SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 29, 1996
(May 22, 1996)
SFX BROADCASTING, INC.
(Exact name of registrant as specified in charter)
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Delaware 0-22486 13-3649750
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(State or Other Jurisdiction (Commission File No.) (IRS Employer Identification No.)
of Incorporation)
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150 East 58th Street, 19th Floor, New York, New York 10155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)407-9191
N/A
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(Former name or former address, if changed since last report)
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Item 5. Other Events
Preferred Stock Offering, Note Offering and New Credit Agreement
The Company has offered in private placements (i) $2.6 million shares
of its 6 1/2% Series D Cumulative Convertible Exchangeable Preferred Stock due
2007 with a liquidation preference of $50.0 per share (the "Preferred Stock
Offering") (plus up to a maximum of 390,000 shares of Series D Preferred Stock
of the Company to cover over-allotments) and (ii) $450.0 million in aggregate
principal amount of its 10 3/4% Senior Subordinated Notes due 2006 (the "Note
Offering"). The Preferred Stock Offering and the Note Offering are collectively
referred to herein as the "Financing." In addition, the Company has received a
commitment from its lender to increase amounts available under its senior credit
facility from $50.0 million to $150.0 million and expects to enter into a
definitive credit agreement following completion of the Financing (the "New
Credit Agreement").
Certain Additional Information about the Company
To insure that the public market is provided with the same disclosure as
that contained in the offering memoranda relating to the Preferred Stock
Offering and the Note Offering, certain information set forth in such offering
memoranda, including financial information, is set forth in Annex A and is
incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
SFX BROADCASTING, INC.
By: /s/ Robert F.X. Sillerman
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Name: Robert F.X. Sillerman
Title: Executive Chairman
Date: May 9, 1996
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ANNEX A
Certain capitalized terms used herein have the meanings assigned to them in
the Glossary included herein. As used herein, except where the context otherwise
requires, the "Company" refers to SFX Broadcasting, Inc., a Delaware
corporation, and its subsidiaries, after giving effect to the Liberty
Acquisition and the related Washington Dispositions, the Prism Acquisition and
the related Louisville Dispositions, the MMR Merger and the related MMR Hartford
Acquisition, MMR Myrtle Beach Acquisition and the MMR Dispositions, the
Additional Acquisitions, the Houston Exchange and the Dallas Disposition. The
timing and completion of the Acquisitions and the Dispositions are subject to a
number of conditions, certain of which are beyond the Company's control, and
there can be no assurance that such transactions will be approved by the Federal
Communications Commission (the "FCC") or completed on the terms described herein
or at all. Unless otherwise indicated, all information set forth herein assumes
no exercise of the over-allotment options granted by the Company in the
Preferred Stock Offering.
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GLOSSARY
"Acquisitions" refers collectively to the Liberty Acquisition, the Prism
Acquisition, the MMR Merger, the Additional Acquisitions and the Houston
Exchange.
"Additional Acquisitions" refers collectively to the acquisitions by the
Company, pursuant to four separate agreements, of all of the assets of
WROQ-FM, 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 WMFR-AM, WMAG-FM and WTCK-AM, each
operating in Greensboro, North Carolina, and, pursuant to an option
agreement, WHSL-FM, Greensboro, North Carolina.
"Broadcast Cash Flow" is defined as net revenues (including, where
applicable, fees earned by the Company pursuant to the SCMC Termination
Agreement) less station operating expenses. 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 related to the write-down of the Texas Rangers
broadcast rights and the valuation charge related to the Founders' Stock. 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 generally accepted accounting
principles ("GAAP"), the Company 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 the Company'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 the
Company's operating performance or liquidity which is calculated in
accordance with GAAP.
"Charlotte Acquisition" refers to the Company's recent acquisition of
WTDR-FM and WLYT-FM, both operating in Charlotte, North Carolina.
"Dallas Acquisition" refers to the Company's recent acquisition of
KTCK-AM, Dallas, Texas.
"Dallas Disposition" refers to the sale of radio station KTCK-AM, Dallas,
Texas.
"Dispositions" refers collectively to the Washington Dispositions, the
Louisville Dispositions and the Dallas Disposition.
"EBITDA" refers to the definition set forth under Broadcast Cash Flow.
"Financing" refers collectively to the Preferred Stock Offering and the
Note Offering.
"Houston Exchange" refers to the exchange of the Company's radio station
KRLD-AM, Dallas, Texas, and the Company's Texas State Networks for radio
station KKRW-FM, Houston, Texas.
"Liberty Acquisition" refers to the acquisition of Liberty Broadcasting,
Incorporated, which owns and operates, provides programming to or sells
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.
"Louisville Dispositions" refers collectively to the sale of three of the
stations to be acquired from Prism Radio Partners L.P., each operating in the
Louisville, Kentucky market.
"MMR Dispositions" refers collectively to the sale by Multi-Market Radio,
Inc. of KOLL-FM, Little Rock, Arkansas, and WRXR-FM and WKBG-FM, both
operating in Augusta, Georgia.
"MMR Hartford Acquisition" refers to the acquisition by Multi-Market
Radio, Inc. of WKSS-FM, Hartford, Connecticut.
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"MMR Merger" refers to the acquisition by merger of Multi-Market Radio,
Inc. after giving effect to the MMR Hartford Acquisition, the MMR Myrtle
Beach Acquisition and the MMR Dispositions.
"MMR Myrtle Beach Acquisition" refers to the acquisition by Multi-Market
Radio, Inc. of WMYB-FM, Myrtle Beach, South Carolina.
"Prism Acquisition" refers to the acquisition of substantially all of the
assets of Prism Radio Partners L.P. 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.
"Recent Acquisitions" refers to the Charlotte Acquisition, the Dallas
Acquisition and the San Diego Acquisition.
"San Diego Acquisition" refers to the Company's recent acquisition of
KYXY-FM, San Diego, California.
"Tender Offer" refers to the tender offer, commenced by the Company on May
2, 1996, to purchase for cash up to all (but not less than a majority in
principal amount) of the Old Notes.
"Transactions" refers collectively to the Acquisitions, the Tender Offer
(assuming all of the Old Notes are tendered), the Dispositions, the Financing
and the implementation of each of the Hicks Agreement, the Armstrong
Agreement and the SCMC Termination Agreement.
"Washington Dispositions" refers to the sale of three of the stations to
be acquired from Liberty Broadcasting, Incorporated, each operating in the
Washington, DC/Baltimore, Maryland market.
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CERTAIN MARKET AND INDUSTRY DATA
Unless otherwise indicated herein, data with respect to (i) market rank,
station revenue rank, combined market revenue share, combined market revenue
rank 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 Fall 1995 Radio Market Report (except for data with
respect to the radio stations operating in Biloxi, Mississippi and Myrtle
Beach, South Carolina, which are based upon The Arbitron Company's Spring
1995 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, calculated at a four-book average of Spring 1995, Summer
1995, Fall 1995 and Winter 1995 (except for data with respect to the radio
stations operating in Daytona Beach, Florida, Augusta, Georgia and New Haven,
Connecticut, which are calculated at a two-book average of Spring 1995 and
Fall 1995, and Biloxi, Mississippi and Myrtle Beach, South Carolina, which
are calculated at a two-book average of Spring 1994 and Spring 1995) as
provided by The Arbitron Company.
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RISK FACTORS
Many of the statements contained herein are forward-looking in nature and,
accordingly, whether they prove to be accurate is subject to many risks and
uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements contained herein. 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" and "Business," as
well as those discussed elsewhere herein.
RISKS RELATED TO THE ACQUISITIONS AND THE DISPOSITIONS
Consummation of each of the Acquisitions and the Dispositions is subject
to a number of closing conditions, certain of which are beyond the Company's
control. In particular, consummation of each of the Acquisitions and the
Dispositions 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 recently enacted Telecommunications Act of 1996 (the "Recent
Legislation"), certain of the Acquisitions and the Dispositions
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 Acquisitions and Dispositions. In addition, the
consummation of the MMR Merger is also dependent upon the transaction being
approved by the stockholders of each of the Company 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
Acquisitions and Dispositions. Certain of the Dispositions are evidenced by
non-binding letters of intent and there can be no assurance that a definitive
agreement will be executed on the terms described herein or at all. For a
more complete description of the conditions precedent to the consummation of
each of such transactions, see "Agreements Related to the Acquisitions and
the Dispositions."
In a complaint 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, the Company and Robert F.X.
Sillerman seeking to enjoin the MMR Merger, or, in the alternative, seeking
monetary damages. The suit alleges that the consideration to be paid to the
MMR stockholders in the MMR Merger is unfair and grossly inadequate. The suit
also alleges that in connection with entering into the MMR Merger Agreement
(as defined herein), the directors of MMR violated their fiduciary duties to
MMR and its stockholders and that the Company aided and abetted such
violation. The plaintiff is seeking to have his suit certified as a class
action representing the interests of the stockholders of MMR. The Company
believes, and the Company has been advised by MMR that it believes, the suit
to be without substantial merit and intends to vigorously defend the action.
As a result of the foregoing, there can be no assurance as to when the
Acquisitions or the Dispositions will be consummated or that they will be
consummated on the terms described herein or at all. Furthermore, the Company
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. In analyzing the
Unaudited Pro Forma Condensed Combined Financial Statements and other
information contained herein, prospective investors should consider that the
Acquisitions or the Dispositions may not be consummated at all or on the
terms described herein, and that the Acquisitions or the Dispositions, if
consummated, may be subject to substantial delay. In the event that the
Acquisitions are not consummated due to a material breach by the Company, the
Company may lose deposits in the aggregate amount of approximately $12.3
million. In the event the Dispositions are not completed in a timely manner,
the Company may be required to seek additional financing. There can be no
assurance that such financing will be available to the Company on
commercially acceptable terms, if at all. In the event that the Company fails
to consummate the Liberty Acquisition and the MMR Merger is terminated, the
Company will be required, except in certain circumstances, to pay $3.5
million to MMR. In addition, the Company will be required to pay MMR $1.0
million in the event that the majority of the combined voting power of the
Company votes with respect to, but does not vote in favor of, the MMR Merger.
See "Agreements Related to the Acquisitions and the Dispositions--MMR
Stations."
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RISKS ASSOCIATED WITH INTEGRATION OF THE STATIONS TO BE ACQUIRED
The Company's plans with respect to the radio stations to be acquired in
the Acquisitions 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 the Company 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 the
Company. In addition, there can be no assurance that the Company will not
encounter unanticipated problems or liabilities in connection with the
implementation of the new management changes or the operation of the radio
stations to be acquired in the Acquisitions. The integration of such stations
into the Company will require substantial attention from members of the
Company's senior management, which will limit the amount of time such members
have available to devote to the Company's existing operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE OBLIGATIONS
In connection with the Acquisitions, the Company will incur a significant
amount of indebtedness. As of March 31, 1996, the Company's indebtedness
would have been approximately $450.0 million on a pro forma basis after
giving effect to the Transactions. In addition, subject to the restrictions
in the New Credit Agreement, the indenture under which the Company's 11 3/8
Senior Subordinated Notes due 2000 (the "Old Notes") were issued (the "Old
Indenture") (in the event that any Old Notes remain outstanding following the
Tender Offer) and the indenture under which the Company's $450.0 million in
aggregate principal amount of 10 3/4 Senior Subordinated Notes due 2006 (the
"Notes") will be issued in a private placement (the "Indenture"), the Company
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 three months
ended March 31, 1996, on a pro forma basis after giving effect to the Recent
Acquisitions and the Transactions (other than the MMR Merger), as if all such
transactions had occurred on January 1, 1995, the Company's earnings would have
been insufficient to cover its fixed charges by $24.2 million and $7.7 million,
respectively, and would have been insufficient to cover its combined fixed
charges and preferred stock dividends by $33.0 million and $9.9 million,
respectively. In addition, for the year ended December 31, 1995 and the three
months ended March 31, 1996, on a pro forma basis after giving effect to the
Recent Acquisitions and the Transactions, as if all such transactions had
occurred on January 1, 1995, the Company's earnings would have been insufficient
to cover its fixed charges by $18.9 million and $6.6 million, respectively, and
would have been insufficient to cover its combined fixed charges and preferred
stock dividends by $27.7 million and $8.8 million, respectively.
The degree to which the Company is leveraged following the Financing could
have material consequences to the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) the Company'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 the Company's cash flow from
operations will be dedicated to the payment of the principal and interest on
its debt and dividends on the Series D Preferred Stock and will not be
available for other purposes, (iii) certain of the Company'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 the Company's long-term debt will contain restrictive financial and
operating covenants, and the failure by the Company 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. Certain of the
Company's competitors operate on a less leveraged basis, and thus have
significantly greater operating and financial flexibility, than the Company.
See "Description of Capital Stock," "Description of Series D Preferred Stock"
and "Description of Certain Indebtedness."
The Company's ability to make scheduled payments of principal of, or to
pay interest on or to refinance, its debt (including the Old Notes, to the
extent not tendered in the Tender Offer, and the Notes), to make dividend
payments on or Conversion Payments (as defined herein) with respect to the
Series D Preferred Stock and to redeem the Series B Preferred Stock depends
on its future financial
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performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as the success of the radio stations to be acquired and the
integration of such stations into the Company's operations. Based upon the
Company's current level of operations and anticipated improvements,
management believes that cash flow from operations, together with the net
proceeds of the Financing, the Dispositions, the MMR Dispositions and the
exercise of the MMR Class A Warrants (as defined herein) and available
borrowings under the New Credit Agreement, will be adequate to meet the
Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debt and dividend
payments on the Series D Preferred Stock and to redeem the Series B Preferred
Stock. There can be no assurance that the Dispositions and the exercise of the
MMR Class A Warrants will occur or that the Company'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 the Company to service its debt
(including the Old Notes, to the extent not tendered in the Tender Offer, and
the Notes), to make dividend payments on or Conversion Payments with respect to
the Series D Preferred Stock, to redeem the Series B Preferred Stock or to make
necessary capital or other expenditures. The Company may be required to
refinance a portion of the principal amount of the Old Notes, to the extent not
tendered in the Tender Offer, and the Notes or the aggregate Liquidation
Preference of the Series D Preferred Stock prior to their respective maturities.
There can be no assurance that the Company will be able to raise additional
capital through the sale of securities, the disposition of radio stations or
otherwise for any such refinancing. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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HISTORICAL LOSSES
Although the Company had net income of $1.8 million for the year ended
December 31, 1994, the Company had net losses of $985,000, $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 three months ended March 31, 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
three months ended March 31, 1996, the Company would have had a net loss of
approximately $18.9 million and $6.6 million, respectively. In connection
with the SCMC Termination Agreement (as defined herein), the Company has agreed
to the cancellation of $2.0 million of indebtedness plus accrued interest
thereon owing from Sillerman Communications Management Corporation to the
Company and has issued
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warrants to SCMC to purchase up to 600,000 shares of Class A Common Stock at
an exercise price of $33 3/4 per share. In connection with such agreement,
the Company will recognize a non-cash charge to earnings of approximately
$4.5 million during the three-month period ended June 30, 1996 and $1.1
million upon completion of the MMR Merger. Approximately $19.5 million of the
net proceeds of the Financing has been allocated to make certain payments to
R. Steven Hicks, the current President and Chief Executive Officer of the
Company, and D. Geoffrey Armstrong, the current Executive Vice President and
Chief Financial Officer of the Company, and in connection therewith, the
Company will recognize a non-recurring charge to earnings of approximately
$20.9 million during the three-month period ended June 30, 1996. In addition,
the Company will recognize an extraordinary loss of approximately $14.7
million relating to the write-off of deferred financing costs of the Old
Credit Agreement (as defined herein) and the costs of the Tender Offer (if all
of the Old Notes are tendered) during the quarterly period in which such
payments are made. Depreciation and amortization relating to past acquisitions
and future acquisitions, interest expenses under the Company's debt and dividend
payments on the Series D Preferred Stock will continue to affect the
Company's net income (loss) in the future. See "Unaudited Pro Forma Condensed
Combined Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management" and "Certain
Relationships and Related Transactions."
EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS
The Company'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. The Company
regularly explores acquisition opportunities; however, with the exception of
the Acquisitions, the Company has no agreements or understandings regarding
such possible future acquisitions. There can be no assurance that the Company
will consummate the 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 the New Credit Agreement. 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, the Company 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 the New Credit Agreement and/or the Indenture. There can be no
assurance that any future acquisitions will be successfully integrated into
the Company's operations or that such acquisitions will not have a material
adverse effect on the Company's financial condition and results of
operations. See "-- Risks Associated with Integration of the Stations to be
Acquired," "--Regulatory Matters" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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CONTROL BY MANAGEMENT
Robert F.X. Sillerman holds approximately 52.5% of the combined voting
power of the Company. Mr. Sillerman and his affiliates, together with other
members of the Company's management, hold approximately 61.6% of the combined
voting power of the Company. Mr. Sillerman and his affiliates will hold
approximately 55.3% and Mr. Sillerman and his affiliates, together with the
Company's management, will hold approximately 57.5% of the combined voting
power of the Company following completion of the MMR Merger (based upon the
assumptions set forth in footnote (2) under the caption "Principal
Stockholders"). See "Agreements Related to the Acquisitions and the
Dispositions -- MMR Stations." The Class A Common Stock, par value $.01 per
share ("Class A Common Stock"), has one vote per share on all matters,
whereas the Class B Common Stock, par value $.01 per share ("Class B Common
Stock"), has ten votes per share except in certain matters. Accordingly,
management currently is, and following the MMR 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 Class A Common Stock will be entitled to
elect two of the Company's seven Directors (and three of the Company's nine
Directors following completion of the MMR Merger) by a class vote, (ii) in
connection with any proposed "going private" transaction between the Company
and Mr. Sillerman or his affiliates, with respect to which the holders of the
Class A Common Stock and Class B Common Stock vote as a single class, with
each share of Class A Common Stock and Class B Common Stock entitled to one
vote per share and (iii) as otherwise provided by law. In addition, in the
event dividends on the Series D Preferred Stock are in arrears and unpaid in
an aggregate amount equal to six full quarterly dividends and in certain
other circumstances, the holders of the Series D Preferred Stock (voting
separately as a class) will be entitled to elect two additional members of
the Board of Directors of the Company. See "Principal Stockholders" and
"Description of Series D Preferred Stock--Voting Rights."
POTENTIAL CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
Mr. Sillerman and other members of the Company'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
the Company'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 the Company's ability to acquire radio stations in certain markets.
See "-- Regulatory Matters."
SCMC, Mr. Sillerman and Howard J. Tytel, a Director and Executive Vice
President of the Company, have interests in entities that own and operate
radio stations other than the Company. Messrs. Sillerman and Tytel and their
affiliates hold a substantial equity interest in, and are parties to
consulting and marketing agreements with, each of MMR and Triathlon Broadcasting
Company ("Triathlon"), a publically-traded radio company operating in small and
medium-sized 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.)). The
Company 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 MMR 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 upon consummation of the Prism Acquisition the Company will own three radio
stations in the Wichita, Kansas market, a market in which Triathlon has radio
station ownership interests.
SCMC has acted from time to time as the Company's financial advisor since
the Company's inception. SCMC is controlled by Mr. Sillerman, and Messrs.
Sillerman and Tytel are officers and directors of SCMC. SCMC acts in similar
capacities for each of MMR and Triathlon. These companies may seek to
participate in business opportunities which may be suitable for the Company.
In addition, SCMC provided advisory services to MMR and the Company in
connection with the MMR Merger. The
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MMR Merger was approved by independent committees of the Board of Directors
of each of MMR and the Company and both the Company and MMR received opinions
from nationally-recognized investment banking firms that the MMR Merger was
fair to their respective stockholders from a financial point of view. See
"Business -- Legal Proceedings."
On April 15, 1996, the Company and SCMC entered into the SCMC Termination
Agreement pursuant to which SCMC assigned to the Company its rights to
receive fees for consulting and marketing services payable by each of MMR and
Triathlon in consideration of which SCMC received warrants to purchase
600,000 shares of Class A Common Stock and the Company will forgive, upon the
consummation of the MMR Merger, a $2.0 million loan made to SCMC plus accrued
and unpaid interest thereon. In addition, pursuant to such agreement, the
Company and SCMC terminated the arrangement whereby SCMC performed financial
consulting services for the Company. Subsequent to the termination of its
current relationship with SCMC, the Company intends to perform internally the
functions performed by SCMC. See "Certain Relationships and Related
Transactions --Relationship of the Company with SCMC."
Subsequent to the execution of the Hicks Agreement (as defined herein), it
was publicly announced that Mr. Hicks will head a new investment group that
intends to acquire radio properties, which properties may be located in certain
of the Company's target markets.
USE OF PROCEEDS TO BENEFIT INSIDERS
A total of $14.9 million of the proceeds of the Financing have been
allocated to make certain payments to R. Steven Hicks, consisting of $1.8
million in consideration of Mr. Hicks' agreement to terminate his employment
arrangement with the Company upon consummation of the MMR Merger,
approximately $12.6 million to purchase 68,874 of the shares of Class B
Common Stock owned by Mr. Hicks and options or the right to acquire options
to purchase up to an aggregate of 410,000 shares of Class A Common Stock, and
$500,000 in connection with the non-competition and non-solicitation
agreement from Mr. Hicks. In addition, the Company intends to use
approximately $4.6 million of the proceeds of the Financing to make a payment
to D. Geoffrey Armstrong, Executive Vice President and Chief Financial
Officer of the Company, in consideration of the repurchase of his right to
acquire options to purchase up to 200,000 shares of Class A Common Stock and
his agreement to defer certain payments required to be made pursuant to the
"change of control" provision in his employment agreement. See "Use of
Proceeds" and "Management -- Employment Agreements."
SCMC has acted as an investment advisor to the Company with respect to the
Acquisitions and to MMR in connection with the MMR Merger, for which services
SCMC is entitled to receive a fee of approximately $4.0 million from the
Company and $2.0 million from MMR upon the consummation of the MMR Merger.
The Company intends to use a portion of the net proceeds of the Financing to
make such payments to SCMC. The fees payable by the Company to SCMC have been
approved as an affiliate transaction by the Company's independent directors.
See "Certain Relationships and Related Transactions--Relationship of the
Company with SCMC."
RELIANCE ON KEY PERSONNEL
Following consummation of the Acquisitions, the Company'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, and
Mr. Armstrong have agreed to become the Chief Executive Officer and Chief
Operating Officer, respectively, of the Company upon consummation of the MMR
Merger. The Company has entered into a five-year employment agreement with
each of Messrs. Sillerman and Armstrong, effective as of April 1, 1995. In
addition, the Company expects to enter into an employment agreement with Mr.
Ferrel, to be effective upon the consummation of the MMR 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. 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
13
<PAGE>
of the Company, 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 MMR Merger is not
consummated, the services of Mr. Ferrel will not be available to the Company
and Mr. Sillerman will serve as the Chief Executive Officer of the Company.
The loss of the services of Messrs. Sillerman or Armstrong, or of Mr.
Ferrel (following the consummation of the MMR Merger), could have a material
adverse effect on the Company. The Company has obtained key-man insurance for
its benefit on the lives of Messrs. Sillerman and Hicks, and intends to
obtain such insurance for Messrs. Ferrel and Armstrong effective upon the
consummation of the MMR Merger, in the amount of $5.0 million for each
individual. In addition, the Company has entered into employment agreements
with several high-profile on-air personalities. However, there can be no
assurance that the Company will be able to retain any of such employees or
prevent them from competing with the Company in the event of their departure.
See "Management -- Employment Agreements" and "Agreements Related to the
Acquisitions and the Dispositions -- MMR Stations."
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenue from the sale
of advertising time, its revenues may be adversely affected by economic
conditions which impact advertisers. In particular, because approximately 75%
of the Company's 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 the Company'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 the Company 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
REGULATORY MATTERS
The radio broadcasting industry is subject to extensive regulation by the
FCC. In particular, the Company's business is dependent upon its continuing
to hold, and, in connection with acquisitions of radio stations, upon
obtaining 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 the Company's licenses
will be renewed or that the FCC will approve any of the Acquisitions or the
Dispositions, especially if third parties challenge the Company's renewal,
acquisition or disposition applications. Third parties have challenged
certain FCC applications of the Company or the radio stations involved in the
Acquisitions. Failure to obtain the renewal of any of the Company's principal
broadcast licenses or to obtain FCC approval for an assignment or transfer of
control to the Company of a license in connection with a station acquisition
could have a material adverse effect on the Company's business and
operations. In addition, the number and locations of radio stations the
Company 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 the Company 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 the Company. Also, the activities of
persons who are deemed by the FCC to control the Company could adversely
affect the Company's ability to obtain license renewals and to acquire radio
stations. Additionally, Mr. Hicks is the Chairman, Chief Executive Officer
and a Director of Gulfstar Communica-
14
<PAGE>
tions, Inc., which owns radio stations in small markets, including markets in
Texas, a state in which the Company also operates radio stations. Subsequent
to the execution of the Hicks Agreement, it was publicly announced that Mr.
Hicks will head a new investment group that intends to acquire radio
properties, which properties may be located in markets similar to certain of
the Company's target markets.
The issuance of shares of Class A Common Stock, including those issuable
upon conversions of shares of Series D Preferred Stock or the Exchange Notes,
that would cause Robert F.X. Sillerman not to hold directly voting stock of
the Company representing more than 50% of the total voting power of the
Company would require the Company to seek the prior consent of the FCC. The
Company intends to seek such consent at such time as it may be required. The
Certificate of Designations will provide that the Company wil use its best
efforts to secure all necessary consents and approvals, if any, and take all
other commercially reasonable steps to permit conversion of the Series D
Preferred Stock. In the event that Mr. Sillerman's voting power in the
Company dropped to 50% or less, all stockholders holding 5% or more of the
total voting power in the Company would have an attributable interest in the
Company for purposes of the FCC's local ownership rules; this could adversely
affect the Company's ability to acquire or to hold interests in radio
stations in particular markets, depending upon the other media interests of
those stockholders.
As a result of the Recent Legislation, radio station acquisitions are
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. There can
be no assurance that the Antitrust Agencies will approve the Acquisitions and
Dispositions or that such antitrust review will not otherwise impact the
Company's business or its strategy.
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 the Company 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 the Company or
adversely affect the Company's competitive position. See "Business -- Federal
Regulation of Radio Broadcasting."
NO TRANSFER OF COMMON STOCK TO ALIENS
The Company's Certificate of Incorporation restricts the ownership, voting
and transfer of the Company's capital stock in accordance with the
Communications Act and the rules of the FCC to prohibit ownership of more
than 25% of the Company'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 that are direct holders of FCC licenses), by or for the
account of Aliens (as defined herein) or corporations otherwise subject to
domination or control by Aliens. Based upon reports filed with the
Commission, the Company believes that there are 1,071,429 shares of Class A
Common Stock (the "Nomura Shares") held by Nomura Holdings America, Inc.
("Nomura"), representing 16.6% of the outstanding shares of Class A Common
Stock and 6.5% of the outstanding voting power of the Company. Because a
substantial portion of the common stock of Nomura is owned and voted by
Aliens, the Company, 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 or its Series D Preferred Stock to an Alien. Failure to
comply with such rules and regulations could result in the imposition of
penalties on the Company. This restriction on transfers to Aliens may
adversely affect the market for the Company's securities, including the
Series D Preferred Stock and the Class A Common Stock. In addition, the
Certificate of Incorporation provides that shares of capital stock of the
Company determined by the Company's Board of Directors to be owned
beneficially by an Alien shall always be subject to redemption by the Company
by action of the Board of Directors to the extent necessary, in the judgment
of the Board of Directors, to comply with the alien ownership restrictions of
the Communications Act and the FCC rules and regulations. See "Business --
Federal Regulation of Radio Broadcasting -- Ownership Matters" and
"Description of Capital Stock -- Foreign Ownership."
15
<PAGE>
COMPETITION
The radio broadcasting industry is highly competitive. The financial
results of each of the Company'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 the Company'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. The Company'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
the Company's net revenues. The Recent Legislation will permit other radio
broadcasting companies to enter the markets in which the Company operates or
may operate in the future, some of which may be larger and have more
financial resources than the Company. The Company'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 the
Company believes that each of its stations is able to compete effectively in
its market, there can be no assurance that any of the Company's stations will
be able to maintain or increase current audience ratings and advertising
revenue market share.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Financing and after giving effect to the
transactions contemplated in the Hicks Agreement, there will be outstanding a
total of 6,533,215 shares of Class A Common Stock and 856,126 shares of Class
B Common Stock. Of these outstanding shares, 1,308,215 shares of Class A
Common Stock and all of the shares of Class B Common Stock are "Restricted
Securities," as that term is defined in Rule 144 promulgated under the
Securities Act. Of such shares, 236,786 shares of Class A Common Stock and
the 856,126 shares of Class A Common Stock issuable upon conversion of the
Class B Common Stock are currently eligible for sale in the open market under
Rule 144 (subject to the limitations set forth herein). The Company believes
that the remaining 1,071,429 shares of Class A Common Stock (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 shares of
Class A Common Stock held by Nomura have one demand and certain piggy-back
registration rights which expire on October 7, 2000 with respect thereto. In
connection with the MMR Merger, based upon the assumptions set forth in
footnote (3) under the section "Capitalization," the Company will issue
1,848,047 shares and 230,020 shares of Class A Common Stock and Class B
Common Stock, respectively. Of such shares, 153,456 and 230,020 shares of
Class A Common Stock and Class B Common Stock, respectively, will be
"Restricted Securities." The sale, or availability for sale, of substantial
amounts of Common Stock in the public market pursuant to Rule 144 or
otherwise could adversely affect the prevailing market price of the shares of
Class A Common Stock and could impair the Company's ability to raise
additional capital through the sale of equity securities. See "Description of
Capital Stock" and "Shares of Common Stock Eligible for Future Sale."
The Company, Robert F. X. Sillerman and D. Geoffrey Armstrong, each have
agreed not to sell or otherwise dispose of an aggregate of 57,506 shares of
Class A Common Stock and 856,126 shares of Class B Common Stock or sell or
grant any rights, options or warrants with respect to Common Stock or
securities convertible into Common Stock, without the prior consent of
Goldman, Sachs & Co., for a period of 90 days after the Closing Date.
In addition, each of Robert F.X. Sillerman, R. Steven Hicks, D. Geoffrey
Armstrong, Howard J. Tytel and Richard A. Liese, each a director of the
Company, and SCMC, have agreed not to exercise any rights, options or
warrants to acquire Class A Common Stock and Messrs. Sillerman and Hicks have
further agreed not to transfer any shares of Class B Common Stock that they
hold, subject to the Hicks Agreement, until the stockholders of the Company
have approved an increase in the number of authorized shares of Class A
Common Stock sufficient to insure the availability of all shares of Class A
Common Stock issuable upon conversion of the Series D Preferred Stock, or the
Exchange Notes, as the case may be, and all options, rights and warrants to
purchase shares of Class A Common Stock.
16
<PAGE>
USE OF PROCEEDS
The Company intends to use the proceeds of the Financing, the
Dispositions, the MMR Dispositions and the exercise of the MMR Class A
Warrants (as defined herein) to finance the Acquisitions, to repurchase the Old
Notes, to make payments to certain executive officers of the Company and to
repay certain indebtedness, as follows:
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Preferred Stock Offering ............................ $130,000,000
Note Offering ....................................... 450,000,000
New Credit Agreement (1) ............................ --
Dispositions:
Washington Dispositions ......................... 25,000,000
Louisville Dispositions ......................... 19,500,000
Dallas Disposition (2) .......................... 9,500,000
MMR Dispositions (3) ................................ 5,500,000
Exercise of MMR Class A Warrants (4) ................ 13,600,000
--------------
Total Sources of Funds ......................... $653,100,000
==============
USES OF FUNDS:
Purchase price of the Acquisitions:
Liberty Acquisition (5) ......................... $236,000,000
Prism Acquisition ............................... 105,250,000
MMR Merger (6) .................................. 64,400,000
Additional Acquisitions (7) ..................... 62,700,000
Repurchase of the Old Notes (8) .................... 80,000,000
Costs of Tender Offer and Consent Solicitation
(8)(9) ............................................. 9,040,000
Payments to executive officers (10) ................ 19,500,000
Repayment of the Company's Old Credit Agreement (11) 21,500,000
Fees and expenses, including fees to SCMC (12) ..... 37,800,000
Working capital .................................... 16,910,000
--------------
Total Uses of Funds .............................. $653,100,000
==============
</TABLE>
- ------------
(1) The Company has received a commitment from its lender to increase
amounts available under its senior credit facility from $50.0 million
to $150.0 million and expects to enter into the New Credit Agreement
with respect to such facility, which will be available for additional
acquisitions and for working capital, following completion of the
Financing. There can be no assurance, however, that the Company will be
able to enter into the New Credit Agreement on a timely basis or at
all. To the extent that the Dispositions or the exercise of the MMR
Class A Warrants do not occur within 90 days of the closing of the
Financing, borrowings are expected to be required under the New Credit
Agreement. The foregoing presentation assumes that all of the
Acquisitions and Dispositions and the exercise of the MMR Class A
Warrants occur concurrently although the Company expects that certain
of the Dispositions and the exercise of the MMR Class A Warrants will
occur after certain of the Acquisitions.
(2) The sale price for the Dallas Disposition is $14.0 million. The Company
estimates that it will pay $2.5 million to the entity that sold
KTCK-AM, Dallas, Texas, to the Company in satisfaction of its
contingent payment right and will redeem the Series C Preferred Stock
issued to such entity for $2.0 million.
(3) The MMR Dispositions reflect sales proceeds to be received by MMR of
approximately (i) $500,000 for KOLL-FM, Little Rock, Arkansas, which is
net of a $3.5 million deposit already received by MMR and (ii) $5.0
million for WRXR-FM and WKBG-FM, both operating in Augusta, Georgia.
(4) Assumes the consummation of the MMR Merger and the exercise of the
currently outstanding MMR Class A Warrants to purchase MMR Class A
Common Stock net of fees and expenses payable in connection with such
exercise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources."
(5) Assumes that there will be no working capital purchase price
adjustment. See "Agreements Related to the Acquisitions and the
Dispositions--Liberty Stations."
(6) Represents the amount required to repay certain indebtedness of MMR
upon the consummation of the MMR
17
<PAGE>
Merger, including anticipated prepayment premiums of $6.0 million. This
amount also includes $18.0 million necessary to fund the MMR Hartford
Acquisition (which amount is net of a $1.8 million cash deposit paid by
MMR to the seller with respect to the MMR Hartford Acquisition) and
$1.1 million to fund the MMR Myrtle Beach Acquisition. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
(7) Includes the following amounts: (i) $14.0 million for the acquisition
of WROQ-FM, Greenville, South Carolina, (ii) $3.5 million for the
acquisition of WSTZ-FM and WZRX-AM, both operating in Jackson,
Mississippi, of which $300,000 has been deposited in escrow, (iii) $6.0
million for the acquisition of WMFR-AM, WMAG-FM and WTCK-AM, each
operating in Greensboro, North Carolina, (iv) approximately $32.0
million for the acquisition of WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina (based upon a multiple of 11 times broadcast
cash flow of $2.9 million), (v) $3.0 million for the acquisition of
WJDX-FM, Jackson, Mississippi, and (vi) $4.5 million for the
acquisition of WHSL-FM, Greensboro, North Carolina excluding $500,000
payable for the option to purchase such station. In the event that the
seller of WHSL-FM, Greensboro, North Carolina, elects to be paid in
shares of Class A Common Stock of the Company, the $4.5 million
allocated for the acquisition of such station will be available to the
Company for other uses.
(8) Assumes all Old Notes (as defined herein) are tendered in the Tender
Offer (as defined herein). In the event that all of the Old Notes are not
tendered in the Tender Offer, a portion of the funds allocated to the
Tender Offer and related expenses will be available to the Company
for other uses.
(9) Represents the prepayment premium and the consideration to be paid by
the Company to the holders of the Old Notes in connection with the
Tender Offer and the Consent Solicitation.
(10)Consists of approximately $14.9 million to be paid to R. Steven Hicks,
the current President, Chief Executive Officer and Chief Operating
Officer of the Company, pursuant to the Hicks Agreement, and
approximately $4.6 million to be paid to D. Geoffrey Armstrong, the
Chief Financial Officer of the Company, pursuant to the Armstrong
Agreement (as defined herein). See "Management -- Employment Agreements"
and "Certain Relationships and Related Transactions -- Agreements with
Hicks and Armstrong."
(11)The repayment of the Company's Old Credit Agreement represents the
funds borrowed by the Company to complete the Charlotte Acquisition and
additional borrowings under the Old Credit Agreement of $3.0 million
used for working capital purposes.
(12)Consists of fees and expenses of the Financing of $26.0 million and of
the Acquisitions and the Dispositions of $10.0 million (of which $6.0
million is payable to SCMC) and $1.8 million of accrued interest
payable in connection with the Tender Offer. See "Certain Relationships
and Related Transactions -- Relationship of the Company with SCMC."
The consummation of the Acquisitions and the Dispositions is subject to a
number of conditions, certain of which are beyond the Company's control, and
there can be no assurance that such transactions will be completed on the
terms described herein, if at all. In the event that any of the Acquisitions
are not consummated, the Company may apply the proceeds intended to finance
such acquisition for other radio station acquisitions, to reduce indebtedness
or for working capital and other corporate purposes, although the Company
currently has no agreements, commitments or arrangements to acquire radio
stations other than the Acquisitions. In the event that any of the
Dispositions are not consummated, the Company may be required to seek
additional financing. There can be no assurance that such financing will be
available to the Company on commercially reasonable terms, if at all.
Pending the foregoing application of the proceeds, the proceeds will be
invested in interest bearing investment grade securities.
18
<PAGE>
BUSINESS
Upon consummation of the Acquisitions and the Dispositions, the Company
will own and operate, provide programming to or sell advertising on behalf of
69 radio stations (53 FM and 16 AM stations located in 23 markets) and will
be one of the largest companies in terms of the number of stations in the
United States exclusively devoted to radio broadcasting. The Company will be
diverse in terms of format and geographic markets, will rank number one in
combined station market revenue in 11 of its 23 markets and own and operate,
provide programming to or sell advertising on behalf of two or more stations
in 20 of these markets. After giving effect to the Recent Acquisitions, the
Acquisitions and the Dispositions as of January 1, 1995, the Company would
have had pro forma net revenues, Broadcast Cash Flow and EBITDA of $191.5
million, $69.5 million and $63.2 million, respectively, for the year ended
December 31, 1995 and $193.4 million, $72.9 million and $66.3 million,
respectively, for the twelve months ended March 31, 1996. The Company,
founded in 1992, currently owns and operates, provides programming to or
sells advertising on behalf of 22 radio stations in eight markets.
The following chart sets forth certain information with respect to the
Company's stations after giving effect to the Acquisitions and the
Dispositions:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF STATIONS NUMBER OF
STATIONS CURRENTLY STATIONS TO
MARKET CURRENTLY UNDER LMA OR BE
MARKET RANK OWNED(1) JSA(2) ACQUIRED(2)
- ---------------------------- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Northeast Region
Washington, DC/Baltimore,
MD ...................... 8 - - 1
Nassau-Suffolk, NY ........ 14 - - 4
Providence, RI ............ 31 - - 3
Hartford, CT .............. 41 - - 4
Albany, NY ................ 57 - - 4
Springfield/Northampton, MA 76 - - 3
New Haven, CT ............. 95 - - 1
South-Atlantic Region
Charlotte, NC ............. 37 2 - -
Greensboro, NC ............ 42 - 4 3
Nashville, TN ............. 44 2 - -
Raleigh-Durham, NC ........ 50 - - 4
Richmond, VA .............. 56 - - 1
Greenville-Spartanburg, SC 59 3 1 1
Southern Region
Jacksonville, FL .......... 53 - - 4
Daytona Beach, FL ......... 93 - - 1
Augusta, GA (3) ........... 116 - - -
Jackson, MS ............... 118 3 2 3
Biloxi, MS ................ 134 - - 2
Myrtle Beach, SC .......... 185 - - 2
Southwest Region
Houston, TX ............... 9 1 - 1
San Diego, CA ............. 15 2 - -
Tucson, AZ ................ 62 - - 4
Wichita, KS ............... 91 - - 3
----------- ------------- -----------
Total .................... 13 7 49
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF STATIONS
STATIONS TO BE FOLLOWING COMBINED COMBINED COMBINED
UNDER LMA OR ACQUISITIONS MARKET MARKET MARKET
JSA AFTER AND AUDIENCE REVENUE REVENUE
MARKET ACQUISITIONS(2) DISPOSITIONS SHARE SHARE RANK
- ---------------------------- --------------- ---------- ---------- ---------- ----------
AM FM
--------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Northeast Region
Washington, DC/Baltimore,
MD ...................... - - 1 3.8% 3.6% 8
Nassau-Suffolk, NY ........ - 1 3 7.2% 32.4% 1
Providence, RI ............ - 1 2 17.6% 28.3% 2
Hartford, CT .............. - 1 3 17.2% 26.8% 2
Albany, NY ................ 1 2 3 21.5% 32.4% 1
Springfield/Northampton, MA - 1 2 12.7% 31.4% 1
New Haven, CT ............. 1 - 2 12.1% 49.7% 1
South-Atlantic Region
Charlotte, NC ............. - - 2 11.9% 13.6% 3
Greensboro, NC ............ 1 2 2 9.2% 13.7% 4
Nashville, TN ............. - - 2 21.8% 27.3% 1
Raleigh-Durham, NC ........ - - 4 23.4% 35.8% 1
Richmond, VA .............. - - 1 5.5% 11.1% 5
Greenville-Spartanburg, SC - 1 3 32.0% 43.4% 1
Southern Region
Jacksonville, FL .......... - 2 2 15.3% 19.2% 3
Daytona Beach, FL ......... - - 1 8.2% 33.3% 1
Augusta, GA (3) ........... 3 - 3 8.2% 9.9% 6
Jackson, MS ............... - 2 4 31.3% 56.0% 1
Biloxi, MS ................ - - 2 19.5% 34.6% 1
Myrtle Beach, SC .......... 1 - 3 6.8% 13.1% 3
Southwest Region
Houston, TX ............... - - 2 9.5% 13.4% 4
San Diego, CA ............. - - 2 9.2% 10.1% 5
Tucson, AZ ................ - 2 2 22.8% 26.2% 1
Wichita, KS ............... - 1 2 17.8% 21.0% 3
--------------- ---- ----
Total .................... 7 16 53
</TABLE>
- ------------
(1) Does not include radio stations to be sold in the Dallas Dispositions
or exchanged in the Houston Exchange.
(2) Includes radio stations to which the Company currently provides
programming and on which the Company currently sells advertising
pursuant to an local marketing agreement ("LMA") or on which the Company
currently sells advertising pursuant to a joint sales agreement ("JSA").
(3) MMR is currently negotiating the termination of a JSA with respect to
one station in this market and the termination of an acquisition
agreement and an LMA with respect to two stations in this market. This
table does not include two additional stations operating in this
market, which MMR has agreed to sell.
OPERATING STRATEGY
The Company seeks to maximize the Broadcast Cash Flow of its stations by
employing its operating strategy, which has the following principal
components:
Operate Highly Ranked Stations. The Company believes that highly ranked
stations, measured in terms of combined market audience share, provide
important competitive advantages. Highly ranked stations generally receive a
disproportionately large share of their market's advertising revenues because
such stations are regarded as an efficient means of targeting advertising
dollars at well-defined audiences. Such stations can better capitalize on the
operating leverage
19
<PAGE>
inherent in the radio industry because the costs of operating a radio station
are generally fixed and, therefore, increased revenues generally result in
disproportionately larger increases in Broadcast Cash Flow.
Assemble and Manage Market Clusters with Regional Concentrations. The
Company intends to capitalize on the recently enacted Telecommunications Act
of 1996 (the "Recent Legislation") by assembling and operating a cluster of
stations in each of its principal markets. The Company believes that by
controlling a larger share of the total advertising inventory in a particular
market, it can offer advertisers attractive packages of advertising options
while maintaining rate integrity. The Company also believes that its cluster
approach will allow it to operate its stations with more highly skilled local
management teams and eliminate duplicative operating and overhead expenses.
By assembling market clusters with a regional concentration, the Company
believes that it will be able to increase revenues by targeting
regionally-based advertisers and capturing a larger share of their
advertising budgets. Through the regional management structure to be
implemented following the Acquisitions, the Company believes that it will be
able to more readily transfer the programming and sales successes of
individual stations and clusters to other stations and clusters within the
same region.
Revenue Enhancement and Cost Controls. The Company seeks to maximize
Broadcast Cash Flow by employing management techniques to enhance revenues
while maintaining strict cost controls. Key elements of the Company's
strategy include:
Aggressive Sales and Inventory Management. In each of its market
clusters, the Company utilizes sophisticated sales reporting systems to
monitor its sales activity and to formulate and implement pricing and
inventory controls. The Company believes that controlling a larger share
of the total advertising inventory in a particular market enhances its
ability to identify market trends and optimize pricing and inventory
management.
Targetted Programming. The Company utilizes extensive market research to
refine the programming at each of its stations and to position each of
the stations within a particular cluster to maximize the total audience
share and market revenue of the cluster as a whole. The Company's cluster
approach is designed to afford it the flexibility either to develop
protective programming formats for its market leading stations or to
develop independently successful program formats to meet the needs of
particular market conditions.
Strict Cost Controls. The Company's management imposes strict financial
reporting requirements and expense budget limitations on each of its
stations. In addition, management maintains a centralized accounting
system which allows it to monitor the performance and operations of each
of its stations. Such centralization allows the Company to achieve
expense savings in certain areas, including purchasing and administrative
expenses. The Company also achieves expense savings through the
elimination of certain duplicative costs within its markets and market
clusters.
Management. Following completion of the MMR Merger, the Company's senior
management team will be comprised of Robert F.X. Sillerman, Executive
Chairman, Michael G. Ferrel, Chief Executive Officer, and D. Geoffrey
Armstrong, Chief Operating Officer. The Company's management has substantial
experience in operating radio stations in markets of all sizes, identifying
attractive acquisition candidates and integrating acquired stations. Under
the leadership of Michael G. Ferrel, the current Chief Executive Officer of
MMR, MMR commenced operations in July 1993 with the acquisition of five radio
stations and increased the number of stations it owns and operates, provides
programming to or sells advertising on behalf of, to 17 stations.
The Company plans to emphasize both regional and local management of its
radio stations. Regional operations will be managed under the direction of
four regional managers, each of whom will report directly to the Company's
Chief Executive Officer and Chief Operating Officer. Teamed with each
regional manager will be a director of sales and a director of programming.
The Company believes that regional management and coordination will enable it
to maximize the benefits of operating a national station franchise while
maintaining controls over local operations. Local management is also central
to the Company's strategy. Local management is primarily responsible for
building and developing a sales team capable of converting the station's
audience rankings into revenues. The Company's general managers and sales
managers are motivated through incentive compensation primarily based upon
their station's cash flow performance. Corporate management continuously
provides its stations with advice and support in the development of
advertising and marketing strategies, sales force training and motivation
techniques.
20
<PAGE>
PENDING ACQUISITIONS AND DISPOSITIONS
In November 1995, the Company entered into an agreement to acquire Liberty
for a purchase price of approximately $236.0 million, subject to adjustment.
Liberty is a privately-held radio broadcasting company that owns and
operates, provides programming to or sells 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. On May 1, 1996, the
Company entered into an agreement to sell three of the Liberty Stations that
operate in the Washington, DC/Baltimore, Maryland market.
In February 1996, the Company entered into an agreement to acquire from
Prism, a privately-held radio broadcasting company, substantially all of the
assets used in the operation of ten FM and six AM radio stations, for
approximately $105.3 million. The Prism Stations are located in five markets:
Louisville, Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson,
Arizona and Wichita, Kansas. In May 1996, the Company entered into two
separate agreements to sell three of the Prism Stations that operate in the
Louisville, Kentucky market.
In April 1996, the Company entered into an amended and restated agreement
and plan of merger pursuant to which it has agreed to acquire MMR. MMR is a
radio broadcasting company which owns and operates, provides programming to
or sells advertising on behalf of 16 FM stations and one AM station located
in seven markets: New Haven, Connecticut; Springfield/Northampton,
Massachusetts; Daytona Beach, Florida; Augusta, Georgia; Biloxi, Mississippi;
Little Rock, Arkansas and Myrtle Beach, South Carolina. MMR has entered into
agreements to acquire WKSS-FM, Hartford, Connecticut, and WMYB-FM, Myrtle
Beach, South Carolina, and to sell WRXR-FM and WKBG-FM, both operating in
Augusta, Georgia and has entered into a non-binding letter of intent to sell
KOLL-FM, Little Rock, Arkansas. In addition, MMR is currently negotiating the
termination of a JSA with WCHZ-FM, Augusta, Georgia, and the termination of
an acquisition agreement and an LMA with respect to WAEG-FM and WAEJ-FM, both
operating in Augusta, Georgia.
Pursuant to four separate agreements, the Company has agreed to acquire
substantially all of the assets of radio stations WROQ-FM, Greenville, South
Carolina, WSTZ-FM and WZRX-FM, both operating in Jackson, Mississippi,
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina, WMFR-AM,
WMAG-FM and WTCK-AM (formerly, WWWB-AM), each operating in Greensboro, North
Carolina, and WJDX-FM, Jackson, Mississippi, for an aggregate purchase price
of approximately $58.5 million. The Company and MMR have agreed that the
Company will finance the purchase of certain of these stations and that MMR
will immediately thereafter convey such stations to the Company. In addition,
the Company has entered into an agreement granting it an option, which it
intends to exercise, to acquire substantially all of the assets of WHSL-FM,
Greensboro, North Carolina, for a purchase price of $4.5 million (or at the
seller's option, 150,000 shares of the Class A Common Stock).
In addition, the Company has entered into an agreement to exchange radio
station KRLD-AM, operating in Dallas, Texas, and the Texas State Networks,
for radio station KKRW-FM, Houston, Texas, and has entered into a non-binding
letter of intent to sell radio station KTCK-AM, Dallas, Texas for
approximately $11.5 million, net of certain payments to the seller.
The Company anticipates that it will consummate all of the Acquisitions
and the Dispositions within 90 days after the closing of the Financing,
except for the MMR Merger, which is subject to stockholder approval and which
the Company expects to complete during the third quarter of fiscal 1996, and
the Houston Exchange, which the Company expects to complete within 120 days
of the closing of the Financing. However, the timing and completion of the
Acquisitions and the Dispositions are subject to a number of conditions,
certain of which are beyond the Company'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 "Agreements Related to the Acquisitions and the Dispositions."
21
<PAGE>
The Stations
The following table summarizes certain information with respect to the
radio stations the Company will own and operate, provide programming to or
sell advertising on behalf of, after giving effect to the Acquisitions and
the Dispositions.
<TABLE>
<CAPTION>
STATION 1995 TOTAL
RANK AMONG STATION NUMBER OF
MARKET TARGET TARGET AUDIENCE REVENUE STATIONS IN
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE RANK MARKET
- -------------------- --------- -------------------------- ------------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Washington, DC/
Baltimore, MD (3) 8
WHFS-FM (4) ....... Alternative Rock Adults 18-34 4 3.8% 14 45
Nassau-Suffolk, NY 14
WBAB-FM (4) ........ Album Oriented Rock Adults 25-54 8 3.1% 2 27
WHFM-FM (4) ....... Hot Album Adults 25-54 37* 0.1% 16 27
WBLI-FM (4) ....... Contemporary Adults 25-54 5 4.0% 3 27
WGBB-AM (4) ....... News/Talk Adults 35 & over NR NR NR 27
Providence, RI 31
WSNE-FM (4) ....... Adult Contemporary ("AC") Adults 25-54 5 4.6% 5 30
WHJY-FM (4) ....... Adult Oriented Rock Adults 18-34 1 8.7% 1 30
WHJJ-AM (4) ....... News/Talk Adults 35-64 10 4.3% 9 30
Hartford, CT 41
WHCN-FM (4) ....... Album Oriented Rock Men 25-54 1 4.0% 7 21
WMRQ-FM (4) ....... Modern Rock Adults 18-34 1 4.8% 8 21
WPOP-AM (4) ....... News/Talk Adults 35-64 15 1.6% 11 21
WKSS-FM (5) ....... Contemporary Hit Radio Adults 18-34 3 6.8% 5 21
Albany, NY 57
WGNA-FM (4) ....... Country Adults 25-54 1 11.4% 1 41
WGNA-AM (4) ....... Country Adults 25-54 25 0.1% 24 41
WPYX-FM (4) ....... Album Rock Adults 18-34 3 6.8% 2 41
WTRY-AM (4) ....... Oldies Adults 35-64 11* 1.5% 16 41
WYSR-FM (6) ....... Oldies Adults 25-54 12* 1.7% 10 41
Springfield/ 76
Northampton, MA (7)
WHMP-FM (8) ....... Modern Rock Adults 18-34 8 2.0% 6 16
WHMP-AM (8) ....... Information Adults 35-64 11 1.3% 10 16
WPKX-FM (8) ....... Hot Country Adults 25-54 3 9.4% 2 16
New Haven, CT 95
WPLR-FM (8) ....... Album Oriented Rock Adults 18-34 1 7.4% 1 8
WYBC-FM (8)(9) .... Urban Rock Adults 18-34 2 4.7% 4 8
SOUTH-ATLANTIC
REGION (12)
Charlotte, NC 37
WTDR-FM ............ Country Adults 25-54 6 6.0% 6 42
WLYT-FM (13) ...... AC Adults 25-54 3 5.9% 8 42
Greensboro, NC 42
WMAG-FM (11)(14) .. AC Adults 25-54 2 6.1% 4 34
WTCK-AM News/Talk Adults 25-54 NR NR 19 34
(11)(14)(15) ...... News/Talk Adults 25-54 24 1.1% 12 34
WMFR-AM (11)(14) .. Country Adults 25-54 13 2.0% 13 34
WHSL-FM (16) ......
