signal strength and
government regulation and policies.
Broadcast cash flow ( defined as net revenues less station operating expenses)
is not a measurement of performance calculated in accordance with Generally
Accepted Accounting Principles ("GAAP"). However, MMR believes that broadcast
cash flow is accepted by the broadcasting industry as a generally recognized
measurement of performance and is used by analysts who report publicly on the
performance of broadcasting companies. Nevertheless, broadcast cash flow
should not be considered in isolation or 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.
9
<PAGE>
Comparison of Three Months Ended September 30, 1996 and 1995
Net revenues (total revenues less agency commissions) for the three months
ended September 30, 1996 were $5,099,014 a decrease of 1% compared to net
revenues of $5,161,772 for the three months ended September 30, 1995. This
decrease is due to the disposition of radio stations WRXR-FM, WKBG-FM, WRSF-FM
and KOLL-FM during 1996, partially offset by the WKSS-FM acquisition in
September 1996. On a pro forma basis, excluding the results of all stations
which the Company has sold or agreed to sell, the Company's net revenues for
the third quarter 1996 would have increased 3% reaching $5,496,113.
Total operating expenses for the three months ended September 30, 1996 were
$3,092,578 a decrease of 3% below the three months ended September 30, 1995
operating expenses of $3,192,381. This decrease is primarily due to the
disposition of WRXR-FM, WKBG-FM, WRSF-FM and KOLL-FM, partially offset by the
WKSS-FM acquisition in September 1996. On a pro forma basis, excluding the
results of all stations which the Company has sold or agreed to sell, the
Company's operating expenses for the third quarter 1996 would have increased 1%
reaching $3,073,747.
Operating income for the three months ended September 30, 1996 was $893,543, a
decrease of 19% compared to operating income for the three months ended
September 30, 1995 of $1,102,780 due to the factors discussed above and higher
depreciation and amortization, corporate and non-cash expenses.
Depreciation and amortization for the three months ended September 30, 1996
was $411,122 or an increase of $63,183 or 18%. This is principally due to the
WKSS-FM acquisition.
Corporate expenses for the three months ended September 30, 1996 was $569,307
or an increase of 17% which is related to higher administrative costs with
respect to the Southern Starr Stations.
Interest expense for the three months ended September 30, 1996 of $1,575,498
represents a decrease of 20% below the three months ended September 30, 1995
interest expense of $1,975,198. This decrease is due to lower interest rates on
the Company's floating rate debt.
Net loss for the three months ended September 30, 1996 was $1,009,738 compared
to a net loss of $740,962 for the three months ended September 30, 1995 due to
the factors discussed above.
Broadcast cash flow for the three months ended September 30, 1996 of
$2,006,436 represents an increase of 2% from the three months ended September
30, 1995 broadcast cash flow of $1,969,391. On a pro forma basis,
excluding the results of all stations which the Company has sold or agreed to
sell, the Company's broadcast cash flow would have increased 9% to $2,422,366
from third quarter 1995.
Comparison of Nine Months Ended September 30, 1996 and 1995
Net revenues for the nine months ended September 30, 1996 were $15,242,480 an
increase of 23% over the nine months ended September 30, 1995 net revenues of
$12,411,907. This increase is principally due to the revenues generated by the
stations acquired on March 27, 1995 in the Southern Starr Acquisition (the
"Southern Starr Stations"), 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 the Company has sold
10
<PAGE>
or agreed to sell and including the results of stations that the Company has
acquired during the nine months ended September 30, 1996, the Company's net
revenues would have increased 5% reaching $16,464,291.
Total operating expenses for the nine months ended September 30, 1996 was
$9,346,294 an increase of 23% over the nine months ended September 30, 1995
operating expenses of $7,606,687. This increase is principally due to the
acquisition of the Southern Starr Stations. On a pro forma basis, excluding the
results of all stations which the Company has sold or agreed to sell, the
Company's operating expenses for the nine months ended September 30, 1996 were
unchanged at $9,452,634.