Nashville, TN 44
WSIX-FM ............ Country Adults 25-54 1 15.5% 1 45
WRVW-FM (17) ...... Top 40 Adults 18-34 4 6.3% 9 45
Raleigh-Durham, NC 50
WZZU-FM (10) ...... Classic Rock Adults 25-54 5 4.2% 9 33
WDCG-FM (10) ...... Contemporary Radio Adults 18-34 1 7.9% 4 33
WRDU-FM (11) ...... Album Oriented Rock Adults 25-54 3 5.8% 2 33
WTRG-FM (11) ...... Oldies Adults 35-64 1 5.5% 7 33
Richmond, VA 56
WMXB-FM (4) ....... AC Adults 25-54 4 5.5% 3 26
Greenville- 59
Spartanburg, SC
WSSL-FM ............ Country Adults 25-54 1 14.8% 1 39
WMYI-FM ............ AC Adults 25-54 2 8.0% 2 39
WGVL-AM ............ Talk Adults 25-54 NR NR NR 39
WROQ-FM (18) ...... Classic Rock Adults 25-54 5 9.2% 3 39
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
STATION 1995 TOTAL
RANK AMONG STATION NUMBER OF
MARKET TARGET TARGET AUDIENCE REVENUE STATIONS IN
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE RANK MARKET
- -------------------- --------- -------------------------- ------------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHERN REGION
Jacksonville, FL 53
WKQL-FM (10) ...... Oldies/Adult Adults 25-54 6 5.4% 6 23
WIVY-FM (10) ...... AC Adults 25-54 7 4.1% 7 23
WOKV-AM (10) ...... News/Talk Adults 18-49 11 4.3% 8 23
WPDQ-AM (10) ...... Nostalgia Adults 50 & over 8 1.5% 16 23
Daytona Beach, FL 93
WGNE-FM (8) ....... Country Adults 25-54 1 8.2% 1 13
Augusta, Georgia 116
(19)
WAEG-FM (8)(20) .. Urban/AC Adults 25-54 17 1.7% 7 25
WAEJ-FM (8)(20) .. Urban/AC Adults 25-54 13 3.3% 16 25
WCHZ-FM (8)(21) . Modern Rock Adults 18-34 6 3.2% 15 25
Jackson, MS 118
WMSI-FM ............ Country Adults 25-54 1 12.8% 1 29
WKTF-FM ............ Country Adults 25-54 7 3.0% 7 29
WJDS-AM ............ AC Adults 25-54 19 0.3% 17 29
WSTZ-FM (22)(23) .. Album Oriented Rock Adults 25-54 5* 6.6% 4 29
WJDX-FM (24) ...... Sports Adults 25-54 5* 6.0% 3 29
WZRX-AM (22) ...... Gospel Adults 25-54 13 2.6% 12 29
Biloxi, MS 134
WKNN-FM (8) ........ Country Adults 25-54 1 15.6% 1 20
WMJY-FM (8) ....... AC Women 25-54 5 3.9% 6 20
Myrtle Beach, SC 185 6.0%
WYAK-FM (8) ....... Hot Country Adults 25-54 9 0.8% 1 23
WVCO-FM (8)(25) .... Hot Country Adults 25-54 18 NR 13 23
WMYB-FM (8)(26) ... 70's Rock Adults 25-54 NR NR 23
SOUTHWEST REGION
(27)
Houston, TX 9
KODA-FM ............ AC Adults 25-54 1 6.4% 1 48
KKRW-FM (28) ...... Classic Rock Adults 18-34 13 3.1% 11 48
San Diego, CA 15
KYXY-FM ............ AC Adults 25-54 2 6.8% 5 36
KMKX-FM (29) .. .. Rock Adults 25-54 15 2.4% 11 36
Tucson, AZ 62
KRQQ-FM (10) ...... Contemporary Hit Radio Adults 18-34 3 7.5% 5 28
KWFM-FM (10) ...... Oldies Adults 25-54 6 5.6% 6 28
KCEE-AM (10) ...... Nostalgia Adults 61 & over 1 3.6% 13 28
KNST-AM (10) ...... News/Talk Adults 25-54 7 6.1% 4 28
Wichita, KS 91
KRZZ-FM (10) ...... Classic Rock Adults 18-34 2 6.2% 6 23
KKRD-FM (10) ...... Contemporary Hit Radio Adults 18-34 3 8.1% 4 23
KNSS-AM (10) .. .. News/Talk Adults 25-54 17 3.5% 8 23
</TABLE>
- ------------
* These stations are tied in rank with other stations.
(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 target demographic target may be different even though the
station program format is the same.
(3)Does not include WXVR-FM, WXTR-FM and WQSI-AM, each operating in the
Washington, DC market, which are to be acquired pursuant to the Liberty
Purchase Agreement and thereafter sold to a third party. See
"Agreements Related to the Acquisitions and the Dispositions -- Liberty
Stations."
(4)To be acquired pursuant to the Liberty Purchase Agreement. See
"Agreements Related to the Acquisitions and the Dispositions -- Liberty
Stations."
(5)In April 1996, MMR entered into an agreement to acquire WKSS-FM.
(6)WYSR-FM changed its call letters from WTRY-FM. Liberty sells
advertising on WYSR-FM pursuant to a JSA and has an option to acquire
such station.
(7)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.
(8)To be acquired pursuant to the MMR Acquisition Agreement (as defined
herein). See "Agreements Related to the Acquisitions and the Dispositions
-- MMR Stations."
(9)MMR sells advertising on WYBC-FM pursuant to a JSA.
23
<PAGE>
(10)To be acquired pursuant to the Prism Purchase Agreement. See
"Agreements Related to the Acquisitions and the Dispositions -- Prism
Stations."
(11)On January 18, 1996, MMR entered into an agreement to acquire these
stations. The Company and MMR have agreed that the Company will finance
the purchase of such stations and that MMR will immediately thereafter
transfer such stations to the Company. See "Agreements Related to the
Acquisitions and the Dispositions -- Agreements for the Additional
Stations."
(12)Does not include WVEZ-FM, WTFX-FM and WWKY-AM, each operating in the
Louisville, Kentucky market, which are to be acquired in connection
with the Prism Acquisition and thereafter sold to third parties. See
"Agreements Related to the Acquisitions and the Dispositions -- Prism
Stations."
(13)WLYT-FM changed its call letters from WEZC-FM.
(14)On January 18, 1996, MMR entered into a JSA pursuant to which MMR would
sell advertising on these stations. On January 22, 1996, MMR entered
into a JSA with the Company pursuant to which the Company was granted
the exclusive right to sell advertising on these stations.
(15)WTCK-AM changed its call letters from WWWB-AM.
(16)The Company has been selling advertising on WHSL-FM pursuant to a JSA
since January 18, 1996 and has an option to purchase this station. The
Company intends to exercise its option to acquire such station. See
"Agreements Related to the Acquisitions and the Dispositions --
Agreements for the Additional Acquisitions."
(17)WRVW-FM changed its call letters from WYHY-FM.
(18)On January 22, 1996, MMR entered into a contract to acquire WROQ-FM. On
January 23, 1996, MMR entered into an LMA pursuant to which MMR would
provide programming on WROQ-FM. On February 1, 1996, MMR entered into a
JSA with the Company pursuant to which the Company was granted the
exclusive right to sell advertising on behalf of WROQ-FM. The Company
and MMR have agreed that the Company will finance the purchase of such
station and that MMR will immediately thereafter transfer such station
to the Company. See "Agreements Related to the Acquisitions and the
Dispositions -- Agreements for the Additional Acquisitions."
(19)Does not include WRXR-FM and WKBG-FM, Augusta, Georgia, which MMR
currently owns and which MMR has entered into an agreement to sell. See
"Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations -- MMR Dispositions."
(20)MMR has entered into an agreement to acquire WAEG-FM and WAEJ-FM and
currently provides programming and sells advertising on such stations
pursuant to an LMA. MMR has advised the Company that it is currently
negotiating the termination of such acquisition agreement and LMA. See
"Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations -- Augusta Stations."
(21)MMR sells advertising on WCHZ-FM pursuant to a JSA. MMR has advised the
Company that it is currently negotiating the termination of the JSA.
See "Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations -- Augusta Stations."
(22)On January 26, 1996 MMR entered into a contract to acquire WSTZ-FM and
WZRX-AM. The Company and MMR have agreed that the Company will finance
the purchase of such stations and that MMR will immediately thereafter
transfer such stations to the Company. See "Agreements Related to the
Acquisitions and the Dispositions -- Agreements for the Additional
Stations."
(23)On February 1, 1996, MMR entered into an LMA pursuant to which MMR
would provide programming to WSTZ-FM. Concurrently therewith, MMR
entered into a JSA with the Company pursuant to which the Company was
granted the exclusive right to sell advertising on behalf of WSTZ-FM.
(24)The Company sells advertising on WJDX-FM pursuant to a JSA and has
exercised its option to acquire this station. See "Agreements Related
to the Acquisitions and the Dispositions --Agreements for the
Additional Stations."
(25)WVCO-FM simulcasts WYAK-FM's format pursuant to an LMA; MMR is
currently in negotiations with respect to the acquisition of WVCO-FM.
(26)MMR provides programming and sells advertising on WMYB-FM pursuant to
an LMA and in April 1996 entered into an agreement to acquire this
station. See "Agreements Related to the Acquisitions and the
Dispositions -- MMR Stations -- MMR Myrtle Beach Acquisition."
(27)Does not include KRLD-AM and KTCK-AM, each operating in the Dallas,
Texas market, or the Texas State Networks which are to be sold to a
third party. See "Agreements Related to the Acquisitions and the
Dispositions -- Houston Exchange" and " -- Dallas Disposition."
(28)The Company has entered into an agreement pursuant to which the Company
has agreed to acquire KKRW-FM, Houston, Texas, in a station-for station
exchange for KRLD-FM, Dallas, Texas, and the Texas State Networks. See
"Agreements Related to the Acquisitions and the Dispositions -- Houston
Exchange."
(29)KMKX-FM changed its call letters from KJQY-FM.
24
<PAGE>
ADVERTISING
The primary source of the Company's revenues is the sale of broadcasting
time for local, regional and national advertising. A station's sales staff
generates most of such station's local and regional advertising sales. To
generate national advertising sales, the Company engages an advertising
representative for each of its stations who specializes in national
advertising sales and who is compensated on a commission-only basis. Most
advertising contracts are short term and generally run only for a few weeks.
The Company 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.
Depending on the format of a particular station, there are predetermined
numbers of advertisements that are broadcast each hour. The Company endeavors
to determine 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 period
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
The Company's stations compete for listeners and advertising revenues
directly with other radio stations within their markets. The Company 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. The Company's stations also compete for advertising revenues
with other media, including broadcast television, cable television,
newspapers, magazines, direct mail, coupons and billboard advertising. 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.
By building in each of its markets a strong base of listeners comprised of
specific demographic groups, the Company 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. 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. The Company also competes with other radio station groups to
purchase additional stations. The Recent Legislation will permit other radio
broadcasting companies to enter the markets in which the Company operates or
may operate in the future, some of which may be larger and have substantially
greater financial and other resources than the Company.
25
<PAGE>
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation
in the future would not have an adverse effect on the Company's operations.
SEASONALITY
The Company's revenues vary throughout the year. As is the case throughout
the radio broadcast industry, the Company's first quarter generally reflects
lowest revenues and its fourth quarter generally reflects the highest
revenues for each year.
EMPLOYEES
As of March 31, 1996, the Company had approximately 324 full time and 108
part time employees, none of whom were represented by unions. Management
believes that relations with employees are good. Following consummation of
the Acquisitions and Dispositions, the Company anticipates that it will have
approximately 1,162 full time and 445 part time employees.
The Company employs several high-profile on-air personalities with large,
loyal audiences in their respective markets. The Company endeavors to enter
into employment agreements with those on-air personalities and station
general managers whose services are deemed by the Company to be important for
its continued success. In addition, the Company has entered into employment
agreements with certain of its executive officers.
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 of 1934, as amended (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.
26
<PAGE>
The following table summarizes certain information relating to the radio
stations that the Company will own and operate, provide programming to or
sell advertising on behalf of, after giving effect to the Acquisitions and
the Dispositions.
<TABLE>
<CAPTION>
EXPIRATION
METROPOLITAN MARKET SERVED POWER DATE OF
AND STATION CALL LETTERS CITY OF LICENSE IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ------------------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
NORTHEAST REGION
Washington, DC/Baltimore, MD
WHFS-FM (1) ...... ...... Annapolis, MD 50 99.1 MHz 10/1/02
Nassau-Suffolk, NY
WBAB-FM ................... Babylon, NY 3 102.3 MHz 6/1/98
WHFM-FM ................... Southampton, NY 5 95.3 MHz 6/1/98
WBLI-FM(2) ................ Patchogue, NY 49 106.1 MHz 6/1/98
WGBB-AM .................. Freeport, NY 1 1240 kHz 6/1/98
Providence, RI
WSNE-FM ................... Taunton, MA 30 93.3. MHz 4/1/98
WHJY-FM ................... Providence, RI 50 94.1 MHz 4/1/98
WHJJ-AM .................. Providence, RI 5 920 kHz 4/1/98
Hartford, CT
WHCN-FM ................... Hartford, CT 16 105.9 MHz 4/1/98
WMRQ-FM ................... Waterbury, CT 18 104.1 MHz 4/1/98
WPOP-AM ................... Hartford, CT 5 1410 kHz 4/1/98
WKSS-FM .................. Hartford-Meriden, CT 16.5 95.7 MHz 4/1/98
Albany, NY
WGNA-FM ................... Albany, NY 12.5 107.7 MHz 6/1/98
WGNA-AM ................... Albany, NY 5 1460 kHz 6/1/98
WPYX-FM (3) ............... Albany, NY 15.5 106.5 MHz 6/1/98
WTRY-AM ................... Troy, NY 5 980 kHz 6/1/98
WYSR-FM .................. Rotterdam, NY 3 98.3 MHz 6/1/98
Springfield/Northampton, MA
WHMP-FM ................... Northampton, MA 3 99.3 MHz 4/1/98
WHMP-AM ................... Northampton, MA 1 1400 kHz 4/1/98
WPKX-FM .................. Enfield, CT 2.2 97.9 MHz 4/1/98
New Haven, CT
WPLR-FM ................... New Haven, CT 14 99.1 MHz 4/1/98
WYBC-FM .................. New Haven, CT 1.8 94.3 MHz 4/1/98
SOUTH-ATLANTIC REGION
Charlotte, NC
WTDR-FM ................... Statesville, NC 100 96.9 MHz 12/1/02
WLYT-FM .................. Hickory, NC 31 102.9 MHz 12/1/02
Greensboro, NC
WMAG-FM ................... High Point, NC 100 99.5 MHz 12/1/02
WTCK-AM ................... Greensboro, NC 5 1320 kHz 12/1/02
WMFR-AM ................... High Point, NC 1 1230 kHz 12/1/02
WHSL-FM .................. High Point, NC 100 100.3 MHz 12/1/02
Nashville, TN
WSIX-FM ................... Nashville, TN 100 97.9 MHz 8/1/96*
WRVW-FM .................. Lebanon, TN 58 107.5 MHz 8/1/96*
Raleigh-Durham, NC
WZZU-FM ................... Burlington, NC 100 93.9 MHz 12/1/02
WDCG-FM ................... Durham, NC 100 105.1 MHz 12/1/02
WRDU-FM ................... Wilson, NC 100 106.1 MHz 12/1/02
WTRG-FM .................. Rocky Mount, NC 100 100.7 MHz 12/1/02
Richmond, VA
WMXB-FM .................. Richmond, VA 20 103.7 MHz 10/1/02
Greenville-Spartanburg, SC
WSSL-FM ................... Gray Court, SC 100 100.5 MHz 12/1/02
WMYI-FM ................... Hendersonville, NC 20 102.5 MHz 12/1/02
WGVL-AM ................... Greenville, SC 5 1440 kHz 12/1/02
WROQ-FM .................. Anderson, SC 100 101.1 MHz 12/1/02
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION
METROPOLITAN MARKET SERVED POWER DATE OF
AND STATION CALL LETTERS CITY OF LICENSE IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ------------------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
SOUTHERN REGION
Jacksonville, FL
WKQL-FM ................... Jacksonville, FL 98 96.9 MHz 2/1/03
WIVY-FM ................... Jacksonville, FL 98 102.9 MHz 2/1/03
WOKV-AM ................... Jacksonville, FL 50 Day, 10 Night 690 kHz 2/1/03
WPDQ-AM .................. Jacksonville, FL 5 Day 600 kHz 2/1/03
Daytona Beach, FL
WGNE-FM .................. Titusville, FL 100 98.1 MHz 2/1/03
Augusta, GA
WAEG-FM.................... Evans, GA 3 92.3 MHz 4/1/96*
WAEJ-FM.................... Waynesboro, GA 6 100.9 MHz 4/1/96*
WCHZ-FM ......... ......... Harlem, GA 5.7 95.1 MHz 4/1/03
Jackson, MS
WMSI-FM ................... Jackson, MS 100 102.9 MHz 6/1/96*
WKTF-FM ................... Jackson, MS 100 95.5 MHz 6/1/96*
WJDS-AM ................... Jackson, MS 5 Day, 1 Night 620 kHz 6/1/96*
WSTZ-FM ................... Vicksburg, MS 100 106.7 MHz 6/1/96*
WJDX-FM ................... Jackson, MS 96 96.3 MHz 6/1/96*
WZRX-AM ................... Jackson, MS 5 Day, 1 Night 1590 kHz 6/1/96*
Biloxi, MS WKNN-FM ........ Pascagoula, MS 99 99.1 MHz 6/1/96*
WMJY-FM .................. Biloxi, MS 100 93.7 MHz 6/1/96*
Myrtle Beach, SC 12.5 103.1 MHz 12/1/02
WYAK-FM ................... Surfside Beach, SC 2.65 94.9 MHz 12/1/02
WVCO-FM ................... Loris, SC 13.5 99.5 MHz 12/1/02
WMYB-FM .................. Socastee, SC
SOUTHWEST REGION
Houston, TX
KODA-FM ................... Houston, TX 95 99.1 MHz 8/1/97
KKRW-FM .................. Houston, TX 100 93.7 MHz 8/1/97
San Diego, CA
KYXY-FM ................... San Diego, CA 41 96.5 MHz 12/1/97
KMKX-FM ........ ........ San Diego, CA 36 103.7 MHz 12/1/97
Tucson, AZ
KRQQ-FM ................... Tucson, AZ 91 93.7 MHz 10/1/97
KWFM-FM ................... Tucson, AZ 90 92.9 MHz 10/1/97
KCEE-AM ................... Tucson, AZ 1 940 kHz 10/1/97
KNST-AM .................. Tucson, AZ 5 Day, 790 kHz 10/1/97
0.5 Night
Wichita, KS
KRZZ-FM ................... Derby, KS 50 96.3 MHz 6/1/97
KKRD-FM ................... Wichita, KS 95 107.3 MHz 6/1/97
KNSS-AM .................. Wichita, KS .6 1240 kHz 6/1/97
</TABLE>
- ------------
(*) License renewal pending.
(1) On February 27, 1996, the FCC issued a decision imposing a notice of
apparent liability for a forfeiture against Duchossois Communications
Co. of Maryland ("Duchossois"), an earlier licensee of WHFS-FM, in the
aggregate amount of $38,000 for violations of certain of the FCC's
rules. On December 21, 1993, the FCC approved the assignment of the
license for radio station WHFS-FM from Duchossois to Liberty
Broadcasting of Maryland, Inc. ("Liberty of Maryland"), which is a
subsidiary of Liberty and is the former licensee of WHFS-FM. An
individual who had petitioned the FCC to deny the assignment appealed
the grant of such approval to the United States Court of Appeals for
the District of Columbia Circuit. In June 1995, Liberty of Maryland
filed an application for the renewal of the license of WHFS-FM. The
aforementioned petitioner filed a petition to deny Liberty's renewal.
On April 23, 1996, the FCC (i) approved a settlement among Liberty of
Maryland, WHFS, Inc. (a subsidiary of Liberty and the present licensee
of WHFS-FM) and the petitioner, (ii) dismissed the petition to deny the
WHFS-FM renewal application and (iii) approved the petitioner's
dismissal of the court appeal of the FCC's grant of consent to the
assignment of WHFS-FM's license from Duchossois to Liberty of Maryland.
The normal reconsideration or review periods for this FCC action have
not yet expired.
(2) A petition to deny the transfer of control of WBLI-FM to the Company
was filed with the FCC alleging past employment discrimination at the
station. This petition was denied by the FCC on April 19, 1996. The
normal reconsideration or review periods for this FCC action have not
yet expired.
(3) FCC records indicate that a complaint is pending at the FCC against
WPYX-FM regarding the broadcast of allegedly indecent material.
28
<PAGE>
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 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 Recent
Legislation, radio station acquisitions are 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. See "Risk Factors--Regulatory Matters."
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, the Company 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 outstanding voting power of the corporation. The FCC has outstanding a
notice of proposed rule making that, among other things, seeks comment on
whether
29
<PAGE>
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. The Company cannot predict the outcome of this proceeding or
how it will affect the Company's business. Furthermore, the single majority
stockholder exemption would no longer apply to the Company if conversion of
the Series D Preferred Stock or the Exchange Notes into Class A Common Stock
caused Robert F.X. Sillerman's voting power in the Company to drop to 50% or
less (an event that would require prior FCC consent). In such event, all
stockholders holding 5% or more of the total voting power in the Company
would have an attributable interest in the Company, and their other media
interests, if any, could therefore adversely affect the Company's ability to
acquire or to hold interests in radio stations in particular markets. 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.
R. Steven Hicks, the Company's President and Chief Executive Officer, is
the Chairman, Chief Executive Officer and a Director of Gulfstar
Communications, Inc. which is the licensee through subsidiaries of KLVI-AM
and KYKR-FM, Beaumont, Texas, KKMY-FM, Orange, Texas, KYKS-FM, Lufkin, Texas,
KIXS-FM, Victoria, Texas, KNUE-FM, Tyler, Texas, KBRQ-FM, Hillsboro, Texas,
KKAM-AM, KFMX-FM and KRLB-FM, Lubbock, Texas, KIIZ-FM, Killeen, Texas,
KNRV-FM, Harker Heights, Texas, WTAW-AM and KTSR-FM, College Station, Texas,
KKYR-AM, Texarkana, Arkansas, KKYR-FM, Texarkana, Texas, and WJBO-AM,
WFMF-FM, WYNK-AM and WYNK-FM, Baton Rouge, Louisiana (subsidiaries of
Gulfstar also provide programming to KAGG-FM, Madisonville, Texas pursuant to
an LMA and sell advertising on KLFX-FM, Nolanville, Texas, KAFX-FM, Diboll,
Texas, KISX-FM Whitehouse, Texas, KTYL-FM, Tyler, Texas and KLUB-FM,
Bloomington, Texas pursuant to JSAs). Mr. Hicks also has interests in other
broadcasting companies that are not attributable interests under FCC rules
and regulations. It was publicly announced that Mr. Hicks will head a new
investment group that intends to acquire radio properties, which properties
may be located in certain of the Company's target markets.
Robert F.X. Sillerman, the Executive Chairman of the Company has
non-voting common and preferred stock interests in Triathlon Broadcasting
Company ("Triathlon"), which has or proposes to have attributable interests in
radio stations 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 one. However, Mr. Sillerman's non-
voting stock interests in Triathlon are convertible into voting stock interests
under certain circumstances, including the receipt of necessary FCC approval.
The FCC is examining, through outstanding rule making and adjudicatory
proceedings, whether to change the criteria for considering an interest to be
attributable. Some commentators in the rule making 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 the Company, has advised the Company that to the extent that the FCC
adopts this standard, certain contractual arrangements between SCMC, a
corporation controlled by Mr. Sillerman, and Triathlon may cause Messrs.
Sillerman and Tytel's interests in Triathlon to be attributable. If the FCC
were to determine that Messrs. Sillerman and Tytel's interests in Triathlon
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 local ownership rules.
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 non-U.S. citizens or
their representatives or by a foreign government or a representative thereof,
or by any corporation organized under the laws of a foreign country
(collectively, "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. The Company 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
30
<PAGE>
partnerships. As a result of these provisions, the licenses granted to the
radio station subsidiaries of the Company by the FCC could be revoked if,
among other restrictions imposed by the FCC, more than 25% of the Company's
stock were directly or indirectly owned or voted by Aliens. The Restated
Certificate of Incorporation (the "Certificate of Incorporation") of the
Company contains limitations on Alien ownership and control of the Company
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 the Company'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 the Company owns a radio station, the Company
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 the Company'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 rule making 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 liberalization of the ownership limits on radio stations
authorized by the Recent Legislation. If JSAs become attributable interests
as a result of such rule making, the Company would be required to terminate
any JSA it might have with a radio station with which the Company 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
31
<PAGE>
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 the Company's radio
broadcast stations, result in the loss of audience share and advertising
revenues for the Company's radio broadcast stations, and affect the ability
of the Company 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,
instead of granting FCC licenses and subsequent license renewals.
The FCC is currently considering whether to authorize the use of a new
technology, digital audio broadcasting ("DAB"), to deliver audio programming.
DAB 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.
The Company cannot predict what other matters might be considered in the
future by the FCC and/or Congress, nor can it judge in advance what impact,
if any, the implementation of the Recent Legislation or any of these
proposals or changes might have on its business.
PROPERTIES
The Company's corporate headquarters are located in New York, New York,
and Austin, Texas. The types of properties required to support each of the
Company's radio stations include offices, studios and transmitter antenna
sites. The transmitter sites are consistent with the station licenses and are
generally located so as to provide maximum market coverage.
The studios and offices of KODA-FM in Houston, Texas, WMSI-FM, WJDS-AM,
and WKTF-FM in Jackson, Mississippi, KMKX-FM and KYXY-FM in San Diego,
California and WSIX-FM and WRVW-FM in Nashville, Tennessee are owned by the
Company. These properties secure the Company's borrowings under the Old
Credit Agreement and are expected to secure the Company's borrowings under
the New Credit Agreement. The studios and offices of the Company's other
stations, as well as the Company's corporate headquarters in New York, New
York, and Austin, Texas, are located in leased facilities with lease terms
that expire in approximately one to eight years. The Company owns or leases
all of its transmitter antenna sites, with lease terms that expire in one to
49 years. The Company does not anticipate any difficulties in renewing those
leases that expire within the next five years or in leasing other
32
<PAGE>
space if required. No particular interest in real property is material to the
Company's overall operations. Management believes that its properties are in
good condition and are suitable for its operations; however, the Company
continually looks for opportunities to upgrade its properties.
Upon the consummation of the Liberty Acquisition, the Company will own (i)
the studios and transmitter sites for WBAB-FM and WGBB-AM, the studio for
WBLI-FM and the transmitter site for WHFM-FM, each operating in
Nassau-Suffolk, New York, (ii) the studios and transmitter sites for WHJY-FM
and WHJJ-AM, both operating in Providence, Rhode Island, (iii) the studio and
transmitter site for WHCN-FM and WPOP-AM and the studio for WMRQ-FM, each
operating in Hartford, Connecticut, and (iv) the studios for WTRY-AM and
WPYX-FM and the transmitter sites for WPYX-FM and WGNA-AM, each operating in
Albany, New York. The other facilities used in the operations of the Liberty
Stations have been leased.
Upon the consummation of the Prism Acquisition, the Company will own the
studios for KWFM-FM and KCEE-AM, Tucson, Arizona and WKQL-FM, WIVY-FM,
WOKV-AM and WPDQ-AM, Jacksonville, Florida, and the transmitter sites for
KCEE-AM and KNST-AM, Tucson, Arizona, WDCG-FM and WZZU-FM, Raleigh, North
Carolina, KNSS-AM and KRZZ-FM, Wichita, Kansas, and WOKV-AM and WPDQ-AM,
Jacksonville, Florida. The other facilities used in the operations of the
Prism Stations have been leased.
Upon the consummation of the MMR Merger, the Company will own the studios
and transmitter sites for WYAK-FM, Myrtle Beach, South Carolina and WHMP-FM
and WHMP-AM, Northampton, Massachusetts, and the studio and tower site for
WKNN-FM and WMJY-FM, Biloxi, Mississippi. The other facilities used in the
operations of the MMR Stations have been leased.
Upon consummation of the Additional Acquisitions, the Company will own the
tower site for WZRX-AM, Jackson, Mississippi, and the studio sites for
WSTZ-FM and WZRX-AM, both operating in Jackson, Mississippi. The other
facilities used in the operations of the stations to be acquired in the
Additional Acquisitions will be leased by the Company upon consummation of
each of the Additional Acquisitions.
The Company owns substantially all of the equipment used in its radio
broadcasting business. The Company believes that its properties are in good
condition and suitable for its current and foreseeable operations.
33
<PAGE>
AGREEMENTS RELATED TO THE ACQUISITIONS AND THE DISPOSITIONS
The following is a summary of certain terms of the agreements related to
the Acquisitions and Dispositions. This summary is not intended to be
complete and is subject to, and qualified in its entirety by reference to,
the agreements, copies of which have been filed as exhibits to the periodical
and other reports filed by the Company with the Commission and are
incorporated herein by reference.
LIBERTY STATIONS
Liberty Acquisition. The Company has entered into a stock purchase
agreement dated as of November 15, 1995 (the "Liberty Purchase Agreement")
with Liberty and certain of its principal shareholders (the "Sellers"),
pursuant to which the Company has agreed to purchase all of the outstanding
capital stock of Liberty for a purchase price of approximately $236.0
million, subject to adjustment in the event that Liberty's net working
capital at the closing equals or exceeds $8.25 million. Upon the closing of
the Liberty Acquisition, the Company will purchase all of the capital stock
of Liberty, and Liberty will become a wholly-owned subsidiary of the Company.
Liberty has made certain representations and warranties to the Company in
the Liberty Purchase Agreement with respect to, among other things, its
authority to enter into the agreement, capitalization, FCC licenses, reports
and filings with the FCC, required consents and approvals, financial
statements, title to properties and compliance with applicable laws. In
addition, the Company has made certain representations and warranties to
Liberty, including its organization and authority to enter into the
agreement, that the Company is aware that its obligation to complete the
Liberty Acquisition is not subject to the ability of the Company to raise
financing sufficient to pay the purchase price, and that the Company will
take all necessary actions to complete the Liberty Acquisition in accordance
with the rules and regulations of the FCC. None of the representations and
warranties of either party will survive the closing of the Liberty
Acquisition, except for those with respect to the ownership of the capital
stock of Liberty by the Sellers, the authority of each party to enter into
such agreement, and the absence, except as disclosed in the Liberty Purchase
Agreement, of brokers or finders entitled to payment of a fee in connection
with the transaction.
Liberty has also agreed that, until the closing of the Liberty
Acquisition, it will, among other things: (i) conduct the operations of its
radio stations in the ordinary course of business, (ii) use its commercially
reasonable efforts to preserve the stations' business relationships with
customers, suppliers and others doing business with the stations, (iii)
operate the stations in accordance with all applicable FCC rules and
regulations and (iv) make the quarterly budgeted promotion, advertising and
research expenditures with respect to its stations in 1996. Liberty has also
agreed not to, without the Company's prior consent, sell, transfer or
otherwise dispose of any assets which have an aggregate book value in excess
of $50,000, except in the ordinary course of business or enter into or renew
any agreements except (a) agreements made in the ordinary course of business
that do not involve an obligation of more than $10,000, (b) agreements,
commitments or contracts for the sale of time for cash and (c) trade
agreements. Liberty has further agreed that, prior to the closing of the
Liberty Acquisition, it will repay all of its outstanding indebtedness for
money borrowed.
The closing of the Liberty Acquisition is subject to certain closing
conditions, including (i) the absence of any judicial proceeding directing
that the acquisition not be consummated, (ii) the absence of any action,
suit, proceeding or investigation before any court, administrative agency or
governmental authority seeking to restrain, prohibit or invalidate the
Liberty Acquisition or seeking material or substantial damages by reason of
completion of such transaction, (iii) the receipt of all governmental
authorizations, approvals, consents and waivers, including any required under
the HSR Act, (iv) the receipt of FCC approval of the radio station ownership
changes contemplated by the transaction, (v) the
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FCC approval of the acquisition of WHFS-FM by Liberty of Maryland, shall have
become "final" and (vi) the FCC shall have granted the pending license
renewal applications of WHFS-FM, WXTR-FM, WMXB-FM, WQSI-AM and WXVR-FM. The
obligation of the Company to complete the acquisition is further subject to
there having been no material adverse change in the business, operations or
financial condition of Liberty as of the closing date. Furthermore, in the
event that Liberty breaches the agreement or makes any intentional or grossly
negligent misrepresentation, the Company will have the right to terminate the
agreement or complete the Liberty Acquisition and bring an action against the
Sellers for damages, provided that the Sellers shall not be liable for
damages until the amount thereof exceeds $2.0 million nor shall they be
liable for more than $10.0 million.
The Liberty Purchase Agreement may be terminated by mutual consent, by
either party if the transaction is not completed by December 31, 1997, or by
either party in the event that there has been a material violation or breach
of any agreement, representation or warranty which has rendered satisfaction
of any condition to closing to be impossible, and such violation or breach
shall not have been waived.
The Liberty Acquisition is anticipated to close within 30 days of the
closing of the Financing if all of the conditions to each party's obligations
under the Liberty Purchase Agreement have been satisfied or waived to the
extent permitted by applicable law.
Washington Dispositions. On May 1, 1996, the Company entered into an
agreement to sell three of the Liberty Stations (WXVR-FM, WXTR-FM and
WQSI-AM, each operating in Washington, DC) for approximately $25.0 million,
following completion of the Liberty Acquisition. The Company has entered into
an LMA which will become effective upon completion of the Liberty Acquisition
pursuant to which the other party to such agreement has agreed to provide
programming and sell advertising to such stations until completion of the
sale by the Company. The consummation of the Washington Dispositions is
subject to customary closing conditions, including the receipt of FCC
approval and the receipt of all approvals and authorizations under the HSR
Act.
PRISM STATIONS
Prism Acquisition. The Company has entered into an asset purchase
agreement dated as of February 9, 1996 (the "Prism Purchase Agreement") with
Prism, pursuant to which the Company has agreed to acquire all of the assets
used in the operation of the Prism Stations for a purchase price of
approximately $105.3 million.
Prism has made certain representations and warranties to the Company in
the Prism Purchase Agreement with respect to, among other things, its
organization and authority to enter into the agreement, the licenses of the
Prism Stations, compliance with applicable laws, including the Communications
Act and the regulations thereunder, required consents and approvals,
financial statements and title to assets. In addition, the Company has made
certain representations and warranties to Prism, including those with respect
to its organization and authority to enter into the agreement, its financial
condition and its qualification to own and operate the Prism Stations. The
Prism Purchase Agreement provides that the representation and warranties of
Prism and the Company contained therein shall continue in force for a period
of four months following the closing of the Prism Acquisition, after which
time the indemnification obligations of Prism and the Company for breaches of
representations and warranties shall be limited to claims asserted during
such four-month period.
Prism has agreed that, until the closing of the Prism Acquisition, it
will, among other things: (i) conduct the operations of the Prism Stations in
the ordinary course of business, (ii) use all reasonable efforts to preserve
its present relationships with suppliers, advertisers, listeners and others
doing business with the Prism Stations, (iii) operate the Prism Stations in
accordance with all applicable FCC rules and regulations and (iv) make
certain promotional, advertising and research expenditures. Prism has also
agreed not to, other than in the ordinary course of business or after
receiving the Company's prior approval, sell or dispose of any assets used in
the operation of the Prism Stations. Prism may enter into or renew contracts
in the ordinary course of business, provided that, except with respect to
contracts for the sale of time for cash and trade agreements, the liability
under any such contract to be assumed
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by the Company at the closing of the Prism Acquisition shall not exceed
$50,000 without the prior approval of the Company, which approval may not be
unreasonably withheld. Prism has further agreed that, prior to the closing of
the Prism Acquisition, it will use its reasonable efforts to complete all of
its obligations under trade agreements.
The Prism Purchase Agreement provides that the Company may, at its
expense, cause an environmental audit of the real property included in the
assets to be sold by Prism to be conducted. If the environmental audit
discloses the presence of any hazardous substance on any such real property,
Prism is obligated to pay the first $350,000 of costs with respect to the
removal of such hazardous substance. If such costs will exceed $350,000, the
Company may elect to terminate the Prism Purchase Agreement unless Prism
notifies the Company that it will remove such hazardous substance at its own
expense.
The closing of the Prism Acquisition is subject to certain closing
conditions, including: (i) no suit, action, claim or governmental proceeding
shall be pending, and no order, decree or judgment of any court or
governmental authority, shall have been rendered against either the Company
or Prism which seeks to restrain or prohibit the transactions contemplated by
the Prism Purchase Agreement, (ii) all consents, approvals, authorizations or
requirements prescribed by the HSR Act shall have been obtained, (iii) the
receipt of FCC approval of the radio station ownership changes contemplated
by the transaction, (iv) the receipt of all required consents, waivers or
approvals of third parties to the Company's assumption of the contracts
included in the assets to be purchased by it, or Prism shall have made
alternative arrangements reasonably acceptable to the Company so as to ensure
that the Company shall enjoy all of the rights and privileges of Prism under
such contracts and (v) all representations and warranties of Prism contained
in the Prism Purchase Agreement shall be true and correct in all material
respects as of the closing of the transaction.
The Prism Purchase Agreement may be terminated by either party if the FCC
has not consented to the transfer of radio ownership contemplated by the
Agreement within nine months after the date an application requesting such
consent is filed with the FCC. However, neither party may terminate the Prism
Purchase Agreement for such reason if (a) such party is in breach of the
agreement in any material respect and such breach remains uncured after a
specified cure period or (b) a delay in the FCC's consent has been caused by
or materially contributed to by (i) the failure of such party to furnish
information within its control, (ii) the willful furnishing by such party of
incorrect, inaccurate or incomplete information to the FCC or (iii) any
action taken by such party for the purpose of delaying any decision by the
FCC regarding its consent. In addition, the Prism Purchase Agreement may be
terminated by either party if the other breaches the Agreement in any
material respect and fails to cure such breach within the specified cure
period. In the event that the agreement is terminated as a result of a
material breach by the Company of its obligations thereunder, the Company has
agreed to pay liquidated damages in the amount of $10.5 million. The Company
has deposited into escrow an irrevocable letter of credit in the amount of
$5.3 million to secure its performance under the Prism Purchase Agreement.
The Prism Acquisition is anticipated to close within 60 days of the
closing of the Financing. However, in the event that the FCC licenses for
WVEZ-FM, WWKY-AM and WTFX-FM, each operating in the Louisville, Kentucky
market (collectively, the "Louisville Stations"), have not been renewed by
the FCC at the closing date, the Company will purchase the assets of the
remaining Prism Stations for a purchase price of approximately $82.8 million.
Thereafter, the Company will purchase the Louisville Stations for a purchase
price of $22.5 million within five days after the FCC renews the licenses for
such stations.
Louisville Dispositions. In May 1996, the Company entered into an
agreement to sell WWKY-AM and WTFX-FM, both operating in Louisville,
Kentucky, for approximately $6.9 million and a separate agreement to sell
WVEZ-FM, also operating in Louisville, Kentucky, for approximately $12.6
million. Both agreements contain customary covenants and conditions and may
be terminated by either party not then in default if FCC consent is not
obtained within nine months after the date on which the FCC application is
filed.
MMR STATIONS
The Company has entered into an amended and restated agreement and plan of
merger dated as of April 15, 1996 (the "MMR Merger Agreement") with MMR and
SFX Merger Company, a direct
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wholly-owned subsidiary of the Company ("Acquisition Sub"), pursuant to which
Acquisition Sub has agreed to merge with and into MMR (the "MMR Merger" or
"MMR Acquisition"). The MMR Merger Agreement was reviewed and unanimously
recommended to both the Company and MMR by separate independent committees of
their respective Boards of Directors, which consisted of certain of the
companies' independent directors. These independent committees were each
advised by investment bankers (Furman Selz LLC for the Company and
Oppenheimer & Co., Inc. for MMR) and each has received the opinion of such
banker that the exchange ratio to be offered in the MMR Merger is fair, from
a financial point of view, to the stockholders of the respective companies
(other than Robert F.X. Sillerman and his affiliates). The MMR Merger
Agreement was subsequently approved by the Board of Directors of each of the
Company and MMR. Following completion of the MMR Merger, MMR will become a
wholly-owned subsidiary of the Company. The MMR 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 Internal Revenue Code of 1986, as amended (the "Code").
In a complaint 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, the Company and Robert F.X.
Sillerman seeking to enjoin the MMR Merger, or, in the alternative, seeking
monetary damages. The suit alleges that the consideration to be paid to the
MMR stockholders in the MMR Merger is unfair and grossly inadequate. The suit
also alleges that in connection with entering into the MMR Merger Agreement,
the directors of MMR violated their fiduciary duties to MMR and its
stockholders and that the Company aided and abetted such violation. The
plaintiff is seeking to have his suit certified as a class action
representing the interests of the stockholders of MMR. The Company believes
the suit to be without substantial merit and intends to vigorously defend the
action.
Upon consummation of the MMR Merger (the "Effective Time"), and subject to
certain conditions, the outstanding securities of MMR will, subject to FCC
approval and to applicable dissenters' rights, be converted into shares of
common stock of the Company, as follows: (i) the 3,216,500 shares of Class A
Common Stock of MMR and the 200,000 shares of Series B Convertible Preferred
Stock of MMR will be converted into that number of shares of Class A Common
Stock of the Company determined on the basis of the Exchange Ratio (as
defined below) and (ii) the 140,000 shares of Class B Common Stock of MMR,
the 360,000 shares of Class C Common Stock of MMR and 200,000 shares of
Preferred Stock of MMR will be converted into the number of shares of Class B
Common Stock of the Company determined on the basis of the Exchange Ratio. In
the event that the stockholders of MMR fail to approve amendments to the
certificate of incorporation of MMR necessary to permit different classes of
common stock of MMR to receive different consideration in connection with the
MMR Merger or the Nasdaq Stock Market, Inc. does not approve the issuance of
additional shares of Class B Common Stock by the Company, then each
outstanding share of capital stock of MMR will be converted at the Effective
Time into the number of shares of Class A Common Stock of the Company
determined on the basis of the Exchange Ratio. The Nasdaq Stock Market, Inc.
has preliminarily advised the Company that it will permit the Company to
issue shares of Class B Common Stock. In addition, the Company will seek the
approval of its stockholders to increase the number of its authorized shares
of Class A Common Stock and Class B Common Stock in order to be able to issue
shares of Common Stock to the holders of the MMR securities in connection
with the MMR Merger; in the event that such approval is not obtained, the
Company will not be able to consummate the MMR Merger.
For purposes of the MMR Merger Agreement, subject to adjustment as
described below, "Exchange Ratio" means the number of shares of Class A
Common Stock or Class B Common Stock of the Company, as the case may be, to
be issued in the MMR Merger equal to the quotient obtained by dividing $11.50
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 "Class A Common Stock Price" and the fifth trading day prior to the
Effective Time being hereinafter referred to as the "Determination Date"), on
the primary exchange on which the Class A Common Stock of the Company is
traded; provided, however, that (1) in the event that the Class A Common
Stock Price exceeds $42.00 but is equal to or less than $44.00, then the
Exchange Ratio shall be the quotient obtained by dividing (i) the sum of (A)
$11.50, plus (B) the product of (I) twenty-five percent (25%) multiplied by
(II) the difference between the Class A Common Stock Price and $42.00 by
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(ii) the Class A Common Stock Price, (2) in the event that the Class A Common
Stock Price exceeds $44.00, then the Exchange Ratio shall be the quotient
obtained by dividing (i) the sum of (A) $12.00, plus (B) the product of (I)
thirty percent (30%) multiplied by (II) the difference between the Class A
Common Stock Price and $44.00 by (ii) the Class A Common Stock Price, or (3)
in the event that the Class A Common Stock Price is less than $32.00 then the
Exchange Ratio shall be .3593, subject to possible increase at the option of
SFX as described below. For purposes of the MMR Merger Agreement, "Reported
Price" means, with respect to each trading day, the average of the last
reported bid and asked prices of the Class A Common Stock of the Company on
such trading day.
Upon the completion of the MMR Merger, each outstanding option (the "MMR
Options") or stock appreciation right (the "MMR SARs") issued pursuant to
MMR's stock option plans, whether vested or unvested, will be assumed by the
Company. Each MMR Option will be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such MMR Option,
the number of whole shares of Class A Common Stock of the Company equal to
the product of the number of shares of Class A Common Stock of MMR covered by
the option multiplied by the Exchange Ratio rounded up to the nearest whole
number at an exercise price equal to the quotient determined by dividing the
exercise price per share of Class A Common Stock of MMR specified for such
option by the Exchange Ratio rounded down to the nearest whole cent. Each
holder of a MMR SAR will be entitled to that number of stock appreciation
rights of the Company, determined in the same manner as set forth above with
respect to MMR Options assumed by the Company.
Upon the completion of the MMR Merger, each outstanding (i) Class A
Warrant (the "MMR Class A Warrants") and Class B Warrant (the "MMR Class B
Warrants") of MMR issued in connection with MMR's public offering in March
1994, (ii) option issued pursuant to the unit purchase options issued to the
underwriters of MMR's public offering in March 1994 (the "MMR UPOs"), (iii)
warrant issued to the underwriters of MMR's initial public offering in July
1993 (the "MMR IPO Warrants"), (iv) warrant issued to The Huff Alternative
Income Fund, L.P. (the "Huff Warrants") and (v) options issued to Robert F.X.
Sillerman outside MMR's Stock Option Plans (collectively, the "MMR
Warrants"), shall be assumed by the Company. Each holder of a MMR Warrant
will be entitled to that number of warrants of the Company, determined in the
same manner as set forth above with respect to MMR Options assumed by the
Company.
MMR has agreed that, until the completion of the MMR Merger, except as
contemplated in the MMR Merger Agreement or with the consent of the Company,
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 or (v) incur any indebtedness in excess of
$100,000. In addition, the Company has agreed that, until the completion of
the MMR Merger, except as contemplated in the MMR 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 and (iii) not amend, supplement or otherwise modify the Termination
and Assignment Agreement with SCMC. See "Certain Relationships and Related
Transactions."
The MMR Merger Agreement provides that MMR will not, nor will it authorize
or permit any of its officers, directors, employees, investment bankers,
financial advisors or attorney 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 (as defined below). The agreement provides that MMR shall advise
the Company of any such inquiry or proposal. As used in the MMR 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%
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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 of 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 Board of Directors of MMR, after consultation with legal counsel and
its investment banker, determines in good faith that such action is required
in order for the Board of Directors to comply with its fiduciary duties
imposed by the General Corporation Law of the State of Delaware and (b) prior
to furnishing such information to, or entering into discussions or
negotiations with, such person, MMR provides prompt notice to the Company 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.
Pursuant to the MMR Merger Agreement, each of the Company and MMR has
agreed to take such reasonable actions and to execute and deliver such
documents as may be necessary to complete the MMR 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 MMR Merger.
The MMR Merger Agreement provides that MMR shall, at the request of the
Company, use all commercially reasonable efforts to (i) commence an offer to
exchange shares of Class A Common Stock of MMR for all outstanding MMR Class
B Warrants, which offer shall not be greater than two-tenths share of Class A
Common Stock of MMR for each such MMR Class B Warrant and (ii) cooperate with
the Company in connection with the solicitation of the purchase of all of the
outstanding MMR UPOs and MMR IPO Warrants. In the event that MMR is
unsuccessful in obtaining the exchange of at least one-half of the
outstanding MMR Class B Warrants at the ratio set forth above on or prior to
the Determination Date, the Exchange Ratio set forth above shall be adjusted
downward to the extent necessary to reduce the total dollar value of the
Class A Common Stock and Class B Common Stock of the Company that would have
otherwise been received by security holders of MMR on the Effective Date by a
dollar amount equal to the product of $2.30 times the number of MMR Class B
Warrants outstanding immediately after such exchange in excess of such
number.
The closing of the MMR Merger Agreement is subject to certain conditions,
including: (i) the approval of the MMR Merger by the stockholders of the
Company and MMR, (ii) the number of shares of Class A Common Stock and Class
B Common Stock which the Company shall have authority to issue shall have
been increased, (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
MMR Merger illegal or otherwise prohibiting the consummation of the MMR
Merger, (iv) any applicable waiting period under the HSR Act relating to the
MMR Merger shall have expired or terminated, (v) the receipt of FCC approval
of the radio station ownership changes to result from the MMR Merger, (vi)
the Company and MMR shall each have received an opinion from tax counsel
that, among other things, the MMR 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 the holders of the Subordinated Debentures and
Senior Cumulative Preferred Stock of MMR) or governmental body required in
connection with the MMR Merger shall have been obtained. In addition, the
obligation of the Company to complete the MMR 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 Company shall have received the opinion of Furman Selz LLC
that the Exchange Ratio is fair, from a financial point of view, to the
stockholders of the Company (other than Mr. Sillerman and his affiliates) and
the obligation of MMR to complete the MMR 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 and MMR shall have received the opinion of Oppenheimer & Co., Inc.
that the Exchange Ratio is fair to MMR from a financial point of view.
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The MMR Merger Agreement may be terminated (i) by the mutual consent of
the Boards of Directors of the Company and MMR, (ii) by either party not then
in default under the 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 MMR Merger shall have been
satisfied except for certain conditions relating to the approval of the FCC),
(iii) by the Company if MMR shall have failed to recommend, withdraws or
materially modifies its recommendation of the MMR Merger in a manner adverse
to the Company 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 any person (other than the Company 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 the Company
or MMR if the stockholders of the other party shall have failed to approve
and adopt the MMR Merger Agreement and approve the MMR Merger, (v) by the
Company or MMR in the event of any breach of the MMR Merger Agreement by the
other party, unless such party is using its best efforts to cure such breach,
(vi) by the Company upon the revocation of the fairness opinion delivered to
it if such revocation was related to a material misstatement or omission
contained in information furnished by MMR and the Company has not solicited
such revocation, in the event that there shall have occurred 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 (a "Material Adverse Change") of MMR, or in the event
the fairness opinion is not reconfirmed at the time the proxy statement
relating to the meeting to approve the MMR Merger is first mailed to the
Company's stockholders, (vi) by MMR upon the revocation of the fairness
opinion delivered to it if such revocation was related to a material
misstatement or omission contained in information furnished by SFX and MMR
has not solicited such revocation, in the event that there shall have
occurred a Material Adverse Change of SFX, or in the event the fairness
opinion is not reconfirmed at the time the proxy statement relating to the
meeting to approve the MMR Merger is first mailed to MMR's stockholders,
(vii) by MMR if it accepts a Competing Transaction, (viii) by MMR in the
event that a binding, definitive agreement is not received by a certain date
with respect to the repayment of certain indebtedness and redemption of its
Senior Cumulative Preferred Stock and (ix) by MMR if SFX fails to recommend,
withdraws or materially changes its recommendation of the MMR Merger
Agreement in a manner adverse to MMR or if it shall have resolved to do so.
The MMR Merger Agreement further provides that it may be terminated and the
transactions contemplated thereby abandoned by MMR in the event that (i) the
Reported Price for the Class A Common Stock of SFX for any seven 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 $28.52 and (ii) MMR shall have delivered written
notice to the Company of its intention to terminate the MMR Merger Agreement
(the "Price Termination Notice") within 48 hours following the date on which
the Average Price is less than $28.52; provided, however, that the Company
shall have 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 the Company, upon the recommendation of the
Independent Committee of its Board of Directors, shall have 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 the Company 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 Common Stock Price equals or exceeds
$28.52, and (y) if the SFX Class A Common Stock Price is less than $28.52,
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 Common
Stock Price shall be an amount equal to $10.25 (such amount being referred to
as the "Minimum Per Share Amount").
MMR has agreed to pay to the Company a fee of $3.5 million (the "Alternate
Proposal Fee") in the event that (i) the MMR Merger Agreement is terminated
as a consequence of MMR having failed to
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recommend, withdrawing or materially modifying its recommendation of the MMR
Merger in a manner adverse to the Company 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 any person (other than the Company 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
(except in certain instances), or (ii) if the MMR Merger Agreement is
terminated as a result of stockholders of MMR having failed to approve the
MMR 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. The Company has agreed to pay to MMR a fee of $1.0
million in the event that the majority of the combined voting power of the
Company votes at the special meeting called to approve the MMR Merger but
shall have failed to vote in favor of the MMR Merger. 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 the Company a fee of
$1.0 million in the event that the majority of the combined voting power of
MMR votes at the special meeting called to approve the MMR Merger but shall
have failed to vote in favor of the MMR Merger.
On November 13, 1995, the Company and MMR entered into an exchange
agreement (the "Letter Agreement") pursuant to which MMR agreed to acquire
seven FM and four AM radio stations owned by Liberty and to assume a JSA from
Liberty with respect to one FM station following the Company's acquisition of
Liberty, in exchange for ten radio stations to be acquired by MMR. In
connection therewith, the Company has provided MMR $300,000 and letters of
credit in the aggregate amount of $6.75 million. Pursuant to the MMR Merger
Agreement, the Company and MMR canceled the Letter Agreement and MMR agreed
to use its commercially reasonable efforts to transfer to the Company its
rights under the following purchase agreements for the stations originally to
be acquired by MMR and exchanged with the Company. 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. 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 an
aggregate purchase price of approximately $32.0 million, subject to
adjustment based on the broadcast cash flow of WTRG-FM and WRDU-FM. The
Company and MMR have agreed that the Company will finance the purchase of
such stations and that MMR will transfer the purchased assets to the Company
simultaneously with the purchase of such stations. See "--Agreements for the
Additional Acquisitions" and "--Other."
In addition, the Company and MMR have agreed that following the Liberty
Acquisition, the Company and MMR will enter into an LMA or JSA pursuant to
which MMR will provide programming to and/or sell advertising on behalf of
the following stations to be acquired by the Company from Liberty: 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, WGNA-FM,
WGNA-AM, WPYX-FM, WTRY-AM and WYSR-FM, each operating in the Albany, New
York, and WMXB-FM, operating in Richmond, Virginia (collectively, the "MMR
Liberty Stations"). In connection with such LMA or JSA, MMR has agreed to pay
to the Company a monthly fee in an amount equal to the broadcast cash flow of
the MMR Liberty Stations. The LMA or JSA will terminate upon the completion
of the MMR Merger or, in certain circumstances, the date of termination of
the MMR Merger Agreement. In the event that the MMR Merger Agreement is
terminated, except in certain circumstances, MMR will have the right, subject
to FCC approval, to acquire the Company's interests in the MMR Liberty
Stations for $100.0 million, in which event the Company will be subject to a
substantial tax liability, or, in certain circumstances, to acquire the
Company's interests in the MMR Liberty Stations pursuant to an exchange of
stations intended to qualify
41
<PAGE>
as a like-kind exchange under Section 1031 of the Code. In addition, in the
event that the Company fails to complete the Liberty Acquisition and the MMR
Merger Agreement is terminated, except in certain circumstances, the Company
will pay liquidated damages to MMR in the amount of $3.5 million.
MMR Hartford Acquisition. On April 1, 1996, MMR entered into an agreement
to acquire substantially all of the assets of WKSS-FM, Hartford, Connecticut
for an aggregate purchase price of $18.0 million. MMR has deposited $1.8
million in escrow to secure its obligations under the agreement. The
agreement may be terminated by either party if the other party has not cured
a breach of the agreement within 30 days written notice or if FCC consent is
not obtained.
MMR Myrtle Beach Acquisition. On April 29, 1996, MMR entered into an
agreement to acquire WMYB-FM, Myrtle Beach, South Carolina, for $1.1 million.
The purchase agreement contains customary covenants and conditions. The
acquisition agreement may be terminated by either party if the FCC has not
approved the acquisition by April 29, 1997. The Company is currently
providing programming to the station pursuant to an LMA which will terminate
upon the acquisition of the station by the Company.
MMR Dispositions. In January 1996, MMR entered into a letter of intent to
sell KOLL-FM, Little Rock, Arkansas, to Triathlon for a purchase price of
$4.0 million, subject to adjustment downward to $3.5 million or upward to
$5.0 million based upon an independent third party valuation, of which MMR
has received a $3.5 million deposit. In March 1996, MMR entered into an
agreement to sell WRXR-FM and WKBG-FM, both operating in Augusta, Georgia,
for a purchase price of $5.0 million. MMR has entered into LMAs with respect
to WRXR-FM, WKBG-FM and KOLL-FM, pursuant to which the purchasers will
provide programming to such stations until the completion of such sales. The
closings of such transactions are subject to customary closing conditions,
including the receipt of FCC approval.
Augusta Stations. 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. MMR is currently providing
programming to the stations pursuant to an LMA. MMR has advised the Company
that it is currently negotiating the termination of such acquisition
agreement and LMA. In addition, MMR has advised the Company that it is
currently negotiating the termination of its JSA with WCHZ-FM, Augusta,
Georgia.
AGREEMENTS FOR THE ADDITIONAL ACQUISITIONS
WROQ-FM (Greenville, South Carolina). On January 22, 1996, MMR entered an
agreement to acquire substantially all of the assets of WROQ-FM for a
purchase price of $14.0 million. The Company, on behalf of MMR, has deposited
in escrow an irrevocable letter of credit in the amount of $3.0 million to
secure MMR's obligations under the agreement. The Company and MMR have agreed
that the Company will finance the purchase of such station and that MMR will
transfer the purchased assets to the Company simultaneously with the purchase
of such stations. The purchase agreement contains customary covenants with
respect to the operation of WROQ-FM until completion of the purchase and
cooperation in order to complete the purchase. The closing of the purchase is
subject to certain conditions, including the receipt of all necessary
third-party consents, including the approval of the FCC, and the absence of
any threatened or pending injunction or proceeding seeking to prohibit the
transaction. The purchase agreement may be terminated by mutual consent, by
either party not then in default, if the application for assignment is
designated for a hearing by the FCC or FCC approval for the transfer is not
obtained by January 22, 1998, by either party if the other party has not
cured a breach of the agreement within 30 days of written notice thereof, or
by either party if the closing shall not have occurred by January 21, 1998.
WSTZ-FM (Jackson, MS) and WZRX-AM (Jackson, MS). On January 26, 1996, MMR
entered into an agreement to acquire substantially all of the assets of
WSTZ-FM and WZRX-AM for a purchase price of $3.5 million. MMR has deposited
$300,000 in escrow to secure its obligations under the agreement, and may be
required to deposit an additional $200,000 in certain circumstances. The
Company and MMR have agreed that the Company will finance the purchase of
such stations and that MMR will transfer the purchased assets to the Company
simultaneously with the purchase of such stations. The
42
<PAGE>
purchase agreement contains customary covenants with respect to the operation
of the radio stations until completion of the purchase and cooperation in
order to complete the purchase. The closing of the purchase is subject to
certain conditions, including the receipt of all necessary third-party
consents, including the approval of the FCC. The purchase agreement may be
terminated by either party if the other party has not cured a breach of the
agreement or a breach of the LMA with respect to WSTZ-FM within 30 days of
written notice thereof, if the FCC denies the application to transfer the
license or does not approve such transfer prior to October 26, 1996 (which
shall be extended to January 26, 1997, if MMR can demonstrate that it is
diligently prosecuting the application), on January 26, 1997, if a judgment
or decree is then in effect which would make the acquisition unlawful, or by
MMR if, as a result of an audit to be conducted of the seller's financial
statements, MMR determines that the financial statements materially differ
from the financial statements provided by the seller to MMR, if normal
broadcast transmissions cease for certain periods of time and are not resumed
at the closing, if an environmental liability is discovered in excess of
$7,500 or the seller fails to replace or restore damaged or lost assets of
the stations having a value in excess of $75,000. In the event the purchase
does not occur as a result of a breach of the agreement by MMR, MMR shall be
required to pay liquidated damages of $500,000. The FCC granted the
application for consent to the acquisition by MMR of WSTZ-FM and WZRX-FM on
April 24, 1996.
WTRG-FM (Raleigh, NC), WRDU-FM (Raleigh, NC), WTCK-AM (Greensboro, NC),
WMFR-AM (Greensboro, NC) and WMAG-FM (Greensboro, NC). On January 18, 1996,
MMR entered into a purchase agreement to acquire substantially all of the
assets of WTRG-FM, WRDU-FM, WTCK-AM, WMFR-AM and WMAG-FM. The Company and MMR
have agreed that the Company will finance the purchase of such stations and
that MMR will transfer the purchased assets to the Company simultaneously
with the purchase of such stations. The purchase price for each of WTRG-FM
and WRDU-FM shall be an amount equal to 11 times the broadcast cash flow for
each of such stations for the 12-month period ending as of the month
immediately preceding the closing. The purchase price for WTCK-AM, WMFR-AM
and WMAG-FM shall be $6.0 million. The Company, on behalf of MMR, and the
seller have deposited irrevocable letters of credit in the amounts of $1.75
million and $500,000, respectively, in escrow accounts to secure their
obligations under such agreement. The purchase agreement contains customary
covenants with respect to the operation of the stations until completion of
the purchase and cooperation in order to complete the purchase. In connection
with the purchase agreement, each party has been granted the right to conduct
an environmental audit of the properties to be purchased, and if an
environmental liability greater than $50,000 is discovered, either party
shall have the right to terminate the agreement without liability. In the
event that an environmental liability of less than $50,000 is discovered, MMR
will have the right to take remedial action or reduce the purchase price by
such amount. The closing of the purchase is subject to certain conditions,
including the approval of the FCC, and the absence of any order, decree or
judgment which would make the closing of the purchase unlawful. The purchase
agreement may be terminated by either party not then in default if the FCC
denies the application to transfer the licenses or designates it for a
hearing, if the approval of the FCC is not received within 200 days after the
application is accepted for filing (the "Filing Date"), if the approval of
the FCC shall not have become "final" within 240 days of the Filing Date or
the closing shall not have been completed within 250 days of the Filing Date.
The maximum liability of the current owner of the stations for a breach under
the purchase agreement is limited to $500,000. In the event the purchase does
not occur as a result of a material breach of the agreement by MMR, MMR shall
be required to pay liquidated damages of $1.75 million. The FCC granted the
application for consent to the acquisition by MMR of WTRG-FM, WRDU-FM,
WTCK-AM, WMFR-AM and WTRG-FM on March 4, 1996.
WHSL-FM (Greensboro, NC). On January 18, 1996, the Company entered into an
agreement pursuant to which the Company was granted, in consideration of
$500,000, the right, at its option, to acquire all of the assets used in the
operation of WHSL-FM for $4.5 million in cash or, at the seller's option,
150,000 shares of Class A Common Stock. The option to purchase WHSL-FM will
expire on a date between July 1, 1996 and September 30, 1996, depending on
the date the station's FCC license application becomes final. The Company
intends to exercise its option to acquire WHSL-FM. The Company has agreed to
register such shares, in the event they are issued in payment of the purchase
price, at the request of the seller on two occasions and to grant to the
seller certain piggyback registration rights. The seller has agreed that,
until the
43
<PAGE>
closing of the sale of WHSL-FM, it will, among other things: (i) conduct the
business and operation of WHSL-FM in the ordinary course of business, (ii)
preserve the operation of the WHSL-FM and its relationships with customers,
suppliers and others having business relations with it, (iii) operate WHSL-FM
in accordance with FCC rules and regulations, (iv) minimize the amount of
liabilities incurred under contracts which are for consideration other than
cash, and (v) spend an aggregate of $200,000 for cash promotion, advertising
and research expenditures for the station for 1996. The seller has also
agreed that it will not, without the prior consent of the Company: (i) sell
or dispose of any assets used in the operation of WHSL-FM, other than in the
ordinary course of business,(ii) enter into any contract with respect to
WHSL-FM which includes an aggregate payment or commitment on the part of
either party thereto of more than $5,000 or (iii) grant or agree to grant any
increase in salaries or bonuses to employees of the station. The closing of
the purchase of WHSL-FM is subject to certain closing conditions, including:
(i) no suit, action, claim or governmental proceeding shall be pending, and
no order, decree or judgment of any court or governmental authority shall
have been rendered against either party to the agreement which would render
it unlawful to effect the transactions contemplated thereby, (ii) the waiting
period under the HSR Act shall have elapsed, (iii) the receipt of FCC
approval of the radio station ownership change contemplated by the
transaction, (iv) the receipt of all third-party consents to certain
contracts to be assumed by the Company and (v) all representations and
warranties contained in the agreement shall be true and complete in all
material respects as of the closing date. The maximum liability of the seller
for a breach under the purchase agreement is limited to $75,000. In the event
that the purchase does not occur as a result of a material breach of the
agreement by the Company, the Company shall be required to pay $225,000 in
liquidated damages.
WJDX-FM (Jackson, MS). On February 22, 1996, the Company exercised its
option to acquire all of the assets used in the operation of WJDX-FM,
Jackson, Mississippi, for a purchase price of $3.0 million pursuant to the
provisions of an option agreement dated as of December 15, 1993. The purchase
of WJDX-FM is subject to receipt of FCC approval.
The Additional Acquisitions are anticipated to close within 90 days after
the closing of the Financing.
Local Marketing and Joint Sales Agreements. On January 23, 1996, MMR
entered into an LMA with respect to WROQ-FM, Greenville, South Carolina,
pursuant to which MMR agreed to provide programming for broadcast on such
station. Pursuant to the LMA, MMR will retain all advertising and other
revenues, and all accounts receivable, relating to any programming provided
by MMR which is broadcast on the station during the term of the LMA. During
the term of the LMA, MMR shall pay to the current owner of the station a
monthly payment of between $50,000 and $100,000 and shall reimburse the
current owner for certain expenses and capital expenditures related to the
station and for capital expenditures reasonably necessary for the
continuation of the broadcast signal on the station. The LMA will terminate
upon the consummation of the acquisition of WROQ-FM by MMR, or upon the
termination of the purchase agreement related to WROQ-FM, and may be
terminated by the current owner of the station in the event that WROQ-FM's
market share of monthly gross billings for any consecutive three-month period
is 15% or more below the station's market share during the same three-month
period during the immediately preceding year or upon the occurrence of
certain other events of default. On February 1, 1996, MMR entered into a JSA
with the Company pursuant to which the Company was granted the exclusive
right to sell all available commercial advertising time on WROQ-FM to third
parties. During the term of the JSA, the Company shall pay to MMR a monthly
fee of between $84,000 and $134,000. The JSA between the Company and MMR
shall continue until the termination of the LMA with respect to WROQ-FM.
On February 1, 1996, MMR entered into an LMA with respect to WSTZ-FM,
Jackson, Mississippi, pursuant to which MMR agreed to provide programming for
broadcast on such station. Pursuant to the LMA, MMR may provide programming
to and sell all of the commercial time and retain all of the revenues from
such sales. During the term of the LMA, MMR shall pay to the current owner of
the station a monthly payment of $62,000, which amount may be increased as a
result of increased station operation costs. The LMA will terminate upon the
consummation of the acquisition of WSTZ-FM by MMR, a material breach by
either party or on January 31, 1997. A default under the LMA will constitute
a default under the purchase agreement relating to WSTZ-FM and WZRX-AM. On
February 1, 1996, MMR entered into a JSA with the Company, pursuant to which
the Company was granted the exclusive right to sell all
44
<PAGE>
available commercial advertising time on WSTZ-FM to third parties. During the
term of the JSA, the Company shall pay to MMR a monthly fee of $105,000. The
JSA between the Company and MMR shall continue until the termination of the
LMA with respect to WSTZ-FM.
On January 18, 1996, MMR entered into a JSA with respect to radio stations
WMFR-AM and WMAG-FM, both operating in the Raleigh, North Carolina market and
WTCK-AM (formerly, WWWB- AM), operating in the Greensboro, North Carolina
market, pursuant to which MMR acquired the exclusive right to sell all
available commercial advertising time on such stations to third parties. The
monthly payment to be paid pursuant to the JSA will be an amount equal to
certain expenses related to such stations. On January 22, 1996, MMR entered
into a JSA pursuant to which the Company was granted the exclusive right to
sell all available time on WMFR-AM, WMAG-FM and WTCK-AM to third parties.
During the term of the JSA, the Company shall pay to MMR a fee equal to MMR's
payments under its JSA with the seller of the stations. The JSA shall
terminate upon the consummation of the sale of the stations or upon a change
in the FCC laws governing attribution, in which event the JSA will terminate
and will be replaced by an LMA.
HOUSTON EXCHANGE
On May 1, 1996 the Company entered into an agreement to effect a
station-for-station exchange of radio station KRLD-AM, Dallas, Texas, and the
Texas State Networks, for radio station KKRW-FM, Houston, Texas. The
completion of the Houston Exchange is subject to certain customary closing
conditions, including the approval of the FCC and the receipt of all
approvals and authorizations under the HSR Act, and is contingent upon the
concurrent completion of the Dallas Disposition. In addition, the closing of
the Houston Exchange is subject to the approval of the Boards of Directors of
the seller and its parent company. There can be no assurance that the Company
will be able to effect the Houston Exchange on a substantially tax-free basis
pursuant to Section 1031 of the Code.
DALLAS DISPOSITION
On April 11, 1996, the Company entered into a non-binding letter of intent
to sell radio station KTCK-AM, Dallas, Texas, for a purchase price of $14.0
million. There can be no assurance that the Company will enter into a
definitive agreement with respect to such sale. In connection with the Dallas
Disposition, the Company expects to redeem the Series C Preferred Stock for
approximately $2.0 million and, if ratings continue at current levels, to
make a payment of approximately $2.5 million to the former owner of KTCK-AM.
The completion of the Dallas Disposition is subject to certain customary
closing conditions, including the approval of the FCC and the receipt of all
approvals and authorizations under the HSR Act, and is contingent upon the
concurrent completion of the Houston Exchange. The Company expects to enter
into an LMA pursuant to which the seller will be granted the right to provide
programming on KTCK-AM for a fee of between $80,000 and $100,000 per month.
OTHER
In addition, in connection with the Letter Agreement, 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. In addition, MMR agreed to enter into a
non-competition agreement at the closing with the president of the seller for
an aggregate consideration of $1.5 million payable in seven equal annual
amounts. The Company on behalf of MMR deposited in escrow an irrevocable
letter of credit in the amount of $2.0 million to secure its 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 puchase agreement on or before June
15, 1996. The Company has been advised by MMR that although MMR has not
elected to terminate the purchase agreement, it is unlikely that the purchase
agreement will be completed on the terms set forth therein, and that MMR may
attempt to negotiate a purchase agreement with the seller that reflects the
environmental contamination at the site. There can be no assurance that MMR
and the seller will be able to enter into an agreement with respect to the
purchase of such stations. See "-- MMR Stations."
45
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of the Company and predecessors
include the historical financial statements of Capstar Communications, Inc.
("Capstar") and the historical financial statements of the Company since its
formation on February 26, 1992. The Summary Consolidated Financial Data as of
March 31, 1996 and for the three months ended March 31, 1996 and 1995 have
been derived from the unaudited consolidated financial statements of the
Company included elsewhere herein. The pro forma summary
data as of March 31, 1996, and for the year ended December 31, 1995, and the
three months ended March 31, 1996 and 1995 are derived from the unaudited pro
forma condensed combined financial statements which, in the opinion of the
Company, reflect all adjustments necessary for a fair presentation of the
Transactions. Operating results for the three months ended March 31, 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 the Company are not comparable from year to year because of the
acquisition and disposition of various radio stations by the Company during
the periods covered. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
PRO FORMA
FOR THE
RECENT PRO FORMA
ACQUISITIONS FOR THE
AND THE RECENT
TRANSACTIONS ACQUISITIONS
OTHER THAN THE AND THE
MMR TRANSACTIONS
MERGER (7) (7)
1991 1992 1993 1994 1995 1995 1995
-------- -------- --------- ------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $13,442 $15,003 $ 34,233 $55,556 $76,830 $168,542 $191,508
Station operating expenses .............. 9,105 9,624 21,555 33,956 51,039 109,140 122,032
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 3,726 3,208 4,475 5,873 9,137 28,957 33,218
Corporate expenses ...................... 726 769 1,808 2,964 3,797 6,060 6,300
Corporate expenses -- non-recurring
charge(3) .............................. -- -- 13,980 -- -- -- --
Write down of broadcast rights agreement
and other .............................. -- -- -- -- 5,000 -- 281
-------- -------- --------- ------- -------- -------------- --------------
Operating income (loss) ................. (115) 1,402 (7,585) 12,763 7,857 24,385 29,677
Other (income) loss, net ................ (124) (17) 121 (650) (1,549) (1,549)
Interest expense, including amortization
of deferred financing costs ............ 4,241 3,610 7,351 9,332 12,903 50,175 50,175
-------- -------- --------- ------- -------- -------------- --------------
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) (24,241) (18,949)
Income tax expense ...................... -- -- 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) (24,241) (18,949)
Redeemable preferred stock dividends and
accretion(4) ........................... 302 385 557 348 291 8,741 8,741
-------- -------- --------- ------- -------- -------------- --------------
Net income (loss) applicable to common
stock .................................. $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(32,982) $(27,690)
======== ======== ========= ======= ======== ============== ==============
Net income (loss) per share ............. $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (4.42) $ (2.93)
======== ======== ========= ======= ======== ============== ==============
Weighted average common shares
outstanding ............................ 1,179 1,179 2,589 5,792 6,596 7,458 9,459
======== ======== ========= ======= ======== ============== ==============
Ratio of earnings to fixed charges (5) . -- -- -- 1.4x -- -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(5) ........................... -- -- -- 1.3x -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(6) .................. $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791 $ 59,402 $ 69,476
EBITDA(6) ............................... 3,611 4,610 10,870 18,636 21,994 53,342 63,176
(Table continued on following page)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------
PRO FORMA
FOR THE
RECENT PRO FORMA
ACQUISITIONS FOR THE
AND THE RECENT
TRANSACTIONS ACQUISITIONS
OTHER THAN THE AND THE
(UNAUDITED) (UNAUDITED) MMR MERGER (7) TRANSACTIONS (7)
--------- ------------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $13,717 $19,800 $ 35,191 $39,032 $ 40,167 $44,112
Station operating expenses .............. 9,676 14,056 27,186 25,901 30,311 28,803
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 1,697 2,299 7,093 6,981 8,188 7,941
Corporate expenses ...................... 807 1,210 1,423 1,759 1,483 1,819
Corporate expenses -- non-recurring
charge(3) .............................. -- -- -- -- -- --
Write down of broadcast rights agreement
and other .............................. -- -- (37) -- 43 65
--------- --------- --------- -------- --------- --------
Operating income (loss) ................. 1,537 2,235 (474) 4,391 142 5,484
Other (income) loss, net ................ 3 (164) (71) (475) (71) (475)
Interest expense, including amortization
of deferred financing costs ............ 2,432 3,384 12,544 12,544 12,544 12,544
--------- --------- --------- -------- --------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle .............................. (898) (985) (12,947) (7,678) (12,331) (6,585)
Income tax expense ...................... (377) -- -- -- -- --
Extraordinary loss on debt retirement .. -- -- -- -- -- --
Cumulative effect of a change in
accounting principle ................... -- -- -- -- -- --
--------- --------- --------- -------- --------- --------
Net income (loss) ....................... (521) (985) (12,947) (7,678) (12,331) (6,585)
Redeemable preferred stock dividends and
accretion(4) ........................... 71 136 2,184 2,249 2,184 2,249
--------- --------- --------- -------- --------- --------
Net income (loss) applicable to common
stock .................................. $ (592) $(1,121) $(15,131) $(9,927) $(14,515) $(8,834)
========= ========= ========= ======== ========= ========
Net income (loss) per share ............. $(0.10) $ (0.15) $ (2.03) $ (1.33) $ (1.53) $ (0.93)
========= ========= ========= ======== ========= ========
Weighted average common shares
outstanding ............................ 5,916 7,458 7,458 7,458 9,459 9,459
========= ========= ========= ======== ========= ========
Ratio of earnings to fixed charges (5) . -- -- -- -- -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(5) ........................... -- -- -- -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(6) .................. $4,041 $ 5,744 $ 8,005 $13,131 $ 9,856 $15,309
EBITDA(6) ............................... 3,234 4,534 6,582 11,372 8,373 13,490
(Table continued on following page)
46
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
DECEMBER 31,
-----------------------------------------------------
PRO FORMA FOR
THE PRO FORMA FOR
TRANSACTIONS THE
OTHER THAN THE TRANSACTIONS
1991 1992 1993 1994 1995 ACTUAL MMR MERGER (8) (8)
--------- --------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893 $ 3,349 $ 71,826 $ 20,259
Current assets ............. 3,065 4,515 31,273 28,367 32,505 22,750 117,316 64,216
Total assets ............... 37,367 36,127 152,871 145,808 187,337 202,852 692,250 783,810
Long-term debt ............. 38,828 39,011 81,627 81,516 81,850 98,500 450,000 450,000
Redeemable preferred stock:
Series A Preferred Stock . 2,839 3,892 917 -- -- -- -- --
Series B Preferred Stock . 133 -- 2,784 2,466 1,735 1,806 1,806 1,806
Series C Preferred Stock . -- -- -- -- 1,550 1,550 -- --
Series D Preferred Stock . -- -- -- -- -- -- 130,000 130,000
Stockholders' equity ....... (6,951) (9,411) 48,598 48,856 83,061 81,940 39,190 111,190
</TABLE>
- ------------
(1) Net revenues on a pro forma basis includes $3,584,000 and $2,645,000 of
fees from Triathlon for the year ended December 31, 1995 and three
months ended March 31, 1996, respectively, that would have been
received by the Company pursuant to the SCMC Termination Agreement.
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 and $277,000 of acquisition related costs during the
three months ended March 31, 1996.
(3) Represents the 1993 non-cash non-recurring charge related to the
valuation of the common stock issued to the Company's founders (the
"Founders' Stock") at the Company's initial public offering in
September 1993 (the "Initial Public Offering") and certain pooling
costs related to the merger of Capstar with and into a subsidiary of
the Company.
(4) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock and assumed
dividends on the Series D Preferred Stock.
(5) For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends and the ratio of earnings to
fixed charges, "earnings" consists of earnings before income taxes and
fixed charges. "Fixed charges and preferred stock dividends" consists
of interest on all indebtedness, amortization of deferred financing
costs and preferred stock dividends. "Fixed charges" consists of
interest on all indebtedness and amortization of deferred financing
costs. Earnings were insufficient to cover combined fixed charges and
preferred stock dividends by $1,121,000, $969,000, $4,687,000,
$15,476,000, $2,593,000 and $4,534,000 for the three months ended March
31, 1996 and 1995 and the years ended December 31, 1995, 1993, 1992 and
1991, respectively. Pro forma earnings for the three months ended March
31, 1996 and 1995 and the year ended December 31, 1995 would have been
insufficient to cover combined fixed charges and preferred stock
dividends by $9,927,000, $15,131,000 and $32,982,000, respectively, pro
forma for the Recent Acquisitions and the Transactions other than the
MMR Merger, and $8,834,000, $14,515,000 and $27,690,000, respectively,
pro forma for the Recent Acquisitions and the Transactions. Earnings
were insufficient to cover fixed charges by $985,000, $898,000,
$4,396,000, $14,919,000, $2,208,000 and $4,232,000 during the three
months ended March 31, 1996 and 1995 and the years ended December 31,
1995, 1993, 1992 and 1991, respectively. Pro forma earnings for the
three months ended March 31, 1996 and 1995 and the year ended December
31, 1995 would have been insufficient to cover fixed charges by
$7,678,000, $12,947,000 and $24,241,000, respectively, pro forma for
the Recent Acquisitions and the Transactions other than the MMR Merger
and $6,585,000, $12,331,000 and $18,949,000, respectively, pro forma
for the Recent Acquisitions and the Transactions.
For the year ended December 31, 1995, Broadcast Cash Flow exceeded
fixed charges and preferred stock dividends by $12,597,000 for the
Company, $486,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger, and $10,560,000 pro forma for
the Recent Acquisitions and the Transactions. For the three months
ended March 31, 1996, Broadcast Cash Flow exceeded fixed charges and
preferred stock dividends by $2,224,000 for the Company, and had a
deficiency of $1,662,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger and exceeded by $516,000 for the
Recent Acquisitions and the Transactions.
(6) Broadcast Cash Flow is defined as net revenues (including where
applicable, fees earned by the Company pursuant to the SCMC Termination
Agreement) less station operating expenses. 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 related to
the write-down of the Texas Rangers broadcast rights and the valuation
charge related to the Founders' Stock. 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, the Company 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 the Company'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 the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
(7) The Unaudited Pro Forma Statement of Operations Data for the three
months ended March 31, 1996 and the year ended December 31, 1995 are
presented as if the Company had completed the Recent Acquisitions and
the Transactions as of January 1, 1995.
(8) The Unaudited Pro Forma Balance Sheet Data at March 31, 1996 is
presented as if the Company had completed the Transactions as of
March 31, 1996.
47
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
The supplemental financial data is presented utilizing the historical
financial statements of the Company and the financial statements of the
Company on a pro forma basis after giving effect to (i) the Recent
Acquisitions and the Transactions other than the MMR Merger and (ii) the
Recent Acquisitions and the Transactions.
The supplemental financial data for the latest twelve months ended March
31, 1996 is a compilation of the Company's financial data for the year ended
December 31, 1995 plus the Company's financial data for the three months
ended March 31, 1996 minus the Company's financial data for the three months
ended March 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 LATEST TWELVE MONTHS ENDED MARCH 31, 1996
---------------------------------------------- ----------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
PRO FORMA PRO FORMA
RECENT RECENT
ACQUISITIONS PRO FORMA FOR ACQUISITIONS PRO FORMA FOR
AND THE RECENT AND THE RECENT
SFX TRANSACTIONS ACQUISITIONS SFX TRANSACTIONS ACQUISITIONS
BROADCASTING OTHER THAN THE AND THE BROADCASTING OTHER THAN THE AND THE
INC. MMR MERGER TRANSACTIONS INC. MMR MERGER TRANSACTIONS
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues(1) ............ $76,830 $168,542 $191,508 $82,913 $170,363 $193,433
Station operating expenses 51,039 109,140 122,032 55,419 107,855 120,524
-------------- -------------- -------------- -------------- -------------- --------------
Broadcast Cash Flow(2) .... 25,791 59,402 69,476 27,494 62,508 72,909
Corporate expenses ......... 3,797 6,060 6,300 4,200 6,396 6,636
-------------- -------------- -------------- -------------- -------------- --------------
EBITDA(2) .................. $21,994 $ 53,342 $ 63,176 $23,294 $ 56,112 $ 66,273
============== ============== ============== ============== ============== ==============
Cash and cash equivalents . $11,893 $ 76,293 $ 11,393 $ 3,349 $ 71,826 $ 20,259
Long-term debt ............. 98,500(3) 450,000 450,000 98,500(3) 450,000 450,000
Interest expense ........... 12,903 50,175 50,175 13,855 50,175 50,175
Cash interest expense ..... 12,903 48,375 48,375 5,404 48,375 48,375
</TABLE>
- ------------
(1) Net revenues on a pro forma basis include $3,584,000 of fees from
Triathlon that would have been received by the Company pursuant to the
SCMC Termination Agreement. Future fees may be lesser or greater based
upon future acquisition and financing activities of Triathlon. The pro
forma net revenues for the latest twelve months ended March 31, 1996
have been reduced by $2,020,000 to reflect actual fees that would have
been earned under the SCMC Termination Agreement (as defined herein)
during such period.
(2) Broadcast Cash Flow is defined as net revenues (including where
applicable, fees earned by the Company pursuant to the SCMC Termination
Agreement) less station operating expenses. 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 related to
the write-down of the Texas Rangers broadcast rights and the valuation
charge related to the Founders' Stock. 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, the Company 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 the Company'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 the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
(3) Includes $80,000,000 of Old Notes and $18,500,000 of debt incurred in
connection with the Charlotte Acquisition.
48
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Selected Consolidated Financial Data of the Company and predecessors
include the historical financial statements of Capstar and the historical
financial statements of the Company since its formation on February 26, 1992.
The Selected Consolidated Financial Data as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995 have been derived from the audited
consolidated financial statements of the Company included elsewhere herein.
The pro forma summary data as of March 31, 1996, and for the year ended December
31, 1995, and the three months ended March 31, 1996 and 1995 are derived from
the unaudited pro forma condensed combined financial statements which, in the
opinion of the Company, reflect all adjustments necessary for a fair
presentation of the Transactions. Operating results for the three months ended
March 31, 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 the Company are not comparable from year to
year because of the acquisition and disposition of various radio stations by the
Company during the periods covered. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
PRO FORMA
FOR THE
RECENT PRO FORMA
ACQUISITIONS FOR THE
AND THE RECENT
TRANSACTIONS ACQUISITIONS
OTHER THAN THE AND THE
MMR TRANSACTIONS
MERGER (7) (7)
1991 1992 1993 1994 1995 1995 1995
-------- -------- --------- ------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $13,442 $15,003 $ 34,233 $55,556 $76,830 $168,542 $191,508
Station operating expenses .............. 9,105 9,624 21,555 33,956 51,039 109,140 122,032
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 3,726 3,208 4,475 5,873 9,137 28,957 33,218
Corporate expenses ...................... 726 769 1,808 2,964 3,797 6,060 6,300
Corporate expenses -- non-recurring
charge(3) .............................. -- -- 13,980 -- -- -- --
Write down of broadcast rights agreement
and other .............................. -- -- -- -- 5,000 -- 281
-------- -------- --------- ------- -------- -------------- --------------
Operating income (loss) ................. (115) 1,402 (7,585) 12,763 7,857 24,385 29,677
Other (income) loss, net ................ (124) (17) 121 (650) (1,549) (1,549)
Interest expense, including amortization
of deferred financing costs ............ 4,241 3,610 7,351 9,332 12,903 50,175 50,175
-------- -------- --------- ------- -------- -------------- --------------
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) (24,241) (18,949)
Income tax expense ...................... -- -- 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) (24,241) (18,949)
Redeemable preferred stock dividends and
accretion(4) ........................... 302 385 557 348 291 8,741 8,741
-------- -------- --------- ------- -------- -------------- --------------
Net income (loss) applicable to common
stock .................................. $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(32,982) $(27,690)
======== ======== ========= ======= ======== ============== ==============
Net income (loss) per share ............. $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (4.42) $ (2.93)
======== ======== ========= ======= ======== ============== ==============
Weighted average common shares
outstanding ............................ 1,179 1,179 2,589 5,792 6,596 7,458 9,459
======== ======== ========= ======= ======== ============== ==============
Ratio of earnings to fixed charges (5) . -- -- -- 1.4x -- -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(5) ........................... -- -- -- 1.3x -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(6) .................. $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791 $ 59,402 $ 69,476
EBITDA(6) ............................... 3,611 4,610 10,870 18,636 21,994 53,342 63,176
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------- ----------------------------------------------------------
PRO FORMA
FOR THE
RECENT PRO FORMA
ACQUISITIONS FOR THE
AND THE RECENT
TRANSACTIONS ACQUISITIONS
OTHER THAN THE AND THE
(UNAUDITED) (UNAUDITED) MMR MERGER (7) TRANSACTIONS (7)
--------- ---------- ------------------- -------------------
1995 1996 1995 1996 1995 1996
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $13,717 $19,800 $35,191 $39,032 $40,167 $44,112
Station operating expenses .............. 9,676 14,056 27,186 25,901 30,311 28,803
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 1,697 2,299 7,093 6,981 8,188 7,941
Corporate expenses ...................... 807 1,210 1,423 1,759 1,483 1,819
Corporate expenses -- non-recurring
charge(3) .............................. -- -- -- -- -- --
Write down of broadcast rights agreement
and other .............................. -- -- (37) -- 43 65
--------- --------- --------- -------- --------- --------
Operating income (loss) ................. 1,537 2,235 (474) 4,391 142 5,484
Other (income) loss, net ................ 3 (164) (71) (475) (71) (475)
Interest expense, including amortization
of deferred financing costs ............ 2,432 3,384 12,544 12,544 12,544 12,544
--------- --------- --------- -------- --------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle .............................. (898) (985) (12,947) (7,678) (12,331) (6,585)
Income tax expense ...................... (377) -- -- -- -- --
Extraordinary loss on debt retirement .. -- -- -- -- -- --
Cumulative effect of a change in
accounting principle ................... -- -- -- -- -- --
Net income (loss) ....................... (521) (985) (12,947) (7,678) (12,331) (6,585)
Redeemable preferred stock dividends and
accretion(4) ........................... 71 136 2,184 2,249 2,184 2,249
--------- --------- --------- -------- --------- --------
Net income (loss) applicable to common
stock .................................. $ (592) $(1,121) $(15,131) $(9,927) $(14,515) $(8,834)
========= ========= ========= ======== ========= ========
Net income (loss) per share ............. $ (0.10) $ (0.15) $ (2.03) $ (1.33) $ (1.53) $ (0.93)
========= ========= ========= ======== ========= ========
Weighted average common shares
outstanding ............................ 5,916 7,458 7,458 7,458 9,459 9,459
========= ========= ========= ======== ========= ========
Ratio of earnings to fixed charges (5) . -- -- -- -- -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(5) ........................... -- -- -- -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(6) .................. $4,041 $5,744 $8,005 $13,131 $ 9,856 15,309
EBITDA(6) ............................... 3,234 4,534 6,582 11,372 8,373 13,490
</TABLE>
(Table continued on following page)
49
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
----------------------------------------------------- -----------------------------------------
PRO FORMA FOR
THE PRO FORMA FOR
TRANSACTIONS THE
OTHER THAN THE TRANSACTIONS
1991 1992 1993 1994 1995 ACTUAL MMR MERGER (8) (8)
--------- --------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893 $ 3,349 $ 71,826 $ 20,259
Current assets ............. 3,065 4,515 31,273 28,367 32,505 22,750 117,316 64,216
Total assets ............... 37,367 36,127 152,871 145,808 187,337 202,852 692,250 783,810
Long-term debt ............. 38,828 39,011 81,627 81,516 81,850 98,500 450,000 450,000
Redeemable preferred stock:
Series A Preferred Stock . 2,839 3,892 917 -- -- -- -- --
Series B Preferred Stock . 133 -- 2,784 2,466 1,735 1,806 1,806 1,806
Series C Preferred Stock . -- -- -- -- 1,550 1,550 -- --
Series D Preferred Stock . -- -- -- -- -- -- 130,000 130,000
Stockholders' equity ....... (6,951) (9,411) 48,598 48,856 83,061 81,940 39,190 111,190
</TABLE>
- ---------------
(1) Net revenues on a pro forma basis includes $3,584,000 and $2,645,000 of
fees from Triathlon for the year ended December 31, 1995 and three
months ended March 31, 1996, respectively, that would have been
received by the Company pursuant to the SCMC Termination Agreement.
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 and $277,000 of acquisition related costs during the
three months ended March 31, 1996.
(3) Represents the 1993 non-cash non-recurring charge related to the
valuation of the common stock issued to the Company's founders (the
"Founders' Stock") at the Company's initial public offering in
September 1993 (the "Initial Public Offering") and certain pooling
costs related to the merger of Capstar with and into a subsidiary of
the Company.
(4) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock and assumed
dividends on the Series D Preferred Stock.
(5) For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends and the ratio of earnings to
fixed charges, "earnings" consists of earnings before income taxes and
fixed charges. "Fixed charges and preferred stock dividends" consists
of interest on all indebtedness, amortization of deferred financing
costs and preferred stock dividends. "Fixed charges" consists of
interest on all indebtedness and amortization of deferred financing
costs. Earnings were insufficient to cover combined fixed charges and
preferred stock dividends by $1,121,000, $969,000, $4,687,000,
$15,476,000, $2,593,000 and $4,534,000 for the three months ended March
31, 1996 and 1995 and the years ended December 31, 1995, 1993, 1992 and
1991, respectively. Pro forma earnings for the three months ended March
31, 1996 and 1995 and the year ended December 31, 1995 would have been
insufficient to cover combined fixed charges and preferred stock
dividends by $9,927,000, $15,131,000 and $32,982,000, respectively, pro
forma for the Recent Acquisitions and the Transactions other than the
MMR Merger, and $8,834,000, $14,515,000 and $27,690,000, respectively,
pro forma for the Recent Acquisitions and the Transactions. Earnings
were insufficient to cover fixed charges by $985,000, $898,000,
$4,396,000, $14,919,000, $2,208,000 and $4,232,000 during the three
months ended March 31, 1996 and 1995 and the years ended December 31,
1995, 1993, 1992 and 1991, respectively. Pro forma earnings for the
three months ended March 31, 1996 and 1995 and the year ended December
31, 1995 would have been insufficient to cover fixed charges by
$7,678,000, $12,947,000 and $24,241,000, respectively, pro forma for
the Recent Acquisitions and the Transactions other than the MMR Merger
and $6,585,000, $12,331,000 and $18,949,000, respectively, pro forma
for the Recent Acquisitions and the Transactions.
For the year ended December 31, 1995, Broadcast Cash Flow exceeded
fixed charges and preferred stock dividends by $12,597,000 for the
Company, $486,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger, and $10,560,000 pro forma for
the Recent Acquisitions and the Transactions. For the three months
ended March 31, 1996, Broadcast Cash Flow exceeded fixed charges and
preferred stock dividends by $2,224,000 for the Company, and had a
deficiency of $1,662,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger and exceeded by $516,000 for the
Recent Acquisitions and the Transactions.
(6) Broadcast Cash Flow is defined as net revenues (including where
applicable, fees earned by the Company pursuant to the SCMC Termination
Agreement) less station operating expenses. 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 related to
the write-down of the Texas Rangers broadcast rights and the valuation
charge related to the Founders' Stock. 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, the Company 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 the Company'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 the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
(7) The Unaudited Pro Forma Statement of Operations Data for the three
months ended March 31, 1996 and the year ended December 31, 1995 are
presented as if the Company had completed the Recent Acquisitions and
the Transactions as of January 1, 1995.
(8) The Unaudited Pro Forma Balance Sheet Data at March 31, 1996 is
presented as if the Company had completed the Transactions as of March
31, 1996.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet at March 31, 1996
and the Unaudited Pro Forma Condensed Combined Statement of Operations for
the three months ended March 31, 1996 are presented as if the Company had
completed (i) the Acquisitions, (ii) the Dispositions, (iii) the Financing,
(iv) the Tender Offer (assuming that all the Old Notes are tendered), (v) the
implementation of the Hicks Agreement and the Armstrong Agreement, (vi) the
repayment of the Old Credit Agreement and (vii) the implementation of the
SCMC Termination Agreement as of March 31, 1996 and January 1, 1995,
respectively. No adjustment has been made to the Unaudited Pro Forma
Condensed Combined Balance Sheet for the Houston Exchange as it will be
recorded at a carryover basis. The MMR Myrtle Beach Acquisition has not been
reflected in the Unaudited Pro Forma Condensed Combined Statement of
Operations as it would have no material impact.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1995 and three months ended March 31, 1995 is
presented as if the Company had completed (i) the Recent Acquisitions, (ii)
the Acquisitions, (iii) the Dispositions, (iv) the Financing, (v) the Tender
Offer (assuming that all the Old Notes are tendered), (vi) the implementation
of the Hicks Agreement and the Armstrong Agreement, (vii) the repayment of
the Old Credit Agreement and (viii) the implementation of the SCMC
Termination Agreement as of January 1, 1995. The MMR Myrtle Beach Acquisition
has 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 appearing elsewhere herein.
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 the Company's future results if
the aforementioned transactions are completed. The Company 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 the Company will be able to achieve
such savings. Such data also assume that the proceeds of the Dispositions
will be available to the Company to consummate the Acquisitions, although the
Dispositions are expected to occur at a later date. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
51
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY PRISM
SFX ACQUISITION ACQUISITION
BROADCASTING, INCLUDING INCLUDING
INC. WASHINGTON LOUISVILLE ADDITIONAL
AS REPORTED DISPOSITIONS(1) DISPOSITIONS(2) ACQUISITIONS(3)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ............. $ 22,750 $ 14,851 $ 7,230 $ 5,817
Property and equipment, net 18,157 14,365 7,797 8,524
Intangible assets, net .... 154,256 108,799 14,281 27,080
Other assets ............... 7,689 -- -- --
------------- ------------- ------------- -------------
Total assets ............... $202,852 $138,015 $29,308 $41,421
============= ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........ $ 9,549 $ 7,460 $ 5,404 $ 2,846
Other liabilities .......... 2,092 1,101 -- --
Long-term debt:
New Credit Agreement .... -- -- -- --
Note Offering ............ -- -- -- --
Old Notes and Old
Credit Agreement ........ 98,500
Acquired company debt ... 70,140 13,319 11,570
Deferred taxes ............. 7,415 10,318 -- 783
Redeemable preferred stock:
Series B Preferred Stock 1,806 -- -- --
Series C Preferred Stock 1,550 -- -- --
Series D Preferred Stock -- -- -- --
Stockholders' equity ....... 81,940 48,996 10,585 26,222
- --------------------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity ...... $202,852 $138,015 $29,308 $41,421
============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS
OTHER OTHER THAN PRO FORMA
ACQUISITIONS/ PRO FORMA THE MMR MMR FOR THE
DISPOSITIONS(4) FINANCING(5) ADJUSTMENTS(6) MERGER MERGER(7) TRANSACTIONS
------------- ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ............. $10,575 $122,000 (a) $ (19,500)(a) $117,316 $(53,100) $64,216
450,000 (b) (211,000)(b)
(18,000)(c) (85,750)(c)
(107,823)(d) (63,500)(d)
(8,334)(e)
(2,000)(g)
Property and equipment, net (1,228) -- 47,615 2,619 50,234
Intangible assets, net .... (9,117) 18,000 (c) 124,016 (b) 518,465 140,115 658,580
(5,705)(d) 56,442 (c)
22,079 (d)
8,334 (e)
Other assets ............... -- -- 3,415 (f) 8,854 1,926 10,780
(2,250)(a)
------------- ------------ ------------ ------------ --------- ------------
Total assets ............... $ 230 $458,472 $(178,048) $ 692,250 $91,560 $783,810
============= ============ ============ ============ ========= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........ -- (283)(d) $ (5,404)(c) $17,476 $3,127 $20,603
(2,846)(d)
750 (a)
Other liabilities .......... -- -- 700 (a) 3,893 3,621 7,514
Long-term debt:
New Credit Agreement .... -- -- -- -- -- --
Note Offering ............ -- 450,000 (b) -- 450,000 -- 450,000
Old Notes and Old
Credit Agreement ........ (98,500)(d) -- -- -- --
Acquired company debt ... -- -- (70,140)(b) -- -- --
(13,319)(c)
(11,570)(d)
Deferred taxes ............. -- -- 32,152 (b) 49,885 12,812 62,697
(783)(d)
Redeemable preferred stock:
Series B Preferred Stock -- -- -- 1,806 -- 1,806
Series C Preferred Stock -- -- (1,550)(g) -- -- --
Series D Preferred Stock -- 130,000 (a) -- 130,000 -- 130,000
Stockholders' equity ....... 230 (14,745)(d) (26,222)(d) 39,190 72,000 111,190
(8,000)(a) (48,996)(b)
(10,585)(c)
(23,200)(a)
3,415 (f)
(450)(g)
------------- ------------ ------------ ------------ --------- ------------
Total liabilities and
stockholders' equity ...... $ 230 $458,472 $(178,048) $ 692,250 $91,560 $783,810
============= ============ ============ ============ ========= ============
</TABLE>
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Liberty Acquisition
Reflects the Liberty Acquisition for $236.0 million adjusted for the
Washington Dispositions of $25.0 million. No gain or loss will be recognized
in connection with the Washington Dispositions.
<TABLE>
<CAPTION>
LIBERTY AS WASHINGTON LIBERTY AS
REPORTED DISPOSITIONS ADJUSTED
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................. $ 14,851 $ -- $ 14,851
Property and equipment, net ................ 15,765 (1,400) 14,365
Intangible assets, net ..................... 132,399 (23,600) 108,799
------------- -------------- -------------
Total assets .............................. $163,015 $(25,000) $138,015
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 9,135 $ (1,675) $ 7,460
Other liabilities .......................... 1,101 -- 1,101
Long-term debt ............................. 70,140 -- 70,140
Deferred taxes ............................. 10,318 -- 10,318
Stockholders' equity ....................... 72,321 (23,325) 48,996
------------- -------------- -------------
Total liabilities and stockholders' equity $163,015 $(25,000) $138,015
============= ============== =============
</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 AS
REPORTED DISPOSITIONS ADJUSTED
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................. $ 7,230 $ -- $ 7,230
Property and equipment, net ................ 9,206 (1,409) 7,797
Intangible assets, net ..................... 32,372 (18,091) 14,281
------------- -------------- -------------
Total assets .............................. $48,808 $(19,500) $29,308
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 5,404 -- $ 5,404
Long-term debt ............................. 13,319 -- 13,319
Stockholders' equity ....................... 30,085 (19,500) 10,585
------------- -------------- -------------
Total liabilities and stockholders' equity $48,808 $(19,500) $29,308
============= ============== =============
</TABLE>
54
<PAGE>
(3) Additional Acquisitions
Reflects the acquisition of radio stations (i) WRDU-FM, WTRG-FM, WMAG-FM,
WMFR-AM, WTCK-AM and WHSL-FM from HMW Communications, Inc. (the
"Raleigh-Greensboro Acquisitions") for a purchase price of approximately
$43.0 million (the WTRG-FM/WRDU-FM stations in Raleigh, North Carolina
purchase price of $32.0 million is based on a multiple of 11 times broadcast
cash flow of $2.9 million), (ii) WROQ-FM from ABS Greenville Partners, L.P.
(the "Greenville Acquisition") of approximately $14.0 million and (iii)
WSTZ-FM and WZRX-AM from Lewis Broadcasting, Inc., and WJDX-FM from Spur
Jackson, L.P. (the "Jackson Acquisitions") for a purchase price of $6.5
million. The aggregate purchase price is $63.5 million.
<TABLE>
<CAPTION>
RALEIGH- THE ADDITIONAL
GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................ $ 5,325 $ 146 $ 346 $ 5,817
Property and equipment, net ............... 7,762 350 412 8,524
Intangible assets, net .................... 21,694 1,607 3,779 27,080
-------------- ------------- -------------- --------------
Total assets ............................. $34,781 $ 2,103 $4,537 $41,421
============== ============= ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ....................... $ 2,278 $ 506 $ 62 $ 2,846
Long-term debt ............................ 51 11,519 -- 11,570
Deferred taxes ............................ 783 -- -- 783
Stockholders' equity ...................... 31,669 (9,922) 4,475 26,222
-------------- ------------- -------------- --------------
Total liabilities and stockholders'
equity ................................... $34,781 $ 2,103 $4,537 $41,421
============== ============= ============== ==============
</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 the Company. 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 6(g) for the
effect of the related redemption of the Company's Series C Preferred Stock.
<TABLE>
<CAPTION>
SALE PROCEEDS KTCK-AM ADJUSTMENT
--------------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets .............................. $11,500 $ 925 $10,575
Property and equipment, net ................. -- 1,228 (1,228)
Intangible assets, net ...................... -- 9,117 (9,117)
--------------- --------- ------------
Total assets ............................... $11,500 $11,270 $ 230
=============== ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ -- $ -- $ --
Long-term liabilities ....................... -- -- --
Stockholders' equity ........................ 11,500 11,270 230
--------------- --------- ------------
Total liabilities and stockholders' equity $11,500 $11,270 $ 230
=============== ========= ============
</TABLE>
55
<PAGE>
(5) Financing
(a) To reflect the Preferred Stock Offering for $130,000,000 and the
costs related to its issuance of $8,000,000, a net of
$122,000,000.
(b) To reflect the $450,000,000 of gross proceeds from the Note
Offering.
(c) Represents financing costs related to the New Credit Agreement
and the Note Offering comprised of estimated (i) fees relating to
the Note Offering of $12,645,000, (ii) fees for the New Credit
Agreement of $3,000,000 and (iii) other fees of $2,355,000.
(d) To repurchase the Old Notes for an aggregate price of $89,040,000
which includes their carrying cost of $80,000,000 and estimated
costs related to the Tender Offer and the Consent Solicitation of
$9,040,000. Also reflects the redemption of $18,500,000 of
long-term debt plus accrued interest of $283,000 associated with
the Old Credit Agreement which was used to finance the Company's
Charlotte Acquisition in February 1996. An extraordinary loss
aggregating approximately $14,745,000 will be recognized at the
time these transactions are consummated consisting of $9,040,000
in costs associated with the Tender Offer and the Consent
Solicitation and $5,705,000 related to the write-off of deferred
financing costs.
(6) Pro Forma Adjustments
(a) The Company has allocated approximately $19.5 million of the
proceeds of the Financing to make payments to Mr. Hicks pursuant
to the Hicks Agreement (as defined herein) and to Mr. Armstrong
pursuant to the Armstrong Agreement (as defined herein) as follows:
(i) $1.8 million in consideration of Mr. Hicks' having agreed to
terminate his employment arrangement with the Company upon
completion of the MMR Merger, (ii) approximately $12.6 million to
purchase 68,874 of the shares of Class B Common Stock owned by Mr.
Hicks plus his options or rights to acquire options to purchase an
aggregate of 410,000 shares of Class A Common Stock, (iii) $500,000
in connection with the non-competition and non-solicitation
provision in the Hicks Agreement and (iv) $4.6 million to Mr.
Armstrong in consideration of his waiver of the "Change of Control"
provision in his employment agreement and to purchase his options or
rights to acquire options to purchase 200,000 shares of Class A
Common Stock. In addition, the Hicks Agreement provides that the
Company will forgive its loan to him in the approximate amount of
$2,250,000, including accrued but unpaid interest, and pay him
consulting fees of $750,000 over five years. The Hicks Agreement
also provides that the Company will repurchase Mr. Hicks'
remaining shares of the Company's common stock at his option at
any time prior to the fifth anniversary of the MMR Merger at a
price equal to the greater of $40.00 per share or the then
current market price. In connection with the Hicks Agreement and
the Armstrong Agreement, the Company will record a nonrecurring
charge to earnings of approximately $20,900,000 in the second
quarter of 1996. See "Management -- Employment Agreements" and
"Certain Relationships and Related Transactions."
(b) To reflect the Liberty Acquisition for $236,000,000 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 $124,016,000 and deferred taxes of
$32,152,000 and the adjustments to remove the long-term debt of
$70,140,000 which is not being assumed, and the stockholders'
equity of $48,996,000 of the Liberty Acquisition.
(c) To reflect the Prism Acquisition for $105,250,000, net of
proceeds to be received from the Louisville Dispositions of
$19,500,000, the recording of the related excess of the purchase
price paid over the net book value of the assets carried on the
balance sheet of $56,442,000 and the adjustments to remove the
current liabilities of $5,404,000, long-term debt of $13,319,000
and stockholders' equity of $10,585,000 of Prism.
(d) To reflect the $63,500,000 aggregate purchase price to be paid
for the Additional Acquisitions, the recording of the related
excess of the purchase price paid over the net book value of the
assets carried on the balance sheets of $22,079,000 and the
adjustments to remove current liabilities of $2,846,000,
long-term debt of $11,570,000, deferred taxes of $783,000 and
stockholders' equity of $26,222,000 of the Additional
Acquisitions.
(e) To reflect acquisition costs related to the Liberty, the Prism
Acquisition and the Additional Acquisitions.