Depreciation and amortization for the nine months ended Sepember 30, 1996 was
$1,220,801 or a decrease of $93,225 principally related to the termination of
the WPKX-FM covenant not to compete and the sale of WRXR-FM, WKBG-FM and
KOLL-FM, which was partially offset by the increase from the Southern Starr
Stations.
Corporate expenses for the nine months ended was $1,844,310, an increase of
$732,383 or 66%. which is related to higher costs associated with consulting
and professional fees and payroll costs.
Operating income for the nine months ended September 30, 1996 was $2,568,611,
an increase of 29% compared to the nine months ended September 30, 1995 of
$1,995,867, due to the factors discussed above.
Net interest expense for the nine months ended September 30, 1996 was
$4,184,582, an increase of 9% compared to the nine months ended September 30,
1995 of $3,825,704. This increase is principally the result of increased
borrowings associated with the Southern Starr Acquisition and the loan from
SFX.
Net loss for the nine months ended September 30, 1996 was $7,600,830 compared
to a net loss of $2,099,845 for the nine months ended September 30, 1995. The
increase is primarily due to a provision for the loss on the sale of WRXR-FM and
WKBG-FM in Augusta, Georgia and costs incurred in connection with the pending
merger with SFX Broadcasting.
Broadcast cash flow for the nine months ended September 30, 1996 was
$5,896,186, an increase of 23% over the nine months ended September 30, 1995
Broadcast Cash Flow of $4,805,220. This increase is due to the Southern Starr
Stations and the improvement of those operations since the acquisition date.
On a pro forma basis, excluding the results of all stations which the Company
has sold or agreed to sell and including the results of stations acquired
during the period, the Company's broadcast cash flow would have increased 14%
reaching $7,011,657.
Liquidity and Capital Resources
MMR's sources of funds have been cash flows from operations, borrowings and
sales of equity securities.
Cash flow used for operating activities for the nine months ended September
30, 1996 was $4,858,199. Cash flow provided by investing activities for the
nine months ended September was $11,035,046. Cash flow used for financing
activities for the nine months September 30, 1996 was $21,875,860.
At September 30, 1996, MMR's debt consists of:
<TABLE>
<CAPTION>
Finova Senior
SFX Loan Subordinated
Loan Agreement Debentures Total
---- --------- ---------- -----
<S> <C> <C> <C> <C>
Balance as of September 30, 1996 $20,369,106 $21,206,392 $16,074,193 $57,649,691
Current portion of Long term debt -- 2,024,000 -- 2,024,000
----------- ----------- ----------- -----------
Long term debt $20,369,106 $19,182,392 $16,074,193 $55,625,691
=========== =========== =========== ===========
</TABLE>
11
<PAGE>
The Finova Loan Agreement contains numerous and customary events of defaults,
including material misrepresentations, payment defaults, limitations on
capital expenditures and Sillerman Communications Management Corporation
("SCMC") fees and default which would result from a shortfall in certain
financial ratios.
At September 30, 1996, MMR was in compliance with all covenants under the
Finova Loan Agreement and the MMR Subordinated Debentures. The Finova Loan
Agreement contains a covenant which places an annual limitation on the amount
of MMR's corporate overhead. During the quarter ended September 30, 1996,
management of MMR determined that for 1996 its corporate overhead had exceeded
the annual limitation in the Finova Loan Agreement. Based on this default and a
similar default in the agreement governing MMR's Senior Subordinated Debentures,
on August 28, 1996, Robert F.X. Sillerman converted his non-voting MMR Original
Preferred Shares and his MMR Class C Shares into voting MMR Class B Shares. As
a result of the conversion, Finova and the holder of the Senior Subordinated
Debentures provided MMR with a waiver of the covenant failure.