56
<PAGE>
(f) To reflect the SCMC Termination Agreement under which warrants to
purchase up to 600,000 shares of Class A Common Stock at $33 3/4
per share (fair value of approximately $9,000,000) will be
granted to SCMC and a $2,000,000 loan plus accrued interest of
$171,000 made by the Company to SCMC will be forgiven. One half
of the value of the warrant and loan foregiveness of $11,171,000
will be charged to earnings during the three month period ended
June 30, 1996, and upon completion of the MMR Merger, the
remainder will be allocated to the Triathlon agreement and
amortized over the ten year life of the agreement. The net effect
of these transactions on stockholders' equity is an increase of
$3,415,000. See "Certain Relationships and Related Transactions
-- Relationship of the Company with SCMC."
(g) In connection with the Dallas Disposition, the Company will
redeem its Series C Preferred Stock for $2.0 million, which will
result in a corresponding charge of $450,000 to the gain or loss
on the Dallas Disposition.
(7) MMR Merger
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
------------------------------------------------------------------------
AS MMR MMR HARTFORD PRO FORMA
REPORTED DISPOSITIONS(A) ACQUISITION(B) ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets .................. $ 7,868 $ 5,835 $ 1,030 $ (13,600)(b) $(53,100)
(51,567) (c)
(2,666)(d)
Property & equipment, net ...... 3,649 (1,389) 359 2,619
Intangible assets, net .......... 53,999 (9,717) 4,148 70,556 (e) 140,115
12,463 6,000 (c)
2,666 (d)
Other assets .................... 1,926 -- -- -- 1,926
---------- --------------- -------------- -------------- -----------
Total assets ................... $67,442 $(5,271) $18,000 $ 11,389 $ 91,560
========== =============== ============== ============== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities ............. $ 3,155 $ (28) -- -- $ 3,127
Other liabilities ............... 3,621 -- -- -- 3,621
Debt, including current portion 41,167 -- $ 4,400 $ (51,567)(c) --
6,000 (c)
Deferred taxes .................. 7,373 -- -- 5,439 (e) 12,812
Stockholders' equity ............ 12,126 (5,243) 13,600 (13,600) (b) 72,000
65,117 (e)
- -------------------------------- ---------- --------------- -------------- -------------- -----------
Total liabilities and
stockholders' equity .......... $67,442 $(5,271) $18,000 $ 11,389 $ 91,560
========== =============== ============== ============== ===========
</TABLE>
(a) Represents the sale of WRSF-FM which occurred in March 1996 for
$950,000 and the pending sales of KOLL-FM for $4,000,000 and
WRXR-FM and WKBG-FM for $5,000,000. In the aggregate, a loss of
approximately $1,471,000 will be recognized upon the sales,
principally relating to WRXR-FM and WKBG-FM.
(b) To reflect the pending MMR Hartford Acquisition for $18,000,000,
including the corresponding excess of purchase price paid,
$12,463,000 over the net book value of assets acquired. It is
assumed that $13,600,000 of the purchase price to be paid in the
MMR Hartford Acquisition will be financed with the proceeds to be
received by MMR upon exercise of the outstanding MMR Class A
Warrants.
(c) Repayment of $41,167,000 of existing MMR indebtedness plus
indebtedness to be incurred to finance the MMR Hartford
Acquisition of $4,400,000 and approximately $6,000,000 related to
prepayment premiums which will increase the purchase price of
MMR.
(d) Includes acquisition costs associated with the MMR Merger of
$1,666,000 and the $1,000,000 purchase price of the MMR Myrtle
Beach Acquisition.
(e) To reflect the MMR Merger, assuming the Company's stock price is
between $33.00 per share and $40.00 per share, at an estimated
purchase price of $72,000,000 including the excess of the
purchase price paid over the net book value of the assets
acquired, including deferred taxes, of $70,556,000.
57
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIBERTY PRISM
ACQUISITION ACQUISITION
SFX INCLUDING INCLUDING
BROADCASTING, WASHINGTON LOUISVILLE ADDITIONAL
INC. DISPOSITIONS(1) DISPOSITION(2) ACQUISITIONS(3)
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues ............................ $19,800 $10,122 $6,068 $2,417
Station operating expenses .............. 14,056 7,985 5,370 1,730
Depreciation, amortization and 2,299(**) 2,451 558 716
acquisition related costs ..............
Corporate expenses ...................... 1,210 605 373 63
Other ................................... -- -- -- --
------------- ------------- ------------ -------------
Operating income ........................ 2,235 (919) (233) (92)
Interest expense, including amortization 3,384 1,940 357 242
of deferred financing costs ............
Other expense (income) .................. (164) -- -- (280)
Income tax expense (benefit) ............ -- (916) -- 93
------------- ------------- ------------ -------------
Net income (loss) ....................... (985) (1,943) (590) (147)
Preferred stock dividend requirement ... 136 -- -- --
------------- ------------- ------------ -------------
Net loss applicable to common shares ... $(1,121) $(1,943) $ (590) $ (147)
============= ============= ============ =============
Net loss per common share ............... $ (0.15)
=============
Average common shares outstanding ...... 7,458
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
OTHER FINANCING & TRANSACTIONS PRO FORMA
ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR FOR THE
DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) TRANSACTIONS
------------- ------------ -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues ............................ $(2,020) $ 2,645 (a) $39,032(*) $5,080 $44,112(*)
Station operating expenses .............. (2,608) (632)(b) 25,901 2,902 28,803
Depreciation, amortization and (93) 574 (c) 6,981 960 7,941
acquisition related costs .............. (408)(c)
353 (c)
138 (c)
201 (d)
52 (e)
140 (f)
Corporate expenses ...................... 30 549 (g) 1,759 60 1,819
(1,071)(g)
Other ................................... -- -- -- 65 65
------------- ------------ -------------- ------- ------------
Operating income ........................ 651 2,749 4,391 1,093 5,484
Interest expense, including amortization (477) 12,094 (h) 12,544 12,544
of deferred financing costs ............ (5,446)(h) --
450 (h)
Other expense (income) .................. (31) (475) -- (475)
Income tax expense (benefit) ............ -- 823 (i) -- -- --
------------- ------------ -------------- ------- ------------
Net income (loss) ....................... 1,159 (5,172) (7,678) 1,093 (6,585)
Preferred stock dividend requirement ... -- 2,113 (j) 2,249 -- 2,249
------------- ------------ -------------- ------- ------------
Net loss applicable to common shares ... $ 1,159 $(7,285) $(9,927) $1,093 $(8,834)
============= ============ ============== ======= ============
Net loss per common share ............... $ (1.33) $ (0.93)
============= ============== ============
Average common shares outstanding ...... 7,458 9,459
</TABLE>
- ------------
(*) Includes $2,645,000 of fees from Triathlon; see Note 5(a).
(**) Includes $277,000 of acquisition related costs.
58
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIBERTY PRISM
ACQUISITION ACQUISITION
SFX INCLUDING INCLUDING
BROADCASTING, WASHINGTON LOUISVILLE ADDITIONAL
INC. DISPOSITIONS(1) DISPOSITION(2) ACQUISITIONS(3)
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues ............................ $13,717 $10,564 $ 5,726 $3,844
Station operating expenses .............. 9,676 8,587 5,557 3,250
Depreciation and amortization ........... 1,697 1,780 511 580
Corporate expenses ...................... 807 654 420 45
Other ................................... -- -- -- --
------------- ------------- ------------ -------------
Operating income ........................ 1,537 (457) (762) (31)
Interest expense, including amortization 2,432 1,405 427 191
of deferred acquisition costs ..........
Other expense (income) .................. 3 52 -- (36)
Income tax expense (benefit) ............ (377) 6 -- 120
------------- ------------- ------------ -------------
Net income (loss) ....................... (521) (1,920) (1,189) (306)
Preferred stock dividend requirement ... 71 -- -- --
------------- ------------- ------------ -------------
Net loss applicable to common shares ... $ (592) $(1,920) $(1,189) $ (306)
============= ============= ============ =============
Net loss per common share ............... $ (0.10)
=============
Average common shares outstanding ...... 5,916
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
OTHER FINANCING & TRANSACTIONS PRO FORMA
ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR FOR THE
DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) TRANSACTIONS
------------- ------------ -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues ............................ $(1,440) $ 2,780 (a) $ 35,191(*) $4,976 $ 40,167(*)
Station operating expenses .............. (1,218) (632)(b) 27,186 3,125 30,311
1,966 (a)
Depreciation and amortization ........... -- 574 (c) 7,093 1,095 8,188
(408)(c)
353 (c)
138 (c)
201 (d)
52 (e)
140 (f)
1,475 (a)
Corporate expenses ...................... 30 549 (g) 1,423 60 1,483
(1,149)(g)
67 (a)
Other ................................... (37) -- (37) 80 43
------------- ------------ -------------- ------- ------------
Operating income ........................ (215) (546) (474) 616 142
Interest expense, including amortization (454) 12,094 (h) 12,544 -- 12,544
of deferred acquisition costs .......... (4,001)(h)
450 (h)
Other expense (income) .................. (90) -- (71) -- (71)
Income tax expense (benefit) ............ -- 251 (i) -- -- --
------------- ------------ -------------- ------- ------------
Net income (loss) ....................... 329 (9,340) (12,947) 616 (12,331)
Preferred stock dividend requirement ... -- 2,113 (j) 2,184 -- 2,184
------------- ------------ -------------- ------- ------------
Net loss applicable to common shares ... $ 329 $(11,453) $(15,131) $ 616 $(14,515)
============= ============ ============== ======= ============
Net loss per common share ............... $ (2.03) $ (1.53)
============= ============== ============
Average common shares outstanding ...... 7,458 9,459
</TABLE>
- ------------
(*) Includes $625,000 of fees from Triathlon; see Note 5(a).
59
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIBERTY PRISM
ACQUISITION ACQUISITION
SFX INCLUDING INCLUDING
BROADCASTING, WASHINGTON LOUISVILLE ADDITIONAL
INC. DISPOSITIONS(1) DISPOSITION(2) ACQUISITIONS(3)
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues ............................ $76,830 $50,518 $26,959 $18,463
Station operating expenses .............. 51,039 32,781 22,411 15,570
Depreciation, amortization and duopoly 9,137(**) 9,092 2,232 2,947
integration costs ......................
Corporate expenses ...................... 3,797 4,653 2,027 265
Other ................................... 5,000 -- -- --
------------- ------------- ------------ -------------
Operating income ........................ 7,857 3,992 289 (319)
Interest expense, including amortization 12,903 7,275 1,565 948
of deferred financing costs ............
Other expense (income) .................. (650) -- (200) (201)
Income tax expense ...................... -- (2,725) -- 562
------------- ------------- ------------ -------------
Net income (loss) ....................... (4,396) (558) (1,076) (1,628)
Preferred stock dividend requirement ... 291 -- -- --
------------- ------------- ------------ -------------
Net loss applicable to common shares ... $(4,687) $ (558) $(1,076) $(1,628)
============= ============= ============ =============
Net loss per common share ............... $ (0.71)
=============
Average common shares outstanding ...... 6,596
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE RECENT
ACQUISITIONS
AND THE
OTHER FINANCING & TRANSACTIONS PRO FORMA FOR THE
ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR RECENT ACQUISITIONS
DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) AND THE TRANSACTIONS
------------- ------------ -------------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Net revenues ............................ $(9,967) $ 5,739 (a) $168,542(*) $22,966 $191,508(*)
Station operating expenses .............. (9,689) (4,938)(b) 109,140 12,892 122,032
1,966 (a)
Depreciation, amortization and duopoly (124) 2,297 (c) 28,957 4,261 33,218
integration costs ...................... (1,632)(c)
1,411 (c)
552 (c)
804 (d)
208 (e)
559 (f)
1,474 (a)
Corporate expenses ...................... 120 2,196 (g) 6,060 240 6,300
(7,065)(g)
67 (a)
Other ................................... (5,000) -- -- 281 281
------------- ------------ -------------- ------- --------------------
Operating income ........................ 4,726 7,840 24,385 5,292 29,677
Interest expense, including amortization (1,841) 48,375 (h) 50,175 -- 50,175
of deferred financing costs ............ (20,850)(h)
1,800 (h)
Other expense (income) .................. (498) -- (1,549) -- (1,549)
Income tax expense ...................... -- 2,163 (i) -- -- --
------------- ------------ -------------- ------- --------------------
Net income (loss) ....................... 7,065 (23,648) (24,241) 5,292 (18,949)
Preferred stock dividend requirement ... -- 8,450 (j) 8,741 -- 8,741
------------- ------------ -------------- ------- --------------------
Net loss applicable to common shares ... $ 7,065 $(32,098) $(32,982) $ 5,292 $(27,690)
============= ============ ============== ======= ====================
Net loss per common share ............... $ (4.42) $ (2.93)
============= ============== ====================
Average common shares outstanding ...... 7,458 9,459
</TABLE>
- ------------
(*) Includes $3,584,000 of fees from Triathlon; see Note 5(a).
(**) Includes $1,400,000 of duopoly integration costs.
60
<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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
--------------------------------------
LIBERTY AS WASHINGTON LIBERTY AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues ................ $10,563 $ (441) $10,122
Station operating expenses . 8,802 (817) 7,985
Depreciation & amortization 2,839 (388) 2,451
Corporate expenses .......... 649 (44) 605
---------- -------------- ----------
Operating income (loss) .... (1,727) 808 (919)
Interest expense, net ....... 2,210 (270) 1,940
Income tax expense (benefit) (916) -- (916)
---------- -------------- ----------
Net income (loss) ........... $(3,021) $1,078 $(1,943)
========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
-----------------------------------------------------
LIBERTY AS BECK ROSS WASHINGTON LIBERTY AS
REPORTED ACQUISITION DISPOSITIONS ADJUSTED
---------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues ................ $ 8,772 $2,486 $ (694) $10,564
Station operating expenses . 7,513 2,121 (1,047) 8,587
Depreciation & amortization 2,043 40 (303) 1,780
Corporate expenses .......... 654 -- -- 654
---------- ------------- -------------- ----------
Operating income (loss) .... (1,438) 325 656 (457)
Interest expense, net ....... 1,405 -- -- 1,405
Other expense ............... -- -- 52 52
Income tax expense (benefit) 6 -- -- 6
---------- ------------- -------------- ----------
Net income (loss) ........... $(2,849) $ 325 $ 604 $(1,920)
========== ============= ============== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
LIBERTY AS BECK ROSS WASHINGTON LIBERTY AS
REPORTED ACQUISITION DISPOSITIONS ADJUSTED
---------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues ............... $51,407 $2,486 $(3,375) $50,518
Station operating expenses 34,725 2,121 (4,065) 32,781
Depreciation & amortization 10,429 40 (1,377) 9,092
Corporate expenses ......... 4,653 -- -- 4,653
---------- ------------- -------------- ----------
Operating income (loss) ... 1,600 325 2,067 3,992
Interest expense, net ..... 7,373 -- (98) 7,275
Income tax expense ......... (2,725) -- -- (2,725)
---------- ------------- -------------- ----------
Net income (loss) .......... $(3,048) $ 325 $ 2,165 $ (558)
========== ============= ============== ==========
</TABLE>
61
<PAGE>
(2) Prism Acquisition
Reflects the net effect of the historical operations of the Prism Acquisition
adjusted for the Louisville Dispositions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
--------------------------------------
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues ................. $7,051 $(983) $6,068
Station operation expenses .. 6,161 (791) 5,370
Depreciation and amortization 737 (179) 558
Corporate expenses ........... 373 -- 373
---------- -------------- ----------
Operating income/(loss) ..... (220) (13) (233)
Interest expense ............. 357 -- 357
---------- -------------- ----------
Net loss ..................... $ (577) $ (13) $ (590)
========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
--------------------------------------
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues ................. $ 6,795 $(1,069) $ 5,726
Station operation expenses .. 6,669 (1,112) 5,557
Depreciation and amortization 673 (162) 511
Corporate expenses ........... 420 -- 420
---------- -------------- ----------
Operating income/(loss) ..... (967) 205 (762)
Interest expense ............. 427 -- 427
---------- -------------- ----------
Net loss ..................... $(1,394) $ 205 $(1,189)
========== ============== ==========
</TABLE>
<TABLE>
<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 operation expenses .. 26,979 (4,568) 22,411
Depreciation and amortization 2,946 (714) 2,232
Corporate expenses ........... 2,027 -- 2,027
---------- -------------- ----------
Operating income/(loss) ..... 620 (331) 289
Interest expense ............. 1,565 -- 1,565
Other income/(loss) .......... (200) -- (200)
---------- -------------- ----------
Net loss ..................... $ (745) $ (331) $(1,076)
========== ============== ==========
</TABLE>
62
<PAGE>
(3) Additional Acquisitions
Reflects the net effect of the combined historical operations of the
Raleigh-Greensboro Acquisitions, the Greenville Acquisition and the Jackson
Acquisitions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
-------------------------------------------------------------
RALEIGH- ADDITIONAL
GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues ............... $1,938 $ 360 $119 $2,417
Station operating expenses 1,374 250 106 1,730
Depreciation & amortization 584 123 9 716
Corporate expenses ......... -- 63 -- 63
-------------- ------------- -------------- --------------
Operating income (loss) ... (20) (76) 4 (92)
Interest expense, net ..... 58 184 -- 242
Other expense (income) .... (280) -- -- (280)
Income tax expense ......... 93 -- -- 93
-------------- ------------- -------------- --------------
Net income (loss) .......... $ 109 $(260) $ 4 $ (147)
============== ============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
-------------------------------------------------------------
RALEIGH- ADDITIONAL
GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues ............... $2,784 $ 773 $287 $3,844
Station operating expenses 2,330 635 285 3,250
Depreciation & amortization 426 127 27 580
Corporate expenses ......... -- 45 -- 45
-------------- ------------- -------------- --------------
Operating income (loss) ... 28 (34) (25) (31)
Interest expense, net ..... 2 189 -- 191
Other expense (income) .... (36) -- -- (36)
Income tax expense benefit 120 -- -- 120
-------------- ------------- -------------- --------------
Net income (loss) .......... $ (58) $(223) $(25) $ (306)
============== ============= ============== ==============
</TABLE>
<TABLE>
<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, net ..... 156 792 -- 948
Other expense (income) .... (203) 2 -- (201)
Income tax expense ......... 562 -- -- 562
-------------- ------------- -------------- --------------
Net income (loss) .......... $(1,134) $ (667) $ 173 $(1,628)
============== ============= ============== ==============
</TABLE>
63
<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>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------------------------
DISPOSITIONS ACQUISITION ADJUSTMENTS* NET
-------------------------------- ------------- -------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- -------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ................. $(2,109) $(515) $(1,022) $1,626 $ -- $(2,020)
Station operating expenses .. (1,991) (532) (1,241) 1,156 -- (2,608)
Depreciation and amortization (341) (63) (93) 152 252 (93)
Corporate expenses ........... -- -- -- 30 -- 30
---------- -------- ---------- ------------- -------------- ----------
Operating income (loss) ..... 223 80 312 288 (252) 651
Interest expense ............. (369) (106) (2) -- -- (477)
Other income ................. -- -- -- (31) -- (31)
---------- -------- ---------- ------------- -------------- ----------
Net loss (income) ............ $ 592 $ 186 $ 314 $ 319 $(252) $ 1,159
========== ======== ========== ============= ============== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
--------------------------------------------------------------------------
DISPOSITIONS ACQUISITION ADJUSTMENTS* NET
------------------------------- ------------- -------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- -------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ................. $(1,758) $(684) $(426) $1,428 $ -- $(1,440)
Station operating expenses .. (1,805) (541) (295) 1,423 -- (1,218)
Depreciation and amortization (305) (199) -- 84 420 0
Corporate expenses ........... -- -- -- 30 -- 30
Other income (expense) ....... -- -- (37) -- -- (37)
---------- -------- --------- ------------- -------------- ----------
Operating income (loss) ..... 352 56 (94) (109) (420) (215)
Interest expense ............. (359) (95) -- -- -- (454)
Other income ................. -- -- (50) (40) -- (90)
---------- -------- --------- ------------- -------------- ----------
Net loss (income) ............ $ 711 $ 151 $ (44) $ (69) $(420) $ 329
========== ======== ========= ============= ============== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------
DISPOSITIONS
----------------------------------
KRLD-AM TSN KTCK-AM
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues .................. $(9,792) $(3,196) $(4,096)
Station operating expenses ... (8,881) (2,261) (3,714)
Depreciation and amortization (1,350) (725) (124)
Corporate expenses ............ -- -- --
Write-down of broadcast rights (5,000) -- --
---------- ---------- ----------
Operating income (loss) ...... 5,439 (210) (258)
Interest expense .............. (1,433) (403) (5)
Other income .................. -- -- (323)
---------- ---------- ----------
Net loss ...................... $ 6,872 $ 193 $ 70
========== ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS* NET
------------- -------------- ----------
KKRW-FM
-------------
<S> <C> <C> <C>
Net revenues .................. $7,117 $ -- $(9,967)
Station operating expenses ... 5,167 -- (9,689)
Depreciation and amortization 371 1,704 (124)
Corporate expenses ............ 120 -- 120
Write-down of broadcast rights -- -- (5,000)
------------- -------------- ----------
Operating income (loss) ...... 1,459 (1,704) 4,726
Interest expense .............. -- -- (1,841)
Other income .................. (175) -- (498)
------------- -------------- ----------
Net loss ...................... $1,634 $(1,704) $ 7,065
============= ============== ==========
</TABLE>
(*) To reflect historical depreciation of KRLD-AM and TSN and disposition of
KTCK-AM.
(5) Financing and Pro Forma Adjustments
(a) Reflects the results of radio stations (located in San Diego,
Charlotte and Dallas) acquired in the Recent Acquisitions during the year
ended December 31, 1995 and fees of $3,584,000 and $2,645,000 incurred by
Triathlon and payable to Sillerman Communications Management Corporation
("SCMC") for the year ended December 31, 1995 and the three months ended
March 31, 1996, respectively of which $2,584,000 and $2,020,000,
respectively, represent fees based upon acquisition and financing
activities in the respective periods. 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 $625,000 is due in the first calandar
quarter. For purposes of the pro forma statement of operations for the
three months ended March 31, 1995, the fees relating to Triathlon of
$625,000 noted above were assumed to be earned during the quarter ended
March 31, 1995.
(b) Reflects anticipated cost savings expected to be realized
following the Liberty Acquisition, the Prism Acquisition and the
Additional Acquisitions, consisting principally of the elimination of
64
<PAGE>
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. For a discussion of these expected cost savings, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
In addition to the cost savings identified above which are reflected
in the pro forma adjustments, the Company 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 the Company'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 the Company's
stations operating in Raleigh, North Carolina, (iii) costs of third party
service providers of approximately $272,000 related to the Prism Stations
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, the Company's ability
to achieve such cost savings and to eliminate the non-recurring expenses
is subject to numerous factors, many of which are beyond the Company's
control. There can be no assurance that the Company will realize such cost
savings.
The Company believes that if KYXY-FM and KMKX-FM, each operating in
San Diego, California, had been owned and operated by the Company during
all of fiscal 1995 and had such stations achieved the same audience share
during fiscal 1995 as they had during the three months ended March 31,
1996, revenues would have been increased by approximately $1.8 million.
There can be no assurance that the stations will continue to achieve the
current audience share or that they will achieve the related revenue
increases.
(c) Reflects increased amortization of intangible assets resulting
from the purchase price allocation: Liberty ($574,000), ($574,000) and
($2,297,000) for the three months ended March 31, 1996 and 1995 and year
ended December 31, 1995, respectively; Prism ($353,000), ($353,000) and
($1,411,000) for the three months ended March 31, 1996 and 1995 and year
ended December 31, 1995, respectively; Additional Acquisitions ($138,000),
($138,000) and ($552,000) for the three months ended March 31, 1996 and
1995 and year ended December 31, 1995, respectively and an adjustment to
decrease the amortization of intangible assets resulting from changes in
the amortization period at Liberty ($408,000), ($408,000) and ($1,632,000)
for the three months ended March 31, 1996 and 1995 and year ended December
31, 1995, respectively.
(d) Reflects $201,000, $201,000 and $804,000 in amortization of
goodwill arising from the deferred tax recorded in connection with the
Liberty Acquisition for the three months ended March 31, 1996 and 1995 and
year ended December 31, 1995, respectively.
(e) Amortization of $52,000, $52,000 and $208,000 for acquisition
costs associated with the Acquisitions for the three months ended March
31, 1996 and 1995 and year ended December 31, 1995, respectively.
(f) To reflect $140,000, $140,000 and $559,000 in amortization
relating to the present value of the Triathlon consulting fees assigned to
the Company under its agreement with SCMC for the three months ended March
31, 1996 and 1995 and year ended December 31, 1995, respectively.
(g) To record incremental corporate overhead charges of $549,000,
$549,000 and $2,196,000 for the three months ended March 31, 1996 and 1995
and year ended December 31, 1995, respectively, relating to increases in
personnel, professional fees and administrative expenses associated with
the increased size of the Company due to the Acquisitions and the
elimination of $1,071,000, $1,149,000 and $7,065,000 for the three months
ended March 31, 1996 and 1995 and year ended December 31, 1995,
respectively of the corporate overhead of the sellers.
65
<PAGE>
(h) To reflect interest expense of $12,094,000, $12,094,000 and
$48,375,000 for the three months ended March 31, 1996 and 1995 and year
ended December 31, 1995, respectively, related to the $450,000,000 Note
Offering at 10.75%, amortization of deferred financing costs of $450,000,
$450,000 and $1,800,000 for the three months ended March 31, 1996 and 1995
and year ended December 31, 1995, respectively, and the elimination of
existing interest expense of $5,446,000, $4,001,000 and $20,850,000
related to the Company and the sellers for the three months ended March
31, 1996 and 1995 and year ended December 31, 1995, respectively.
(i) Elimination of $823,000, $251,000 and $2,163,000 in tax benefits
associated with the sellers for the three months ended March 31, 1996 and
1995 and year ended December 31, 1995, respectively.
(j) To record the Series D Preferred Stock dividend at a rate of 6.5%.
(6) MMR Merger
Reflects the net effect of the historical operations of MMR as adjusted for
acquisitions and dispositions.
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
------------------------------------------------------------------------
MMR
AS DISPOSITIONS MMR HARTFORD PRO FORMA PRO FORMA AS
REPORTED (A) ACQUISITION ADJUSTMENTS ADJUSTED
---------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues ................ $ 4,826 $(589) $ 843 $ -- $5,080
Station operating expenses . 3,093 (638) 704 (257)(b) 2,902
Depreciation & amortization 423 (73) 122 441 (c) 960
47 (d)
Corporate expenses .......... 622 -- -- 60 (e) 60
(622)(e)
Non-cash compensation charge 65 -- -- -- 65
---------- -------------- -------------- ------------- -------------
Operating income (loss) .... 623 122 17 331 1,093
Interest expense, net ....... 1,339 -- 98 (1,437)(f) --
Other expense (income) ..... 2,042 -- -- (2,042)(f) --
Income tax expense .......... -- -- 2 (2) (f) --
---------- -------------- -------------- ------------- -------------
Income (loss) before
extraordinary item ......... $(2,758) $ 122 $(83) $ 3,812 $1,093
========== ============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
---------------------------------------------------------------------------------------
MMR SOUTHERN
AS DISPOSITIONS MMR HARTFORD STAFF 1ST PRO FORMA PRO FORMA AS
REPORTED (A) ACQUISITION QUARTER 1995 ADJUSTMENTS ADJUSTED
---------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ................ $1,796 $(401) $889 $2,692 $ -- $4,976
Station operating expenses . 1,255 (365) 629 1,863 (257)(b) 3,125
Depreciation & amortization 299 (62) 43 327 441 (c) 1,095
47 (d)
Corporate expenses .......... 220 -- -- -- (220)(e) 60
60 (e)
Non-cash compensation charge 80 -- -- -- -- 80
---------- -------------- -------------- ------------- ------------- -------------
Operating income (loss) .... (58) 26 217 502 (71) 616
Interest expense, net ....... 311 -- 131 -- (442)(f) --
Other expense (income) ..... (1) -- -- -- 1 (f) --
Income tax expense .......... 6 -- -- -- (6)(f) --
---------- -------------- -------------- ------------- ------------- -------------
Income (loss) before
extraordinary item ......... $ (374) $ 26 $ 86 $ 502 $ 376 $ 616
========== ============== ============== ============= ============= =============
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
MULTI-MARKET RADIO, INC.
(IN THOUSANDS)
------------------------------------------------------------------------------------
SOUTHERN
STARR
----------
MMR
AS DISPOSITIONS MMR HARTFORD PRO FORMA PRO FORMA AS
REPORTED (A) ACQUISITION 1ST Q 1995 ADJUSTMENTS ADJUSTED
---------- -------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ................. $18,288 $(2,422) $4,408 $2,692 $ -- $22,966
Station operating expenses .. 11,026 (2,247) 3,276 1,863 (1,026)(b) 12,892
Depreciation & amortization . 1,750 (304) 538 327 1,764 (c) 4,261
186 (d)
Corporate expenses ........... 1,666 -- -- -- 240 (e) 240
(1,666)(e)
Non-cash compensation charge 281 -- -- -- -- 281
---------- -------------- -------------- ---------- ------------- -------------
Operating income (loss) ..... 3,565 129 594 502 502 5,292
Interest expense, net ........ 4,966 -- -- -- (4,966)(f) --
Other expense (income) ....... (11) -- -- -- 11 (f) --
Income tax expense (benefit) (59) -- -- -- 59 (f) --
---------- -------------- -------------- ---------- ------------- -------------
Income (loss) before
extraordinary item .......... $(1,331) $ 129 $ 594 $ 502 $ 5,398 $ 5,292
========== ============== ============== ========== ============= =============
</TABLE>
(a) Reflects the elimination of the operations of stations, WRSF-FM
sold on April 10, 1996 and the pending sales of KOLL-FM and WRXR-FM and
WKBG-FM.
(b) Reflects cost savings of $257,000, $257,000 and $1,026,000 for the
three months ended March 31, 1996 and 1995 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 the Company's markets and the elimination of programming
personnel due to automation and simulcasting. For a discussion of these
anticipated cost savings see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(c) Reflects $441,000, $441,000 and $1,764,000 for the three months
ended March 31, 1996 and 1995 and year ended December 31, 1995,
respectively, in amortization of intangible assets recorded in connection
with the MMR Merger.
(d) Amortization of $47,000, $47,000 and $186,000 for acquisition
costs associated with the MMR Merger for the three months ended March 31,
1996 and 1995 and year ended December 31, 1995, respectively.
(e) To record incremental corporate overhead charges of $60,000,
$60,000 and $240,000 associated with the MMR Merger for the three months
ended March 31, 1996 and 1995 and year ended December 31, 1995,
respectively and to eliminate MMR's existing corporate overhead of
$622,000, $220,000 and $1,666,000 for the three months ended March 31,
1996 and 1995 and year ended December 31, 1995, respectively.
(f) Elimination of a nonrecurring loss (income) of $2,042,000,
($1,000) and $11,000 for the three months ended March 31, 1996 and 1995
and year ended December 31, 1995, respectively, interest expense of
$1,437,000, $442,000 and $4,966,000 for the three months ended March 31,
1996 and 1995 and year ended December 31, 1995, respectively, tax expense
(benefit) of $2,000, $6,000 and ($59,000) for the three months ended March
31, 1996 and 1995 and year ended December 31, 1995, respectively.
67
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere herein.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in
"Business" and elsewhere herein, including, without limitation, risks and
uncertainties relating to leverage, the need for additional funds, consummation
of the Acquisitions or the Dispositions, integration of the Acquisitions, the
ability of the Company to achieve certain cost savings, the management of
growth, the popularity of radio as a broadcasting and advertising medium and
changing consumer tastes.
CERTAIN EFFECTS OF THE ACQUISITIONS AND THE DISPOSITIONS
The Company currently owns and operates, provides programming to or sells
advertising on behalf of 22 radio stations located in eight markets.
Following completion of the Acquisitions and the Dispositions, the Company
will own and operate, provide programming to or sell advertising on behalf of
69 radio stations (53 FM and 16 AM) located in 23 markets.
Certain Cost Savings. Management believes that the Acquisitions and the
Dispositions will strengthen the Company in certain of its existing markets
and will allow the Company to dispose of certain of its operations. The
Company expects that operating a cluster of stations in each of its principal
markets will result in certain cost savings, which are expected to be
realized through the elimination of duplicative technical, sales and general
and administrative expenses, reduction of employee benefits costs and
commission rates and from the elimination of certain programming personnel,
which will be offset to a certain extent by increased corporate overhead
charges to be incurred as a result of the increased size of the Company.
The Company believes that had such station operating cost saving
strategies been implemented as of January 1, 1995, such savings would have
approximated $5.9 million in the aggregate during the fiscal year ended
December 31, 1995 related to the stations to be acquired pursuant to the
Acquisitions. The Company believes that it would have achieved cost savings
of approximately $4.9 million related to the stations acquired pursuant to
the Acquisitions (except for the MMR Merger), consisting of (i) consolidation
savings of approximately $200,000 related to the elimination of duplicative
facilities and a reduction of sales commission rates in the Company's Recent
Acquisitions, including San Diego, California; Greenville, South Carolina;
Jackson, Mississippi; Raleigh, North Carolina; and Houston, Texas, (ii)
savings of $3.4 million related to the elimination of duplicative sales,
programming and general and administrative personnel at certain of the
stations to be acquired in the Prism Acquisition, the Liberty Acquisition and
the Additional Acquisitions due to operating clusters of stations in certain
of the Company's markets, (iii) medical insurance cost savings of $600,000,
(iv) reductions in national representative commissions of $200,000, (v) the
elimination of $200,000 of non-recurring start-up costs related to duopolies
created by the Prism Acquisition and (vi) the elimination of $300,000 of
non-recurring start-up costs related to duopolies created by the Liberty
Acquisition.
The Company expects to realize additional cost savings of approximately
$1.0 million related to the MMR Hartford Acquisition, including the
elimination of duplicative personnel (including a general manager, program
manager, general sales manager and certain on-air personalities) aggregating
$900,000, and the elimination of redundant facilities aggregating, upon
consummation of the MMR Merger, $100,000. There can be no assurance that had
the Company consummated such merger during fiscal 1995, it would have been
able to realize such cost savings during 1995.
As a result of the increased size of the Company resulting from the
consummation of the Acquisitions, pro forma corporate overhead expenses are
projected to increase by $2.4 million, consisting primarily of (i) additional
financial, legal and administrative personnel, (ii) the addition of a
full-time corporate engineer and (iii) additional public relation costs.
Additionally, following the consummation of the Acquisitions, the Company
intends to operate its stations among four regions, each to be under the
direction of a regional manager. The Company expects that such managers will
be selected
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from persons currently employed by it and that such managers will be
motivated through incentive compensation, to be awarded based upon the
performance of the stations within their respective region.
In addition to the cost savings identified above which are reflected in
the pro forma adjustments, the Company 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 the
Company's stations operating in San Diego, California, Charlotte, North
Carolina and Greenville-Spartanburg, South Carolina, incurred by prior owners
of such stations, (ii) costs associated with barter arrangements of
approximately $98,000 related to the Company's stations operating in Raleigh,
North Carolina, (iii) costs of third party service providers of approximately
$272,000 related to the Prism Stations 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
nonrecurring expenses are reasonably achievable, the Company's ability to
achieve such cost savings and to eliminate the non-recurring expenses is
subject to numerous factors, many of which are beyond the Company's control,
including the Company's ability to negotiate favorable rates with third party
service providers and to eliminate duplicative costs. There can be no
assurance that the Company will realize such cost savings.
Certain Adjustments to Revenues. The Company believes that if KYXY-FM and
KMKX-FM, each operating in San Diego, California, had been owned and operated
by the Company during all of fiscal 1995 and had such stations achieved the
same audience share during fiscal 1995 as they had during the three months
ended March 31, 1996, revenues would have been increased by approximately
$1.8 million. There can be no assurance that the stations will continue to
achieve the current audience share or that they will achieve the related
revenue increases.
Certain Charges. In April 1996, the Company and SCMC entered into the SCMC
Termination Agreement pursuant to which the consulting arrangement between
such parties was terminated in consideration for the assignment by SCMC to
the Company of the right to receive certain consulting fees payable by MMR
and Triathlon, the agreement to cancel $2.0 million of indebtedness plus
accrued interest thereon owing from SCMC to the Company upon completion of
the MMR Merger and the issuance of warrants to SCMC to purchase up to 600,000
shares of Class A Common Stock at an exercise price of $33 3/4 per share. In
connection with such agreement, the Company will recognize a non-recurring
non-cash charge to earnings of approximately $4.5 million during the
three-month period ended June 30, 1996 and $1.1 million upon completion of
the MMR Merger, based upon the value of the warrant ($9.0 million) and the
foregiveness of debt ($2.2 million) offset by the value of recurring
consulting fees ($5.6 million) that will become payable by Triathlon to the
Company. See "Unaudited Pro Forma Condensed Combined Financial Statements."
The Company has allocated approximately $14.9 million and $4.6 million of
the proceeds of the Financing to make payments to R. Steven Hicks, the
current President and Chief Executive Officer of the Company, pursuant to the
Hicks Agreement and D. Geoffrey Armstrong, Executive Vice President and Chief
Financial Officer of the Company, pursuant to the Armstrong Agreement,
respectively. See "Use of Proceeds" and "Management -- Employment
Agreements." In addition, the Hicks Agreement provides for a five-year
consulting arrangement with Mr. Hicks at an annual consulting fee of $150,000
and for the repurchase of certain securities owned by Mr. Hicks for a
purchase price of not less than $40.00 per share. The Company will recognize
a non-recurring charge to earnings of approximately $20.9 million during the
second quarter of 1996 as a result of the implementation of the Hicks
Agreement and the Armstrong Agreement. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
In connection with financing the Acquisitions, the Company will use
approximately $21.5 million of the proceeds of the Financing to repay all
amounts owing under the Company's Old Credit Agreement. In addition, on May
2, 1996, the Tender Offer was commenced to purchase for cash up to all (but
not less than a majority in principal amount) of the Old Notes and the
related Consent Solicitation to modify certain terms of the Old Indenture.
The Company has received consents and tenders representing at least a
majority in aggregate principal amount of the Old Notes outstanding. The
Company will recognize
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an extraordinary loss if all of the Old Notes are tendered, of approximately
$14.7 million relating to the write-off of deferred financing costs of the
Old Credit Agreement and the costs of the Tender Offer and Consent
Solicitation during the quarterly period in which such payments are made.
The Company expects that the Acquisitions will be accounted for using the
purchase method of accounting and that the intangible assets created in the
purchase transactions will be amortized against future earnings of the
combined companies, that such amounts will be substantial and that they will
continue to affect the Company's operating results in the future. These
expenses, however, do not result in an outflow of cash by the Company and do
not impact the Company's Broadcast Cash Flow.
GENERAL
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow.
Broadcast Cash Flow is defined as net revenues (including, where applicable,
fees earned by the Company pursuant to the SCMC Termination Agreement) less
station operating expenses. Although Broadcast Cash Flow is not a measure of
performance calculated in accordance with GAAP, the Company believes that
Broadcast Cash Flow is accepted by the broadcasting industry as a generally
recognized measure of performance and is used by analysts who report publicly
on the performance of broadcasting companies. Nevertheless, this measure
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 the Company's operating performance or liquidity
which is calculated in accordance with GAAP.
The primary source of the Company's revenues is the sale of advertising
time on its radio stations. In addition, in April 1996 the Company entered
into the SCMC Termination Agreement and expects to receive fees pursuant
thereto representing approximately 2.0% of the Company's pro forma net
revenues for the year ended December 31, 1995, after giving effect to the
completion of the Transactions as of January 1, 1995. The Company's most
significant station operating expenses are employee salaries and commissions,
programming expenses and advertising and promotional expenditures. The
Company strives to control these expenses by working closely with local
station management.
The Company's revenues are primarily affected by the advertising rates its
radio stations charge. The Company's advertising rates are in large part
based on a station's ability to attract audiences in the demographic groups
targeted by its advertisers, as measured principally by Arbitron on a
quarterly basis. Because audience ratings in local markets are crucial to a
station's financial success, the Company endeavors to develop strong listener
loyalty. The Company believes that the diversification of formats on its
stations helps to insulate it from the effects of changes in the musical
tastes of the public in any particular format.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format
of a particular station. The Company's stations strive to maximize revenue by
constantly managing the number of commercials available for sale and
adjusting prices based upon local market conditions. 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. The Company seeks to minimize its use of trade
agreements.
The Company's advertising contracts are generally short-term. The Company
generates most of its revenue from local advertising, which is sold primarily
by a station's sales staff. In fiscal 1995 and the three months ended March
31, 1996, approximately 78% and 77%, respectively, of the Company's revenues
were from local advertising. To generate national advertising sales, the
Company engages independent advertising sales representatives that specialize
in national sales for each of its stations.
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first calendar quarter generally
produces the lowest revenues for the year, and the fourth
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calendar quarter generally produces the highest revenues for the year. The
Company's operating results in any period may be affected by the incurrence
of advertising and promotion expenses that do not necessarily produce
commensurate revenues until the impact of the advertising and promotion is
realized in future periods.
Fee revenue from the SCMC Termination Agreement will fluctuate principally
based upon the level of acquisition and financing activity of Triathlon above
the minimum annual fees of $800,000 (which minimum fees shall increase to
$1.0 million at such time as Triathlon has used an amount equal to the net
proceeds of its last public offering), of which $625,000 is due in the first
calendar quarter.
RESULTS OF OPERATIONS
The Company's consolidated financial statements tend not to be directly
comparable from period to period due to the Company's acquisition activity.
The Company's acquisitions are generally accounted for using the purchase
method of accounting, except for the acquisition of Capstar Communications,
Inc. ("Capstar") in October 1993, which has been reflected as a transaction
among entities under common control (similar to a pooling of interests), and
the historical results of operations for the year ended December 31, 1993
("fiscal 1993") have been restated to include the historical results of
operations of Capstar. See "-- Liquidity and Capital Resources -- Historical
Acquisitions and Dispositions."
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
The Company's net revenues increased 44% to $19.8 million from $13.7
million, for the three months ended March 31, 1996 ("1996 quarter") and 1995
("1995 quarter"), respectively, due to revenue increases in all the Company's
markets, $1.6 million of net revenues related to the inclusion of KYXY-FM,
San Diego, California and KTCK-AM, Dallas, Texas, for the full 1996 quarter,
$2.2 million of net revenues related to the JSA's of WMAG-FM, WTCK-AM,
WMFR-AM, WHSL-FM, Greensboro, North Carolina, WSTZ-FM, Jackson, Mississippi,
and WROQ-FM, Greenville, South Carolina which were implemented in the 1996
quarter, and $1.9 million of net revenues for WTDR-FM and WLYT-FM in
Charlotte, North Carolina which the Company operated pursuant to an LMA since
April 1, 1995 and which were acquired by the Company on February 1, 1996. The
increase in net revenue from existing operations was related to strong radio
advertising growth averaging approximately 8% in the Company's markets,
combined with improved inventory management, ratings and other factors
generally affecting sales and rates.
Station operating expenses increased 45% to $14.1 million in the 1996
quarter from $9.7 million in the 1995 quarter primarily due to the inclusion
of operating expenses of $2.4 million related to KYXY-FM, San Diego,
California, KTCK-AM, Dallas, Texas, and WTDR-FM and WLYT-FM, both operating
in Charlotte, North Carolina for the full 1996 quarter, and $1.8 million
related to the JSA's discussed above.
Depreciation, amortization and acquisition related costs increased 35% to
$2.3 million from $1.7 million due to the inclusion of depreciation and
amortization related to the San Diego and Dallas Acquisitions, and to
$277,000 of certain one time acquisition related costs in Charlotte, North
Carolina.
Corporate, general and administrative expenses were $1.2 million and
$807,000 for the 1996 quarter and 1995 quarter, respectively. Corporate,
general and administrative expense as a percentage of net revenue was
approximately 6% for both 1996 and 1995 quarter. Legal fees, audit fees and
other professional fees increased by $85,000 over 1995 quarter and franchise
taxes and other capital based taxes increased by $49,000 over the 1995
quarter. Additionally, salaries, bonuses and deferred compensation for the
Company's executive officers increased by $133,000 over the 1995 quarter.
Operating income was $2.2 million for the 1996 quarter as compared to
income of $1.5 million for the 1995 quarter due to the results discussed
above.
Interest expense, net of investment income (loss), increased 33% to $3.2
million from $2.4 million in the 1995 quarter, primarily due to the inclusion
of $614,000 for LMA payments relating to the Charlotte Acquisition and JSA
payments in Greensboro, Jackson and Greenville representing financing
payments to the current owners compared to $50,000 in LMA payments for Dallas
in the 1995 quarter. These payments will terminate upon acquisition of the
stations but may be replaced by interest on debt that may be incurred as a
result of the acquisitions. Additionally, interest on borrowings of $18.5
million related to the Charlotte Acquisition contributed to the increase.
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The Company recorded no income tax expense for the 1996 quarter compared
to income tax benefit of $377,000 for the 1995 quarter. The Company has
considered prudent and feasible tax planning strategies in assessing the need
for a valuation allowance and has assumed $650,000 of benefit attributable to
such strategies. In the event the Company were to determine that such
strategies would not be implemented, an adjustment to the deferred tax
liability would be charged to income in the period such determination was
made.
The Company's net loss was $985,000 for the 1996 quarter compared to a net
loss of $521,000 for the 1995 quarter due to the factors discussed above.
Broadcast Cash Flow increased 42% to $5.7 million for the 1996 quarter
from $4.0 million for the 1995 quarter. The increase was a result of growth
in Broadcast Cash Flow in all of the Company's markets after consideration
for the inclusion in the 1996 quarter of the results of the KYXY-FM, KTCK-AM,
WTDR-FM, WLYT-FM, WROQ-FM, WSTZ-FM, WMAG-FM, WTCK-AM, WMFR-AM and WHSL-FM for
the portion of the year the Company owned and operated, provided programming
to or sold advertising on behalf of the stations.
Results for the 1996 quarter include WLYT-FM and WTDR-FM, each operating
in Charlotte, North Carolina, for which the Company had provided programming
and sold advertising time pursuant to an LMA prior to its acquisition;
KYXY-FM, San Diego, California, for which the Company had provided
programming and sold advertising time pursuant to an LMA since January, 1995
and was acquired on April 13, 1995; and KTCK-AM, Dallas, Texas for which the
Company had provided programming and sold advertising time pursuant to an LMA
since March 1995 and was acquired on September 14, 1995 and WMAG-FM, WTCK-AM,
WMFR-AM and WHSL-FM, each operating in Greensboro, North Carolina; WSTZ-FM,
Jackson, Mississippi; WROQ-FM, Greenville, South Carolina; for which the
Company had sold advertising pursuant to a JSA beginning in the 1996 quarter.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's net revenues increased to $76.8 million in fiscal 1995 from
$55.6 million during the year ended December 31, 1994 ("fiscal 1994"), an
increase of 38.1%. Such increase was due to increased revenues at the
Houston, Nashville, Greenville, and Jackson properties and the inclusion of
revenues for KYXY-FM, San Diego, California ($7.2 million), KTCK-AM, Dallas,
Texas ($4.1 million) and WTDR-FM and WLYT-FM, both operating in Charlotte,
North Carolina ($5.4 million), during the portion of fiscal 1995 that the
Company owned and/or operated such stations. The revenue increase was
partially offset by a slight decline in revenue in the Dallas market due to a
lessening of advertiser interest in major league baseball, and in San Diego
due to the January 1995 reformatting of KMKX-FM. The increase in net revenues
from existing operations was related to strong radio advertising growth
averaging approximately 8% in the Company's markets, combined with improved
inventory management, ratings and other factors generally affecting sales and
rates.
Station operating expenses increased to $51.0 million in fiscal 1995 from
$34.0 million in fiscal 1994, an increase of 50.0%, primarily due to the
inclusion of expenses related to the operations of KYXY-FM ($4.7 million),
KTCK-AM ($3.7 million), and WTDR-FM and WLYT-FM ($3.5 million), during the
portion of fiscal 1995 that the Company owned and/or operated the stations,
and increased marketing costs in Charlotte, San Diego and Greenville.
Management believes that the increased investment in marketing during fiscal
1995 has resulted in an improved selling position for such stations. On a
same station basis, assuming that all of the stations owned and/or operated
by the Company in fiscal 1995 had been owned for all periods reported,
including certain cost savings implemented during fiscal 1995 station
operating expenses would have increased by 15.5% in fiscal 1995 as compared
to fiscal 1994 and station operating expenses as a percentage of net revenue
would have remained constant in fiscal 1995 as compared to fiscal 1994.
Depreciation, amortization and duopoly integration costs increased to $9.1
million during fiscal 1995 from $5.9 million during fiscal 1994, an increase
of 54.2%, due to the inclusion of depreciation and amortization costs related
to the Nashville, San Diego and Dallas acquisitions and due to costs of $1.4
million incurred related to the integration of the San Diego Stations and the
reformatting of its duopoly partner, KMKX-FM.
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Corporate, general and administrative expenses increased to $3.8 million
during fiscal 1995 from $3.0 million during fiscal 1994, an increase of
26.7%. Such expenses as a percentage of net revenues were 5% for both fiscal
1995 and fiscal 1994. Included in corporate, general and administrative
expenses is rent expense for the New York office which increased $155,000
from 1994, as a result of the lease agreement between the Company and SCMC
entered into in May 1994. Costs in excess of the lease related to the
maintenance of such office increased by $152,000 in 1995 to $330,000.
Additionally salaries, bonuses and deferred compensation for the Company's
executive officers increased by $538,000 in fiscal 1995 as compared to fiscal
1994.
Operating income decreased to $7.9 million during fiscal 1995 from $12.8
million during fiscal 1994, a decrease of 38.3%. This decrease was primarily
due to a $5.0 million pre-tax charge related to the estimated losses on the
Texas Rangers baseball broadcast rights. On April 11, 1996, in order to
facilitate the Houston Exchange, the Company and the Texas Rangers amended
the Radio Broadcast Rights Agreement. The amended terms provide for
termination of the agreement no later than November 30, 1996.
Interest expense, net of investment income (loss), increased to $12.3
million during fiscal 1995 from $9.5 million during fiscal 1994, an increase
of 29.5%, primarily due to the inclusion of $2.8 million for LMA payments in
Charlotte and Dallas, representing financing payments to the then-owners of
such stations. These payments will terminate upon acquisition of the stations
but may be replaced by interest on debt that may be incurred as a result of
the Acquisitions. In addition, indebtedness incurred in connection with the
San Diego Acquisition contributed to the increase. These borrowings were
repaid in July 1995 with the proceeds of the 1995 stock offering. During
fiscal 1995, the Company recorded investment income of $650,000 related to
interest earned on the excess proceeds from the Company's public offering in
June 1995, compared to net investment losses of $121,000 during fiscal 1994.
The Company recorded no income tax expense for fiscal 1995 due to a net
loss for the year, compared to income tax expense of $1.5 million for fiscal
1994. The Company has considered prudent and feasible tax planning strategies
in assessing the need for a valuation allowance and has assumed $650,000 of
benefit attributable to such strategies. In the event the Company were to
determine in the future that such strategies would not be implemented, an
adjustment to the deferred tax liability would be charged to income in the
period such determination was made.
The Company's net loss was $4.4 million in fiscal 1995 compared to net
income of $1.8 million for fiscal 1994, due to the factors discussed above.
Broadcast Cash Flow increased to $25.8 million for fiscal 1995 from $21.6
million for fiscal 1994, an increase of 19.4%. Such increase was due to
increased Broadcast Cash Flow at all of the Company's properties owned during
fiscal 1995 except Dallas, Greenville and San Diego, and the inclusion during
fiscal 1995 of the results of operations of KYXY-FM, KTCK-AM, WTDR-FM and
WLYT-FM for the portion of the year that the Company owned and/or operated
such stations. Management believes that the increased investment in marketing
at the Dallas, Greenville and San Diego properties has resulted in improved
selling positions at these properties although Broadcast Cash Flow was
adversely impacted.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The changes described below are primarily attributable to improved
operating results in all of the Company's markets owned during fiscal 1994
and the inclusion of the full year results of the properties acquired in 1993
described below under "--Liquidity and Capital Resources--Historical
Acquisitions and Dispositions."
The Company's net revenues increased to $55.6 million in fiscal 1994 from
$34.2 million during the year ended December 31, 1993 ("fiscal 1993"), an
increase of 62.6%. Such increase was due to increased revenues at the
Houston, Nashville, San Diego, Greenville, and Jackson markets and revenue
from the acquisitions described above. The increase in net revenues from
existing operations was related to strong radio advertising growth averaging
approximately 12% in the Company's markets, combined with improved inventory
management, ratings and other factors generally affecting sales and
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rates at the Company's stations. On a same station basis, assuming that all
of the stations owned and/or operated by the Company in fiscal 1994 had been
owned and/or operated from the beginning of fiscal 1993, net revenues would
have increased by 17.5%, over fiscal 1993.
Station operating expenses increased to $34.0 million in fiscal 1994 from
$21.6 million in fiscal 1993, an increase of 57.4%, primarily due to the
inclusion of expenses related to the acquisitions described above. However,
station operating expenses decreased 1.9% as a percentage of net revenues
during fiscal 1994 as compared to fiscal 1993, due to improved cost controls
and consolidation savings in all of the Company's markets. On a same station
basis, assuming that all of the stations owned and/or operated by the Company
in fiscal 1994 had been owned and/or operated from the beginning of fiscal
1993, station operating expenses would have increased 5.6% for fiscal 1994 as
compared to fiscal 1993 but would have decreased 6.7% as a percentage of net
revenues as compared to fiscal 1993.
Depreciation and amortization increased to $5.9 million in fiscal 1994
from $4.5 million in fiscal 1993, an increase of 31.1%, primarily due to the
acquisitions described above.
Corporate, general and administrative expenses, excluding non-recurring
charges, increased to $3.0 million in fiscal 1994 from $1.8 million in fiscal
1993, an increase of 66.7%. Such increase was due to the following factors:
(i) salary expense increased by $277,000 from fiscal 1993 primarily due to
the increased salaries of certain executive personnel and the salaries for
certain additional employees hired in late 1993 and 1994; (ii) rental expense
for the Company's New York, New York office increased by $98,000 from fiscal
1993 due to the new lease agreement the Company entered into in May 1994; and
(iii) legal and accounting fees increased by $178,000 from fiscal 1993 as a
result of the reporting requirements the Company became subject to following
its initial public offering in September 1993. The Company recorded
non-recurring charges of approximately $14.0 million in fiscal 1993,
substantially all of which were non-cash and which related to the valuation
of founders' stock issued in conjunction with the Company's initial public
offering in September 1993. Approximately $13.5 million of such charge had no
effect on the Company's total stockholders' equity.
Operating income was $12.8 million in fiscal 1994, as compared to a loss
of $7.6 million in fiscal 1993, due to the factors discussed above. Excluding
non-recurring charges, operating income increased 100% from $6.4 million in
fiscal 1993.
Interest expense, net of investment income (loss), increased to $9.5
million in fiscal 1994 from $7.3 million in fiscal 1993, due to interest
expense related to Command Communications, Inc. ("Command"), a predecessor of
the Company, being included in the Company's operations for only the last six
months of the fiscal 1993. During fiscal 1994, the Company recorded $974,000
of mutual fund losses, net of investment income of $853,000 in fiscal 1994.
Income tax expense increased to $1.5 million in fiscal 1994, from $1.0
million in fiscal 1993, an increase of 50.0%. The increase in income tax
expense resulted from increased income during fiscal 1994, partially offset
by the nondeductible charge related to the founders' stock in fiscal 1993.
Based on the foregoing, net income before extraordinary items and the
cumulative effect of accounting changes was $1.8 million in fiscal 1994,
compared to a loss of $15.9 million in fiscal 1993.
The Company recorded an extraordinary loss on the early retirement of debt
of approximately $1.7 million in fiscal 1993. The Company's results of
operations for fiscal 1993 also include a charge to reflect the cumulative
effect of the adoption of FAS 109 of $182,000. No such charges were incurred
in 1994.
As a result, net income in fiscal 1994 was $1.8 million as compared to a
net loss of $17.8 million in fiscal 1993.
Broadcast Cash Flow increased to $21.6 million in fiscal 1994 from $12.7
million in fiscal 1993, an increase of 70.1%. The increase was a result of
growth in Broadcast Cash Flow at all of the Company's properties and the
acquisitions described above. On a same station basis, assuming that all of
the stations owned and/or operated by the Company during fiscal 1994 had been
owned since the beginning of fiscal 1993, Broadcast Cash Flow would have
increased by 41.2% to $21.6 million in fiscal 1994 from $15.3 million in
fiscal 1993.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for funds has historically been to fund the
acquisition of radio stations, and to a lesser extent, capital expenditures
and the redemption of outstanding securities. The Company's principal sources
of funds for these requirements have historically been the proceeds from the
public offerings of equity and debt securities, borrowings under credit
agreements and, to a significantly lesser extent, cash flows from operations.
Statements of Cash Flows. Net cash used in operating activities was $1.6
million for the 1996 quarter as compared to $1.5 million for the 1995
quarter. Net cash flows provided by operating activities were $499,000 for
fiscal 1995, as compared to $1.2 million and $76,000 for fiscal 1994 and
fiscal 1993, respectively. The decrease in fiscal 1995 from fiscal 1994 was
primarily due to an increased investment in working capital at the stations
acquired in 1995, and the increase in fiscal 1994 from fiscal 1993 was
primarily due to the Company's improved operating results, partially offset
by an increased investment in working capital in fiscal 1994.
Net cash used in investing activities was $25.2 million in the 1996
quarter as compared to $1.1 million of cash provided by investing activities
in the 1995 quarter. The cash used in investing activities relates primarily
to the purchase of the Charlotte stations while the cash provided by
investing activities in 1995 relates to the sale of investments offset by the
purchase of a building in San Diego. Net cash flows used in investing
activities were $25.7 million, $6.2 million and $56.6 million for fiscal
1995, fiscal 1994 and fiscal 1993, respectively. The increase in cash used in
fiscal 1995 compared to fiscal 1994 is primarily attributable to the
acquisitions of KTCK-AM, Dallas, Texas, in September 1995, the purchase price
of which included $8.6 million in cash, and of KYXY-FM, San Diego,
California, and a related office building in April 1995, for a purchase price
of $17.4 million, partially offset by proceeds of $7.9 million from the sale
of short-term investments. Net cash flows used in investing activities in
fiscal 1994 were primarily attributable to the purchase of WRVW-FM,
Nashville, Tennessee, and the purchase of property and equipment. In fiscal
1993, the purchase of Command and WMYI-FM, Greenville-Spartanburg, South
Carolina, the investment of certain of the proceeds from the Company's
initial public offering and the issuance of the Old Notes accounted for a
majority of the cash used in investing activities.
Net cash provided by financing activities was $18.3 million for the 1996
quarter as compared to net cash used in financing activities of $967,000 in
the 1995 quarter. The net cash provided by financing activities was primarily
due to drawings under the Old Credit Agreement to fund the purchase of the
Charlotte stations. Net cash provided by financing activities was $33.9
million and $66.1 million in fiscal 1995 and fiscal 1993, respectively. Net
cash used in financing activities was $2.1 million in fiscal 1994. In fiscal
1995, the increase in net cash provided by financing activities was primarily
due to the Company's public offering in June 1995. In fiscal 1994, net cash
used in financing activities primarily related to the redemption of shares of
preferred stock by the Company for $1.8 million. In fiscal 1993, net cash
provided by financing activities primarily related to the proceeds from the
Company's initial public offering and the issuance of the Old Notes and the
net proceeds from debt agreements, partially offset by the redemption of
shares of preferred stock for $4.2 million.
Historical Acquisitions and Dispositions. During fiscal 1993, the Company
acquired WMYI-FM, Greenville-Spartanburg, South Carolina, and Command, which
owned and operated radio stations KRLD-AM, Dallas, Texas, the Texas State
Networks, KMKX-FM, San Diego, California, and KODA-FM, Houston, Texas, for an
aggregate purchase price of $46.2 million. The sources of funds for these
acquisitions were from the proceeds of the Company's initial public offering
in September 1993 and the concurrent offering of the Old Notes.
During fiscal 1994, the Company acquired radio station WRVW-FM, Nashville,
Tennessee, for an aggregate purchase price of $4.6 million. The primary
source of funds for this acquisition was available cash provided from
operations.
During fiscal 1995, the Company acquired radio stations KYXY-FM, San
Diego, California, and KTCK-AM, Dallas, Texas, for an aggregate purchase
price of $26.0 million. The primary sources of funds for these acquisitions
were net proceeds from the Company's public offering in June 1995, borrowings
under the Old Credit Agreement and the issuance of $2.0 million of Series C
Preferred Stock. The acquisition agreement with respect to KTCK-AM provides
for a contingent payment not to exceed $7.5
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<PAGE>
million payable in April 1998 if the Company's stations operating in Dallas,
Texas achieve certain ratings and financial goals. If ratings continue at
current levels, approximately $2.5 million would be due in April 1998. The
Company has entered into agreements to sell KTCK-AM and KRLD-AM, its two
stations operating in Dallas, Texas, and the Texas State Networks.
During the three months ended March 31, 1996, the Company acquired radio
stations WTDR-FM and WLYT-FM (formerly WEZC-FM), both operating in Charlotte,
North Carolina, for an aggregate purchase price of $24.8 million. The primary
sources of funds for this acquisition were proceeds from the Company's public
offering in June 1995 and funds available under the Old Credit Agreement.
Pending Acquisitions and Dispositions. In November 1995, the Company
entered into the Liberty Purchase Agreement (as defined herein) pursuant to
which it has agreed to acquire Liberty for a purchase price of $236.0
million. If Liberty's net working capital at the closing exceeds $8.25
million, such purchase price will be correspondingly increased. If such
working capital is less than $8.25 million, the purchase price will be
correspondingly reduced. In May 1996, the Company entered into an agreement
to sell three stations to be acquired from Liberty (WXTR-FM, WXVR-FM and
WQSI-AM, each operating in the Washington, DC market) following completion of
the Liberty Acquisition for $25.0 million. See "Agreements Related to the
Acquisitions and the Dispositions --Liberty Stations."
In February 1996, the Company entered into the Prism Purchase Agreement to
acquire the Prism Stations for a purchase price of approximately $105.3
million. The Company has deposited an irrevocable letter of credit in the
amount of $5.3 million to secure its obligations under the Prism Purchase
Agreement, which amount may be forfeited in the event the Company fails to
complete the Prism Acquisition. In May 1996, the Company entered into two
separate agreements to sell three stations to be acquired from Prism
(WVEZ-FM, WTFX-FM and WWKY-AM, each operating in Louisville, Kentucky)
following completion of the Prism Acquisition for aggregate consideration of
$19.5 million. See "Agreements Related to the Acquisitions and the
Dispositions --Prism Stations."
In April 1996, the Company entered into an amended and restated agreement
and plan of merger pursuant to which it has agreed to acquire MMR in exchange
for capital stock of the Company having a value estimated at approximately
$72.0 million assuming the Reported Price (as defined) is between $33.00 and
$40.00 per share and an MMR Class A Common Stock price of $11.50 per share.
In addition, MMR has entered into an agreement to acquire radio station
WKSS-FM, Hartford, Connecticut, for a purchase price of $18.0 million of
which $1.8 million was placed in escrow as a deposit by MMR. The Company has
agreed to repay approximately $64.4 million of indebtedness of MMR, which
includes indebtedness to be used to acquire WKSS-FM and WMYB-FM, Myrtle
Beach, South Carolina, from the proceeds of the Financing and the anticipated
exercise of MMR's Class A Warrants. The Company expects that MMR's
outstanding Class A Warrants to purchase 1,839,500 shares of MMR Class A
Common Stock will be exercised at an exercise price of $7.75 per share. MMR
is entitled to call such warrants for redemption at a nominal redemption
price in the event that the trading price of MMR's Class A Common Stock
exceeds $10.75 per share, on average, for twenty consecutive trading days
following notice and a thirty-day opportunity to exercise such warrants. MMR
has advised the Company that it anticipates such notice will be issued and
that the warrants will be exercised within ninety days. Such exercise would
result in net proceeds to MMR of approximately $13.6 million which would be
used to fund a portion of the MMR Hartford Acquisition. In the event such
exercise fails to occur, MMR's borrowings under its credit agreement would be
increased and would be repaid by the Company with additional borrowings under
the New Credit Agreement at the time of the MMR Merger. See "Use of Proceeds"
and "Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations."
MMR has also 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. The
Company and MMR have agreed that the Company will finance the purchase of
such stations and that MMR will immediately thereafter transfer the purchased
assets to the Company simultaneously with the purchase of such stations. The
Company has entered into an agreement pursuant to which it has an option to
acquire WHSL-FM, Greensboro, North Carolina, for a purchase price of $4.5
million or, at the seller's option, 150,000 shares of Class A Common Stock,
and has entered into an agreement to acquire WJDX-FM, Jackson, Mississippi,
for a purchase price of $3.0 million. The aggregate purchase price for these
Additional Acquisitions is approximately $63.5 million.
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In the event that the Company fails to consummate the Liberty Acquisition
and the MMR Merger is terminated, the Company will be required, except in
certain circumstances, to pay $3.5 million to MMR. In addition, the Company
will be required to pay MMR $1.0 million in the event the majority of the
combined voting power of the Company votes with respect to, but does not vote
in favor of, the MMR Merger.
The Company has entered into an agreement to exchange its radio station
KRLD-AM, Dallas, Texas, and the Texas State Networks for radio station
KKRW-FM, Houston, Texas in the Houston Exchange, and has entered into a
letter of intent to sell radio station KTCK-AM, Dallas, Texas in the Dallas
Disposition, for consideration of $14.0 million. The Company estimates that
it will pay $2.5 million to the entity that sold KTCK-AM to the Company in
satisfaction of its contingent payment right and will redeem the Series C
Preferred Stock issued to such entity for $2.0 million.
The Company intends to finance the Acquisitions, including the repayment
of indebtedness of MMR, from the proceeds of the Financing, the Dispositions,
the MMR Dispositions and the exercise of the MMR Class A Warrants. See "Use
of Proceeds."
The Company anticipates that it will consummate all of the pending
Acquisitions and Dispositions within 90 days of the closing of the Financing
except for the MMR Merger, which is subject to stockholder approval and which
the Company expects to complete during the third quarter of fiscal 1996, and
the Houston Exchange, which the Company expects to complete within 120 days
of the closing of the Financing. However, the closing of each of the
transactions is subject to certain closing conditions, certain of which are
beyond the Company's control, and there can be no assurance as to when such
transactions will be completed or that they will be completed on the terms
described herein, or at all. In the event that the Dispositions and the
exercise of MMR's Class A Warrants are not consummated in a timely manner,
the Company may be required to seek additional financing. There can be no
assurance that such financing will be available to the Company on
commercially acceptable terms, if at all. See "Agreements Related to the
Acquisitions and the Dispositions."
The Company has allocated approximately $19.5 million of the proceeds of
the Financing to make payments to Mr. Hicks pursuant to the Hicks Agreement
and Mr. Armstrong pursuant to the Armstrong Agreement. See "Management --
Employment Agreements."
The Company is also required to make annual payments of $1.0 million in
each of 1996 and 1997 to redeem the Series B Preferred Stock.
Sources of Liquidity. In March 1995, the Company entered into an amended
$50.0 million senior credit facility (the "Old Credit Agreement") pursuant to
which it has available a revolving line of credit of $45.0 million until
September 30, 1996, at which time any outstanding indebtedness under the
revolving line of credit converts to a term loan, and a working capital
revolving loan of $5.0 million. The Company's obligations under the Old
Credit Agreement are secured by substantially all of its assets in which a
security interest may lawfully be granted, including property, stock of
subsidiaries and accounts receivable, and are guaranteed by the subsidiaries
of the Company. As of March 31, 1996, approximately $18.5 million was
outstanding under the Old Credit Agreement. In April 1996, the Company
borrowed an additional $3.0 million for working capital under the Old Credit
Agreement. Upon completion of the Financing, the Company will repay all
amounts owing under the Old Credit Agreement. See "Use of Proceeds."
In October 1993, the Company issued $80.0 million in aggregate principal
amount of the Old Notes which have a maturity date of October 1, 2000. The
Old Notes are senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt of
the Company (including the Old Credit Agreement). On May 2, 1996, the Company
commenced the Tender Offer to purchase for cash up to all (but not less than
a majority in principal amount) of the Old Notes and the related Consent
Solicitation to modify certain terms of the Old Indenture. The Company has
received consents and tenders representing at least a majority in aggregate
principal amount of the Old Notes outstanding. The Company intends to
repurchase all of the Old Notes that are tendered pursuant to the Tender
Offer from the proceeds of the Financing. If less than all of the Old Notes
are tendered in the Tender Offer, the Company may use funds available under
the New Credit Agreement to repurchase or retire all such remaining Old Notes
on or prior to their maturity.
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<PAGE>
Concurrently with the Preferred Stock Offering, the Company is offering
$450.0 million in aggregate principal amount of the Notes. Interest on the
Notes will accrue from their date of original issuance and will be payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1996, at the rate of 10 3/4 % per annum. The Notes will be general unsecured
obligations of the Company and will be subordinated in right of payment to
senior debt of the Company. The Notes are subject to redemption by the
Company on or after May 15, 2001. The Notes will be guaranteed on a senior
subordinated basis by each of the Company's current and future subsidiaries.
The indenture governing the Notes will contain certain covenants that limit
the ability of the Company and certain of its subsidiaries to, among other
things, incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right
of payment to any senior debt and senior in right of payment to the Notes,
incur liens, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company and its subsidiaries, merge
or consolidate with any other person or sell, assign, transfer, lease,
convey, or otherwise dispose of all or substantially all of the assets of the
Company. See "Description of Certain Indebtedness."
The Company has received a commitment from its lender to increase amounts
available under its senior credit facility from $50.0 million to $150.0
million and expects to enter into the New Credit Agreement with respect to
such facility, which will be available for additional acquisitions and for
working capital, following completion of the Financing. There can be no
assurance, however, that the Company will be able to enter into the New
Credit Agreement on a timely basis or at all. To the extent that the
Dispositions and the exercise of the MMR Class A Warrants do not occur within
90 days of the closing of the Financing, as currently expected, borrowings
will be required under the New Credit Agreement. See "Description of Certain
Indebtedness -- New Credit Agreement."
The Company expects that any additional acquisitions of radio stations
will be financed through funds generated from operations, cash on hand, funds
which may be available under the New Credit Agreement and additional debt and
equity financing. The availability of additional acquisition financing cannot
be assured, and, depending on the terms of the proposed acquisition
financing, could be restricted by the New Credit Agreement and/or the debt
incurrence test under the Indenture.
The Company's ability to make scheduled payments of principal of, or to
pay interest on or to refinance, its debt (including the Old Notes, to the
extent not tendered in the Tender Offer, and the Notes), to make dividend
payments on or Conversion Payments with respect to the Series D Preferred
Stock and to redeem the Series B Redeemable Preferred Stock 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, as well as the success of the radio stations to
be acquired and the integration of such stations into the Company's
operations. Based upon the Company's current level of operations and
anticipated improvements, management believes that cash flow from operations,
together with the net proceeds of the Financing, the Dispositions, the MMR
Dispositions and the exercise of the MMR Class A Warrants and available
borrowings under the New Credit Agreement, will be adequate to meet the
Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debt and dividend
payments on the Series D Preferred Stock and to redeem the Series B
Redeemable Preferred Stock. There can be no assurance that the Dispositions
and the exercise of the MMR Class A Warrants will occur or that the Company'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 the
Company to service its debt, to make dividend payments on or Conversion
Payments with respect to the Series D Preferred Stock, to redeem the Series B
Redeemable Preferred Stock or to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of the Old Notes, to the extent not tendered in the Tender
Offer, and the Notes or the aggregate Liquidation Preference of the Series D
Preferred Stock prior to their respective maturities. There can be no
assurance that the Company will be able to raise additional capital through
the sale of securities, the disposition of radio stations or otherwise for
any such refinancing.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- ---- --- -------- --------
<S> <C> <C> <C>
Robert F.X. Sillerman.. 48 1992 Director and Executive Chairman
R. Steven Hicks ....... 46 1993 Director, President, Chief Executive Officer and Chief
Operating Officer
D. Geoffrey Armstrong 39 1993 Director, Executive Vice President, Chief Financial
Officer and Treasurer
Howard J. Tytel ....... 49 1993 Director, Executive Vice President and Secretary
James F. O'Grady, Jr... 68 1993 Director
Paul Kramer ........... 64 1993 Director
Richard A. Liese ...... 45 1995 Director, Vice President and Assistant General Counsel
</TABLE>
Upon the consummation of the MMR Merger, it is anticipated that (i)
Michael G. Ferrel, Chief Executive Officer, President and Chief Operating
Officer of MMR will become Chief Executive Officer and a Director of the
Company, (ii) D. Geoffrey Armstrong will become the Chief Operating Officer
and interim Chief Financial Officer of the Company and (iii) an additional
"Independent Director" (as defined herein) will be appointed to serve until
the next annual meeting of stockholders or until his successor is elected and
qualified. The Company anticipates that in the event the MMR Merger is not
consummated, Robert F.X. Sillerman will become the Chief Executive Officer of
the Company.
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 the Company
is set forth below.
ROBERT F.X. SILLERMAN has been Executive Chairman of the Company since
July 1, 1995, and from 1992 through June 30, 1995, he served as Chairman and
Chief Executive Officer of the Company. 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 Communication Partners, L.P.
("SCP"), an investment partnership. 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.
MICHAEL G. FERREL has served as President and Chief Operating Officer of
MMR and a member of its Board of Directors 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 has agreed to
become the Chief Executive Officer and to serve on the Company's Board of
Directors following completion of the MMR 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. From 1984 to 1990, Mr. Ferrel served as Vice
President and General Manager of WGMS-AM and WGMS-FM, both operating in
Washington, D.C. 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, DC Area
Broadcasting Association in 1988.
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R. STEVEN HICKS is President and Chief Executive Officer and a Director of
the Company. Mr. Hicks has entered into an agreement (the "Hicks Agreement")
with the Company pursuant to which he has agreed to resign as an executive
officer of the Company upon consummation of the MMR Merger and to enter into
a five-year consulting agreement with the Company effective at such time. See
"-- Employment Agreements." From May 1989 to October 1993, he served as
President and Chief Executive Officer of Capstar Communications, Inc., a
predecessor of the Company. From 1986 to 1992, Mr. Hicks was Chairman of
Hicks Broadcasting Corporation ("HBC"), an owner and operator of radio
stations and the sole general partner of Hicks Broadcasting Partners of
Tennessee, L.P. Mr. Hicks was also Chief Executive Officer of HBC from 1987
to 1989. Mr. Hicks is the Chairman, Chief Executive Officer and a Director of
Gulfstar Communications, Inc., which along with its affiliates owns, provides
programming to or sells advertising on behalf of 21 small market radio
stations in Texas, one in Arkansas and four in Baton Rouge, Louisiana.
Subsequent to the execution of the Hicks Agreement, it was publicly announced
that Mr. Hicks will head a new investment group that intends to acquire radio
properties, which may be located in certain of the Company's target markets.
D. GEOFFREY ARMSTRONG is Executive Vice President, Chief Financial Officer
and Treasurer and a Director of the Company. Mr. Armstrong has entered into
an agreement with the Company pursuant to which he has agreed to become the
Chief Operating Officer and interim Chief Financial Officer of the Company
upon consummation of the MMR Merger. See "-- Employment Agreements." Mr.
Armstrong had been Vice President, Chief Financial Officer and Treasurer of
the Company from 1992 until March 1995. He had been Executive Vice President
and Chief Financial Officer of Capstar 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 the Company 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, 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 is currently Of Counsel to the law firm of
Baker & McKenzie, which currently represents the Company, SCMC, SCP, MMR and
Triathlon.
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 serves
on the Board of Trustees of St. John's University, and has served as a
director of The Insurance Broadcast System, Inc. since 1994.
PAUL KRAMER has been a partner in Kramer & Love, financial consultants
specializing in acquisitions, reorganizations and dispute resolution, since
1994. In addition, from 1992 to 1994, Mr. Kramer was an independent financial
consultant. 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.
RICHARD A. LIESE has been a Director, Vice President and Assistant General
Counsel of the Company 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.
The By-laws of the Company authorize the Board of Directors to fix the
number of directors from time to time, but at no less than two nor more than
nine directors. The Board of Directors has fixed the number of directors at
seven, which number is to be increased to nine prior to consummation of the
MMR Merger. The owners of the Class A Common Stock voting separately as a
class are entitled to elect two-sevenths (currently two) of the members of
the Company's Board of Directors (the "Class A Directors"), which number will
be increased to three following the MMR Merger. The remaining directors are
elected by the holders of the Class A Common Stock and the Class B Common
Stock, with the
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holders of the Class A Common Stock having one vote per share and the holders
of the Class B Common Stock having ten votes per share. Therefore, the
holders of the Class B Common Stock currently control the outcome of the
election of a majority of seats. In the event dividends on the Series D
Preferred Stock are in arrears and unpaid in an aggregate amount equal to six
full quarterly dividends and in certain other circumstances, the holders of
the Series D Preferred Stock (voting separately as a class) will be entitled
to elect two additional members of the Board of Directors of the Company.
Messrs. O'Grady and Kramer are the current Class A Directors. Each of
Messrs. O'Grady and Kramer is qualified to be an "Independent Director,"
defined in the Certificate of Incorporation of the Company as a director of
the Company who is not (i) an officer or employee of the Company, or a
director, officer or employee of any of its subsidiaries or any affiliate of
Mr. Sillerman, (ii) an affiliate of Mr. Sillerman or (iii) an individual
having a relationship which, in the opinion of the Board of Directors of the
Company, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. Upon the consummation of the
MMR Merger, it is anticipated that Mr. Ferrel and an additional "Independent
Director" will be appointed to the Board of Directors, each to hold office
until the next annual meeting of stockholders following such person's
appointment or until his successor is elected and qualified.
BOARD MEETINGS AND COMMITTEES
The standing committees of the Board of Directors are the Audit Committee,
the Compensation Committee and the Stock Option Committee. The Audit
Committee of the Board of Directors currently consists of Mr. Armstrong and
the two Class A Directors, Messrs. O'Grady and Kramer. The principal
functions of the Audit Committee are to review and make recommendations to
the Board of Directors with respect to the selection and the terms of
engagement of the Company's independent public accountants, and to maintain
communications among the Board of Directors, such independent public
accountants, and the Company's internal accounting staff with respect to
accounting and audit procedures, the implementation of recommendations by
such independent public accountants, the adequacy of the Company's internal
controls and related matters. The Audit Committee reviews certain
related-party transactions and potential conflict-of-interest situations
involving officers, directors or stockholders of the Company.
The Compensation Committee of the Board of Directors consists of Mr.
Sillerman and the two Class A Directors, Messrs. Kramer and O'Grady. Mr.
Sillerman is the Executive Chairman of the Company and an officer of all of
the Company's subsidiaries. The principal functions of the Compensation
Committee are to review and make recommendations with respect to certain of
the Company's compensation programs and compensation arrangements with
respect to certain officers, including Messrs. Sillerman, Hicks and
Armstrong.
The Stock Option Committee consists of Messrs. Kramer and O'Grady, the two
Class A Directors. The principal functions of the Stock Option Committee are
to grant options, determine which employees and other individuals performing
substantial services to the Company may be granted options and determine the
rights and limitations of options granted under the Company's plans.
REMUNERATION OF DIRECTORS
All 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 Board of Directors and serve at the
discretion of the Board. Messrs. Sillerman, Hicks and Armstrong have entered
into employment agreements with the Company, and Mr. Ferrel, who is expected
to be appointed to the Board of Directors following the completion of the MMR
Merger, will enter into an employment agreement with the Company to be
effective upon completion of the MMR Merger. See "-- Employment Agreements."
Directors employed by the Company receive no compensation for meetings
they attend. Each Director not employed by the Company receives a fee of
$1,500 for each meeting of the Board of Directors he attends in addition to
reimbursement of travel expenses. Each such Director who is a
81
<PAGE>
member of the Compensation Committee or the Audit Committee also receives
$1,500 for each committee meeting he attends which is not held in conjunction
with a Board of Directors meeting. If such committee meeting occurs in
conjunction with a Board of Directors meeting, each committee member receives
an additional $500 for each committee meeting he attends. In connection with
the MMR Merger each of Messrs. Kramer and O'Grady served as the members of
the independent committee of the Board of Directors and evaluated the terms
of the MMR Merger and the SCMC Termination Agreement, and in connection
therewith received a one-time fee of $50,000 regardless of whether the MMR
Merger is completed.
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 stock appreciation rights with respect
to 5,000 shares of Class A Common Stock. The cash-only stock appreciation
rights entitle the holder thereof to receive on each anniversary of the grant
date until May 16, 2000, a cash payment in an amount equal to the difference
between $21.25 and the closing price of the Class A Common Stock on that date
multiplied by 1,000.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Executive Chairman of the
Company and the next most highly compensated executive officers who received
salary and bonus of at least $100,000 for 1995 for services rendered in all
capacities to the Company, its subsidiaries and its predecessor, Capstar, for
the last three fiscal years. The Executive Chairman and such executive
officers are collectively referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
--------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND FISCAL ANNUAL OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS COMPENSATION($)(2) AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- ------------------ -------- --------- ------- ------------------ ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 1995 300,000 0 0 0 60,000 0 0
Executive Chairman 1994 250,000 0 0 0 30,000 0 0
1993 250,000 0 0 0 130,000 0 0
R. Steven Hicks 1995 300,000 200,000 0 0 50,000 0 250,000(3)(9)
President and Chief 1994 250,000 0 0 0 30,000 0 0
Executive Officer 1993 189,377(4) 0 0 0 130,000 0 0
D. Geoffrey Armstrong 1995 200,000 0 0 0 50,000 0 150,000(5)(9)
Executive Vice 1994 150,000 0 0 0 20,000 0 0
President, Chief 1993 105,000(6) 303,000(7) 0 0 65,000 0 0
Financial Officer and
Treasurer
Richard A. Liese 1995 52,083(8) 0 0 0 2,000 0 0
Vice President and 1994 0 0 0 0 0 0 0
Assistant General
Counsel 1993 0 0 0 0 0 0 0
</TABLE>
- ------------
(1) The Company began operations during 1993. Amounts for fiscal year 1993
for Messrs. Hicks and Armstrong represent reportable compensation from
the Company and Capstar. Mr. Tytel does not receive any compensation
from the Company for serving as Executive Vice President and Secretary
but does receive fees for each Board of Directors meeting he attends.
(2) For each of the last three fiscal years the aggregate amount of
prerequisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the salary and bonus for each of the Named Executive
Officers.
(3) Amount paid to Mr. Hicks pursuant to his employment agreement as part
of the deferred compensation package. See "-- Employment Agreements."
(4) Of this amount, $126,877 was paid to Mr. Hicks by Capstar.
(5) 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."
82
<PAGE>
(6) Of this amount, $67,500 was paid to Mr. Armstrong by Capstar.
(7) A bonus of $250,000 was paid to Mr. Armstrong by Capstar prior to the
consummation of the Initial Public Offering.
(8) Mr. Liese became a Vice President and Assistant General Counsel of the
Company effective August 1, 1995 and receives an annual salary of
$125,000.
(9) Each of Mr. Hicks and Mr. Armstrong would have received options to
purchase 100,000 shares of Class A Common Stock in the event of a
"Change of Control" as defined in their respective employment
agreements. Pursuant to the Hicks Agreement and the Armstrong
Agreement, the Company agreed to repurchase these rights with the
proceeds of the Financing.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Sillerman,
Hicks and Armstrong, and intends to enter into an employment agreement with
Mr. Ferrel to be effective upon completion of the MMR Merger.
Mr. Sillerman's employment agreement has a five-year period commencing on
April 1, 1995 and provides that he serve as Executive Chairman of the Board
and requires him to devote substantially all of his business time to the
business and affairs of the Company 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 receives a base
annual salary of $300,000 per year increased annually by 5%. In addition, Mr.
Sillerman (i) receives an annual cash bonus based upon a formula to be
determined by the Board of Directors upon the recommendation of the
Compensation Committee and (ii) is granted options annually to acquire at
least 50,000 shares of Class A Common Stock (the exact number of options to
be determined by the Board of Directors 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 Board of
Directors. In addition, during the term of Mr. Sillerman's employment, the
Company has agreed to maintain an Office of the Chairman in New York, New
York.
Mr. Hicks entered into a five-year employment agreement with the Company
commencing on April 1, 1995. Pursuant to such agreement, Mr. Hicks became
Chief Executive Officer of the Company on July 1, 1995. Mr. Hicks receives 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 is not to be less than
$200,000). In addition, Mr. Hicks was granted options annually to acquire at
least 25,000 shares of Class A Common Stock (the exact number of options to
be determined by the Board of Directors 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 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 employment 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 upon the
signing of the employment agreement and $100,000 of which is to be paid on
March 31 of each year thereafter during the term of the employment agreement.
On April 16, 1996, the Company entered into an agreement (the "Hicks
Agreement") with Mr. Hicks which provides that Mr. Hicks' employment
arrangement with the Company will terminate concurrently with the completion
of the MMR Merger in consideration of a payment from the Company to Mr. Hicks
of $1.8 million. The Hicks Agreement also provides that Mr. Hicks will serve
on the Company's Board of Directors until the next annual meeting of
stockholders following the MMR Merger. The Hicks Agreement also provides that
on the earlier of the consummation of the MMR Merger or the Financing, Mr.
Hicks will convert 75,000 shares of his Class B Common Stock into an
equivalent number of shares of Class A Common Stock and to sell to the
Company, for an aggregate purchase price of approximately $12.6 million,
68,874 shares of his Class B Common Stock, vested and unvested options to
purchase 210,000 shares of Class A Common Stock granted pursuant to the Stock
Option Plans (as defined) and Mr. Hicks' right to acquire options to purchase
200,000 shares of Class A Common Stock pursuant to his employment agreement.
The Hicks Agreement also provides that during the five-year period commencing
on the date of the MMR Merger, Mr. Hicks shall have the right to require the
Company to purchase all of his shares of Class A Common Stock owned on the
date of the agreement (approximately 101,000 shares) at a price equal to the
greater of $40.00 per share or the average closing price of the Class A
83
<PAGE>
Common Stock for the five business days preceding the repurchase. In the
Hicks Agreement, Mr. Hicks agreed to serve as a consultant to the Company for
a period of five years commencing on the completion of the MMR Merger and the
Company agreed to compensate him for such services at the rate of $150,000
per year and to provide Mr. Hicks with an office, secretarial support and an
automobile during such period. In the Hicks Agreement, Mr. Hicks also agreed
not to compete with the Company during the one-year period following the MMR
Merger, unless the Company terminates the consulting arrangement with Mr.
Hicks, except that he may continue to fulfill his fiduciary obligations as an
officer and director of, and devote time to his investment interest in, Hicks
Capital Corporation, Capstar, Inc. and Gulfstar Communications, Inc. (or any
affiliate thereof), nor will he solicit any employees of the Company (other
than those based in Austin, Texas) during such one-year period. In
consideration of the foregoing, the Hicks Agreement provides that the Company
make a payment to Mr. Hicks in the amount of $500,000. In addition the Hicks
Agreement provides that the Company forgive the $2.0 million loan made by the
Company to Mr. Hicks and all accrued but unpaid interest thereon upon the
termination of the Hicks Agreement, even if such termination is for cause.
Subsequent to the execution of the Hicks Agreement, it was publicly announced
that Mr. Hicks will head a new investment group that intends to acquire radio
properties, which properties may be located in markets similar to certain of
the Company's target markets.
Mr. Armstrong entered into a five-year employment agreement with the
Company commencing on April 1, 1995, and currently serves as Executive Vice
President, Chief Financial Officer and Treasurer of the Company. Mr.
Armstrong receives a base salary of $200,000 per year increased annually by
5%, certain stock options and an aggregate deferred compensation package of
$150,000, the components of which were determined by the Board of Directors,
after and pursuant to the affirmative recommendation of its Compensation
Committee. The Company 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.
The Company entered into an agreement, effective as of April 15, 1996,
with Mr. Armstrong to amend his employment agreement with the Company
effective as of completion of the MMR Merger (the "Armstrong Agreement")
pursuant to which Mr. Armstrong has agreed to serve as the Chief Operating
Officer of the Company and interim Chief Financial Officer. Mr. Armstrong has
agreed to remain as the interim Chief Financial Officer of the Company until
a full-time chief financial officer is hired by the Company. Pursuant to the
Armstrong Agreement, the terms of his employment agreement remain in full
force and effect except that the Company shall on the earlier of the closing
of the MMR Merger and the closing of the Financing, 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 the
Company's repurchase of Mr. Armstrong's right to receive certain options
pursuant to his employment agreement. The Company intends to pay such amounts
to Mr. Armstrong from the proceeds of the Financing. See "Use of Proceeds."
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 MMR 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 the Company will purchase all of
his outstanding options under the Stock Option Plans 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 a share
of Class A Common Stock during the 20 days prior to five days before the
effective date of the termination of the employment agreement. In the event
that the Company is required to purchase Mr. Armstrong's options, based upon
a repurchase price of $40.00 per share, the Company will make a payment to
Mr. Armstrong of approximately $3.25 million.
Under each of the employment agreements, in the event that any of Messrs.
Sillerman, Hicks (until completion of the MMR Merger) 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
84
<PAGE>
deferred compensation, if applicable, for the year in which he was terminated
pro rated over the time in which he was employed by the Company 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,
each of Messrs. Sillerman and Hicks (until completion of the MMR Merger) is
entitled to options to purchase shares of Class A Common Stock in an amount
equal to 50,000 and 25,000 shares, respectively, 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 Internal
Revenue Code of 1986, as amended. 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 shares of Class
A Common Stock, 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 Hicks Agreement and the Armstrong Agreement,
the employment agreements of each of Messrs. Hicks and Armstrong contained
provisions similar to those described in the preceding paragraph for Mr.
Sillerman.
The Company anticipates entering into an employment agreement with Mr.
Ferrel which will become effective upon the consummation of the MMR Merger.
Stock Option Plans
The stockholders of the Company have approved and adopted the 1993 Stock
Option Plan (the "1993 Plan"), the 1994 Stock Option Plan (the "1994 Plan")
and the 1995 Stock Option Plan (the "1995 Plan" and, together with the 1993
Plan and the 1994 Plan, the "Stock Option Plans"). The purpose of the Stock
Option Plans is to provide additional incentive to the officers and employees
of the Company and other individuals who are primarily responsible for the
management and growth of the Company. Each option granted pursuant to the
Stock Option Plans is designated at the 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 Board of Directors of the Company, consisting only of the 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 to
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 Class A Directors.
The Board of Directors 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
85
<PAGE>
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 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 OR 10%($)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION 5%($) ($34.61 ($55.12 STOCK
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE STOCK PRICE) PRICE)
- ---------------------- -------------- -------------- ------------- ------------ ------------- -------------
(A) (B) (C) (D) (E) (F) (G)
<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 ....... 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
D. Geoffrey Armstrong.. 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
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 per share Class A Common Stock
price on May 16, 2005 of $34.61 and $55.12, respectively. If these
price appreciation assumptions are applied to all of the Company's
outstanding shares of Class A Common Stock on the grant date, such
Class A Common Stock would appreciate in the aggregate by approximately
$86,281,752 and $192,906,882, respectively, over the ten-year period
ending on May 16, 2005. These prescribed rates are not intended to
forecast possible future appreciation, if any, of the Class A Common
Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information with respect to the stock options
exercised during 1995 and the value as of December 31, 1995 of unexercised
"in-the-money" options held by the Named Executive Officers. The value of
unexercised in-the-money options at fiscal year end is the difference between
the option exercise price and the fair market value of a share of the Class A
Common Stock at fiscal year end, December 31, 1995 multiplied by the number
of options.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE REALIZED OPTIONS/SARS AT IN-THE-MONEY OPTIONS
NAME ON EXERCISE (#) ($) FY-END (#) AT FY-END ($)(1)
- ---------------------- --------------- -------------- --------------------- --------------------
(A) (B) (C) (D) (E)
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 ............. 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 1/8 , the closing price on December 29, 1995 of an
underlying share of Class A Common Stock.
86
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table gives information concerning the beneficial ownership
of the Company's capital stock as of March 28, 1996, and as adjusted after
giving effect to the MMR Merger and certain other transactions as described
in footnote (2) below, by (i) each person known by the Company to own
beneficially more than 5% of any class of the Company's voting stock, (ii)
each Named Executive Officer and director of the Company and (iii) all
executive officers and directors of the Company as a group. Unless otherwise
specified, the named beneficial owner claims sole investment and voting power
as to the shares indicated.
<TABLE>
<CAPTION>
CLASS A VOTING CLASS B VOTING
COMMON STOCK COMMON STOCK
----------------------- ---------------------
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER PERCENT
BENEFICIAL OWNER(1) SHARES OF CLASS SHARES OF CLASS
- --------------------------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
Robert F.X. Sillerman ..... 103,010(3) 1.6% 856,126(4) 85.6%
R. Steven Hicks ............ 79,318(6) 1.2% 143,874(7) 14.4%
D. Geoffrey Armstrong ..... 45,996(8) * -- --
Howard J. Tytel ............ -- -- -- --
Richard A. Liese ........... -- -- -- --
James F. O'Grady, Jr ....... -- -- -- --
Paul Kramer ................ 1,000 * -- --
Michael G. Ferrel .......... -- -- -- --
All directors and executive
officers as a group (seven
persons; eight persons
after the MMR Acquisition) 229,324 3.5% 1,000,000 100%
5% STOCKHOLDERS:
Nomura Holdings
America Inc.
2 World Financial Center
Building B
New York, NY 10281 ........ 1,071,429(11) 16.6% -- --
Putnam Investments, Inc.
One Post Office Square
Boston, MA 02109 .......... 900,571(12) 13.9% -- --
Mellon Bank Corporation
One Mellon Bank Center --
Pittsburgh, PA 15258 ...... 365,000(13) 5.7% --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION> AS ADJUSTED(2)
----------------------------------------------------------
CLASS A VOTING CLASS B VOTING
COMMON STOCK COMMON STOCK
PERCENTAGE PERCENTAGE
OF TOTAL ----------------------- ------------------- OF TOTAL
NAME AND ADDRESS OF VOTING NUMBER OF PERCENT NUMBER OF PERCENT VOTING
BENEFICIAL OWNER(1) POWER SHARES OF CLASS SHARES OF CLASS POWER
- --------------------------- ------------ ------------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
Robert F.X. Sillerman ..... 52.5% 815,720(5) 9.0% 1,018,236 93.7% 55.3%
R. Steven Hicks ............ 9.2% 101,318(6) 1.2% -- *
D. Geoffrey Armstrong ..... * 45,996(8) * -- -- *
Howard J. Tytel ............ -- 14,787(9) * -- -- *
Richard A. Liese ........... -- -- -- -- -- --
James F. O'Grady, Jr ....... -- -- -- -- -- --
Paul Kramer ................ * 1,000 * -- -- --
Michael G. Ferrel .......... -- 33,846(10) * 25,192 2.3% 1.5%
All directors and executive
officers as a group (seven
persons; eight persons
after the MMR Acquisition) 61.6% 1,012,667 11.1% 1,043,423 96.1% 57.5%
5% STOCKHOLDERS:
Nomura Holdings
America Inc.
2 World Financial Center
Building B
New York, NY 10281 ........ 6.5% 1,071,429(11) 12.8% -- -- 5.6%
Putnam Investments, Inc.
One Post Office Square
Boston, MA 02109 .......... 5.5% 900,571(12) 10.8% -- -- 4.7%
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258 ...... 2.2% 365,000(13) 4.4% -- -- 1.9%
</TABLE>
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.
- ---------------
* less than 1%
(1) Unless otherwise set forth below, the address of each stockholder is
the address of the Company, 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 the Company 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 as of March 28,
1996 to have "beneficial ownership" of any security that such person
has the right to acquire within 60 days of March 28, 1996. As of
March 28, 1996 there were issued and outstanding 6,458,215 shares and
1,000,000 shares of Class A Common Stock and Class B Common Stock,
respectively. This table does not include 2,000 shares of non-voting
Series B Preferred Stock and 2,000 shares of non-voting Series C
Preferred Stock (which the Company expects to redeem upon completion
of the Dallas Disposition). In addition, for purposes of this table,
"beneficial ownership" does not include the number of shares of Class
A Common Stock issuable upon conversion of Class B Common Stock even
though such shares are convertible under certain circumstances into
shares of Class A Common Stock.
(2) With respect to the MMR Merger, assumes (i) the Class A Common Stock
Price (as hereinafter defined) is $35.00 which results in an Exchange
Ratio (as hereinafter defined) of .3286, (ii) 140,000 shares of MMR
Class B Common Stock, 360,000 shares of MMR Class C Common Stock and
200,000 shares of MMR Preferred Stock are converted into Class B
Common Stock and 3,016,500 shares of MMR Class A Common Stock,
200,000 shares of Series A Convertible Preferred Stock and 200,000
shares of Series B Convertible Preferred Stock are converted into
Class A Common Stock (except 1,250 shares of MMR Senior Cumulative
Preferred Stock which is to be redeemed), (iii) each of the 1,839,500
outstanding MMR Class A Warrants is exercised for one share of MMR
Class A Common Stock, and (iv) each of the 1,840,000 outstanding MMR
Class B Warrants is exchanged for one-fifth of a share of MMR Class A
Common Stock. See "Agreements Related to the Acquisitions and the
Dispositions --
87
<PAGE>
Agreement and Plan of Merger with MMR." In addition, assumes Mr.
Hicks converts 75,000 shares of his Class B Common Stock into Class A
Common Stock and the Company repurchases Mr. Hick's remaining Class B
Common Stock pursuant to the terms of the Hicks Agreement. See
"Management -- Employment Agreements." Does not include (i) shares of
Class A Common Stock issuable upon conversion of the Series D
Preferred Stock or (ii) 150,000 shares of Class A Common Stock
issuable in the event the seller of WHSL-FM elects to be paid in
stock.
(3) 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
March 28, 1996; and (ii) 48,010 shares owned of record by SCMC, a
corporation owned principally by and controlled by Mr. Sillerman. 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 Independent Directors. Mr.
Sillerman has agreed not to exercise any rights, options or warrants
to acquire Class A Common Stock or transfer any shares of Class B
Common Stock until the stockholders of the Company have approved the
increase in the number of authorized shares of Class A Common Stock
sufficient to insure the availability of all shares of Class A Common
Stock issuable upon conversion of the Series D Preferred Stock, or
the Exchange Notes, as the case may be, and all options, rights and
warrants to purchase shares of Class A Common Stock.
(4) Represents (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
received as Founders' Stock and (iii) 62,725 shares issued in
connection with the conversion on May 5, 1995 of 62,725 shares of
Class A Common Stock to an equal number of shares of Class B Common
Stock.
(5) In addition to the holdings specified in footnote 3, includes (i)
11,830 shares which may be acquired pursuant to the exercise of
options which have vested or will vest within 60 days of March 28,
1996, and (ii) 600,000 shares issuable upon the exercise of the
warrant issued to SCMC. See "Certain Relationships and Related
Transactions -- Relationship of the Company with SCMC."
(6) Includes (i) 53,000 shares which may be acquired pursuant to the
exercise of options which have vested or will vest within 60 days of
March 28, 1996; (ii) 14,469 shares owned of record by Capstar, Inc.,
a private company which managed the business and affairs of Capstar
and (iii) 11,849 shares distributed to Mr. Hicks as liquidating
distributions from entities which previously were investors in
Capstar. All of the outstanding capital stock of Capstar, Inc. is
owned by Mr. Hicks and trusts for the benefit of his children. Mr.
Hicks' options are to be repurchased pursuant to the Hicks Agreement.
See "Management -- Employment Agreements."
(7) Represents (i) 133,333 shares issued directly to Mr. Hicks as
Founders' Stock and (ii) 10,541 shares issued in connection with the
conversion on May 5, 1995 of 10,541 shares of Class A Common Stock to
an equal number of shares of Class B Common Stock.
(8) Includes 36,500 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of March 28,
1996. Mr. Armstrong has agreed not to exercise any rights, options or
warrants to acquire Class A Common Stock until the stockholders of
the Company have approved the increase in the number of authorized
shares of Class A Common Stock sufficient to insure the availability
of all shares of Class A Common Stock issuable upon conversion of the
Series D Preferred Stock, or the Exchange Notes, as the case may be,
and all options, rights and warrants to purchase shares of Class A
Common Stock.
(9) Includes 1,643 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of March 28,
1996.
(10) Includes 7,558 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of March 28,
1996.
(11) 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
which is controlled by The Nomura Securities Co., Ltd., a corporation
organized under the laws of Japan.
(12) 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
(the "Advisers Act"), 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 (the "1940 Act"), holds shared
voting and dispositive power with respect to 405,000 shares. Putnam
Investments is a wholly-owned subsidiary of Marsh & McLennan
Companies, Inc.
(13) 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.
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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" sections set forth
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended, and in MMR's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, as amended, which sections are
hereby incorporated by reference herein. Such incorporated sections include a
full description of the various transactions between the Company and its
affiliates and MMR and its affiliates as required by the rules and
regulations of the Commission.
RELATIONSHIP OF THE COMPANY WITH SCMC
SCMC, a corporation controlled by Mr. Sillerman, has been engaged by the
Company 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 the Company for advisory services, including the assumption of
certain obligations such as the provision of legal services. The Company has
agreed to pay to SCMC advisory fees in connection with the Liberty
Acquisition, Prism Acquisition and the Additional Acquisitions of $4.0
million. In addition, MMR has agreed to pay to SCMC $2.0 million in
connection with the MMR Merger.
The Company and SCMC have entered into an agreement dated as of April 15,
1996 (the "SCMC Termination Agreement"), pursuant to which SCMC has assigned
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 the Company and SCMC terminated
the arrangement pursuant to which SCMC performed financial consulting
services for the Company. MMR currently pays an annual fee of $500,000 to
SCMC and Triathlon currently pays 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) to SCMC. 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 advanced 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 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, the Company
issued to SCMC warrants to purchase up to 600,000 shares of Class A Common
Stock at an exercise price, subject to adjustment, of $33 3/4 , during the
six-year period from the date of issuance and the Company will forgive upon
the consummation of the MMR Merger the $2.0 million loan made by the Company
to SCMC on January 23, 1995 plus accrued and unpaid interest thereon. Of such
warrants, 300,000 are immediately exercisable and 300,000 will not become
exercisable until the stockholders of the Company approve such issuance.
Pursuant to such agreement, Mr. Sillerman has agreed with the Company that he
will supervise, subject to the direction of the Company's Board of Directors,
the performance of the financial consulting and other services previously
performed by SCMC for the Company. In addition, the Company anticipates that
it will hire certain persons previously employed by SCMC, including Howard J.
Tytel, who provided financial consulting services to the Company. See Note 10
of Notes to Consolidated Financial Statements.
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Mr. Tytel, a Director and the Executive Vice President and Secretary of
the Company, is Of Counsel to the law firm of Baker & McKenzie. Baker &
McKenzie is counsel in certain matters to the Company, 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 the Company, its affiliates and other clients originated by Mr.
Tytel. The Company paid Baker & McKenzie $842,000 for legal services during
1995. Mr. Tytel's primary employment is as an officer of SCMC.
AGREEMENTS WITH HICKS AND ARMSTRONG
On April 16, 1996, the Company entered into the Hicks Agreement with R.
Steven Hicks, the current President, Chief Executive Officer and Chief
Operating Officer of the Company, which provides that (i) Mr. Hicks'
employment agreement with the Company will terminate concurrently with the
completion of the MMR Merger, (ii) certain payments in the aggregate amount
of approximately $14.9 million will be made to Mr. Hicks, (iii) Mr. Hicks
will serve as a consultant to the Company during the five-year period
commencing on the completion of the MMR Merger and the Company will
compensate him for such services at the rate of $150,000 per year and (iv)
the Company will repurchase Mr. Hicks' shares of Class A Common Stock at Mr.
Hicks' option at any time during the five-year period from the consummation
of the MMR Merger at a price equal to the greater of $40.00 per share or the
average closing price of the Class A Common Stock for the five business days
preceding the repurchase. In addition, the Hicks Agreement provides that the
Company forgive the $2.0 million loan made by the Company to Mr. Hicks and
all accrued and unpaid interest thereon upon the termination of the Hicks
Agreement, even if such termination is for cause. Subsequent to the execution
of the Hicks Agreement, it was publicly announced that Mr. Hicks will head a
new investment group that intends to acquire radio properties, which
properties may be located in markets similar to certain of the Company's
target markets. See "Management -- Employment Agreements."
The Company has entered into the Armstrong Agreement with D. Geoffrey
Armstrong, Executive Vice President and Chief Financial Officer of the
Company, pursuant to which the Company has agreed to make certain payments to
Mr. Armstrong in the aggregate amount of $4.6 million and Mr. Armstrong has,
among other things, agreed to serve as the Chief Operating Officer of the
Company following the MMR Merger. In addition, the Company and Mr. Armstrong
each has the right to terminate Mr. Armstrong's employment with the Company
one year after the consummation of the MMR Merger. In the event of such
termination, Mr. Armstrong will receive $1.2 million and the Company will
repurchase all of the stock options granted to Mr. Armstrong pursuant to the
Stock Option Plans (as defined). See "Management -- Employment Agreements."
MMR MERGER
The Company has entered into the MMR Merger Agreement (as defined herein)
pursuant to which it has agreed to acquire all of the capital stock of MMR.
MMR was organized in 1992 by Michael G. Ferrel, who has agreed to become the
Chief Executive Officer of the Company upon completion of the MMR Merger. Mr.
Sillerman owns a substantial equity interest in MMR, which will be exchanged
for capital stock of the Company upon completion of the MMR Merger. Mr.
Sillerman has also provided advisory services to MMR in connection with the
MMR Merger through SCMC. The MMR Merger was reviewed and recommended to the
Company by the independent committee and was approved by the Board of
Directors. In addition, the Company has received the opinion of Furman Selz
LLC that the exchange ratio to be offered in the MMR Merger is fair, from a
financial point of view, to the stockholders of the Company (other than
Robert F.X. Sillerman and his affiliates). Prior to entering into the MMR
Merger Agreement, MMR and the Company had entered into an exchange agreement
(the "Letter Agreement") pursuant to which MMR was to acquire certain radio
stations owned by Liberty following the Company's acquisition of Liberty, in
exchange for radio stations to be acquired by MMR. The Letter Agreement was
terminated pursuant to the MMR Merger Agreement. See "Agreements Related to
the Acquisitions and the Dispositions -- MMR Stations," "--Agreements for the
Additional Acquisitions" and "--Other."