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. It is anticipated that
SFX will repay all amounts outstanding under MMR's Finova Loan Agreement and its
Senior Subordinated Debentures simultaneously with the consummation of the
Merger, and will treat any amounts outstanding under the SFX Loan as a
contribution to capital. In the event that the Merger Agreement is terminated,
except in certain circumstances, MMR will have the right, subject to the receipt
of FCC approval to acquire SFX's interests in the MMR Liberty Stations for $100
million, or, in certain circumstances, to acquire SFX's interests in the MMR
Liberty Stations pursuant to an exchange intended to qualify as a like-kind
exchange under Section 1031 of the Internal Revenue Code of 1986.
On March 15, 1996, MMR entered into an agreement to sell KOLL-FM, Little Rock,
Arkansas to Triathlon Broadcasting Company for $4.1 million. MMR received a
deposit of $3.5 million which will be credited towards the purchase price of
the station and expects to complete the sale of KOLL-FM during the first
quarter of 1997. MMR entered into a definitive agreement for this sale on July
15, 1996. No gain or loss will be recorded on the sale of this station.
On July 10, 1996, MMR sold the assets of the Augusta Stations for a price of
$5.0 million. MMR has recorded a loss on the sale of the Augusta Stations of
approximately $1.8 million. The Company used approximately $2.8 million of the
proceeds to pay down the outstanding balance under the Finova Loan Agreement.
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 up to $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. As of September 30, 1996, SFX had loaned MMR approximately $20.4
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
12
<PAGE>
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 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.
As of November 8, 1996 substantially all of the outstanding MMR Class A
Warrants to purchase MMR Class A Shares have been exercised at an exercise price
of $7.75 per share. MMR received total net proceeds during 1996 of
approximately $13.2 million in connection with these exercises.
In connection with the pending Merger, the Company also commenced an
offering to exchange shares of its Class A Common Stock for the Class B
Warrants at a ratio of 5 Class B Warrants for one share of Class A Common
Stock. Pursuant to the exchange offering, in November 1996 the Company issued
218,108 shares of Class A Common Stock in exchange for 1,090,540 Class B
Warrants.
MMR entered into agreements to acquire WROQ-FM, Greenville, South Carolina,
WSTZ-FM and WZRX-AM each 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 $.01 per share, of MMR (the "MMR Series
A Preferred Shares") and 200,000 MMR Series B Preferred Shares. 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
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
13
<PAGE>
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 were not met, the shares
would 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 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.
During the quarter ended September 30, 1996, MMR began to incur non-cash
charges to earnings, which would equal the fair market value of the MMR Class
A Shares issued on July 31, 1996 amortized over the escrow period. Additional
charges will be incurred during 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
that period. The conversion of such stock will also result in dilution to the
holders of the MMR Class A Shares.
MMR expects that cash on hand and cash flow from operations 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 the 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 Senior Subordinated Debentures or
the 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.
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
As reported in the Forms 10-QSB filed by the Company in respect of the
quarterly periods ended March 31, 1996 and June 30, 1996, 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 Robert F.X. Sillerman, the
Chief Executive Officer of SFX, seeking to enjoin the Merger or, in the
alternative, seeking monetary damages. The suit alleges that the consideration
to be paid to the MMR security holders 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 to the
Merger Agreement, is fair to the public shareholders of MMR. The
14
<PAGE>
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. Management believes that this
proceeding will not impact the planned closing of the Merger on November 22,
1996.
ITEM 3. Defaults Upon Senior Securities
The Finova Loan Agreement contains a covenant which places an annual limitaiton
on the amount of MMR's corporated overhead. During the quarter ended September
30, 1996, management of MMR determined that for 1996 its corporate overhead had
exceeded the annual limitation in the Finova Loan Agreement. Based on this
default and a similar default in the agreement governing MMR's Senior
Subordinated Debentures, on August 28, 1996, Robert F.X. Sillerman converted his
non-voting MMR Original Preferred Shares and MMR Class C Shares into voting MMR
Class B Shares. As a result of the conversion, Finova and the holder of the
Senior Subordinated Debentures provided MMR with a waiver of the covenant
failure.
ITEM 6. Exhibits and Reports on Form 8-K.