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares
of Class A Common Stock, 1,000,000 shares of Class B Common Stock, 1,200,000
shares of Class C Common Stock and 10,010,000 shares of preferred stock. In
connection with the MMR Merger and the Preferred Stock Offering, the
Company's stockholders will consider an amendment to the Company's
Certificate of Incorporation to increase the authorized shares of Class A
Common Stock and Class B Common Stock. Upon completion of the Financing, the
Company will have outstanding 6,458,215 shares of Class A Common Stock,
1,000,000 shares of Class B Common Stock, 2,000 shares of Series B Preferred
Stock and 2,600,000 shares of Series D Preferred Stock (2,990,000 shares of
Series D Preferred Stock in the event that the Initial Purchasers'
over-allotment option is exercised in full). Upon completion of the
Transactions and the MMR Merger (based upon the assumptions set forth in
footnote (3) under the section "Capitalization"), the Company will have
outstanding 8,381,262 shares of Class A Common Stock, 1,086,146 shares of
Class B Common Stock, 2,000 shares of Series B Preferred Stock and 2,600,000
shares of Series D Preferred Stock (2,990,000 shares of Series D Preferred
Stock in the event that the Initial Purchasers' over-allotment option is
exercised in full). In connection with the Preferred Stock Offering, the
Company has reserved for issuance 3,282,659 shares of Class A Common Stock
issuable upon the conversion of the Series D Preferred Stock, or the Exchange
Notes as the case may be, (assuming the exercise of the over-allotment
option). Accordingly, in the event the over-allotment option is exercised in
full, the Company will not be able to issue shares of Class A Common Stock
upon the conversion of all of the shares of Series D Preferred Stock or the
Exchange Notes, as the case may be, until the stockholders of the Company
have approved the increase in the number of authorized shares of Class A
Common Stock, as to which there can be no assurance. In order to reserve
shares of Class A Common Stock available for issuance upon conversion of
substantially all of the shares of Series D Preferred Stock, or the Exchange
Notes as the case may be, the holders of options to purchase approximately
962,000 shares of Class A Common Stock and the holders of approximately
850,000 shares of Class B Common Stock have agreed not to exercise such
options or convert such shares of Class B Common Stock into shares of Class A
Common Stock until such time as the Company has increased the number of
shares of Class A Common Stock available for issuance. The following
description of the authorized capital stock of the Company is a summary and
is qualified in its entirety by the provisions of the Company's Certificate
of Incorporation.
COMMON STOCK
Dividends. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available for such purpose. No dividend may be declared or paid in cash or
property on any share of any class of Common Stock, however, unless
simultaneously the same dividend is declared or paid on each share of the
other classes of Common Stock. In the case of any stock dividend, holders of
Class A Common Stock are entitled to receive the same percentage dividend
(payable in shares of Class A Common Stock) as the holders of Class B Common
Stock (payable in shares of Class B Common Stock). The payment of dividends
is limited by the Old Indenture and the Old Credit Agreement and is expected
to be limited by the terms of the New Credit Agreement the Notes and the
Indenture and other indebtedness incurred after the consummation of the
Offering.
Voting Rights. Holders of shares of Class A Common Stock and Class B
Common Stock vote as a single class on all matters submitted to a vote of the
stockholders, with each share of Class A Common Stock entitled to one vote
and each share of Class B Common Stock entitled to ten votes, except (i) for
the election of directors, (ii) with respect to any "going private"
transaction between the Company and Mr. Sillerman or any of his 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 two-sevenths (two currently) of
the Company's directors. Any person nominated by the Board of Directors for
election by the holders of Class A Common Stock as a director of the Company
must be qualified to be an Independent Director. In the event of the death,
removal or resignation of a
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director elected by the holders of Class A Common Stock prior to the
expiration of his term, the vacancy on the Board of Directors created thereby
may be filled by a person appointed by a majority of the directors then in
office, although less than a quorum. Any person appointed to fill any such
vacancy must, however, be qualified to be an Independent Director. Any
director elected by the holders of Class A Common Stock or appointed by the
Board of Directors as specified in this paragraph is referred to in this
Offering Circular as a "Class A Director." 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 ten votes, are entitled to elect the remaining directors.
The holders of Common Stock are not entitled to cumulative votes in the
election of 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 in any election of Class A Directors.
The holders of the Class A Common Stock and Class B Common Stock vote as a
single class with respect to any proposed "going private" transaction with
Mr. Sillerman or any of his affiliates, with each share of Class A Common
Stock and Class B Common Stock entitled to one vote.
Under Delaware law, the affirmative vote of the holders of a majority
outstanding shares of any class of Common Stock is required to approve, among
other things, a change in the designations, preferences or limitations of the
shares of such class of Common Stock.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of the
Company, the holders of Class A Common Stock are entitled to share ratably
with the holders of Class B Common Stock all assets available for
distribution after payment in full of creditors.
Other Provisions. Each share of Class B Common Stock is convertible,
subject to compliance with FCC rules and regulations, at the option of its
holder, into one share of Class A Common Stock at any time. Each share of
Class B Common Stock converts automatically into one share of Class A Common
Stock upon its sale or other transfer to a party not affiliated with the
Company, subject (as are all conversions of the Company's capital stock) to
compliance with FCC rules and regulations. The holders of Common Stock are
not entitled to preemptive or subscription rights. The shares of Common Stock
presently outstanding are validly issued, fully-paid and nonassessable. In
any merger, consolidation or business combination, the consideration to be
received per share by holders of Class A Common Stock must be identical to
that received by holders of Class B Common Stock, except that in any such
transaction in which shares of Common Stock are distributed, such shares may
differ as to voting rights to the extent that voting rights now differ among
the classes of Common Stock. No class of Common Stock may be subdivided,
consolidated, reclassified or otherwise changed unless concurrently the other
classes of Common Stock are subdivided, consolidated, reclassified or
otherwise changed in the same proportion and in the same manner.
PREFERRED STOCK
General. The Company's outstanding preferred stock consists of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
SERIES B PREFERRED STOCK
Dividends. No dividends are payable on the Series B Preferred Stock.
Voting Rights. The holders of record of the Series B Preferred Stock are
not entitled to voting rights, except as otherwise required by law.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Company, the
holders of the Series B Preferred Stock are entitled to be paid out of the
assets or surplus funds of the Company available for distribution, or
proceeds thereof, an amount in cash equal to $1,000 for each share
outstanding before any payment will be made upon, or assets distributed to
the holders of, Common Stock or any other capital stock of the Company. If
the assets of the Company are insufficient to pay in full the liquidation
payments payable to the holders of the Series B Preferred Stock and any other
class or series of a class of capital stock of the Company, the terms of
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which expressly provide that the shares thereof rank on a parity as to the
payment of dividends and the distribution of assets upon the liquidation,
dissolution or winding-up of the Company with the Series B Preferred Stock,
such holders share ratably to such distribution of assets or proceeds in
proportion to the amount payable on such distribution if the amount to which
the holders of the Series B Preferred Stock are entitled if paid in full.
Redemption. The Company redeemed all of the shares of Series A Preferred
Stock in October, 1994 at the liquidation value of $1,000 per share. The
Company was obligated to redeem the Series B Preferred Stock in equal amounts
of 1,000 shares in October 1995, 1996, 1997 and 1998 at the liquidation value
of $1,000 per share. In January 1994, the Company repurchased the 1,000
shares of Series B Preferred Stock due October 1998 for $750,000. The
$168,000 excess of the repurchase price over the accreted value of the shares
was recorded as an adjustment to the purchase price of Command.
Conversion Rights. The Series B Preferred Stock does not have any
conversion rights.
SERIES C PREFERRED STOCK
Dividends. The holders of the Series C Preferred Stock (the "Series C
Preferred Stock") are entitled to cumulative dividends equal to six percent
(6%) per annum of the liquidation preference of each share of Series C
Redeemable Preferred Stock payable quarterly in arrears.
Voting Rights. The holders of the Series C Preferred Stock are not
entitled to voting rights, except as otherwise required by law.
Redemption. The Company is entitled, at its option, to redeem the Series C
Redeemable Preferred Stock, in whole or in part at any time, and from time to
time, until September 13, 1998 at a redemption price per share equal to one
hundred per cent (100%) of the liquidation preference (as defined below) per
share, together with all accrued and unpaid dividends for the shares of
Series C Preferred Stock so redeemed (collectively, the "Redemption Price").
The holders of the Series C Preferred Stock are entitled, at their option, to
cause the Company to purchase the Series C Preferred Stock, in whole or in
part, after September 13, 2000 at the Redemption Price.
Conversion Rights. Upon an occurrence of an event of default (as such term
is defined in the Certificate of Designations of the Series C Preferred
Stock), which is not cured within 90 days after receipt of notice of such
default, the holder of the Series C Preferred Stock are entitled to convert
their shares of Series C Redeemable Preferred Stock then outstanding into the
number of shares of Class A Common Stock that shall be determined by dividing
the number of shares of Series C Preferred Stock then outstanding by the
product of seventy-five percent (75%) multiplied by the average closing bid
and ask price per share for the Class A Common Stock quoted on the Nasdaq
National Market or any successor exchange on which the Class A Common Stock
is listed for the thirty (30) day period immediately prior to the effective
date of the conversion.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary, the holders of shares of
Series C Preferred Stock then outstanding, shall be entitled to receive out
of the assets or surplus funds of the Company available any distribution to
stockholders, or proceeds thereof, whether from capital, surplus or earnings,
before any distribution is made to holders of Class A Common Stock, a
liquidation preference in the amount per share of Series C Preferred Stock
equal to One Thousand Dollars ($1,000) (the "Liquidation Preference").
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SERIES D PREFERRED STOCK
Dividends. The holders of the Series D Preferred Stock will be entitled
to receive cumulative dividends payable quarterly in arrears.
Voting Rights. The holders of Series D Preferred Stock will have no
voting rights except as required by law and as specified in the Certificate of
Designations with respect to the Series D Preferred Stock. Upon the Company's
failure to meet certain obligations to holders of the Series D Preferred Stock,
the holders of the Series D Preferred Stock will be entitled to elect two
additional members to the Company's Board of Directors.
Mandatory Redemption. The Series D Preferred Stock will be subject to
mandatory redemption on May 31, 2007 at the Liquidation Preference thereof plus
accrued and unpaid dividends, if any, to the redemption date.
Optional Redemption. The Series D Preferred Stock will be redeemable, in
whole or in part, at the option of the Company at any time three years after the
date of issuance at the redemption prices set forth in the Certificate of
Designations plus accrued and unpaid dividends, if any, to the redemption date.
Conversion Rights. Each share of Series D Preferred Stock will be
convertible at the option of the holder thereof into shares of Class A Common
Stock (subject to adjustment) at any time prior to the close of business on any
redemption date. In the event that an insufficient number of shares of Class A
Common Stock are available for issuance upon conversion of any shares of Series
D Preferred Stock or the Company is restricted by FCC rules from issuing shares
of Class A Common Stock upon conversion of any shares of Series D Preferred
Stock, the Company will be required to pay to the holders of Series D Preferred
Stock seeking to convert such shares an amount per share (the "Conversion
Payment") of Class A Common Stock in cash equal to 110% of the market price of
the Class A Common Stock as of the date of such conversion.
Exchange Rights. At the Company's option, the Series D Preferred Stock
will be exchangeable into 6 1/2% Convertible Subordinated Exchange Notes due
2007 (the "Exchange Notes"). The Exchange Notes will be issued pursuant to the
Exchange Note Indenture and will be subordinate to the prior payment in full of
all Senior Debt (including the Notes), whether outstanding on the date of the
Exchange Note Indenture or thereafter incurred. The Exchange Notes will contain
substantially the same terms, convenants and conditions as the Series D
Preferred Stock, including conversion rights, and redemption terms. In addition,
the Exchange Note Indenture will contain customary Events of Default provisions.
In addition, in the event that the Company fails to make the Conversion
Payments such failure would constitute an event of default under the Exchange
Note Indenture (if in effect) which may constitute a default under the New
Credit Agreement and the Indenture. The Exchange Notes will not be guaranteed by
any of the Company's subsidiaries.
Liquidation Rights. The Series D Preferred Stock will rank senior in
right of payment to every other class or series of capital stock of the Company
as to dividends and upon liquidation, dissolution or winding up of the Company.
The Series D Preferred Stock will have a Liquidation Preference of $50.00 per
share.
Change of Control. Upon a Change of Control (as defined in the
Certificate of Designations), the holders of the Series D Preferred Stock will
have the right, subject to certain conditions and restrictions, to require the
Company to repurchase their shares of Series D Preferred Stock at a purchase
price of 101% of the Liquidation Preference thereof, plus accrued and unpaid
dividends to the date of purchase. The repurchase price is payable in cash or,
at the option of the Company, in shares of Class A Common Stock valued at 95% of
the Current Market Price (as defined in the Certificate of Designations) of the
Class A Common Stock.
Certain Covenants. The Certificate of Designations will contain certain
covenants that will, among other things, limit the ability of the Company and
its subsidiaries to engage in transactions with their affiliates.
TRANSFER AGENT
Chemical Mellon Shareholder Services L.L.C. is the Transfer Agent and
Registrar for the Class A Common Stock and the Class B Common Stock and The
Bank of New York is the Transfer Agent and Registrar with respect to the
Series D Preferred Stock.
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CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND STATUTE
Directors' Liability. The General Corporation Law of the State of Delaware
(the "Delaware Law") provides that a corporation may limit the liability of
each director to the corporation or its stockholders for monetary damages
except for liability (i) for any breach of the directors duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases and (iv) for any transaction from which the director derives
an improper personal benefit. The Certificate of Incorporation provides for
the elimination and limitation of the personal liability of directors of the
Company for monetary damages to the fullest extent permitted by Delaware Law.
In addition, the Certificate of Incorporation provides that if the Delaware
Law is amended to authorize the further elimination or limitation of the
liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the Delaware Law, as
so amended. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a
breach of a director's duty of care.
Section 203 of Delaware Law. The Company is subject to the "business
combination" statute of the Delaware Law, an anti-takeover law enacted in
1988. In general, Section 203 of the Delaware Law 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," unless
(a) prior to such date the board of directors of the corporation approved
either the "business combination" or the transaction which resulted in the
stockholder becoming an "interested stockholder," (b) upon consummation of
the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (i) by persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3 % of the outstanding voting stock which is not owned
by the "interested stockholder." A "business combination" includes mergers,
stock or asset sales and other transactions resulting in a financial benefit
to the "interested stockholders." An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years,
did own) 15% or more of the corporation's voting stock. Although Section 203
permits the Company to elect not to be governed by its provisions, the
Company to date has not made this election. As a result of the application of
Section 203, potential acquirers of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.
FOREIGN OWNERSHIP
The Certificate of Incorporation restricts the ownership, voting and
transfer of the capital stock of the Company, in accordance with the
Communications Act, and the rules of the FCC, to prohibit ownership of more
than 25% of the Company'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 that are direct holders of FCC licenses), by or for the
account of Aliens or corporations otherwise subject to domination or control
by Aliens. The Company has determined that, because of the ownership by
Nomura of a significant amount of Class A Common Stock and the fact that
Aliens own a substantial portion of Nomura's own voting common stock, the
Company may prohibit acquisitions by Aliens of additional shares of the
Company's equity securities, including the Class A Common Stock and the
Series D Preferred Stock, in light of the provisions of the Communications
Act, the rules of the FCC and the
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Certificate of Incorporation. In addition, the Certificate of Incorporation
provides that shares of capital stock of the Company determined by the Board
of Directors to be owned beneficially by an Alien shall always be subject to
redemption by the Company by action of the Board of Directors to the extent
necessary, in the judgment of the Board of Directors, to comply with the
alien ownership restrictions of the Communications Act and the FCC rules and
regulations.
The Certificate of Incorporation authorizes the Board of Directors of the
Company to adopt such provisions as it deems necessary to enforce these
prohibitions. The Company established certain procedures and controls
designed to implement the aforesaid prohibitions. Specifically, at the time
shares of the Company's equity securities, including but not limited to, the
Series D Preferred Stock, are presented for transfer, the Company's transfer
agent inquires as to whether the shares are to be transferred to or for the
account of an Alien, an entity with Alien ownership or an entity that would
be considered Alien by the FCC. If so, the proposed transfer may not be
permitted. See "Business -- Federal Regulation of Radio Broadcasting --
Ownership Matters."
96
<PAGE>
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Financing and after giving effect to the
transactions contemplated in the Hicks Agreement, the Company will have a
total of 6,533,215 shares of Class A Common Stock and 856,126 shares of Class
B Common Stock outstanding. Of these outstanding shares, 1,308,215 shares of
Class A Common Stock and all of the shares of Class B Common Stock are
"Restricted Securities" as that term is defined in Rule 144, promulgated
under the Securities Act. Of such shares, 236,786 shares of Class A Common
Stock and the 856,126 shares of Class A Common Stock issuable upon conversion
of the Class B Common Stock are currently eligible for sale in the open
market under Rule 144 (subject to the limitations set forth herein). The
Company believes that the remaining 1,071,429 shares of Class A Common Stock
(which were transferred to Nomura Holdings America Inc. ("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 shares of Class A Common Stock held
by Nomura have one demand and certain piggy-back registration rights which
expires on October 7, 2000 with respect thereto. In the event that the
Company exercises its option to acquire WHSL-FM and the seller elects to
receive the purchase price in the form of 150,000 shares of Class A Common
Stock, such shares will have two demand and certain piggy-back registration
rights. The sale, or availability for sale, of substantial amounts of Common
Stock in the public market pursuant to Rule 144 or otherwise could adversely
affect the prevailing market price of the shares of Class A Common Stock and
could impair the Company's ability to raise additional capital through the
sale of equity securities.
In connection with the MMR Merger, based upon the assumptions set forth in
footnote (3) under the section "Capitalization," the Company will issue
1,848,047 and 230,020 shares of Class A Common Stock and Class B Common
Stock, respectively. Of such shares, 153,456 and 230,020 shares of Class A
Common Stock and Class B Common Stock, respectively, will be "Restricted
Securities" and the remaining shares will be freely saleable without
limitation.
Restricted Securities may not be sold under Rule 144 unless they have been
fully paid for and held for at least two years. After such two-year holding
period, a stockholder may sell his shares in broker's transactions or in
transactions directly with a marketmaker in an amount in any three-month
period not in excess of the greater of (i) one percent of the number of
shares of such class of Common Stock then-outstanding and (ii) the average
weekly trading volume of such class of Common Stock for the four-week period
prior to the date on which notice of such sale is filed with the Commission.
Sales pursuant to Rule 144 are also subject to certain other requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person who is not deemed to have been an
affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell Restricted Securities pursuant to Rule
144(k) without regard to the limitations described above, provided that three
years have expired since the later of the date on which such Restricted
Securities were acquired from the Company or the date they were acquired from
an affiliate of the Company. Under Rule 144, however, Restricted Securities
held by affiliates, even after the three-year holding period, may only be
sold in broker's transactions or in transactions directly with a marketmaker
subject to the volume limitations described above and certain other
conditions. The above is a summary of Rule 144 and is not intended to be a
complete description thereof.
The Company, Robert F.X. Sillerman and D. Geoffrey Armstrong each have
agreed not to sell or otherwise dispose of an aggregate of 57,506 shares of
Class A Common Stock and 856,126 shares of Class B Common Stock or sell or
grant any rights, options or warrants with respect to Common Stock or
securities convertible into Common Stock, without the prior consent of
Goldman, Sachs & Co., for a period of 90 days after the Closing Date.
Notwithstanding the foregoing, Mr. Armstrong may transfer securities of the
Company owned by him pursuant to his rights and obligations under the
Armstrong Agreement.
In addition, each of the Robert F.X. Sillerman, R. Steven Hicks, D.
Geoffrey Armstrong, Howard J. Tytel and Richard A. Liese, each a director of
the Company, and SCMC, have agreed not to exercise any rights, options or
warrants to acquire Class A Common Stock and Messrs. Sillerman and Hicks have
further agreed not to transfer any shares of Class B Common Stock that they
hold, subject to the Hicks Agreement, until the stockholders of the Company
have approved an increase in the number of authorized shares of Class A
Common Stock sufficient to insure the availability of all shares of Class A
Common Stock issuable upon conversion of the Series D Preferred Stock, or the
Exchange Notes, as the case may be, and all options, rights and warrants to
purchase shares of Class A Common Stock.
97
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NOTES
The following is a description of the indenture pursuant to which the
Notes will be issued (the "Indenture"). The terms of the Notes will include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act.
General. The Notes will be general unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Debt (as such term
will be defined in the Indenture).
Principal, Maturity and Interest. The aggregate principal amount of the
Notes will be $450.0 million and the Notes will mature in 2006. Interest on
the Notes will accrue annually and be payable semi-annually in arrears.
Redemption. The Notes will not be redeemable at the Company's option
before 2001. Thereafter, the Notes will be subject to redemption at the
option of the Company, at redemption prices declining ratably to par in 2004,
plus in each case, accrued and unpaid interest thereon to the applicable
redemption date.
Covenants. The Indenture will contain certain covenants which will impose
certain limitations and restrictions on the ability of the Company to make
certain payments, incur additional indebtedness, pay dividends or make other
distributions, incur certain liens, merge, consolidate or transfer
substantially all its assets, enter into certain transactions with
affiliates, engage in sale and leaseback transactions, issue or sell capital
stock of a subsidiary, engage in certain business activities and pay for
consents to changes to the Indenture.
Events of Default. The Indenture will contain customary events of default.
The occurrence of any of such event of default could result in the
acceleration of the Company's obligations under the New Credit Agreement.
OLD NOTES
In October 1993, the Company issued $80.0 million aggregate principal
amount of Old Notes, which have a maturity date of October 1, 2000. Interest
on the Old Notes accrues from October 7, 1993 and is payable semi-annually on
each April 1 and October 1 commencing on April 1, 1994. The Old Notes are
senior subordinated obligations of the Company and are subordinated in right
of payment to all existing and future permitted Senior Debt of the Company.
The Old Notes will rank pari passu in right of payment with the Notes. The
Old Notes are also subordinated to all indebtedness and trade payables of the
Company's subsidiaries. The Old Notes are redeemable at the Company's option,
in whole or in part, at any time on or after October 1, 1998, at the
following redemption prices (expressed as percentages of the principal
amount): if redeemed during the twelve month period beginning October 1, of
(a) 1998, 101.896%; and (b) 1999 and thereafter, 100.0%.
On May 2, 1996, the Company commenced the Tender Offer pursuant to which
it will offer to purchase for cash any and all Old Notes for $1,083 per
$1,000 principal amount plus accrued and unpaid interest, if any, and solicit
consents from holders of the Old Notes to amend certain restrictive covenants
in the Old Indenture. In conjunction with the Tender Offer, the Company
commenced the Consent Solicitation to amend certain restrictive covenants in
the Old Indenture and agreed to pay to each holder of Old Notes validly
consenting an amount in cash equal to $30.00 for each $1,000 principal amount
of Old Notes. The Company has received consents and tenders representing at
least a majority in aggregate principal amount of the Old Notes outstanding.
Upon receipt of tenders of Old Notes representing a majority of the
outstanding principal amount of Old Notes from holders other than the Company
and its affiliates, the Supplemental Indenture giving effect to the proposed
amendments to the Old Indenture will be executed and all Old Notes previously
tendered in the Tender Offer may not be withdrawn. The amendments to the Old
Indenture included in the Supplemental Indenture will become operative upon
the Company's acceptance of all Old Notes validly tendered pursuant to the
Tender Offer, which is expected to occur on or about May 31, 1996.
As long as any Old Notes remain outstanding after the completion of the
Tender Offer, the Company will remain subject to the terms of the Old
Indenture, as amended by the Supplemental Indenture. The Old Indenture (after
giving effect to the Supplemental Indenture) will contain covenants that,
among other
98
<PAGE>
things, limit the ability of the Company to enter into certain mergers or
consolidations, incur certain liens, incur additional indebtedness, pay
dividends and make certain other Restricted Payments (as defined therein),
and engage in certain transactions with affiliates. In particular, the
Supplemental Indenture will expand the ability of the Company and its
subsidiaries to make investments and incur indebtedness and to engage in
certain affiliate transactions in order to (i) permit the consummation of the
Financing and the Acquisitions and (ii) enhance the Company's ability to
effect future financings and acquisitions. The Old Indenture (after giving
effect to the Supplemental Indenture) will contain restrictive covenants
which are substantially similar to the restrictive covenants in the Indenture
governing the Notes.
The holders of Old Notes may require the Company to repurchase the Old
Notes in certain circumstances involving a Change in Control (as defined in
the Old Indenture) at a purchase price of 101% of the principal amount
thereof, plus accrued interest to the date of repurchase. Under certain
circumstances, the Company will be required to make an offer to purchase Old
Notes at a price equal to 100% of the principal amount thereof, plus accrued
interest to the date of purchase, with the proceeds of certain Asset Sales
(as defined in the Old Indenture). The Old Indenture (after giving effect to
the Supplemental Indenture) will contain certain customary events of default,
which include the failure to pay interest and principal, the failure to
comply with certain covenants in the Old Notes or such Indenture, a default
under certain indebtedness, the imposition of certain final judgments and
certain events occurring under bankruptcy laws which are substantially
similar to the events of default in the Indenture governing the Notes.
NEW CREDIT AGREEMENT
The Company has received a commitment letter (the "Commitment") from The
Bank of New York as arranging and administrative agent (the "Agent") for the
New Credit Agreement in the amount of $150.0 million to be provided by a
syndicate of institutions arranged by the Agent. The New Credit Agreement has
not yet been fully negotiated and may contain more or less restrictive
provisions than those set forth below. There can be no assurance that the
Company will be able to enter into the New Credit Agreement on terms as
described below, or at all.
Loan. The facility is in the form of a revolving credit facility which
converts to a five-year term loan on September 30, 1998 with repayment due in
equal quarterly installments commencing December 31, 1998 with the final
payment due September 30, 2003. The amortization schedule provides that the
principal will reduce 5% in the year 1998, 15% in 1999, 20% in each of 2000
and 2001, 22% in 2002 and the remaining 18% in 2003. The proceeds may be used
to finance permitted acquisitions and provide working capital and for general
corporate purposes. Up to $20.0 million of the facility will be available for
letters of credit.
Interest Rate. The loans will bear interest at a rate equal to, at the
Company's option, (i) the Alternate Base Rate (as defined in the Commitment)
in effect from time to time plus the Applicable Margin (as defined in the
Commitment) (the "ABR Loans") or (ii) the LIBOR Rate (as defined in the
Commitment) (adjusted for reserves) as determined by the Agent for the
respective interest period plus the Applicable Margin (the "LIBOR Loans").
The "Applicable Margin" will vary, depending upon the Company's Total
Leverage Ratio (as defined in the Commitment) and whether a loan is an ABR
Loan or a LIBOR Loan, as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN
---------------------
LIBOR
TOTAL LEVERAGE RATIO ABR LOANS LOANS
- -------------------- --------- ------
<S> <C> <C>
Equal to or greater than 6.5 to 1 ......................... 1.500% 2.700%
Equal to or greater than 6.0 to 1 but less than 6.5 to 1... 1.375 2.625
Equal to or greater than 5.5 to 1 but less than 6.0 to 1... 1.250 2.500
Equal to or greater than 5.0 to 1 but less than 5.5 to 1... 1.125 2.375
Equal to or greater than 4.5 to 1 but less than 5.0 to 1... 0.750 2.000
Equal to or greater than 3.5 to 1 but less than 4.5 to 1... 0.500 1.750
Less than 3.5 to 1 ........................................ 0.250 1.500
</TABLE>
99
<PAGE>
"Base Rate" shall mean the higher of (i) 0.5% in excess of the Federal
Funds Rate (as defined in the Commitment) and (ii) the rate that the Agent
announces from time to time as its prime lending rate. Interest on ABR Loans
will be payable quarterly in arrears. Interest on LIBOR Loans will be payable
on the last day of the applicable interest period and, in the case of
interest periods in excess of three months, on the applicable three-month
anniversary of the related borrowing. Interest periods of one, two, three and
six months will be available for LIBOR Loans.
Mandatory Prepayments. The New Credit Agreement will require mandatory
prepayments of principal in advance of scheduled due dates in certain events
including (i) when there are certain net cash proceeds from station sales or
exchanges or other dispositions not reinvested in the business (excluding the
Dispositions), (ii) 50% of Excess Cash Flow when the Total Leverage Ratio is
greater than 4.50 to 1.00 beginning with the year ending December 31, 1998,
and (iii) 100% of proceeds from the issuance of common equity in excess of
$100.0 million until the Total Leverage Ratio is below 6.00 to 1.00 and 50%
until it is 5.00 to 1.00.
"Excess Cash Flow" means broadcast revenues minus expenses (with certain
exceptions) plus certain nonrecurring expenses less fixed charges and
voluntary prepayments of loans under the New Credit Agreement.
"Total Leverage Ratio" means the ratio of (i) borrowed money and similar
debt (including capital lease obligations) less cash and cash equivalents in
excess of $5.0 million to (ii) broadcast revenues minus expenses (with
certain exceptions) plus certain nonrecurring expenses adjusted to reflect
acquisitions and dispositions.
Fees. The Company will be required to pay commitment fees of 0.5% per
annum of the unutilized total commitments under the New Credit Agreement, as
in effect from time to time, to the Agent for the account of the lenders for
the period commencing on the closing date of the New Credit Agreement to and
including the date of termination of the commitments, payable in arrears. The
Agent shall receive such other customary fees as have been separately agreed
upon with the Agent. It is anticipated that letters of credit will also be
issued under the New Credit Agreement and fees in connection with such
letters of credit will be payable by the Company in an amount equal to the
Applicable Margin from time to time for LIBOR Loans on the outstanding stated
amounts of such letters of credit.
Security and Guarantees. The New Credit Agreement will be secured by (i) a
pledge of all the capital stock of present and future subsidiaries of the
Company and (ii) a first priority perfected security interest in all assets
of the Company and its subsidiaries in which a security interest may be
lawfully granted (other than those that the Agent shall deem immaterial). The
New Credit Agreement loans will also be guaranteed by the subsidiaries of the
Company, whose guarantees shall be unconditional, joint and several
guarantees of the facility.
Change of Control. A "Change of Control" under the New Credit Agreement
shall occur if (i) Mr. Sillerman or an affiliate of Mr. Sillerman shall cease
to own beneficially more than 50% of the voting power of the capital stock of
the Company (unless the change is a result of widely distributed equity
issuances by the Company), (ii) the failure of Mr. Sillerman to remain
employed at the Company in his present capacity and (iii) other usual and
customary change of control events.
Covenants. The New Credit Agreement will contain customary restrictive
covenants, which among other things and with certain exceptions, will limit
the ability of the Company and its subsidiaries to incur additional
indebtedness and liens in connection therewith, enter into certain
transactions with affiliates, pay dividends, consolidate, merge or effect
certain asset sales, issue additional stock and enter new lines of business.
Under the New Credit Agreement, the Company will also be required to satisfy
certain financial covenants, which will require it to maintain specified
financial ratios and to comply with certain financial tests.
Events of Default. The New Credit Agreement will contain customary events
of default for facilities of the same type, size and purpose including,
without limitation, payment failures, misrepresentations, covenants,
bankruptcy, changes of control and cross defaults.
100
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of SFX Broadcasting, Inc. and
Subsidiaries at December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, the consolidated financial statements
of Multi-Market Radio, Inc. at December 31, 1995 and 1994, and for the years
then ended, and the financial statements of KKRW-FM (a division of CBS, Inc.)
at December 31, 1995 and 1994, and for the year then ended, all appearing in
this current report on Form 8-K, have been audited by Ernst & Young LLP,
independent auditors, as stated in their reports appearing herein.
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 appearing in this current report on Form 8-K, have been audited
by Coopers & Lybrand L.L.P., independent accountants, as stated in their
reports appearing herein.
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, included in this current report on Form 8-K, have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, to the extent
and for the period indicated in their report thereon.
The financial statements of ABS Greenville Partners, L.P. at December 31,
1995 and for the year then ended, appearing in this current report on
Form 8-K, have been audited by Cheely Burcham Eddins Rokenbrod & Carroll,
independent auditors, as stated in their report appearing herein.
101
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
SFX Broadcasting, Inc. and Subsidiaries:
Report of Independent Auditors ........................................................ F-3
Consolidated Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995 and
1994 ................................................................................. F-4
Consolidated Statements of Operations for the three months ended March 31, 1996 and
1995 (unaudited) and for each of the three years in the period ended December 31,
1995 ................................................................................. F-6
Consolidated Statements of Shareholders Equity (Deficiency) for the three months ended
March 31, 1996 (unaudited) and for each of the three years in the period ended
December 31, 1995 .................................................................... F-7
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and
1995 (unaudited) and for each of the three years in the period ended December 31,
1995 ................................................................................. F-8
Notes to Consolidated Financial Statements ............................................ F-9
Liberty Broadcasting, Inc.:
Report of Independent Accountants ..................................................... F-27
Consolidated Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995
and 1994 ............................................................................. F-28
Consolidated Statements of Operations for the three months ended March 31, 1996 and
1995 (unaudited), the years ended December 31, 1995 and 1994 and the nine months
ended December 31, 1993 .............................................................. F-29
Consolidated Statements of Stockholders' Equity for the three months ended
March 31, 1996 (unaudited), the years ended December 31, 1995 and 1994 and the nine
months ended December 31, 1993 ....................................................... F-30
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and
1995 (unaudited), the years ended December 31, 1995 and 1994 and the nine months
ended December 31, 1993 .............................................................. F-31
Notes to Consolidated Financial Statements ............................................ F-32
Prism Radio Partners, L.P.
Independent Auditors' Report .......................................................... F-41
Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995 and 1994 .......... F-42
Statements of Operations for the three months ended March 31, 1996 and 1995
(unaudited) and for each of the three years in the period ended December 31, 1995 ... F-43
Statements of Partners' Capital for the three months ended March 31, 1996 (unaudited)
and for each of the three years in the period ended December 31, 1995 ............... F-44
Statements of Cash Flows for the three months ended March 31, 1996 and 1995
(unaudited) and for each of the three years in the period ended December 31, 1995 ... F-45
Notes to Financial Statements ......................................................... F-46
HMW Communications, Inc. -- Selected Operations:
Report of Independent Accountants ..................................................... F-54
Combined Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995
and 1994 ............................................................................. F-55
Combined Statements of Operations for the three months ended March 31, 1996 and 1995
(unaudited), the year ended December 31, 1995 and various periods from January 6,
1994 to December 31, 1994 ............................................................ F-56
Combined Statements of Shareholders' Equity for the three months ended March 31, 1996
and 1995 (unaudited), the year ended December 31, 1995 and various periods from
January 6, 1994 to December 31, 1994 ................................................. F-57
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
PAGE
------
Combined Statements of Cash Flows for the three months ended March 31, 1996 and 1995
(unaudited), the year ended December 31, 1995 and various periods from January 6,
1994 to December 31, 1994 ............................................................ F-58
Notes to Combined Financial Statements ................................................ F-59
ABS Greenville Partners, L.P.
Independent Auditors' Report .......................................................... F-64
Balance Sheet as of March 31, 1996 (unaudited) and December 31, 1995 ................. F-65
Statement of Operations and Partners' Deficit for the three months ended March 31,
1996 and 1995 (unaudited) and for the year ended December 31, 1995 ................... F-66
Statement of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited)
and for the year ended December 31, 1995 ............................................. F-67
Notes to Financial Statements ......................................................... F-68
Multi-Market Radio, Inc. and Subsidiaries:
Report of Independent Auditors ........................................................ F-72
Consolidated Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995 and
1994 ................................................................................. F-73
Consolidated Statements of Operations for the three months ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995 and 1994 .................. F-74
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995 and 1994 .................. F-75
Consolidated Statements of Stockholders' Equity for the three months ended
March 31, 1996 (unaudited) and for the years ended December 31, 1995 and 1994 ....... F-76
Notes to Consolidated Financial Statements ............................................ F-77
KKRW-FM (a division of CBS, Inc.)
Report of Independent Auditors ........................................................ F-89
Balance Sheets as of March 31, 1996 (unaudited), December 31, 1995 and 1994 .......... F-90
Statements of Income and Division Equity for the three months ended March 31, 1996
and 1995 (unaudited) and for the years ended December 31, 1995 and 1994 ............. F-91
Statements of Cash Flows for the three months ended March 31, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994 ....................... F-92
Notes to Financial Statements ......................................................... F-93
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of SFX
Broadcasting, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of SFX Broadcasting, Inc. and Subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 20, 1996, except for
Note 14 as to which the date is May 1, 1996
F-3
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 3,349 $ 11,893 $ 3,194
Short term investments available for sale (Note 4) ....... -- -- 7,817
Accounts receivable less allowance for doubtful accounts
of $1,236, $922 and $661, respectively ................... 16,805 18,034 11,975
Prepaid broadcast rights and other current assets ........ 2,596 2,578 5,381
----------- ---------- ---------
Total current assets .................................... 22,750 32,505 28,367
----------- ---------- ---------
Property and Equipment:
Land ...................................................... 3,284 3,179 2,155
Buildings and improvements ................................ 6,318 6,265 3,648
Equipment and furniture ................................... 14,499 12,597 10,374
Equipment recorded under capital leases ................... 1,496 1,496 747
----------- ---------- ---------
25,597 23,537 16,924
Less accumulated depreciation and amortization ........... (7,440) (6,770) (4,312)
----------- ---------- ---------
Net property and equipment .............................. 18,157 16,767 12,612
Intangible Assets:
Broadcast licenses ........................................ 142,749 118,724 89,338
Goodwill .................................................. 11,209 11,209 11,209
Deferred financing costs .................................. 8,391 8,391 6,489
Other ..................................................... 6,777 4,719 3,722
----------- ---------- ---------
169,126 143,043 110,758
Less accumulated amortization ............................. (14,870) (13,500) (8,606)
----------- ---------- ---------
Net intangible assets ................................... 154,256 129,543 102,152
Deposit on station acquisition ............................ 300 3,000 --
Notes receivable from related parties (Note 10) .......... 4,518 4,439 2,148
Other assets .............................................. 2,871 1,083 529
----------- ---------- ---------
TOTAL ASSETS .............................................. $202,852 $187,337 $145,808
=========== ========== =========
</TABLE>
See accompanying notes
F-4
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ----------------------
1996 1995 1994
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................. $ 4,886 $ 4,005 $ 3,138
Accrued expenses ............................................. 4,083 4,736 2,664
Accrued interest ............................................. 283 2,303 2,297
Accrued stock acquisition cost (Note 7) ...................... -- -- 1,150
Current portion of capital lease obligations (Note 11) ...... 297 311 171
Current portion of debt (Note 5) ............................. 3,053 260 249
----------- ---------- ----------
Total current liabilities .................................. 12,602 11,615 9,669
Deferred income taxes payable (Note 8) ....................... 7,415 7,415 2,506
Capital lease obligations, less current portion (Note 11) ... 583 670 291
Debt, less current portion (Note 5) .......................... 16,252 609 805
Subordinated notes (Note 5) .................................. 80,000 80,000 80,000
Other liabilities ............................................ 704 682 1,215
----------- ---------- ----------
Total liabilities .......................................... 117,556 100,991 94,486
Redeemable preferred stock (Note 6) .......................... 3,356 3,285 2,466
Commitments and contingencies (Note 11)
Shareholders' Equity (Note 7):
Class A Voting common stock, $.01 par value; 10,000,000
shares authorized; 6,458,215 issued and outstanding in 1995
and 4,806,481 in 1994 ....................................... 64 64 48
Class B Voting convertible common stock, $.01 par value;
1,000,000 shares authorized; 1,000,000 issued and
outstanding in 1995 and 926,734 in 1994 ..................... 10 10 9
Class C Non-voting convertible common stock, $.01 par value;
1,200,000 shares authorized; 0 issued and outstanding at
December 31, 1995 and 16,784 in 1994 ........................ -- -- --
Additional paid-in capital ................................... 115,048 115,184 76,785
Unrealized holding losses on short term investments ......... -- -- (185)
Accumulated deficit .......................................... (33,182) (32,197) (27,801)
----------- ---------- ----------
Total shareholders' equity ................................. 81,940 83,061 48,856
----------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $202,852 $187,337 $145,808
=========== ========== ==========
</TABLE>
See accompanying notes
F-5
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues ................................ $ 22,405 $ 15,606 $ 87,140 $ 63,116 $ 38,701
Less agency commissions ....................... (2,605) (1,889) (10,310) (7,560) (4,468)
----------- ----------- ----------- ----------- -----------
Net revenues ................................ 19,800 13,717 76,830 55,556 34,233
Station operating expenses .................... 14,056 9,676 51,039 33,956 21,555
Depreciation, amortization, duopoly
integration costs and acquisition related
costs (Notes 2 and 3) ........................ 2,299 1,697 9,137 5,873 4,475
Corporate expenses including related party
expenses of $330 in 1995, $178 in 1994 and
$442 in 1993 (Note 10) ....................... 1,210 807 3,797 2,964 1,808
Corporate expenses--nonrecurring charge
including related party expenses of $500 in
1993 (Notes 7 and 10) ........................ -- -- -- -- 13,980
Write down of broadcast rights agreement
(Note 9) ..................................... -- -- 5,000 -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses .................... 17,565 12,180 68,973 42,793 41,818
----------- ----------- ----------- ----------- -----------
Operating income (loss) ....................... 2,235 1,537 7,857 12,763 (7,585)
Investment (income) loss ...................... (164) 3 (650) 121 (17)
Interest expense .............................. 3,384 2,432 12,903 9,332 7,351
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes,
extraordinary item and cumulative effect of
change in accounting principle ............... (985) (898) (4,396) 3,310 (14,919)
Income tax expense (benefit) (Note 8) ........ -- (377) -- 1,474 1,015
----------- ----------- ----------- ----------- -----------
(Loss) income before extraordinary item and
cumulative effect of change in accounting
principle .................................... (985) (521) (4,396) 1,836 (15,934)
Extraordinary loss on debt retirement (Note 2) -- -- -- -- 1,665
Cumulative effect of a change in accounting
principle .................................... -- -- -- -- 182
----------- ----------- ----------- ----------- -----------
Net (loss) income ........................... (985) (521) (4,396) 1,836 (17,781)
Redeemable preferred stock dividends and
accretion .................................... 136 71 291 348 557
----------- ----------- ----------- ----------- -----------
Net (loss) income applicable to common
stock ...................................... $ (1,121) $ (592) $ (4,687) $ 1,488 $ (18,338)
=========== =========== =========== =========== ===========
Net (loss) income per common share before
extraordinary item and cumulative effect of a
change in accounting principle ............... $ (0.15) $ (0.10) $ (0.71) $ 0.26 $ (6.37)
Extraordinary loss on debt retirement per
common share ................................. -- -- -- -- (.64)
Cumulative effect of change in accounting
principle per common share ................... -- -- -- -- (.07)
----------- ----------- ----------- ----------- -----------
Net (loss) income per common share ......... $ (0.15) $ (0.10) $ (0.71) $ 0.26 $ (7.08)
=========== =========== =========== =========== ===========
Weighted average common shares outstanding ... 7,458,215 5,916,445 6,595,728 5,792,385 2,589,285
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
F-6
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THREE MONTHS ENDED MARCH
31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON COMMON COMMON
--------- --------- ---------
<S> <C> <C> <C>
Balance, December 31, 1992 .......................... $2 $9
Undeclared dividends in arrears on Capstar
Communications, Inc. Class A Redeemable Preferred
Stock ..............................................
Extinguishment of note payable to Hicks Broadcast
Partners of Tennessee, L.P. (Note 1) ...............
Issuance of common stock (Note 6):
Command Purchase ................................... $11
Initial public offering, net of expenses .......... 35
Founders' stock ....................................
Accretion of dividends on redeemable preferred stock
Net loss ............................................
--------- --------- ---------
Balance, December 31, 1993 .......................... $37 $9 $11
========= ========= =========
Accretion of dividends on redeemable preferred stock
Conversion of Class C Common including fees and
expenses (Note 7) .................................. 11 (11)
Reduction of equity issuance costs ..................
Unrealized holding losses on short term investments
Net income ..........................................
--------- --------- ---------
Balance, December 31, 1994 .......................... $48 $9 $--
========= ========= =========
Public offering, net of expenses .................... 17
Redemption of Class C Common Stock (Note 7) ........
Accretion of dividends on redeemable preferred stock
Conversion of Class A Common to Class B Common
(Note 7) ........................................... (1) 1
Decrease in unrealized holding losses ...............
Net loss ............................................
--------- --------- ---------
Balance, December 31, 1995 .......................... $64 $10 $--
========= ========= =========
Accretion of dividends on redeemable preferred stock
Net loss ............................................
Balance, March 31, 1996 (unaudited) ................. $64 $10 $--
========= ========= =========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING LOSSES
PAID IN ON SHORT TERM ACCUMULATED
CAPITAL INVESTMENTS DEFICIT TOTAL
--------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 .......................... $ 2,434 $(11,856) $ (9,411)
Undeclared dividends in arrears on Capstar
Communications, Inc. Class A Redeemable Preferred
Stock .............................................. (352) (352)
Extinguishment of note payable to Hicks Broadcast
Partners of Tennessee, L.P. (Note 1) ............... 500 500
Issuance of common stock (Note 6):
Command Purchase ................................... 15,955 15,966
Initial public offering, net of expenses .......... 46,366 46,401
Founders' stock .................................... 13,480 13,480
Accretion of dividends on redeemable preferred stock (205) (205)
Net loss ............................................ (17,781) (17,781)
--------- -------------- ----------- --------
Balance, December 31, 1993 .......................... $ 78,178 $-- $(29,637) $ 48,598
========= ============== =========== ========
Accretion of dividends on redeemable preferred stock (348) (348)
Conversion of Class C Common including fees and
expenses (Note 7) .................................. (1,150) (1,150)
Reduction of equity issuance costs .................. 105 105
Unrealized holding losses on short term investments (185) (185)
Net income .......................................... 1,836 1,836
--------- -------------- ----------- --------
Balance, December 31, 1994 .......................... $ 76,785 $(185) $(27,801) $ 48,856
========= ============== =========== ========
Public offering, net of expenses .................... 39,149 39,166
Redemption of Class C Common Stock (Note 7) ........ (459) (459)
Accretion of dividends on redeemable preferred stock (291) (291)
Conversion of Class A Common to Class B Common
(Note 7) ........................................... --
Decrease in unrealized holding losses ............... 185 185
Net loss ............................................ (4,396) (4,396)
--------- -------------- ----------- --------
Balance, December 31, 1995 .......................... $115,184 $-- $(32,197) $ 83,061
========= ============== =========== ========
Accretion of dividends on redeemable preferred stock (136) (136)
Net loss ............................................ (985) (985)
Balance, March 31, 1996 (unaudited) ................. $115,048 $-- $(33,182) $ 81,940
========= ============== =========== ========
</TABLE>
See accompanying notes
F-7
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------
1996 1995 1995 1994 1993
----------- ----------- ---------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) income ..................................... $ (985) $ (521) $ (4,396) $ 1,836 $(17,781)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Extraordinary loss on debt retirement ................ -- -- -- -- 1,665
Cumulative effect of accounting change ............... -- -- -- -- 182
Depreciation and amortization ........................ 2,022 1,697 7,757 5,873 4,475
Interest on note receivable from related parties .... (79) (55) (291) (148) --
Loss on sale of investments .......................... -- 84 84 974 --
Deferred tax expense (benefit) ....................... -- (377) -- 1,309 1,015
Founders stock charge ................................ -- -- -- -- 13,480
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .......... 1,229 526 (5,164) (1,362) (662)
Decrease (increase) in prepaid broadcast rights and
other assets ........................................ (1,788) (640) 2,052 (4,476) 5
Increase (decrease) in accrued interest payable ..... (2,020) (2,258) 6 (47) 1,177
Increase (decrease) in accounts payable, accrued
expenses and other liabilities ...................... -- 2 451 (2,785) (3,480)
----------- ----------- ---------- --------- -----------
Net cash (used in) provided by operating activities . (1,621) (1,542) 499 1,174 76
Investing activities:
Purchase of stations, net of cash acquired .......... (22,487) -- (26,057) (4,604) (46,181)
Issuance of related party note receivable ............ -- (2,000) (2,000) -- (2,000)
Deposit on station acquisition ....................... (300) -- (3,000) -- --
Purchase of property and equipment ................... (351) (5,151) (3,261) (1,951) (569)
Purchase of short term investments ................... -- (3,019) (9,347)
Proceeds from sale of short term investments ........ -- 7,918 7,918 3,390 --
Proceeds from sale of assets ......................... -- 300 703 -- 1,529
Increase in other intangibles ........................ (2,055) -- -- -- --
----------- ----------- ---------- --------- -----------
Net cash (used in) provided by investing activities . (25,193) 1,067 (25,697) (6,184) (56,568)
Financing activities:
Payments on senior loans and capital lease
obligations ......................................... (165) (132) (22,521) (333) (52,972)
Additions to debt issuance costs ..................... -- (1,685) (2,139) -- (6,489)
Proceeds from senior loans and subordinated debt .... 18,500 2,000 22,000 -- 83,426
Issuance of common stock ............................. -- -- 39,166 -- 46,401
Redemption of preferred stock ........................ -- -- (1,000) (1,750) (4,244)
Retirement of Class C Common Stock ................... -- -- (459) -- --
Decrease in accrued stock acquisition costs ......... -- (1,150) (1,150) -- --
Dividends paid on preferred stock .................... (65) -- -- -- --
----------- ----------- ---------- --------- -----------
Net cash provided by (used in) financing activities . 18,270 (967) 33,897 (2,083) 66,122
Net (decrease) increase in cash and cash equivalents . (8,544) (1,442) 8,699 (7,093) 9,630
Cash and cash equivalents at beginning of period ..... 11,893 3,194 3,194 10,287 657
----------- ----------- ---------- --------- -----------
Cash and cash equivalents at end of period ............ $ 3,349 $ 1,752 $ 11,893 $ 3,194 $ 10,287
=========== =========== ========== ========= ===========
</TABLE>
See accompanying notes
F-8
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
SFX Broadcasting, Inc. (the "Company") was incorporated in Delaware on
February 26, 1992 for the purpose of owning and operating commercial radio
stations. On December 31, 1995, the Company owned and operated or provided
programming to and sold advertising on eleven FM stations and four AM
stations serving the following seven markets: Dallas and Houston, Texas; San
Diego, California; Nashville, Tennessee; Charlotte, North Carolina;
Greenville-Spartanburg, South Carolina; and Jackson, Mississippi. The Company
also owns a group of regional and national radio networks known as the Texas
State Networks ("TSN").
The Company acquired all the outstanding voting stock of Command
Communications, Inc. ("Command") (the "Command Acquisition") on July 2, 1993,
and a subsidiary of the Company merged with and into Capstar Communications,
Inc. ("Capstar") (the "Capstar Merger") on October 7, 1993, concurrently with
the completion of the Company's initial public offering of 3,500,000 shares
of its Class A Common Stock at a price of $15 per share (the "Initial Public
Offering") and $80,000,000 aggregate principal amount of 11 3/8 % Senior
Subordinated Notes due 2000 (the "Notes Offering," and together with the
Initial Public Offering, the "Offerings").
Capstar, Inc., an entity controlled by the President and Chief Executive
Officer of the Company, managed the business affairs of Capstar through
October 7, 1993. Sillerman Communications Management Corporation ("SCMC"), an
entity controlled by the Company's Executive Chairman and majority
shareholder, consulted with Capstar and Command on certain financial matters
and provided various services through October 7, 1993.
The Capstar Merger has been reflected as a transaction among entities
under common control (similar to a pooling of interests), and the historical
financial statements of the Company have been restated to include Capstar's
historical financial position and results of operations for all periods
presented.
In connection with the Command Acquisition, (a) the Company paid the
holder of the outstanding voting stock of Command $1,750,000 in cash and
issued 1,000 shares of the Company's Series A Redeemable Preferred Stock with
an aggregate liquidation preference of $1,000,000 (present value at July 2,
1993 of $865,000) upon the completion of the Offerings and (b) entered into
agreements with certain debt holders and shareholders of Command whereby upon
the completion of the Offerings: (i) the holders of Command's senior
subordinated notes exchanged their notes for $18,000,000 in cash, 4,000
shares of the Company's Series B Redeemable Preferred Stock with an aggregate
liquidation preference of $4,000,000 (present value at July 2, 1993 of
$2,631,000) and 1,071,429 shares of the Company's Class C Common Stock with a
value of $15,966,000 at the date of the Offerings; (ii) the holders of
certain of Command's junior subordinated notes and SCMC canceled their claims
for no consideration; (iii) the holder of certain of Command's junior
subordinated notes canceled such notes in exchange for the transfer, by SCMC,
of common stock of the Company; and, (iv) the holders of Command's non-voting
common stock and other equity securities canceled their claims for no
consideration. For purposes of preparing the accompanying consolidated
financial statements, the Company has accounted for the exchange and
cancellation of indebtedness and equity securities, including the issuance of
the Company's Class C Common Stock and Series A and Series B Redeemable
Preferred Stock, as if they had occurred on July 2, 1993. Further, the
Company has recorded imputed interest expense from July 2, 1993, on the
$18,000,000 cash payment paid to the holder of Command's senior subordinated
notes upon the closing of the Offerings on October 7, 1993.
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 March
31, 1996 and the results of its operations and cash flows for the three month
periods ended March 31, 1996 and 1995. Results for the interim period are not
necessarily indicative of results to be expected for the full year.
F-9
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2--ACQUISITIONS
In September 1995, the Company acquired the assets of KTCK-AM in Dallas,
Texas (the "Dallas Acquisition") from a third party for $8,633,000 in cash
(including $133,000 in transaction costs) and $2,000,000 of 6% current coupon
Series C redeemable preferred stock (see Note 6). The purchase agreement
contains a provision for a contingent payment not to exceed $7,500,000
payable in 1998 if the Company's Dallas Properties achieve certain ratings
and financial goals. If ratings continue at current levels, approximately
$2,500,000 would be due in April 1998. As of December 31, 1995, the Company
has not accrued any amounts relating to this contingency as the Company's
policy is to accrue purchase contingencies at the measurement date. The
Company had provided programming to KTCK-AM pursuant to a local marketing
agreement ("LMA") since March 1, 1995.
In April 1995, the Company acquired all of the outstanding stock of Parker
Broadcasting Company ("Parker"), the owner and licensee of radio station
KYXY-FM in San Diego, California (the "San Diego Acquisition"), for
approximately $17,424,000 (including transaction costs of $831,000 of which
$175,000 was paid to SCMC for providing or paying for legal services
necessary in negotiating and documenting the transaction), including a
$650,000 three year covenant not to compete with the former owners and an
office building to serve as the offices and studios for both KYXY-FM and
KMKX-FM (formerly KJQY-FM). In addition, costs of $1,380,000 related to the
integration of KYXY-FM and reformatting of its duopoly partner, KMKX-FM, were
included in depreciation and amortization expense. The Company had provided
programming to and sold advertising on behalf of KYXY-FM pursuant to an LMA
since January 18, 1995.
In December 1994, the Company purchased for cash substantially all of the
assets and assumed certain liabilities of WRVW-FM (formerly WYHY-FM) located
in Nashville, Tennessee, from Legacy Broadcasting Partners of Nashville, L.P.
("Legacy"). The purchase price was approximately $4,604,000 including
transaction costs of $850,000 of which $550,000 was paid to SCMC, a principal
shareholder of Legacy. None of the purchase price was paid to SCMC.
In April 1993, the Company purchased substantially all of the assets and
assumed certain liabilities of WMYI-FM, a radio station located in
Greenville-Spartanburg, South Carolina, from an unrelated third party. The
purchase price was approximately $9,400,000 plus transaction costs of
approximately $500,000 and a loan proposal and commitment fee of $600,000
were funded with a loan from a company affiliated with Hicks, Muse & Co.,
Incorporated, an investment banking firm in which a brother of the Company's
President and a director of Capstar since its formation is a principal. In
addition, the Company borrowed $1,500,000 under the loan to purchase the
Hicks Broadcasting Partners of Tennessee L.P. note payable. The $500,000
difference between the face amount of the note and the amount paid was
recorded as additional paid-in capital as the note was due to a related
party. In connection with the repayment of the loan in October 1993, the
Company paid a $686,000 prepayment penalty and wrote off unamortized deferred
financing costs of $495,000. These amounts have been included in the
extraordinary loss on debt retirement on the accompanying statement of
operations.
In December 1993, the Company purchased substantially all the assets of
WKTF-FM in Jackson, Mississippi from an unrelated third party. The purchase
price of approximately $1,157,000 was funded with a loan from the seller.
For financial statement purposes, the acquisitions were accounted for
using the purchase method, with the aggregate purchase price allocated to the
tangible and identifiable intangible assets based upon current estimated fair
market values. The allocation resulted in an excess of costs over estimated
fair value of identifiable net assets acquired of approximately $61,752,000,
$7,796,000, $457,000, $3,702,000, $21,136,000, and $9,250,000 for Command,
WMYI-FM, WKTF-FM, WRVW-FM, KYXY-FM, and KTCK-AM, respectively. The excess
cost of Command was increased by approximately $1,286,000 in 1994
F-10
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2--ACQUISITIONS (Continued)
due to the resolution of certain preacquisition contingencies, primarily
related to the adjustment to the valuation of property acquired at KODA-FM
and the settlement of certain legal matters. The assets and liabilities of
Command, WMYI-FM, WKTF-FM, WRVW-FM, KYXY-FM, and KTCK-AM and the results of
their operations for the period from the date of acquisition have been
included in the accompanying consolidated financial statements.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of Command had occurred at the
beginning of 1993, after giving effect to certain adjustments, including
amortization of goodwill and interest expense on the acquisition debt. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31, 1993
-----------------------
(UNAUDITED)
<S> <C>
Net revenues ............................................................... $ 47,435
=======================
Loss before extraordinary item and cumulative effect of change in
accounting principal ...................................................... $ (2,123)
=======================
Net loss ................................................................... $ (2,123)
=======================
Net loss applicable to common stock ........................................ $ (2,546)
=======================
Net loss per common share .................................................. $ (.44)
=======================
Weighted average common shares outstanding ................................. 5,749,999
</TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of KTCK-AM and KYXY-FM had
occurred at the beginning of 1994, after giving effect to certain
adjustments, including amortization of goodwill and the accretion of
dividends on preferred stock. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results
which may occur in the future.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31, 1994
-----------------------
(UNAUDITED)
<S> <C>
Net revenues .......................................................... $ 62,323
=======================
Net income before extraordinary item and cumulative effect of change
in accounting principal .............................................. $ 2,332
=======================
Net income ............................................................ $ 1,283
=======================
Net income applicable to common stock ................................. $ 707
=======================
Net income per common share ........................................... $ .12
=======================
Weighted average common shares outstanding ............................ 5,792,385
</TABLE>
Pro forma results for 1995 have not been presented for the KTCK-AM or
KYXY-FM acquisitions, as they would not be materially different from the
Company's operations.
F-11
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents. The carrying amounts of cash and
cash equivalents reported in the balance sheet approximate its fair value.
Short-term investments
Available-for-sale securities are investments in mutual funds and are
carried at fair value, with the unrealized gains and losses, reported in a
separate component of shareholders' equity. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in investment income or loss. The cost of securities
sold is based on the specific identification method. Interest and dividends
on securities classified as available-for-sale are included in investment
income.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
is provided on the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements ...7-20 years
Equipment and furniture ...... 5-7 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Amortization of assets recorded under
capital leases is included in depreciation expense.
Amortization of Intangible Assets
Broadcast licenses and goodwill are amortized using the straight-line
method over 40 years. Other intangible assets are being amortized using the
straight-line method over their estimated remaining useful lives from 2 to 40
years. Debt issuance costs and discounts are being amortized by the interest
method over the life of the respective debt.
The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates the
intangible assets will not be recoverable as determined based on the
undiscounted cash flows of the Company over the remaining amortization
period, the Company's carrying value of the intangible assets will be reduced
by the estimated shortfall of cash flows. In 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets" which the Company will be required to adopt in 1996. The
impact of the adoption of this statement is not expected to be material to
the consolidated financial statements.
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when
F-12
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
commercials are broadcast and related expenses are recorded when the bartered
product or service is used. For the years ended December 31, 1993, 1994 and
1995, the Company recorded barter revenue of $1,973,000, $2,905,000, and
$4,961,000 respectively, and expenses of $1,816,000, $2,738,000, and
$4,811,000 respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Local Marketing Agreements/Joint Sales Agreements
From time to time, the Company enters into LMAs and joint sales agreements
("JSAs"), with respect to broadcast properties it intends to acquire. Terms
of the agreements generally require the Company to pay a monthly fee in
exchange for the right to provide station programming and sell related
advertising time in the case of an LMA or sell advertising in the case of a
JSA. The agreements terminate upon the acquisition of the property. The fees
are expensed as incurred. The Company classifies the fees as interest expense
to the extent interest is imputed based on the purchase price of the
broadcast property.
Adverting Costs
Advertising costs are expensed as incurred and approximated $3,336,000 and
$1,828,000 in 1995 and 1994, respectively.
Per Share Data
Income (loss) per common share is based on income (losses) for the period
divided by the weighted average number of shares of common stock outstanding
plus common share equivalents (in periods in which they have a dilutive
effect) determined using the treasury stock method.
Federal Income Taxes
The Company and its subsidiaries report Federal income taxes using the
liability method in accordance with Statement of Financial Accounting
Standards No. 109.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas in Tennessee, South Carolina, North Carolina, Texas, Mississippi, and
California. Credit is extended based on an evaluation of the customers
financial condition, and generally collateral is not required. Credit losses
are provided for in the financial statements and consistently have been
within management's expectations.
Reclassification
Certain amounts in 1993 and 1994 have been reclassified to conform to the
1995 presentation.
F-13
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 4--SHORT TERM INVESTMENTS
At December 31, 1994, available-for-sale securities consisted of
investments in mutual funds which held the following securities (in
thousands):
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
COST LOSSES FAIR VALUE
-------- ------------ -----------
<S> <C> <C> <C>
December 31, 1994
US Corporate Debt Securities due in approximately
one year ........................................ $1,185 $-- $1,185
US Corporate Debt Securities due between seven
and ten years ................................... 3,772 89 3,683
US Government Debt Securities due between seven
and nine years .................................. 3,045 96 2,949
-------- ------------ -----------
$8,002 $185 $7,817
======== ============ ===========
</TABLE>
The Company recognized investment income (loss) of $650,000, ($121,000)
and $17,000 for the years ended 1995, 1994 and 1993, respectively. The
investment loss for 1994 includes a charge of $491,000 in the fourth quarter
related to the permanent decline of certain short-term investments
available-for-sale at December 31, 1994.
NOTE 5--DEBT AND SUBORDINATED NOTES
Debt consists of the following at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Promissory notes; interest at 9.25%, 10%, and 10.55% payable
in monthly installments, maturing in 1997, 1998 and 2001,
collateralized by certain assets with a book value of $1,123
at December 31, 1995 ......................................... $ 869 $1,054
Less current portion .......................................... (260) (249)
------- --------
$ 609 $ 805
======= ========
</TABLE>
The aggregate contractual maturities of long-term debt for the years
ending December 31 are as follows: 1996--$260,000; 1997--$257,000;
1998--$320,000; 1999--$13,000; 2000--$14,000; thereafter $5,000.
In October 1993, the Company issued $80,000,000 in Senior Subordinated
Notes. The Company incurred issuance costs of approximately $6,249,000 that
were recorded as deferred financing costs. The Senior Subordinated Notes bear
interest, payable semiannually, at 11 3/8 % and are due October 2000. The
notes are unsecured obligations and are subordinate to all senior debt of the
Company.
The Company paid interest of $6,094,000, $9,464,000 and $12,903,000 for
the years ended December 31, 1993, 1994 and 1995, respectively. Included in
the 1995 interest expense is $2,524,000 and $323,000 related to the LMA fees
associated with the Charlotte and Dallas Acquisitions, respectively. The
total of
F-14
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 5--DEBT AND SUBORDINATED NOTES (Continued)
Short Term Investments interest expense and amortization of deferred
financing costs is $7,903,000, $10,507,000 and $14,166,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
On March 22, 1995, the Company entered into an amended $50,000,000 senior
credit facility ("New Credit Facility") pursuant to which it has available
(i) a revolving line of $45,000,000 until September 30, 1996, at which time
any outstanding indebtedness under the revolving line of credit converts to a
term loan which amortizes over three years and three months; and (ii) a
working capital term loan of $5,000,000. After the revolving line of credit
converts into a term loan, the Company will be required to make quarterly
repayments of principal through the date of maturity, thereby reducing the
total percentage of outstanding debt under the New Credit Facility by 7.5% in
1996, 30.5% in 1997, 32% in 1998 and 30% in 1999. All loans made to the
Company pursuant to the working capital term loan portion of the New Credit
Facility will mature on December 31, 1999. The outstanding principal amount
under the working capital portion of the New Credit Facility will be required
to be reduced to zero for 30 consecutive days during each 12-month period
commencing on March 22, 1995. This facility replaced the prior credit
facility of $7,500,000. Interest on the funds borrowed under the New Credit
Facility will be based upon a floating rate selected by the Company of either
(i) the higher of (a) The Bank of New York's prime rate or (b) the federal
funds rate plus 0.5%; or (ii) the LIBOR rate, in each case plus the
applicable margin which will be based upon the ratio of Total Debt plus
redeemable preferred stock over Operating Cash Flow (as those terms are
defined in the New Credit Facility) and which may range from 0.5% to 5.50%.
The Company's obligations under the New Credit Facility are secured by
substantially all of its assets, including property, stock of subsidiaries
and accounts receivable, and is guaranteed by the subsidiaries of the
Company. In 1994, the Company paid $100,000 to SCMC for legal services
necessary in connection with establishing the New Credit Facility.
The New Credit Facility and the Indenture contain restrictive covenants
that, among other things, impose restrictions on the Company and its
subsidiaries with respect to (i) the incurrence of additional indebtedness,
(ii) capital expenditures, (iii) dividends or other distributions, (iv)
acquisitions and mergers, (v) the incurrence of additional liens, (vi)
engaging in a business other than the ownership and operation of radio
broadcasting stations, (vii) the disposition of assets, (viii) the redemption
or retirement of capital stock or debt, or investing in persons other than
the Company, (ix) investments, loans and advances, (x) transactions with
affiliates, and (xi) sale-leaseback transactions.
NOTE 6--REDEEMABLE PREFERRED STOCK
Preferred stock consists of the following at December 31, 1995 and 1994
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Preferred Stock of the Company, $.01 par value, 10,012,000 shares
authorized:
Series B Redeemable, 3,000 and 2,000 shares issued and outstanding
in 1994 and 1995, respectively, includes accreted dividends of
$348 in 1994 and $269 in 1995 .................................... $1,735 $2,466
Series C Redeemable, 2,000 shares issued and outstanding in 1995,
includes accreted dividends of $22 in 1995 ....................... 1,550 --
-------- --------
$3,285 $2,466
======== ========
</TABLE>
The shares of Series A Redeemable Preferred Stock were redeemed in October
1994 at the liquidation value of $1,000 per share.
F-15
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 6--REDEEMABLE PREFERRED STOCK (Continued)
The shares of Series B Redeemable Preferred Stock are non-voting, not
entitled to receive dividends and are required to be redeemed in equal
amounts of 1,000 shares in October 1996 and 1997 at the liquidation value of
$1,000 per share. In January 1994, the Company repurchased the 1,000 shares
of Series B Redeemable Preferred Stock due October 1998 for $750,000. The
Series B Redeemable Preferred Stock ranks senior to the Company's common
stock as to dividends and liquidation rights.
The shares of Series C Redeemable Preferred Stock receive cumulative
dividends equal to six percent per annum paid by the Company in arrears on a
quarterly basis. The shares are non-voting and are redeemable by the Company
after September 15, 1998 or by the seller after September 15, 2000, at the
liquidation value of $1,000 per share. The Series C Redeemable Preferred
Stock ranks senior to other preferred stock and to the Company's common stock
as to dividends and liquidation rights.
NOTE 7--SHAREHOLDERS' EQUITY
COMMON STOCK
In November 1992, 105,404 shares of Class A Common Stock and 893,166
shares of Class B Common Stock (collectively "Founders' Stock") were issued
to related parties in consideration of their efforts in organizing and
structuring the Company. The Company has recorded a non-recurring, non-cash
charge in the amount of $13,480,000 reflecting the fair value of the
Founders' Stock at the date of the Initial Public Offering in the
accompanying statement of operations.
Effective with the Initial Public Offering, Capstar was merged into the
Company. In connection with the merger, 76,315 shares of Class A Common
Stock, 33,568 shares of Class B Common Stock, and 16,784 shares of Class C
Common Stock were issued in exchange for all outstanding common stock of
Capstar and 53,333 shares of Class A Common Stock were issued in exchange for
all outstanding Series A Preferred Stock of Capstar.
The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on
all matters to be voted on by stockholders, except (i) for the election of
directors, (ii) with respect to any "going private" transaction between the
Company and its Chairman, or any of his affiliates, and (iii) as otherwise
provided by law. In November 1994, the Board of Directors approved the
conversion of 73,266 shares of Class A Common Stock held by the Chairman and
the President of the Company to Class B Common Stock. The conversion occurred
on May 5, 1995. The holders of Class A and Class B Common Stock share ratably
in all dividends and other distributions. At December 31, 1995, 1,000,000
shares of Class A Common Stock, authorized but unissued, are reserved for
conversion of the Class B Common Stock. Shares of the Company's Class B
Common Stock convert on a share per share basis into the same number of Class
A Common Stock under certain circumstances.
In December 1994, pursuant to a transfer, 1,071,429 shares of Class C
stock held by an affiliate of the Company were converted into Class A Common
Stock. In connection with this conversion, the Company agreed to pay SCMC a
$1,000,000 fee based upon: (i) SCMC's negotiation of the transfer on behalf
of the Company; (ii) SCMC's surrender of certain contractual rights and
economic interests with respect to the transferred stock, which would
otherwise block the stock transfer; (iii) the restatement, including
significant favorable adjustments, of the registration rights agreement
pursuant to which the transferred stock were originally issued; (iv) the
obtaining the rights of first refusal with respect to subsequent transfers of
the stock; (v) the Company's belief that the transfer will have a favorable
effect on the market of the Company's Class A Common Stock and (vi) SCMC's
assumption of certain legal costs of the
F-16
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 7--SHAREHOLDERS' EQUITY (Continued)
transaction. The Company's Board of Directors may consider additional fees in
the event that actual benefits to the Company from this transaction warrant
additional compensation. This transaction was the subject of a Fairness
Opinion from an independent investment banking firm. The Company has charged
paid-in capital $1,150,000 for the $1,000,000 fee and legal, accounting, and
valuation services of $150,000 related to this transaction.
In December 1995, 16,784 shares of non-voting Class C Common Stock were
repurchased for $459,000.
In July 1995, the Company completed an offering of 1,725,000 shares of its
Class A Common Stock, including the subsequent exercise by the underwriters
of an over-allotment option of 225,000 shares, for $24.50 per share. The net
proceeds of the offering were $39,166,000 after underwriting discounts,
commissions and other costs of the offering. The net proceeds were utilized
to repay senior indebtedness of $21,500,000 and to fund the Dallas
Acquisition and a portion of the Charlotte Acquisitions (See Note 14). The
following unaudited pro forma summary presents earnings per share as if the
retirement of debt with the offering proceeds had taken place at the
beginning of the period. These proforma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the retirement been made as of that date.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31, 1995 (DOLLARS
IN THOUSANDS)
----------------------------
(UNAUDITED)
<S> <C>
Net loss .................................. $ (3,998)
Net loss applicable to common stock ...... (4,288)
============================
Net loss per common share ................. $ (.57)
============================
Weighted average common shares outstanding 7,474,769
</TABLE>
STOCK OPTIONS
The 1993, 1994 and 1995 Stock Option Plans (the "Plans") provide for
granting of options to buy Class A Common Stock as additional compensation to
officers and employees of the Company and other individuals who are primarily
responsible for the management and growth of the Company. The 1993, 1994 and
1995 Plans provide that options may be granted with respect to a total of
350,000, 150,000, and 250,000 shares of Class A Common Stock, respectively.
Options granted under these plans are generally granted at option prices
equal to the fair market value of shares of Class A Common Stock on date of
grant. Terms of the options are determined by the Company provided that the
maximum term of each option shall be ten years.
In December 1993, the Company granted 350,000 non-qualified options to
officers and employees of the Company at $13.50 per share. The options vest
on the anniversaries of the grant date as follows: 10% at the completion of
the second year; 20% at the completion of the third year; 30% at the
completion of the fourth year; and 40% at the completion of the fifth year.
The Company has reserved 350,000 shares of its Class A Common Stock for
issuance under the 1993 Plan.
In June 1994, the Company granted 150,000 non-qualified options to
officers and employees of the Company at $13.00 per share. Of the options
granted, 110,000 vested on the date of issuance. The remaining 40,000 options
vest 20% on each anniversary of the grant. The Company has reserved 150,000
shares of its Class A Common Stock for issuance under the 1994 plan.
F-17
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 7--SHAREHOLDERS' EQUITY (Continued)
In May 1995, the Company authorized 250,000 and granted 248,000
non-qualified options to officers and employees of the Company at $21.25 per
share. The options vest 20% on each anniversary of the grant. The Company has
reserved 250,000 shares of its Class A Common Stock for issuance under the
1995 plan.
No options have expired or been exercised as of December 31, 1995. The
Company accounts for its stock compensation arrangements under the provisions
of APB 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so.
NOTE 8--INCOME TAXES
The acquisition of San Diego Acquisition resulted in the recognition of a
net deferred tax liability of approximately $4,900,000 under the purchase
method of accounting. This amount was based upon the excess of the financial
statement basis over the tax basis in assets, principally intangible assets.
A full valuation allowance has been recorded against San Diego Acquisition
pre acquisition net operating loss of approximately $2,200,000, as its
ultimate utilization may be limited. In the event the company recognizes
additional tax benefit related to San Diego's pre acquisition net operating
loss carry forwards, those benefits would be applied to reduce goodwill and
other intangibles to zero prior to reducing income tax expense.
At December 31, 1995, the company has net operating loss carry forwards of
approximately $11,300,000 that will expire from 2003 through 2010. Due to
ownership changes, the utilization of approximately $5,100,000 of these
losses is limited.
The Company paid income taxes of $300,000 in 1994 and did not pay any
income taxes in 1995. The deferred tax valuation allowance increased from
$595,000 at December 31, 1994 to $2,883,000 at December 31, 1995 of this
increase, $854,000 results from the San Diego Acquisition and the balance is
related to deferred tax assets associated with capital and net operating
losses that may not be realizable. The Company has considered prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance and has assumed $650,000 of benefit attributable to such
strategies. In event the Company were to determine in the future that such
strategies would not be implemented, an adjustment to the deferred tax
liability would be charged to income in the period such determination was
made.
F-18
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 8--INCOME TAXES (Continued)
The income tax expense recorded during 1994 reflects increases in the
excess of the financial statement basis over tax basis in assets resulting
from differences in amortization periods offset, in part, by the projected
reversal of temporary differences within the carry-forward period of
available net operating losses. As a result of current losses and the
deferred benefit associated with the losses, no current or deferred expense
or benefit was recorded for the year ended December 31, 1995. For the years
ended December 31, 1995 , 1994, and 1993 the tax provision consists of the
following in thousands:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current
Federal .. $-- $ 65 $ --
State ..... -- 100 --
------ -------- -------
-- 165 --
------ -------- -------
Deferred
Federal .. -- 1,170 863
State ..... -- 139 152
------ -------- -------
-- 1,309 1,015
------ -------- -------
$-- $1,474 $1,015
====== ======== =======
</TABLE>
The net deferred tax liability at December 31, 1995 and 1994 results from the
following temporary differences (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable ....................... $ 350 $ 252
Net operating loss carryforwards ........ 4,292 1,372
Writedown of broadcast rights agreeement 484 --
Capital loss / AMT carryforwards ........ 435 435
Accrued bonuses .......................... 57 --
---------- ---------
Total deferred tax assets ................ 5,618 2,059
Valuation allowance ...................... (2,883) (595)
---------- ---------
Net deferred tax assets ................. 2,735 1,464
Deferred Tax Liabilities:
Property, plant and equipment ............. (354) (379)
Intangible assets ........................ (9,719) (3,419)
Other .................................... (77) (172)
---------- ---------
Total deferred tax liabilities .......... (10,150) (3,970)
---------- ---------
Net deferred tax liability .............. $ (7,415) $(2,506)
========== =========
</TABLE>
F-19
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 8--INCOME TAXES (Continued)
The 1995, 1994 and 1993 effective tax rate varied from the statutory
Federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- ----------
<S> <C> <C> <C>
Income taxes at the statutory rate ................ $(1,495) $1,125 $(5,222)
Effect of nondeductible Founders Stock Charge .... -- -- 4,718
Capital loss limitation ........................... -- 332 --
Net operating losses
Limitation / (Utilization) ........................ 1,434 (207) 1,131
Effect of nondeductible amortization of intangible
assets ........................................... 198 179 378
Reversal of 1993 provision ........................ -- (412) --
State and local income taxes ...................... (145) 273 --
Other ............................................. 8 184 10
---------- -------- ----------
Total ......................................... $ -- $1,474 $ 1,015
========== ======== ==========
</TABLE>
NOTE 9--WRITE DOWN OF BROADCAST RIGHTS AGREEMENT
In August 1994, the Company entered into an agreement to broadcast Texas
Rangers baseball games on KRLD-AM and to syndicate the games through Texas
State Networks, for a period of four years, commencing with the 1995 season.
While the contract contemplated the possibility of a baseball work stoppage,
and contained certain provisions affording the Company partial relief from
the payment of rights fees under certain specified conditions related to work
stoppages, the nature of the major league baseball strike and consequently
the damage to the value of the Texas Rangers broadcast rights has been more
material than management had anticipated. The total rights fees under the
four-year agreement, subject to adjustment, were stated at $17,000,000. In
the second quarter of 1995, the Company recorded a charge of $5,000,000 with
respect to the estimated diminished value of the contract.
The Company's estimate as to the carrying value of the contract is based
on among other things, the projected revenue to be derived during the term.
Due to the ongoing uncertainty surrounding major league baseball and related
broadcast revenue, it is reasonably possible that the estimates may change.
NOTE 10--RELATED PARTY TRANSACTIONS
The Company holds a non-recourse note receivable from the Company's
President in the amount of $2,000,000 which is secured by 133,333 shares of
Class B Common Stock. The note bears interest at 6% per annum. Interest and
principal is due in full on the earlier of the termination of the officer's
employment contract or October 1998. In 1995, interest income in the amount
of $120,000 was accrued. The interest amount is included in the note
receivable balance on the balance sheet.
In January 1995, the Company extended to SCMC a $2,000,000 unsecured loan
which is due on January 23, 2000. The note ("SCMC Note") bears interest at 1%
over the prime rate which is payable annually. Interest and principal may, by
mutual agreement of the parties, be offset by any fees owed by the Company to
SCMC. The SCMC Note contains certain financial covenants, the violation of
which would result in the default and acceleration of the note. The Company
has received a fairness opinion with respect to the loan from an independent
investment banking firm. In 1995, interest income in the amount of $171,000
was accrued. The interest amount has been classified in notes receivable from
related parties on the balance sheet. Subsequent to December 31, 1995, the
Company's Board of Directors authorized adding the unpaid interest due in
January, 1996, to the principal balance of the note.
F-20
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 10--RELATED PARTY TRANSACTION (Continued)
In 1989, Capstar entered into a management agreement with Capstar, Inc.,
a related party. Under the terms of the management agreement, Capstar, Inc.
managed all aspects of the daily operation of the radio stations. In
consideration for its services to Capstar, Capstar, Inc. received an annual
fee of $150,000 per year and an additional amount of $30,000 if certain cash
flow targets were met, both of which were adjustable based on increases in
the Consumer Price Index. In addition, Capstar, Inc. was reimbursed for
expenses incurred in the performance of the management services, including
rent and other office expenses. Total payments to Capstar, Inc. were $893,000
for the year ended December 31, 1993, including $700,000 related to the
acquisition of WMYI-FM and the merger of Capstar with the Company, all of
which have been expensed in the statement of operations. The agreement was
terminated in connection with the completion of the Offerings. The Company
sublets office space in Austin, Texas on a month to month basis for certain
management and accounting operations from Capstar, Inc for which the Company
recorded rent expense of $94,000 and $67,000 for the years ended December 31,
1994 and 1995, respectively.
Capstar entered into a financial consulting agreement with SCMC in
November 1989. Under this agreement, SCMC provided ongoing analysis services
to the Company. In return for its services, SCMC received a consulting fee of
$100,000 per annum, adjustable based on increases in the Consumer Price
Index. The Company expensed consulting fees of $75,000 for the year ended
December 31, 1993. Payments in 1993 totaled $ 310,000. In connection with
services provided to the Company related to acquisitions, dispositions,
negotiation of debt agreements and the Offerings, SCMC received fees in the
amount of $297,000 in 1993. The agreement was terminated in connection with
the completion of the Offerings.
In connection with a personal guarantee of certain Command debt, the
Company paid its Executive Chairman $75,000 in September 1993. The Company
also paid a fee of $75,000 to its Executive Chairman for guaranteeing a
$7,500,000 revolving credit facility with a bank. These amounts paid were
expensed in the 1993 financial statements. In October 1993 and January 1994,
respectively, these guarantees were released.
In connection with the Initial Public Offering, SCMC and an affiliate were
paid $1,532,000, substantially all of which were reimbursements for expenses
paid to third parties prior to completion of the Initial Public Offerings.
The Company and SCMC, entered into an arrangement to jointly lease office
space from an unrelated third party in May, 1994. The liability of the
Company and SCMC under the lease arrangement is joint and several except that
the liability of SCMC shall not exceed 14% of the obligation to the landlord.
In connection with the arrangement, the Company posted $125,000 in a letter
of credit to guarantee the lease. The Company paid rent expense related to
the lease for the years ending December 31, 1993, 1994, and 1995 of $83,000,
$180,000 and $335,000, respectively.
In January 1995, the Company paid a $1,000,000 fee to SCMC in connection
with the transfer of shares of the Company's Class C Common Stock. See Note
7.
The Company maintains an office in New York and employs individuals who
were previously employees of SCMC. Total salaries and wages paid to nine
employees were approximately $300,000 for 1994. During 1995, salaries and
wages paid to five employees approximated $200,000. Certain of the Company's
employees in the New York office have performed certain services for other
affiliated entities of the Company's Executive Chairman. However, SCMC has
advised the Company that other employees of such affiliated entities have
performed services for the Company without charge to the Company. This
situation was reviewed by the Company's audit committee and a determination
was made that there were no material imbalances in the services received by
the Company and the costs incurred by it.
F-21
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 10--RELATED PARTY TRANSACTION (Continued)
The Company has an agreement with the Chairman related to the maintenance
of the Company's New York office pursuant to which the Company paid SCMC
$178,000 in 1994 and $330,000 in 1995 in excess of the lease payments, which
payments have been paid to SCMC for disbursement to third-party service
providers where appropriate.
The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of
Directors, including as to transactions entered into after the Company's
Initial Public Offering of securities the Company's independent directors, in
accordance with the provisions relating to affiliate transactions in the
Company's by-laws, bank agreements and Indenture, which provisions require a
determination as to the fairness of the transactions to the Company.
Also, see Notes 1, 2, 5, 7, and 13.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating leases and broadcast rights
agreements. Total rent expense was $781,000, $1,160,000 and $1,506,000 for
the years ending December 31, 1993, 1994 and 1995, respectively. Future
minimum payments in the aggregate for all noncancelable operating leases and
broadcast rights agreements with initial terms of one year or more consist of
the following at December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................ $ 5,598
1997 ................ 5,551
1998 ................ 6,033
1999 ................ 953
2000 ................ 916
2001 and thereafter 3,756
--------
Total .............. $22,807
========
</TABLE>
Future minimum payments in the aggregate for all noncancelable capital
leases with initial terms of one year or more consist of the following at
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ............................................ $ 410
1997 ............................................ 337
1998 ............................................ 217
1999 ............................................ 166
2000 ............................................ 70
--------
Total minimum lease payments ................... $1,200
Less: Amount representing interest ............. (219)
--------
Present value of future minimum lease payments 981
Less current portion ........................... (311)
--------
Long-term capital lease obligations ........... $ 670
========
</TABLE>
F-22
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 11--COMMITMENTS AND CONTINGENCIES (Continued)
The Company has entered into employment agreements with certain officers
and other key employees. Expenses under the contracts amounted to $3,390,000
for the year ended December 31, 1995. Future minimum payments in the
aggregate for all employment agreements with initial terms of one year or
more consist of the following at December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................. $ 4,217
1997 ................ 4,114
1998 ................ 3,626
1999 ................ 3,296
2000 ................ 1,892
2001 and thereafter 484
--------
$17,629
========
</TABLE>
The Company is the subject of various claims and litigation principally in
the normal course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse impact on the
consolidated financial statements.
NOTE 12--DEFINED CONTRIBUTION PLAN
Command sponsored a 401(k) defined contribution plan in which most of its
employees were eligible to participate. Subsequent to the acquisition of
Command, the plan was continued for Command employees and effective January
1, 1994, the Plan was expanded to cover all the Company's employees. The Plan
presently provides for discretionary employer contributions. The Company
contributed $17,000 in 1994 but made no contributions in 1995.
NOTE 13--PENDING TRANSACTION RELATING TO LIBERTY BROADCASTING
In November 1995, the Company entered into an agreement to acquire Liberty
Broadcasting, Incorporated ("Liberty") for a purchase price of approximately
$236,000,000, subject to adjustment. Liberty is a privately-held radio
broadcasting company that owns and operates, provides programming to or sells
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. The Company entered into an agreement to sell three of
the Liberty stations that operate in the Washington, DC/Baltimore, Maryland
market for $25,000,000.
NOTE 14--SUBSEQUENT EVENTS
In January 1996, the Company entered into an agreement granting it an
option to acquire substantially all of the assets of radio station WHSL-FM,
operating in Greensboro, North Carolina from HMW Communications, Inc.
("HMW"), for an aggregate purchase price of approximately $4,500,000 cash or
150,000 shares of Class A Common Stock of the Company. Concurrently
therewith, the Company entered into a JSA with HMW with respect to such
station.
In February 1996, the Company exercised its option to acquire all of the
assets used in the operation of WJDX-FM for a purchase price of $3,000,000
pursuant to the provisions of an option agreement dated as of December 15,
1993.
In February 1996, the Company acquired all of the assets of WTDR-FM and
WLYT-FM in Charlotte, North Carolina (the "Charlotte Acquisition") for
aggregate consideration of approximately $24,750,000. The Company had
provided programming and sold advertising on the stations pursuant to a LMA
since April 1, 1995.
F-23
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 14--SUBSEQUENT EVENTS (Continued)
In February 1996, the Company entered into an agreement to acquire from
Prism Radio Partners, L.P. ("Prism"), a privately-held radio broadcasting
company, substantially all of the assets used in the operation of ten FM and
six AM radio stations, for approximately $105,250,000. The Prism stations are
located in five markets: Louisville, Kentucky; Jacksonville, Florida;
Raleigh, North Carolina; Tucson, Arizona and Wichita, Kansas. In April 1996,
the Company entered into a letter of intent to sell three of the Prism
stations that operate in the Louisville, Kentucky market for $19,500,000.
In April 1996, the Company entered into an amended and restated agreement
and plan of merger (the "MMR Merger") pursuant to which it has agreed to
acquire Multi-Market Radio, Inc. ("MMR"). Following completion of the MMR
Merger, MMR will become a wholly-owned subsidiary of the Company. MMR is a
radio broadcasting company which owns and operates, provides programming to
or sells advertising on behalf of 16 FM stations and one AM station located
in seven markets: New Haven, Connecticut; Springfield/Northampton,
Massachusetts; Daytona Beach, Florida; Augusta, Georgia; Biloxi, Mississippi;
Little Rock, Arkansas and Myrtle Beach, South Carolina. MMR has entered into
agreements or letters of intent to acquire WKSS-FM, Hartford, Connecticut,
and WMYB-FM, Myrtle Beach, South Carolina, and to sell KOLL-FM, Little Rock,
Arkansas, and WRXR-FM and WKBG-FM, both operating in Augusta, Georgia. MMR is
currently negotiating the termination of a JSA with WCHZ-FM and an LMA with
WAEG-FM and WAEJ-FM, each operating in Augusta, Georgia.
Upon consummation of the MMR Merger and subject to certain conditions, the
outstanding securities of MMR will be converted into shares of common stock
of the Company, as follows: (i) the 2,990,500 shares of Class A Common Stock
of MMR and the 200,000 shares of Series B Convertible Preferred Stock of MMR
will be converted into that number of shares of Class A Common Stock of the
Company determined on the basis of the Exchange Ratio (as defined below) and
(ii) the 140,000 shares of Class B Common Stock of MMR, the 360,000 shares of
Class C Common Stock of MMR and 200,000 shares of Original Preferred Stock of
MMR will be converted into the number of shares of Class B Common Stock of
the Company determined on the basis of the Exchange Ratio.
Exchange Ratio means the number of shares of Class A Common Stock or Class
B Common Stock of the Company, as the case may be, to be issued in the MMR
Merger equal to the quotient obtained by dividing $11.50 by the average of
the price of the Company's Common Stock for the 20 consecutive trading days
ending on the fifth trading day prior to the closing; provided, however, that
(1) in the event that the Class A Common Stock Price exceeds $42.00 but is
equal to or less than $44.00, then the Exchange Ratio shall be the quotient
obtained by dividing (i) the sum of (A) $11.50, plus (B) the product of (I)
twenty-five percent (25%) multiplied by (II) the difference between the
Common Stock Price and $42.00 by (ii) the Common Stock Price, (2) in the
event that the Common Stock Price exceeds $44.00, then the Exchange Ratio
shall be the quotient obtained by dividing (i) the sum of (A) $12.00, plus
(B) the product of (I) thirty percent (30%) multiplied by (II) the difference
between the Class A Common Stock Price and $44.00 by (ii) the Class A Common
Stock Price, or (3) in the event that the Class A Common Stock Price is less
than $32.00 then the Exchange Ratio shall be .3593.
Upon the completion of the MMR Merger, each outstanding option (the "MMR
Options") or stock appreciation right (the "MMR SARs") issued pursuant to
MMR's stock option plans, whether vested or unvested, will be assumed by the
Company.
Additionally, each outstanding (i) Class A Warrant (the "MMR Class A
Warrants") and Class B Warrant (the "MMR Class B Warrants") of MMR issued in
connection with MMR's public offering in March 1994, (ii) option issued
pursuant to the unit purchase options issued to the underwriters of MMR's
public offering in March 1994, (iii) warrant issued to the underwriters of
MMR's initial public offering in
F-24
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 14--SUBSEQUENT EVENTS (Continued)
July 1993, (iv) warrant issued to The Huff Alternative Income Fund, L.P. and
(v) options issued to Robert F.X. Sillerman outside MMR's stock option plans
(collectively, the "MMR Warrants"), shall be assumed by the Company. Each
holder of a MMR Warrant will be entitled to that number of warrants of the
Company, determined in the same manner as set forth above with respect to MMR
Options assumed by the Company.
In November 1995, the Company and MMR entered into an exchange agreement
(the "Letter Agreement") pursuant to which MMR agreed to acquire seven FM and
four AM radio stations owned by Liberty and to assume a JSA from Liberty with
respect to one FM station following the Company's acquisition of Liberty, in
exchange for ten radio stations to be acquired by MMR. Pursuant to the MMR
Merger agreement, the Company and MMR canceled the Letter Agreement and MMR
agreed to use its commercially reasonable efforts to transfer to the Company
its rights under the following purchase agreements for the stations
originally to be acquired by MMR and exchanged with the Company. 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 the Raleigh, North Carolina
market, and WMFR-AM, WMAG-FM and WTCK-AM (formerly, WWWB-AM), each operating
in the Greensboro, North Carolina market, for a purchase price of
approximately $38 million, subject to adjustment based on the broadcast cash
flow of WTRG-FM and WRDU-FM. The Company posted $300,000 in cash and
$6,750,000 in letters of credit as deposits for these purchase agreements.
The Company and MMR have agreed that the Company will lend to MMR the
financing necessary to complete the purchase of such stations and that MMR
will immediately thereafter transfer the purchased assets to the Company. MMR
has entered into LMAs with the current owners of the stations operating in
the Greenville, South Carolina and Jackson, Mississippi markets, and
concurrently therewith, MMR has entered into JSAs with the Company pursuant
to which the Company was granted the exclusive right to sell advertising on
behalf of all but one of the stations in such markets. MMR has also entered
into a JSA with the current owner of the stations operating in the
Greensboro, North Carolina market, and concurrently therewith, the Company
entered into a JSA with MMR with respect to such stations.
Further, the Company has entered into a non-binding letter of intent to
exchange radio station KRLD-AM, operating in Dallas, Texas and the Texas
State Networks, for radio station KKRW-FM, operating in Houston, Texas (the
"Houston Exchange"), and has entered into a non-binding letter of intent to
sell radio station KTCK-AM, operating in Dallas, Texas for approximately
$14,000,000. The Company estimates that it will pay $2,500,000 to the entity
that sold it KTCK-AM in satisfaction of its contingent payment right and will
redeem the Series C Preferred Stock for $2,000,000.
In March of 1996, the Company made its annual rights fee payment relating
to the broadcast of Texas Rangers baseball games, reducing such payment by an
amount calculated to reflect the adjustment provisions contained in the
rights agreement with respect to the major league baseball labor dispute
which resulted in the work stoppages during the 1994 and 1995 major league
baseball seasons. The Company has received notice from the Texas Rangers
disputing the adjustment and credits taken by the Company. On April 11, 1996,
in order to facilitate the Houston Exchange, the Company and the Texas
Rangers amended the radio broadcast rights agreement. The amended terms
provide for the termination of the agreement no later than November 30, 1996.
The Company has initiated a tender offer to repurchase all of its Senior
Subordinated Notes. The Company intends to finance the aforementioned
transactions with private placements of senior subordinated notes and
preferred stock.
F-25
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 14--SUBSEQUENT EVENTS (Continued)
In April 1996, the Company and SCMC entered into a termination agreement
pursuant to which the consulting arrangement between such parties was
terminated in consideration for the assignment by SCMC to the Company of the
right to receive certain consulting fees payable by MMR and Triathlon
Broadcasting Company, the agreement to cancel $2.0 million of indebtedness
plus accrued interest thereon owing from SCMC to the Company upon completion
of the MMR Acquisition and the issuance of warrants to SCMC to purchase up to
600,000 shares of Class A Common Stock at an exercise price of $33 3/4 per
share. In connection with such agreement, the Company will recognize a
non-recurring non-cash charge to earnings of approximately $4.5 million
during the second quarter of 1996, and $1.1 million upon completion of the
MMR Acquisition, based upon the value of the warrant ($9.0 million) and the
forgiveness of debt ($2.2 million) offset by the value of recurring
consulting fees that will become payable by Triathlon to the Company ($5.6
million).
On April 16, 1996, the Company entered into an agreement with R. Steven
Hicks, the current President, Chief Executive Officer and Chief Operating
Officer of the Company, pursuant to which they have agreed to terminate Mr.
Hicks' employment agreement with the Company concurrently with the completion
of the MMR Merger and to make certain payments in the aggregate amount of
approximately $14.9 million to Mr. Hicks. Mr. Hicks has agreed to serve as a
consultant to the Company during the five-year period commencing on the
completion of the MMR Merger and the Company has agreed to compensate him for
such services at the rate of $150,000 per year. In addition, Mr. Hicks'
employment agreement provides that the Company will repurchase Mr. Hicks'
shares of Class A Common Stock at Mr. Hicks' option at any time during the
five-year period from the consummation of the MMR Merger at a price equal to
the greater of $40.00 or the average closing price of the Class A Common
Stock for the five business days preceding the repurchase.
The Company entered into an agreement with D. Geoffrey Armstrong,
Executive Vice President and Chief Financial Officer of the Company, pursuant
to which the Company has agreed to make certain payments to Mr. Armstrong in
the aggregate amount of $4.6 million and Mr. Armstrong has, among other
things, agreed to serve as the Chief Operating Officer of the Company
following the MMR Merger. In addition, the Company and Mr. Armstrong each
have the right to terminate Mr. Armstrong's employment with the Company one
year after the consummation of the MMR Merger. In the event of such
termination, Mr. Armstrong will receive $1.2 million and the Company will
repurchase all of the stock options granted to Mr. Armstrong pursuant to the
Company's Stock Option Plans.
A charge to earnings of approximately $20.9 million will be taken in the
second quarter in connection with these agreements.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Liberty Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of Liberty
Broadcasting, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years ended December 31, 1995, 1994, and the nine months
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Liberty
Broadcasting, Inc. as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1995, 1994, and the nine months ended December 31, 1993, in conformity
with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 13, 1996, except as to Note 14 for
which the date is March 26, 1996
F-27
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------
1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 3,921,000 $ 2,651,000 $ 2,920,000
Accounts receivable, net of allowance for doubtful
accounts of $1,034,000 at March 31, 1996 and
$967,000 and $378,000 at December 31, 1995 and 1994,
respectively ........................................ 10,403,000 12,203,000 7,992,000
Other current assets ................................ 527,000 754,000 923,000
-------------- -------------- --------------
Total current assets ............................... 14,851,000 15,608,000 11,835,000
Property and equipment, net of accumulated
depreciation of $3,056,000 at March 31, 1996 and
$2,552,000 and $677,000 at December 31, 1995 and
1994, respectively .................................. 15,765,000 16,128,000 12,726,000
Deferred acquisition costs ........................... -- 76,000
Intangible assets, net of accumulated amortization of
$16,399,000 at March 31, 1996 and $14,064,000 and
$5,510,000 at December 31, 1995 and 1994,
respectively ........................................ 132,399,000 133,085,000 89,993,000
-------------- -------------- --------------
Total assets ....................................... $163,015,000 $164,821,000 $114,630,000
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................... 4,233,000 12,854,000 5,276,000
Accounts payable and other accrued liabilities ..... 9,135,000 8,817,000 5,601,000
-------------- -------------- --------------
Total current liabilities .......................... 13,368,000 21,671,000 10,877,000
Long-term debt, less current portion ................. 65,907,000 68,092,000 56,107,000
Deferred taxes ....................................... 10,318,000 11,613,000 --
Other noncurrent liabilities ......................... 1,101,000 1,063,000 --
-------------- -------------- --------------
Total liabilities .................................. 90,694,000 102,439,000 66,984,000
-------------- -------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A, $.01 par value;
500,000 shares authorized; issued and outstanding
57,024 shares at March 31, 1996 and December 31,
1995 and 41,907 shares at December 31, 1994
(aggregate liquidation preference of $68,628 at
March 31, 1996 and $66,954,000 and $45,816,000 at
December 31, 1995 and 1994, respectively ............ -- -- --
Preferred stock, Series B, $.01 par value;
50,000 shares authorized; issued and outstanding
12,960 shares at March 31, 1996 (aggregate
liquidation preference of $12,960,000 at
March 31, 1996) .................................... -- -- --
Common stock, Series A, $.01 par value;
1,500,000 shares authorized; issued and
outstanding 1,006,335 shares at March 31, 1996
and December 31, 1995 and
739,564 shares at December 31, 1994 ................ 10,000 10,000 7,000
Capital in excess of par value ...................... 80,036,000 67,076,000 49,295,000
Loans to stockholders ............................... (166,000) (166,000) (166,000)
Accumulated deficit ................................. (7,559,000) (4,538,000) (1,490,000)
-------------- -------------- --------------
Total stockholders' equity ......................... 72,321,000 62,382,000 47,646,000
-------------- -------------- --------------
Total liabilities and stockholders' equity ........ $163,015,000 $164,821,000 $114,630,000
============== ============== ==============
</TABLE>
F-28
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------ ------------------
1996 1995 1995 1994 1993
-------------- -------------- -------------- -------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenue ... $11,913,000 $ 9,776,000 $57,860,000 $28,368,000 $5,892,000
Less: agency commissions ..... (1,350,000) (1,004,000) (6,453,000) (3,114,000) (549,000)
-------------- -------------- -------------- -------------- ------------------
Net broadcasting revenue ... 10,563,000 8,772,000 51,407,000 25,254,000 5,343,000
-------------- -------------- -------------- -------------- ------------------
Station operating expenses ... 8,802,000 7,513,000 34,725,000 17,393,000 3,421,000
Corporate expenses ............ 649,000 654,000 2,453,000 1,183,000 183,000
Litigation settlements ........ -- -- 2,200,000 -- --
Depreciation and amortization 2,839,000 2,043,000 10,429,000 5,021,000 1,188,000
-------------- -------------- -------------- -------------- ------------------
Operating income (loss) .... (1,727,000) (1,438,000) 1,600,000 1,657,000 551,000
Interest expense, net ......... (2,210,000) (1,405,000) (7,373,000) (3,042,000) (596,000)
-------------- -------------- -------------- -------------- ------------------
Loss before income taxes ... (3,937,000) (2,843,000) (5,773,000) (1,385,000) (45,000)
Income (benefit) tax expense . (916,000) 6,000 (2,725,000) 60,000 --
-------------- -------------- -------------- -------------- ------------------
Net loss .................... $(3,021,000) $(2,849,000) $(3,048,000) $(1,445,000) $ (45,000)
============== ============== ============== ============== ==================
</TABLE>
F-29
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------
SERIES A SERIES B COMMON STOCK
------------------ ------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Initial issue of capital
stock .................. 8,594 -- 151,683 $ 2,000
Loans to stockholders ..
Net loss ................
-------- -------- -------- -------- ----------- ---------
Balances at December 31,
1993 ................... 8,594 -- 151,683 2,000
Issuance of capital
stock .................. 33,313 -- 587,881 5,000
Net loss ................
-------- -------- -------- -------- ----------- ---------
Balances at December 31,
1994 ................... 41,907 -- 739,564 7,000
Net loss ................
Issuance of capital
stock .................. 15,117 -- 266,771 3,000
-------- -------- -------- -------- ----------- ---------
Balances at December 31,
1995 ................... 57,024 -- 1,006,335 10,000
Issuance of capital
stock .................. 12,960 --
Net loss ................
Balances at
March 31, 1996
-------- -------- -------- -------- ----------- ---------
(unaudited) ............ 57,024 -- 12,960 -- 1,006,335 $10,000
======== ======== ======== ======== =========== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CAPITAL IN LOAN TO ACCUMULATED
EXCESS OF PAR STOCKHOLDERS DEFICIT TOTAL
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Initial issue of capital
stock .................. $10,109,000 $10,111,000
Loans to stockholders .. $(166,000) (166,000)
Net loss ................ $ (45,000) (45,000)
------------- -------------- -------------- -------------
Balances at December 31,
1993 ................... 10,109,000 (166,000) (45,000) 9,900,000
Issuance of capital
stock .................. 39,186,000 39,191,000
Net loss ................ (1,445,000) (1,445,000)
------------- -------------- -------------- -------------
Balances at December 31,
1994 ................... 49,295,000 (166,000) (1,490,000) 47,646,000
Net loss ................ (3,048,000) (3,048,000)
Issuance of capital
stock .................. 17,781,000 17,784,000
------------- -------------- -------------- -------------
Balances at December 31,
1995 ................... 67,076,000 (166,000) (4,538,000) 62,382,000
Issuance of capital
stock .................. 12,960,000 12,960,000
Net loss ................ (3,021,000) (3,021,000)
Balances at
March 31, 1996
------------- -------------- -------------- -------------
(unaudited) ............ $80,036,000 $(166,000) $(7,559,000) $72,321,000
============= ============== ============== =============
</TABLE>
F-30
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED DECEMBER
MARCH 31, DECEMBER 31, 31,
------------------------------ ------------------------------ --------------
1996 1995 1995 1994 1995
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss ....................... $ (3,021,000) $(2,849,000) $ (3,048,000) $ (1,445,000) $ (45,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 2,839,000 2,043,000 10,429,000 5,021,000 1,188,000
Provision for losses on
accounts receivable .......... 142,000 96,000 589,000 305,000 110,000
Deferred taxes ................ (1,295,000) -- (2,031,000) -- --
Litigation settlements ........ -- -- 2,200,000 -- --
Increase (decrease) in cash
due to changes in assets and
liabilities:
Restricted cash .............. -- -- -- 975,000 (975,000)
Accounts receivable .......... 1,456,000 815,000 (1,954,000) (7,207,000) (1,200,000)
Other current assets ......... 237,000 108,000 224,000 (851,000) (72,000)
Accounts payable and other
accrued liabilities ......... 990,000 (1,814,000) (3,304,0000) 4,957,000 528,000
Other assets ................. -- 110,000 92,000 -- --
-------------- -------------- -------------- -------------- --------------
Net cash provided
(used) by operating
activities ................ 1,348,000 (1,491,000) 3,197,000 1,755,000 (466,000)
-------------- -------------- -------------- -------------- --------------
Cash flows from investing
activities:
Purchase of furniture and
equipment ..................... (142,000) (345,000) (1,284,000) (532,000) (63,000)
Acquisitions, net of cash
acquired ...................... -- -- (35,512,000) (76,733,000) (17,177,000)
Other .......................... (80,000) (702,000) (1,639,000) 517,000 (593,000)
-------------- -------------- -------------- -------------- --------------
Net cash used in
investing activities ..... (222,000) (1,047,000) (38,435,000) (76,748,000) (17,833,000)
-------------- -------------- -------------- -------------- --------------
Cash flows from financing
activities:
Proceeds from long-term
borrowings .................... -- 1,544,000 28,000,000 57,352,000 10,000,000
Payments on debt and long-term
borrowings .................... (10,806,000) (1,000,000) (8,437,000) (10,700,000) (200,000)
Issuance of stock .............. 12,960,000 -- 15,406,000 29,815,000 10,111,000
Loans to stockholders .......... -- -- -- -- (166,000)
Deferred financing costs ...... (2,010,000) -- -- -- --
-------------- -------------- -------------- -------------- --------------
Net cash provided by
financing activities ..... 144,000 544,000 34,969,000 76,467,000 19,745,000
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase
in cash and cash
equivalents ............... 1,270,000 (1,994,000) (269,000) 1,474,000 1,446,000
Cash and cash equivalents at
beginning of period ............ 2,651,000 2,920,000 2,920,000 1,446,000 --
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end
of period ...................... $ 3,921,000 $ 926,000 $ 2,651,000 $ 2,920,000 $ 1,446,000
============== ============== ============== ============== ==============
Supplemental disclosure of cash
flow information:
Cash paid for interest ......... $ 1,735,000 $ 1,215,000 $ 6,717,312 $ 2,071,000 $ 541,000
============== ============== ============== ============== ==============
Cash paid for taxes ............ 163,000 30,000 $ 211,000 -- --
============== ============== ============== ============== ==============
</TABLE>
F-31
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Liberty Broadcasting, Inc. (the "Company") owns and operates eighteen
radio stations located in New York, Rhode Island, Connecticut, Maryland and
Virginia. The Company also markets certain entertainment events.
On November 15, 1995, the Company entered into a definitive agreement to
sell all of its outstanding common and preferred stock to an unrelated party.
The Company expects to complete this transaction during 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The accounting policies followed by the Company are in accordance with
generally accepted accounting principles. The use of 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. Certain amounts have been
reclassified for comparative purposes.
INTERIM FINANCIAL INFORMATION:
The financial statements as of March 31, 1996 and for the three months
ended March 31, 1996 and 1995 are unaudited. In the opinion of management,
all adjustments, including normal recurring adjustments, necessary for a fair
presentation of the results of operations have been included. Results for the
three months ended March 31, 1996 may not be indicative of the results
expected for the year ending December 31, 1996.
CASH AND CASH EQUIVALENTS:
Cash equivalents comprise short-term investments with an initial maturity
of ninety days or less and are deposited principally in one money market
account.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash and cash equivalents. The Company
maintains its cash and cash equivalents in high-credit quality financial
institutions.
TRADE AGREEMENTS:
The Stations have trade agreements with certain of its advertisers whereby
the Stations exchange advertising time for goods and services. These
exchanges are recorded at the fair market value of the goods and services
received or the value of the advertising time provided, whichever is more
clearly determinable. Revenue from trade agreements is recognized as income
when advertisements are broadcast and goods or services are charged to
expense when goods are used or services are received. Revenue from trade
agreements was $4,007,000, $1,686,000 and $629,000 in 1995, 1994 and 1993,
respectively. Expense from trade agreements was $3,449,000, $2,043,000 and
$756,000 in 1995, 1994 and 1993, respectively.