(a)Exhibits
2.1 Amendment No. 2, dated as of July 30, 1996, to the Amended and Restated
Agreement and Plan of Merger, dated as of April 15, 1996, as amended on May 6,
1996, among SFX Broadcasting, Inc., SFX Merger Company and Multi-Market Radio,
Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K of SFX
Broadcasting, Inc. (Commission File No. 0-22486) filed with the Securities and
Exchange Commission on August 22, 1996).
2.2 Amendment No. 3, dated as of September 30, 1996, to the Amended and
Restated Agreement and Plan of Merger, dated as of April 15, 1996, as amended
on May 6, 1996 and July 30, 1996, among SFX Broadcasting, Inc., SFX Merger
Company and Multi-Market Radio, Inc. (incorporated by reference to Exhibit 2.1
to the Form 8-K of SFX Broadcasting, Inc. (Commission File No. 0-22486) filed
with the Securities and Exchange Commission on October 3, 1996).
2.3 Asset Purchase Agreement between Lewis Broadcasting Corporation and
Multi-Market Radio Acquisition Corp. (incorporated by reference to Exhibit
10.49 of the Form SB-2 of Multi-Market Radio, Inc. (Commission File No.
333-1712) filed with the Securities and Exchange Commission on February 27,
1996).
2.4 Loan Agreement, dated September 4, 1996, by and between Multi-Market Radio,
Inc. and SFX Broadcasting, Inc. (incorporated by reference to Exhibit 10.1 of
the Form 8-K of Multi-Market Radio, Inc. (Commission File No. 0-22080) filed
with the Securities and Exchange Commission on September 10, 1996).
2.5 Letter of Intent regarding the sale of KOLL-FM to Triathlon dated January
17, 1996, (incorporated by reference to Exhibit 10.52 to the Form 10K of
Multi-Market Radio, Inc. (Commission File No. 0-22080) for the fiscal year
ended December 31, 1995).
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on August, 1996 under Item 5 thereof (other
events) to disclose the
15
<PAGE>
execution of an amendment to the Agreement and Plan of Merger, dated April 15,
1996, among MMR, SFX Broadcasting, Inc. and a wholly-owned subsidiary of SFX
Broadcasting, Inc. and the execution of voting agreements and letters of voting
intent by certain stockholders of MMR and the potential conversion of stock by
Mr. Sillerman.
A report on Form 8-K was filed on September 11, 1996 under Items 1 (changes in
control of registrant) and 2 (acquisition or disposition of assets)
thereof to disclose the conversion of non-voting stock by Mr. Sillerman into
voting stock and the consequent change of control of the Company, the
acquisition of WKSS-FM, Hartford, Connecticut, and the SFX Loan.
16
<PAGE>
SIGNATURE
Pursuant to the requirement of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MULTI-MARKET RADIO, INC.
/s/ Jerry D. Emlet
------------------
Jerry D. Emlet
Treasurer & Chief Financial Officer
November 13, 1996
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5
FINANCIAL DATA SCHEDULE
Multi-Market Radio, Inc. Financial Data Schedule
Article 5 of regulation S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,240,827
<SECURITIES> 0
<RECEIVABLES> 4,566,173
<ALLOWANCES> 254,099
<INVENTORY> 0
<CURRENT-ASSETS> 12,252,266
<PP&E> 3,946,782
<DEPRECIATION> 559,375
<TOTAL-ASSETS> 84,271,756
<CURRENT-LIABILITIES> 24,717,341
<BONDS> 35,256,585
679
0
<COMMON> 46,080
<OTHER-SE> 13,556,849
<TOTAL-LIABILITY-AND-EQUITY> 84,271,756
<SALES> 0
<TOTAL-REVENUES> 15,242,480
<CGS> 0
<TOTAL-COSTS> 9,346,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,184,582
<INCOME-PRETAX> (7,600,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,600,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,600,830)
<EPS-PRIMARY> (2.07)
<EPS-DILUTED> (2.07)
</TABLE>