REVENUES:
Broadcasting operations derive revenue from the sale of program time and
commercial announcements to local, regional and national advertisers. Revenue
is recognized when the programs and commercial announcements are broadcast.
F-32
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
PROPERTY AND EQUIPMENT:
The majority of the Company's property and equipment was recorded at fair
market value as determined on the date of acquisition. Subsequent additions
have been recorded at cost. Renewals and replacements which extend the useful
lives of plant and equipment are capitalized. When assets are retired or
sold, the cost and related accumulated depreciation are removed from the
accounts, and any related gain or loss is reflected on a current basis.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and building improvements ... 25 years
Transmitter, tower and antenna ....... 15 years
Studio and technical equipment ....... 7 years
Office furniture and fixtures ......... 4 years
Automobiles ........................... 3 years
</TABLE>
INTANGIBLE ASSETS:
Intangible assets have been recorded on the basis of their estimated fair
market values assigned on the date of acquisition and are amortized using the
straight-line method. The FCC broadcast licenses and goodwill are being
amortized over 25 years. The noncompete agreements are amortized over the
life of the agreements. Deferred financing fees are amortized over the terms
of the agreements. Other intangible assets, consisting of organizational
expenses and other items, are being amortized over five years.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Company's
stations, as well as by comparing them to their competitors. The Company also
takes into consideration recent acquisition patterns within the broadcast
industry, the impact of recently enacted or potential FCC rules and
regulations and any other events or circumstances which might indicate
potential impairment.
INCOME TAXES:
Deferred income taxes are recognized for the tax consequences in future
years of the differences between the tax bases of assets and liabilities and
their financial reporting amounts on the basis of currently enacted tax rates
in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
3. ACQUISITIONS:
On May 26, 1993, the Company entered into a definitive agreement to
purchase substantially all the tangible and intangible assets (excluding
cash, accounts receivables and prepaid expenses) of radio station WHFS-FM for
approximately $15.6 million in cash and debt. WHFS-FM serves Baltimore,
Maryland and Washington, D.C. Subsequent to FCC approval, the acquisition was
completed on February 28, 1994. Beginning February 28, the operations of
WHFS-FM have been included in the consolidated financial statements.
On October 6, 1993, the Company entered into a definitive agreement to
purchase substantially all the tangible and intangible assets (excluding
cash, accounts receivable and prepaid expenses) of radio stations WXTR-FM and
WMXB-FM for approximately $28.0 million in cash and stock of the Company.
WXTR-FM serves Washington D.C. and WMXB-FM serves Richmond, Virginia.
Subsequent to FCC approval, the acquisition was completed on February 15,
1994. Beginning February 15, 1993 the operations of WXTR-FM and WMXB-FM have
been included in the consolidated financial statements.
F-33
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS: (Continued)
On January 3, 1994, the Company entered into a definitive agreement to
purchase substantially all the tangible and intangible assets (excluding
cash, accounts receivable and prepaid expenses) of radio stations WGNA-AM/FM
for approximately $13.5 million in cash. WGNA-AM/FM serves Albany, New York.
Subsequent to FCC approval, the acquisition was completed on August 22, 1994.
Beginning August 22, 1994 the operations of WGNA-AM/FM have been included in
the consolidated financial statements.
On January 7, 1994, the Company entered into a definitive agreement to
purchase substantially all the tangible and intangible assets (excluding
cash, accounts receivable and prepaid expenses) of radio station WHFM-FM for
approximately $1.9 million in cash. WHFM-FM serves Long Island, New York.
Subsequent to FCC approval, the acquisition was completed on August 22, 1994.
Beginning August 22, 1994 the operations of WHFM-FM have been included in the
consolidated financial statements.
On June 17, 1994, the Company entered into a definitive agreement to
purchase substantially all the tangible and intangible assets (excluding cash
and accounts receivable) of Greater Connecticut Broadcasting, Inc. and
Affiliates (GCB) for approximately $22.6 million in cash and stock of the
Company. GCB owns and operates WHJY-FM and WHJJ-AM in Providence, Rhode
Island, WMRQ-FM and WPOP-AM in Hartford, Connecticut and WPYX-FM and WTRY-AM
in Albany, New York. Subsequent to FCC approval, the acquisition was
completed on November 15, 1994. Beginning November 15, 1994 the operations of
GCB have been included in the consolidated financial statements.
On March 4, 1994, the Company entered into a definitive agreement to
purchase the stock of Beck-Ross Communications, Inc. (Beck-Ross) for
approximately $36.4 million in cash and stock of the Company. Beck-Ross owns
and operates WBLI-FM, Long Island, New York, WHCN-FM, Hartford, Connecticut,
and WSNE-FM, Providence, Rhode Island. Subsequent to FCC approval, the
acquisition was completed on April 6, 1995. Beginning April 6, 1995 the
operations of Beck-Ross have been included in the consolidated financial
statements.
The following summary, prepared on a pro forma basis, combines the results
of operations as if the above stations had been acquired as of the beginning
of the periods presented, after including the impact of certain adjustments,
such as: amortization of intangibles, interest expense and the related income
tax effects.
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Gross revenues ......... $61,159,000 $61,676,000
Net loss .............. (3,955,000) (5,445,000)
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire
periods presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations.
F-34
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
Land and land improvements ......... $ 2,551,000 $ 2,150,000
Building and building improvements 3,372,000 1,698,000
Transmitter, tower and antenna .... 6,051,000 5,243,000
Studio and technical equipment .... 5,393,000 3,482,000
Office furniture and fixtures ..... 1,086,000 720,000
Automobiles ........................ 227,000 110,000
-------------- --------------
18,680,000 13,403,000
Less: accumulated depreciation .... (2,552,000) (677,000)
-------------- --------------
$16,128,000 $12,726,000
============== ==============
</TABLE>
Depreciation expense for the years ended December 31, 1995 was $1,875,000
and $580,000 for the year ended December 31, 1994. Depreciation expense was
$106,000 for the nine months ended December 31, 1993.
5. INTANGIBLES:
Intangible assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ -----------
FCC BROADCAST LICENSES ......... $111,976,000 $80,471,000
<S> <C> <C>
Goodwill ....................... 14,417,000 --
Noncompete agreements .......... 10,449,000 8,304,000
Other intangible assets ........ 8,587,000 5,205,000
Deferred financing fees ........ 1,720,000 1,523,000
-------------- -------------
Total intangible assets ...... 147,149,000 95,503,000
Less: accumulated amortization (14,064,000) (5,510,000)
-------------- -------------
$133,085,000 $89,993,000
============== =============
</TABLE>
Amortization expense for the year ended December 31, 1995 and 1994 was
$8,554,000 and $4,441,000, respectively. Amortization expense was $1,082,000
for the nine months ended December 31, 1993.
F-35
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
At December 31, 1995 the benefit from income taxes was comprised of
$169,000 of current tax expense and $2,556,000 of deferred income tax
benefit. Similarly, at December 31, 1994 the provision for income taxes
consisted of $60,000 of current income taxes. There was no provision for the
nine months ended December 31, 1993.
A reconciliation of the federal statutory tax rate to the effective tax
rate as a percentage of loss from operations is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate ................. 34% 34% 34%
Increase (decrease) resulting from:
Permanent differences ................. (4) (2) (44)
State taxes, net ...................... 5 (3) --
Valuation allowance ................... 10 (33) (13)
Effect of graduated rates ............. -- -- 23
Other ................................. 2 -- --
-------- -------- --------
Effective tax rate ................... 47% (4)% -- %
======== ======== ========
</TABLE>
Deferred tax assets and liabilities are comprised of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts . $ 351,000 $ 151,000
Accrued compensation ............. 124,000 --
Net operating loss carryforwards 2,168,000 546,000
Less: valuation allowance ........ -- (555,000)
--------------- --------------
Net deferred tax assets ......... 2,643,000 142,000
Deferred tax liabilities:
Fixed assets ..................... (2,319,000) (142,000)
Intangibles ...................... (11,937,000) --
--------------- --------------
Balance ......................... $(11,613,000) --
=============== ==============
</TABLE>
The Company has recorded a valuation allowance for its deferred tax assets
of approximately $555,000 at December 31, 1994. The allowance offsets a
significant portion of the tax benefits relating to the temporary difference
between the book and tax bases of the allowance for doubtful accounts and the
Company's net operating loss carryforwards.
F-36
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
Bank debt:
Term loan, due 2000, interest at December 31,
1995 ranging from 8.69% to 9.07% ................. $ 31,500,000 $35,100,000
Acquisition loan, due 2000, interest ranging from
8.19% to 8.63% at December 31, 1995 ............. 42,524,000 22,875,000
Revolver, due 1996, interest at 10.50% .......... 3,700,000 --
Other ............................................. 3,222,000 3,408,000
-------------- --------------
80,946,000 61,383,000
Less current maturities ........................... (12,854,000) (5,276,000)
-------------- --------------
Total long-term debt ............................ $ 68,092,000 $56,107,000
============== ==============
</TABLE>
The Company's Senior Credit Facility consists of a $36,000,000 term loan
facility, a $50,000,000 acquisition facility and a $4,000,000 revolving
capital facility of which $300,000 is available at December 31, 1995. The
indebtedness of the Company under the Senior Credit Facility is
collateralized by first-priority liens on all the capital stock and tangible
and intangible assets of the Company. The loans outstanding under the Senior
Credit Facility bear interest at variable rates at the election of the
Company as defined in the credit agreement. The Senior Credit Facility also
contains covenants which provide for the maintenance of certain financial
ratios, limitations on indebtedness and restrict dividend payments.
The carrying amount of long-term debt approximates fair value because the
obligations under the Senior Credit Facility are at variable rates and are
reprised frequently.
The scheduled maturities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ......... $12,854,000
1997 ......... 11,073,000
1998 ......... 13,963,000
1999 ......... 17,083,000
2000 ......... 20,773,000
Thereafter .. 5,200,000
-------------
$80,946,000
=============
</TABLE>
8. LEASES:
The Company leases certain property and equipment under noncancelable
leases which expire at various dates through 2029. In most cases, management
expects that in the normal course of business, leases that expire will be
renewed or replaced by other leases.
F-37
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES: (Continued)
Future minimum lease payments required under operating leases that have
initial or remaining noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------------- -----------
<S> <C>
1996 ........................... $ 787,000
1997 ........................... 453,000
1998 ........................... 308,000
1999 ........................... 311,000
2000 ........................... 147,000
Thereafter ..................... 509,000
-----------
Total minimum lease payments $2,515,000
===========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1994 was $726,000
and $435,000, respectively. There was no rent expense for the nine months
ended December 31, 1993.
9. PREFERRED STOCK:
The Series A preferred stock has a liquidation preference over all other
classes of stock at $1,000 per share plus any accrued dividends thereon. Each
share of Series A preferred stock is entitled to receive cumulative cash
dividends at a rate of approximately 10% compounded quarterly.
These shares are nonvoting and redeemable only at the option of the
Company for a redemption price equal to their liquidation value.
The shares are convertible at the option of the Company into shares of
common stock at a rate of 100 shares of common stock for each share of Series
A preferred stock. Upon conversion, any undeclared or unpaid dividends would
also be converted to common stock at $10 per share.
The Company issued 15,117 and 33,313 and 8,594 shares of Series A
preferred shares in connection with the acquisitions of radio stations in
1995, 1994, and 1993, respectively:
No dividends have been declared by the Board of Directors on the Series A
preferred stock. Dividends in arrears aggregate to $9,930,000 and $3,909,000,
and $617,000 at December 31, 1995, 1994, and 1993, respectively.
10. STOCK OPTIONS:
In 1995, options granted in 1993 were amended to provide for an additional
119,750 options to reflect the antidilutive provision contained in the 1993
stock option agreements. In addition, 5,718 options were granted in 1995.
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Outstanding, January 1 ..... 11,760 11,760 --
Granted at $10.00 per share 125,468 -- 11,760
Exercised ................... -- -- --
--------- -------- --------
Outstanding, December 31 ... 137,228 11,760 11,760
========= ======== ========
Exercisable, December 31 ... 18,984 706 --
========= ======== ========
</TABLE>
Options totaling 86,911 vest based on the attainment of certain financial
performance measures as defined in the option agreements. No options have
vested under these agreements. Options totaling 50,317 vest evenly over five
years. All options expire ten years from the date of grant.
F-38
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. DEFINED CONTRIBUTION PLAN:
Salaried employees of the Company may participate in a defined
contribution plan (the "Plan"). Participants may defer up to 15% of eligible
compensation up to a statutory limit. The Company may make a matching
contribution and an additional discretionary contribution. Employees begin to
vest in the Company's contributions after two years of service at a rate of
25% per year, except for discretionary contributions in which employees are
immediately 100% vested. The Company did not contribute to the Plan in 1995,
1994, and 1993.
12. RELATED PARTIES:
The Company paid certain stockholders and executive officers $399,065,
$1,029,000, and $19,000 in 1995, 1994, and 1993, respectively, for accounting
and acquisition related services.
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Significant noncash investing and financing activities in 1995:
In April 1995, the Company acquired all the outstanding stock of Beck-Ross
Communications, Inc. (see Note 3). The transaction had the following noncash
impact on the Company's 1995 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment ........ $ 3,373,000
Intangibles ................... 44,400,000
Deferred taxes ................ 12,260,000
Capital in excess of par value 17,378,000
</TABLE>
Significant noncash investing and financing activities in 1994:
In February 1994, the Company acquired substantially all the tangible and
intangible assets of WXTR-FM and WMXB-FM (see Note 3). The transaction had
the following non-cash impact on the Company's 1994 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment ........ $ 2,615,000
Intangibles ................... 31,275,000
Capital in excess of par value (4,229,000)
</TABLE>
In February 1994, the Company acquired substantially all the tangible and
intangible assets of WHFS-FM (see Note 3). The transaction had the following
noncash impact on the Company's 1994 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 846,000
Intangibles ........... 15,304,000
Long-term debt ........ (3,304,000)
</TABLE>
In August 1994, the Company acquired substantially all the tangible and
intangible assets of WGNA-AM/FM (see Note 3). The transaction had the
following noncash impact on the Company's 1994 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 1,172,000
Intangibles ........... 13,073,000
</TABLE>
F-39
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION: (Continued)
In November 1994, the Company acquired substantially all the tangible and
intangible assets of GCB (see Note 3). The transaction had the following
noncash impact on the Company's 1994 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment ........ $ 5,565,000
Intangibles ................... 17,667,000
Capital in excess of par value (5,147,000)
</TABLE>
Significant noncash investing and financing activities for the nine-months
ended December 31, 1993:
In March 1993, the Company acquired substantially all the tangible and
intangible assets of WBAB-FM and WGBB-AM (see Note 3). The transaction had
the following noncash impact on the Company's 1993 balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 2,215,000
Intangibles ........... 14,962,000
</TABLE>
14. SUBSEQUENT EVENTS:
LITIGATION:
In March 1996, the Company settled various litigation which were pending
at December 31, 1995 totaling $2,200,000. These settlements have been
reflected in the 1995 financial statements.
The Company is also subject to various other investigations, claims and
legal proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters may be
resolved unfavorably to the Company. The Company has established accruals for
matters that are probable and reasonably estimable. Management believes that
any liability that may ultimately result from the resolution of these matters
will not have a material adverse effect on the financial position or results
of operations of the Company.
ISSUANCE OF SERIES B PREFERRED STOCK:
On March 26, 1996, the Company issued 12,960 shares of Series B senior
cumulative preferred stock with a liquidation preference of $1,000 per share.
The proceeds of $12,960,000 was used to repay $8,950,000 in bank debt,
transaction fees, litigation settlements and to augment working capital.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Advisory Committee and Partners
Prism Radio Partners, L.P.:
We have audited the accompanying balance sheets of Prism Radio Partners,
L.P. (the Partnership) as of December 31, 1995 and 1994, and the related
statements of operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prism Radio Partners,
L.P. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted accounting principles.
Phoenix, Arizona
March 29, 1996
F-41
<PAGE>
PRISM RADIO PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------
1996 1995 1994
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 1,645,218 $ 1,368,546 $ 2,340,906
Accounts receivable, less allowance for doubtful
accounts of $414,674, $385,959 and $301,793
respectively ..................................... 5,064,549 6,804,683 5,114,036
Prepaid expenses .................................. 319,145 317,923 205,446
Other current assets .............................. 201,151 187,969 110,782
------------- ------------- -------------
Total current assets ............................ 7,230,063 8,679,121 7,771,170
Property and equipment, net (note 3) ............... 9,206,271 9,380,998 9,490,819
Intangible assets, net (note 4) .................... 32,371,848 32,886,073 34,942,970
------------- ------------- -------------
$48,808,182 $50,946,192 $52,204,959
============= ============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable .................................. $ 548,173 $ 1,337,883 $ 735,355
Accrued expenses (note 5) ......................... 1,869,432 2,023,721 2,049,676
Current portion of long-term debt (note 6) ....... 2,986,625 2,812,000 711,917
------------- ------------- -------------
Total current liabilities ....................... 5,404,230 6,173,604 3,496,948
Long-term debt, excluding current portion (note 6) 13,319,272 14,110,813 17,357,001
------------- ------------- -------------
Total liabilities ............................... 18,723,502 20,284,417 20,853,949
Partners' capital (note 7) ......................... 38,315,596 38,315,596 37,647,092
Partner receivables (note 7) ....................... (913,000) (913,000) (300,000)
Accumulated deficit ................................ (7,317,916) (6,740,821) (5,996,082)
------------- ------------- -------------
Total partners' capital ......................... 30,084,680 30,661,775 31,351,010
Commitments and contingencies (notes 8 and 10)
Subsequent event (note 12)
------------- ------------- -------------
$48,808,182 $50,946,192 $52,204,959
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
PRISM RADIO PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, DECEMBER 31,
---------------------------- --------------------------------------------
1996 1995 1995 1994 1993
------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue ........................ $7,968,046 $ 7,595,278 $36,455,730 $30,422,189 $14,895,284
Less agency commissions ........ 916,843 800,466 3,884,064 3,409,781 1,579,669
------------ -------------- ------------- -------------- -------------
Net revenue ................. 7,051,203 6,794,812 32,571,666 27,012,408 13,315,615
------------ -------------- ------------- -------------- -------------
Operating expenses:
Station operating expenses,
excluding depreciation and
amortization ................. 6,160,858 6,669,182 26,979,258 24,271,541 13,172,716
Depreciation and amortization 737,538 672,705 2,945,990 2,901,624 1,871,521
Corporate general and
administrative ............... 372,718 419,894 2,026,611 1,133,308 896,978
------------ -------------- ------------- -------------- -------------
Total operating expenses ... 7,271,114 7,761,781 31,951,859 28,306,473 15,941,215
------------ -------------- ------------- -------------- -------------
Operating income (loss) .... (219,911) (966,969) 619,807 (1,294,065) (2,625,600)
------------ -------------- ------------- -------------- -------------
Nonoperating expenses (income):
Gain on sale of property ..... -- -- (200,000) -- --
Interest expense .............. 382,659 439,551 1,659,591 1,142,751 299,074
Interest income ............... (25,475) (12,428) (95,045) (63,321) (61,757)
------------ -------------- ------------- -------------- -------------
Net nonoperating expenses .. 357,184 427,123 1,364,546 1,079,430 237,317
------------ -------------- ------------- -------------- -------------
Net loss .................... $ (577,095) $(1,394,092) $ (744,739) $(2,373,495) $(2,862,917)
============ ============== ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
PRISM RADIO PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNER ACCUMULATED PARTNERS'
PARTNER PARTNERS RECEIVABLES DEFICIT CAPITAL
----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of January 1, 1993 .. $ 999,900 $ 100 $-- $ (759,670) $ 240,330
Conversion of debt to partners'
contribution .................... -- 3,307,864 -- -- 3,307,864
Return of withdrawing general
partner's capital ............... (999,900) -- -- -- (999,900)
Issuance of limited partnership
interest in connection with
acquisition of radio stations .. -- 3,500,000 -- -- 3,500,000
Partners' contributions, net of
$919,135 offering expenses ..... 338,691 25,945,413 -- -- 26,284,104
Net loss ......................... -- -- -- (2,862,917) (2,862,917)
----------- ------------- ------------- -------------- -------------
Balances as of December 31, 1993 338,691 32,753,377 -- (3,622,587) 29,469,481
Partners' contributions .......... 48,068 4,506,956 (300,000) -- 4,255,024
Net loss ......................... -- -- -- (2,373,495) (2,373,495)
----------- ------------- ------------- -------------- -------------
Balances as of December 31, 1994 386,759 37,260,333 (300,000) (5,996,082) 31,351,010
Partners' contributions .......... -- 775,000 (680,000) -- 95,000
Return of withdrawing limited
partner's capital ............... -- (106,496) -- -- (106,496)
Repayment of partner receivables -- -- 67,000 -- 67,000
Net loss ......................... -- -- -- (744,739) (744,739)
----------- ------------- ------------- -------------- -------------
Balances as of December 31, 1995 386,759 37,928,837 (913,000) (6,740,821) 30,661,775
----------- ------------- ------------- -------------- -------------
Net loss ......................... -- -- -- (577,095) (577,095)
----------- ------------- ------------- -------------- -------------
Balances as of March 31, 1996 ... $ 386,759 $37,928,837 $(913,000) $(7,317,916) $30,084,680
=========== ============= ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
PRISM RADIO PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
-------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................. $(1,394,092) $ (577,095)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation ............................. 188,814 223,314
Amortization of goodwill, intangible
assets, and other assets ................ 483,891 514,225
Provision for doubtful accounts .......... 30,199 28,715
Gain on sale of property ................. -- --
Changes in operating assets and
liabilities:
Accounts receivable ..................... 882,309 1,711,419
Prepaid expenses ........................ (11,248) (1,222)
Other current assets .................... (15,437) (13,182)
Accounts payable ........................ 147,071 (789,710)
Accrued expenses ........................ (45,594) (154,289)
-------------- ------------
Net cash provided by (used in)
operating activities .................. 265,913 942,175
-------------- ------------
Cash flows from investing activities:
Station acquisitions ...................... -- --
Capital expenditures ...................... (230,769) (48,587)
Proceeds from sale of property ............ -- --
-------------- ------------
Net cash used in investing activities . (230,769) (48,587)
-------------- ------------
Cash flows from financing activities:
Partners' contributions, net of
withdrawals .............................. -- --
Repayment of partner receivables ........... -- --
Proceeds from issuance of long-term debt . -- --
Payment of long-term debt ................. -- (616,916)
-------------- ------------
Net cash provided by (used in)
financing activities .................. -- (616,916)
-------------- ------------
Net (decrease) increase in cash and cash
equivalents 35,144 276,672
Cash and cash equivalents at beginning of
year ...................................... 2,340,906 1,368,546
-------------- ------------
Cash and cash equivalents at end of year .. $ 2,376,050 $1,645,218
============== ============
Supplemental disclosure of cash paid during
the year:
Interest paid ............................. $ 446,941 $ 397,993
============== ============
Supplemental disclosure of noncash
transactions:
Issuance of promissory note as part
payment for a radio tower ................ $ -- $ --
============== ============
Issuance of Class A limited partnership
interests in return for promissory notes $ -- $ --
============== ============
Issuance of promissory note as part
payment for a radio station .............. $ -- $ --
============== ============
Acquisition of radio stations from related
party in return for Class A and D limited
partnership interests .................... $ -- $ --
============== ============
Conversion of short-term note into Class A
limited partnership interest ............. $ -- $ --
============== ============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................. $ (744,739) $ (2,373,495) $ (2,862,917)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation ............................. 889,093 665,507 318,056
Amortization of goodwill, intangible
assets, and other assets ................ 2,056,897 2,236,117 1,553,465
Provision for doubtful accounts .......... 84,166 140,708 153,327
Gain on sale of property ................. (200,000) -- --
Changes in operating assets and
liabilities:
Accounts receivable ..................... (1,774,813) (2,060,343) (2,756,408)
Prepaid expenses ........................ (112,477) (53,122) (114,737)
Other current assets .................... (77,187) 572,874 (642,530)
Accounts payable ........................ 602,528 342,445 306,073
Accrued expenses ........................ (25,955) 39,960 226,641
------------- -------------- --------------
Net cash provided by (used in)
operating activities .................. 697,513 (489,349) (3,819,030)
------------- -------------- --------------
Cash flows from investing activities:
Station acquisitions ...................... -- (14,132,251) (24,147,174)
Capital expenditures ...................... (1,029,272) (1,791,474) (836,500)
Proceeds from sale of property ............ 450,000 -- --
------------- -------------- --------------
Net cash used in investing activities . (579,272) (15,923,725) (24,983,674)
------------- -------------- --------------
Cash flows from financing activities:
Partners' contributions, net of
withdrawals .............................. (11,496) 4,255,024 25,284,204
Repayment of partner receivables ........... 67,000 -- --
Proceeds from issuance of long-term debt . -- 9,980,418 7,930,000
Payment of long-term debt ................. (1,146,105) (25,000) --
------------- -------------- --------------
Net cash provided by (used in)
financing activities .................. (1,090,601) 14,210,442 33,214,204
------------- -------------- --------------
DECEMBER 31,
---------------------------------------------
1995 1994 1993
------------- -------------- --------------
Net (decrease) increase in cash and cash
equivalents (972,360) (2,202,632) 4,411,500
Cash and cash equivalents at beginning of
year ...................................... 2,340,906 4,543,538 132,038
------------- -------------- --------------
Cash and cash equivalents at end of year .. $ 1,368,546 $ 2,340,906 $4,543,538
============= ============== ==============
Supplemental disclosure of cash paid during
the year:
Interest paid ............................. $ 1,689,492 $ 970,776 $ 162,228
============= ============== ==============
Supplemental disclosure of noncash
transactions:
Issuance of promissory note as part
payment for a radio tower ................ $ -- $ 83,500 $ --
============= ============== ==============
Issuance of Class A limited partnership
interests in return for promissory notes $ 680,000 $ 300,000 $ --
============= ============== ==============
Issuance of promissory note as part
payment for a radio station .............. $ -- $ -- $ 100,000
============= ============== ==============
Acquisition of radio stations from related
party in return for Class A and D limited
partnership interests .................... $ -- $ -- $3,500,000
============= ============== ==============
Conversion of short-term note into Class A
limited partnership interest ............. $ -- $ -- $3,307,864
============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
(1) SUMMARY OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Prism Radio Partners, L.P. (the Partnership) owns and operates commercial
radio stations in various geographical regions including Tucson, Arizona,
Jacksonville, Florida, Wichita, Kansas, Louisville, Kentucky and Raleigh,
North Carolina.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The
carrying amount approximates fair value because of the short-term maturity of
the financial instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated
useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets with determinable lives have been allocated among
various categories of customer- based or market-based intangibles at their
estimated fair value upon acquisition as determined by management or by
independent appraisal. Goodwill represents the excess of cost over the fair
value of tangible assets and intangible assets with determinable lives.
Amortization is provided on the straight-line method over the estimated
useful lives of the related assets (see note 4). The Partnership's policy is
to write-off intangible assets once they have become fully amortized. The
useful lives and recoverability of intangible assets are evaluated at least
annually. This evaluation encompasses the undiscounted historical broadcast
cash flow of each station and existing broadcast cash flow multiples for
sales of similar radio properties to estimate the potential selling price for
the station and, therefore, recoverability of the assets.
LONG-TERM DEBT
The fair value of the Partnership's long-term debt approximates carrying
value as the interest rate is evaluated every three months for the following
three-month period, thus the current interest rate approximates the interest
rate that the Partnership would be offered in the market place for debt of
the same maturity.
INCOME TAXES
No provision has been made for income taxes since the Partnership is not a
taxable entity. Partners report their share of the Partnership's income or
loss on their respective tax returns.
BARTER TRANSACTIONS
The Partnership trades commercial air time for programming, goods, and
services used principally for promotional, sales, and other business
activities. An asset and a liability is recorded at the fair market value of
the programming, goods, or services received. Barter revenue is recorded and
the liability is relieved when commercials are broadcast, and barter expense
is recorded and the asset is relieved when the programming, goods, or
services are broadcast, received, or used. Barter revenue included in gross
broadcasting revenue and barter expenses included in station operating
expenses, excluding depreciation and amortization amounted to $4,615,902,
$3,707,089, and $2,267,763; and $4,538,252, $3,772,864, and $2,184,921 for
the years ended December 31, 1995, 1994 and 1993, respectively.
F-46
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(1) SUMMARY OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
Revenue is recognized as commercials are broadcast.
BUSINESS AND CREDIT CONCENTRATIONS
In the opinion of management, credit risk with respect to trade
receivables is limited due to the large number of customers and the
geographic diversification of the Partnership's customer base. The
Partnership performs ongoing credit evaluations of its customers and believes
that adequate allowances for any uncollectible trade receivables are
maintained. As of December 31, 1995 and 1994, no customer accounted for more
than 10% of net revenues or accounts receivable.
USE OF ESTIMATES
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS 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 becomes effective for
fiscal years beginning after December 15, 1995. The Company is currently
assessing the impact of SFAS No. 121 on its financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123
is effective for transactions entered into in fiscal years beginning after
December 15, 1995. The Company is currently assessing the impact of SFAS No.
123 on its financial statements.
RECLASSIFICATIONS
Certain amounts in the accompanying 1994 and 1993 financial statements
have been reclassified to conform with the 1995 presentation.
(2) ACQUISITIONS
On February 1, 1993, the Partnership acquired radio stations KWFM-FM and
KWFM-AM in Tucson, Arizona, from National Radio Partners, L.P. for $4,000,000
(which included a payment in the amount of $600,000 made in consideration of
a noncompetition agreement).
On February 4, 1993, the Partnership acquired radio stations KRQQ-FM and
KNST-AM in Tucson, Arizona, from Nationwide Communications, Inc. for
$4,500,000 (which included a payment in the amount of $750,000 made in
consideration of a noncompetition agreement).
On June 1, 1993, the Partnership acquired radio stations WVEZ-FM and
WWKY-AM in Louisville, Kentucky, from Wilks-Schwartz Southwest Broadcasting,
Inc. for $6,375,000 (which included a payment in the amount of $750,000 made
in consideration of a noncompetition agreement).
On June 1, 1993, the Partnership acquired radio station WTFX-FM in
Louisville, Kentucky, from Louisville Broadcasters, Ltd. for $3,300,000
(which included a payment in the amount of $450,000 made in consideration of
a noncompetition agreement).
F-47
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(2) ACQUISITIONS (Continued)
On August 31, 1993, New West Radio, Inc. contributed radio stations
KRZZ-FM and KNSS-AM in Wichita, Kansas, to the Partnership in return for
$2,885,000 Class A units and $615,000 Class D units of the Partnership. New
West Radio, Inc. is owned and controlled by two individuals, one of whom is
the President and Chief Executive Officer of the Partnership (CEO). Based on
a review by the Partnership's Advisory Committee, consultations with industry
advisers and the absence of any involvement in the valuation decision by the
CEO, the general partner of the Partnership (excluding the CEO) determined
that the purchase by the Partnership of the stations for $3.5 million
constituted a fair price for the stations which was not more than their fair
market value. New West Radio, Inc. also assigned to the Partnership the right
to acquire KKRD-FM in Wichita from Sherman Broadcasting Corporation for
$1,661,500. This acquisition also occurred on August 31, 1993.
On October 1, 1993, the Partnership acquired radio station WZZU-FM in
Raleigh, North Carolina, from Villcom Broadcasting, Inc. for $3,800,000
(which included a payment in the amount of $600,000 made in consideration of
a noncompetition agreement).
On November 10, 1993, the Partnership acquired radio station WPDQ-AM in
Jacksonville, Florida, from Genesis Communications of Jacksonville, Inc. for
$400,000, which consisted of $300,000 in cash and $100,000 in a promissory
note (Note 5).
On January 4, 1994, the Partnership acquired radio station WDCG-FM in
Raleigh, North Carolina, from The Durham Herald Company for $6,500,000 (which
included a payment in the amount of $10,000 made in consideration of a
noncompetition agreement).
On September 1, 1994, the Partnership acquired radio station WIVY-FM in
Jacksonville, Florida, from J. J. Taylor Companies, Inc. for $7,000,000
(which included a payment in the amount of $100,000 made in consideration of
a noncompetition agreement).
All acquisitions have been accounted for as asset purchases. Accordingly,
the accompanying financial statements include the results of operations of
the acquired entities from the date of acquisition.
The Partnership made no acquisitions during 1995. A summary of the net
assets acquired through station acquisitions for the years ended December 31
follows (including acquisition costs):
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
Property and equipment $ 1,601,439 $ 5,165,086
Intangible assets ...... 12,530,812 22,582,088
-------------- ------------
$ 14,132,251 $27,747,174
============== ============
</TABLE>
F-48
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 USEFUL LIFE
------------ ------------ -------------
<S> <C> <C> <C>
Land .......................... $ 685,127 $ 685,127 --
Building and improvements .... 1,346,972 1,138,161 15 years
Broadcast and other equipment 7,762,405 7,567,576 10-15 years
Furniture and fixtures ........ 413,282 317,418 7 years
Computers and equipment ...... 686,769 568,378 4-10 years
Automobiles ................... 385,361 223,984 4 years
------------ ------------ -------------
11,279,916 10,500,644
Less accumulated depreciation 1,898,918 1,009,825
------------ ------------
$ 9,380,998 $ 9,490,819
============ ============
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31:
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 USEFUL LIFE
------------- ------------ -------------
<S> <C> <C> <C>
Goodwill ...................... $ 5,160,804 $ 5,160,804 40 years
Broadcast licenses ............ 29,802,234 29,802,234 40 years
Noncompetition agreements .... 4,260,000 4,260,000 2-3 years
------------- ------------ -------------
39,223,038 39,223,038
Less accumulated amortization 6,336,965 4,280,068
------------- ------------
$32,886,073 $34,942,970
============= ============
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Interest payable ............. $ 264,266 $ 294,167
Compensation and commissions 907,310 1,219,126
Other ........................ 852,145 536,383
------------ -----------
$2,023,721 $2,049,676
============ ===========
</TABLE>
F-49
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(6) DEBT
Debt consisted of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Credit facility notes; secured by substantially all the assets of
the Partnership with interest ranging from 8.63% to 8.94% per annum
(as of December 31, 1995); principal and interest payments are due
quarterly through September 30, 2000 ............................... $16,851,313 $17,912,501
Promissory note; secured by a deed of trust with interest of 9.5%
(as of December 31, 1995); principal and interest payments are due
annually and quarterly, respectively, through November 30, 1998 ... 71,500 83,500
Promissory note; unsecured; interest of 7% (as of December 31,
1994); principal and interest payments are due monthly. Paid in
full November 10, 1995 ............................................. -- 72,917
------------- -------------
Total debt ...................................................... 16,922,813 18,068,918
Less current portion ................................................ 2,812,000 711,917
------------- -------------
Total long-term debt ............................................ $14,110,813 $17,357,001
============= =============
</TABLE>
In September 1993, the Partnership entered into a variable rate loan
agreement with a bank whereby the Partnership could borrow up to $13,000,000.
On September 1, 1994, the loan agreement was amended to increase the loan
commitment to approximately $19,000,000. Borrowings under this agreement bear
interest at a rate based on the London Interbank Offered Rate (LIBOR) or the
bank's prime rate, plus the applicable margin which ranges from 1.5% to 3.0%
for LIBOR borrowings and 0.25% to 1.75% for prime rate borrowings, depending
on the Partnership's ratio of senior debt to trailing four quarters'
operating cash flow. The credit facility notes of $16,851,313 are outstanding
under this agreement. The Partnership pays a commitment fee of 5/8 of 1% per
annum on the aggregate unused portion of the loan commitment and has paid a
one-time facility fee of 1 1/2 % ($195,000) of the initial total credit
commitment of $13,000,000 and a one-time facility fee of 2 1/8 % ($126,760)
of the incremental commitment of approximately $6,000,000.
The credit facility agreement contains certain financial and operational
covenants and other restrictions with which the Partnership must comply,
including, among others, limitations on capital expenditures, corporate
overhead and the incurrence of additional indebtedness, and restrictions on
borrowings, distributions, and redemptions. At December 31, 1995, the
Partnership was in compliance with the respective covenants.
A summary of the future maturities of debt follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------
<S> <C>
1996 .......... $ 2,812,000
1997 .......... 3,341,875
1998 .......... 3,522,000
1999 .......... 4,191,000
2000 .......... 3,055,938
------------
$16,922,813
============
</TABLE>
F-50
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(7) PARTNERS' CAPITAL
As of December 31, 1995, partners in the Partnership had made the
following capital contributions out of their total capital commitments to the
Partnership:
<TABLE>
<CAPTION>
CAPITAL CAPITAL
PARTNER CONTRIBUTIONS COMMITMENTS
- ------------------------------- --------------- -------------
<S> <C> <C>
General partner ................ $ 386,759 $ 525,000
Class A and B limited partners 37,928,837 50,149,067
Class C limited partners ...... -- --
Class D limited partners ...... -- --
--------------- -------------
$38,315,596 $50,674,067
=============== =============
</TABLE>
In connection with the Wichita, Kansas, acquisitions in August 1993 (note
2), the Partnership issued $2,885,000 of Class A interests and $615,000 of
new Class D interests. Class D interests received only a guaranteed return
based on current interest rates, and had the right to convert to Class A
interests. During 1994, the Class D interests were converted into Class A
interests.
The Class C limited partnership interests are for certain key employees of
the Partnership. After the Class A and B limited partners and the general
partner have received a return of their capital and a 10% simple interest per
annum preferred return as specified in the partnership agreement, the Class C
limited partners, certain Class A and B limited partners, and the general
partner are entitled to share up to 20% of the remaining distributions (with
the other 80% of the distributions being divided among the Class A and B
limited partners and the general partner in proportion to their capital
commitments). Unlike Class A, B and D interests, these Class C interests do
not require any capital contribution or capital commitment and are subject to
vesting, repurchase, and other restrictions. Only Class A interests have the
right to participate in any giving of consent of the limited partners.
During 1995 and 1994, certain employees purchased Class A limited
partnership interests for notes in the aggregate principal amount of $680,000
and $300,000, respectively. The notes bear interest at 8%. Principal and
interest are due annually commencing June 30, 1995 through June 30, 2000.
(8) COMMITMENTS AND CONTINGENCIES
The Partnership has certain noncancelable operating leases, primarily for
office space and radio towers. These leases generally contain renewal options
for periods ranging from three to five years and require the Partnership to
pay all costs such as maintenance and insurance. Rental expense for operating
leases (excluding those with lease terms of a month or less that were not
renewed) was approximately $898,000, $743,000 and $387,000 during 1995, 1994
and 1993, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1995 are:
<TABLE>
<CAPTION>
<S> <C>
1996 ......................... $ 875,364
1997 ......................... 835,035
1998 ......................... 721,856
1999 ......................... 594,637
2000 ......................... 611,209
Thereafter ................... 1,390,197
-----------
Total minimum lease payments $5,028,298
===========
</TABLE>
Management expects that in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties.
F-51
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(8) COMMITMENTS AND CONTINGENCIES (Continued)
The Partnership has entered into an employment agreement with its Chief
Executive Officer with an expiration date of February 15, 1996. The
Partnership has also entered into a management agreement with Duff Ackerman
Goodrich & Associates, L.P., to provide financial advisory, investment
banking, and certain management services to the Partnership with an
expiration date of February 15, 1996. Each agreement can be renewed at the
option of the Partnership for successive one-year terms through December 31,
1997. Due to the impending sale of the assets of the Partnership, the
employment agreement with its CEO is continuing on a month-to-month basis,
while the management agreement has not been renewed. In aggregate, these
employment and management agreements resulted in approximately $312,500 and
$400,000 in compensation in 1995 and 1994, excluding reimbursement of
expenses. Both the CEO and certain principals of Duff Ackerman Goodrich &
Associates, L.P. are related parties, as holders of Partnership interests.
In September 1994, the Partnership obtained a letter of credit from its
senior lender in the amount of $1,000,000. The beneficiary of the letter of
credit is the Jacksonville Jaguars, Ltd. Its issuance was required as a
condition of the Partnership's contract with the Jacksonville Jaguars, Ltd.
to broadcast their football games for a period of three years beginning in
1995. The term of the letter of credit is three years. The Partnership paid a
one-time transaction fee of $20,300 to establish the letter of credit and
also pays 2 1/4 % annually on the undrawn portion of the facility. The
Partnership will pay $1,500,000 annually for broadcast rights over the three
year term of the contract. No draws have been made on the letter of credit in
1994 or 1995.
(9) 401(K) PLAN
Since October 1993, the Partnership has offered substantially all of its
employees voluntary participation in a defined contribution 401(k) plan.
Participants in the plan may elect to make salary deferral contributions of
up to 15% of their annual compensation. The Partnership may make
discretionary contributions to the plan, allocable to plan members' accounts.
The Partnership made no contribution to the plan in 1995, 1994 and 1993.
(10) LITIGATION
The Partnership is involved in certain legal actions and claims arising in
the ordinary course of business. Management believes that such litigation and
claims will be resolved without a material effect on the Partnership's
financial position or results of operations.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Partnership disclose
estimated fair values for its financial instruments.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument;
they are subjective in nature and involve uncertainties, matters of judgment
and, therefore, cannot be determined with precision. These estimates do not
reflect any premium or discount that could result from offering for sale at
one time the Partnership's entire holdings of a particular instrument.
Changes in assumptions could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1995, the amounts
that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
F-52
<PAGE>
PRISM RADIO PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Partnership's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
CARRYING
AMOUNT FAIR VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,368,546 $ 1,368,546
============= =============
Long-term debt:
Credit facility notes ... $16,851,313 $16,851,313
Other .................... 71,500 71,500
------------- -------------
Total long-term debt .... $16,922,813 $16,922,813
============= =============
</TABLE>
(12) SUBSEQUENT EVENTS
On February 9, 1996, the Partnership signed an asset purchase agreement
with SFX Broadcasting, Inc. to sell substantially all of the assets of the
Partnership for $105,250,000. The sale is subject to approval by the Federal
Communications Commission (FCC).
F-53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
HMW Communications, Inc.:
We have audited the accompanying combined balance sheets of HMW
Communications, Inc.-- Selected Operations (combination of six radio stations
to be sold) (the "Stations"), as defined in Note 1, as of December 31, 1995
and 1994, and the related combined statements of operations, shareholders'
equity, and cash flows for the year ended December 31, 1995 and for the
various periods from January 6, 1994 to December 31, 1994, as described in
Note 1. These financial statements are the responsibility of HMW
Communications, Inc.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Stations at
December 31, 1995 and 1994, and the combined results of their operations and
their cash flows for the year ended December 31, 1995 and for the various
periods from January 6, 1994 to December 31, 1994, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
March 8, 1996
F-54
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------
ASSETS 1996 1995 1994
------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash ................................................... $ 123,434 $ 929,102 $ 201,091
Accounts receivable (less allowance for doubtful
accounts of $100,608, $94,326 and $99,052
respectively) .......................................... 2,828,128 2,388,188 2,466,333
Due from affiliate companies ........................... 2,011,489 1,653,743 874,458
Prepaid expenses and other ............................. 361,904 346,550 271,863
------------- ------------- -------------
Total current assets ................................ 5,324,955 5,317,583 3,813,745
------------- ------------- -------------
Property and equipment, net ............................. 7,761,946 8,086,590 9,073,420
------------- ------------- -------------
Intangible assets, net:
Goodwill and FCC license agreements .................... 21,425,285 21,569,479 22,129,780
Non-compete agreements ................................. 175,000 271,875 659,375
Organization costs ..................................... 93,786 100,989 130,203
------------- ------------- -------------
Total intangible assets ............................. 21,694,071 21,942,343 22,919,358
------------- ------------- -------------
Total assets ........................................ $34,780,972 $35,346,516 $35,806,523
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................. $ 872,836 $ 489,314 $ 513,372
Other accrued liabilities .............................. 584,346 904,462 552,636
Current maturities of notes payable .................... 217,257 849,695 1,819,643
Current maturities of capital lease obligations ....... 2,573 7,119 6,180
Current maturities of non-compete obligations ......... 312,500 387,500 387,500
Income taxes payable ................................... 288,000 288,000 247,000
------------- ------------- -------------
Total current liabilities ........................... 2,277,512 2,926,090 3,526,331
------------- ------------- -------------
Long-term liabilities:
Deferred income taxes .................................. 783,000 690,000 169,000
Notes payable, less current maturities and other ...... 46,330 6,019 638,458
Capital lease obligations, less current maturities .... 4,984 1,486 18,160
Non-compete obligations, less current maturities ...... -- 162,500 475,000
------------- ------------- -------------
Total long-term liabilities ......................... 834,314 860,005 1,300,618
------------- ------------- -------------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock--
WRDU Operating Company, Inc., WTRG Operating
Company, Inc., WMFR/WMAG Operating Company, Inc.,
WWWB/WGLD Operating Company, Inc.; $.01 par value;
4,000 shares authorized, issued and outstanding ..... 40 40 40
Additional contributed capital ......................... 33,692,627 33,692,627 31,977,627
Accumulated deficit .................................... (2,023,521) (2,132,246) (998,093)
------------- ------------- -------------
Total shareholders' equity .......................... 31,669,146 31,560,421 30,979,574
------------- ------------- -------------
Total liabilities and shareholders' equity ......... $34,780,972 $35,346,516 $35,806,523
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-55
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, DECEMBER 31,
-------------------------- ------------------------------
1996 1995 1995 1994
------------ ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Broadcasting revenues ........................... $2,092,344 $2,752,836 $12,904,566 $ 11,634,409
Barter revenues ................................. 83,064 307,410 1,106,512 798,521
Less agency commissions ......................... (236,975) (275,869) (1,322,927) (1,138,788)
------------ ------------ -------------- --------------
Net revenues ................................. 1,938,433 2,784,377 12,688,151 11,294,142
------------ ------------ -------------- --------------
Operating expenses:
Programming, technical and news ................ 382,059 794,650 3,049,084 2,660,721
Sales and promotion ............................ 600,315 906,013 4,515,197 3,807,122
Barter expenses ................................ 30,276 49,444 1,024,113 689,236
General and administrative ..................... 312,480 573,082 2,349,062 2,294,815
Depreciation and amortization .................. 583,819 425,819 2,324,662 1,872,157
Other expenses ................................. 49,530 6,690 44,977 547,940
------------ ------------ -------------- --------------
Total operating expenses ..................... 1,958,479 2,755,698 13,307,095 11,871,991
------------ ------------ -------------- --------------
Interest expense ................................ (57,811) (2,594) (156,001) (123,485)
Other income, net ............................... 279,582 36,148 202,792 119,241
------------ ------------ -------------- --------------
Income (loss) before provision for income taxes 201,725 62,233 (572,153) (582,093)
Provision for income taxes ...................... 93,000 120,000 (562,000) (416,000)
------------ ------------ -------------- --------------
Net income (loss) ............................ $ 108,725 $ (57,767) $(1,134,153) $ (998,093)
============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-56
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 ............... $-- $ -- $ -- $ --
Capital contribution at incorporation on
January 6, 1994 ........................ 40 28,955,543 -- 28,955,583
Capital contributions of cash by HMW ... -- 2,427,924 -- 2,427,924
Capital contributions through debt
reductions by HMW ...................... -- 594,160 -- 594,160
Net loss ................................ -- -- (998,093) (998,093)
-------- ------------- -------------- -------------
Balance at December 31, 1994 ............. 40 31,977,627 (998,093) 30,979,574
Capital contributions through debt
reductions by HMW ...................... -- 1,715,000 -- 1,715,000
Net loss ................................ -- -- (1,134,153) (1,134,153)
-------- ------------- -------------- -------------
Balance at December 31, 1995 ............. 40 33,692,627 (2,132,246) 31,560,421
-------- ------------- -------------- -------------
Net income (unaudited) .................. -- -- 108,725 108,725
-------- ------------- -------------- -------------
Balance at March 31, 1996 (unaudited) ... $40 $33,692,627 $(2,023,521) $31,669,146
======== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-57
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------ -----------------------------
1996 1995 1995 1994
----------- ----------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................ $ 108,725 $ (57,767) $(1,134,153) $ (998,093)
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization ................... 583,819 425,819 2,324,662 1,863,903
Provision for doubtful accounts ................. 28,906 30,452 115,626 121,811
Provision for deferred income taxes ............. 93,000 120,000 521,000 169,000
Gain on sale of assets .......................... -- -- (8,766) --
Changes in operating assets and liabilities:
Accounts receivable ............................ (468,846) 276,362 (37,481) (2,588,144)
Due from affiliate companies ................... (357,746) 148,529 (779,285) (874,458)
Prepaid expenses and other ..................... (15,354) (408,762) (74,687) (271,863)
Accounts payable ............................... 383,522 69,415 (24,058) 513,372
Other accrued liabilities ...................... (273,786) (121,851) 351,826 552,636
Income taxes payable ........................... -- -- 41,000 247,000
----------- ----------- -------------- -------------
Net cash provided (used) by operating
activities ................................... 82,240 482,197 1,295,684 (1,264,836)
----------- ----------- -------------- -------------
Cash flows used in investing activities:
Purchases of property and equipment .............. (10,904) (134,851) (364,086) (964,569)
Proceeds from sales of property and equipment ... -- -- 12,035 --
----------- ----------- -------------- -------------
Net cash used by investing activities ........ (10,904) (134,851) (352,051) (964,569)
----------- ----------- -------------- -------------
Cash flows from financing activities:
Borrowings on notes payable and capital lease
obligations ..................................... -- 2,931 46,330 21,856
Contributions of capital by HMW .................. -- -- -- 2,427,924
Principal payments on notes payable and capital
lease obligations ............................... (877,004) (216,589) (261,952) (19,284)
----------- ----------- -------------- -------------
Net cash (used) provided by financing
activities ................................... (877,004) (213,658) (215,622) 2,430,496
----------- ----------- -------------- -------------
Net increase (decrease) in cash ................... (805,668) 133,688 728,011 201,091
Cash at beginning of the period ................... 929,102 201,091 201,091 --
----------- ----------- -------------- -------------
Cash at end of the period ......................... $ 123,434 $ 334,779 $ 929,102 $ 201,091
=========== =========== ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ........ $ -- $ -- $ 7,197 $ 106,970
=========== =========== ============== =============
Cash paid during the period for income taxes .... $ -- $ -- $ -- $ --
=========== =========== ============== =============
Supplemental disclosures of non-cash financing
activities:
Net assets of radio stations contributed by HMW:
Fair value of property and equipment ............ $ -- $ -- $ -- $ 9,164,692
Fair value of intangible assets ................. -- -- -- 23,727,420
Notes payable and non-compete obligations ...... -- -- -- (3,892,905)
Capital lease obligations ....................... -- -- -- (43,624)
----------- ----------- -------------- -------------
Contribution of capital by HMW ................ $ -- $ -- $ -- $28,955,583
=========== =========== ============== =============
Principal reductions on notes payable and
non-compete agreements through contributions of
capital by HMW ................................... $ -- $ -- $ 1,715,000 $ 594,160
=========== =========== ============== =============
</TABLE>
The accompanying notes are an integral part of the combined
financial statements.
F-58
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of six
radio stations (the "Stations") operated by four corporations (the
"Companies") and their wholly-owned license subsidiaries as follows:
o WRDU Operating Company, Inc. ("WRDU") and its wholly-owned subsidiary
WRDU License Subsidiary, Inc. operate WRDU-FM in Raleigh, North Carolina.
o WTRG Operating Company, Inc. ("WTRG") and its wholly-owned subsidiary
WTRG License Subsidiary, Inc. operate WTRG-FM in Raleigh, North Carolina.
o WMFR/WMAG Operating Company, Inc. ("WMAG") and its wholly-owned
subsidiary WMFR/ WMAG License Subsidiary, Inc. operate WMAG-FM and WMFR-AM in
Greensboro, North Carolina.
o WWWB/WGLD Operating Company, Inc. ("WHSL") and its wholly-owned
subsidiary WWWB/ WGLD License Subsidiary, Inc. operate WHSL-FM and WWWB-AM in
Greensboro, North Carolina.
The Companies were incorporated on January 6, 1994. WMAG is a wholly-owned
subsidiary of HMW Holdings No. 1, Inc. ("Holdings 1"). WRDU, WTRG and WHSL
are wholly-owned subsidiaries of HMW Holdings No. 2, Inc. ("Holdings 2").
Holdings 1 and Holdings 2 are wholly-owned subsidiaries of HMW
Communications, Inc. ("HMW"). Holdings 1 acquired the tangible assets and FCC
licenses of WMAG-FM and WMFR-AM on February 2, 1994 in a transaction
accounted for as a purchase. Holdings 2 acquired the tangible assets and FCC
licenses of WRDU-FM on February 2, 1994 and of WTRG-FM on April 1, 1994 in
separate transactions accounted for as purchases. The assets and FCC licenses
acquired in these transactions (the "Acquisitions") were "pushed-down" and
contributed as capital to each of the operating companies. Holdings 2
obtained the FCC licenses for WHSL-FM and WWWB-AM and began operations of
each station in July 1994.
On January 18, 1996, HMW entered into an asset purchase agreement (the
"Agreement") to sell substantially all the assets of WRDU-FM, WTRG-FM,
WMAG-FM, WMFR-AM, and WWWB-AM to Multi-Market Radio Acquisition Corp.
("Multi-Market" and the "Multi-Market Transaction") and an option agreement
to sell the assets of WHSL-FM to SFX Broadcasting, Inc. ("SFX" and the "SFX
Transaction"). Multi-Market is currently operating WMAG-FM, WMFR-FM and
WWWB-AM, and SFX is operating WHSL-FM, under joint sales agreements. The
closing of the Multi-Market Transaction, which is subject to various
conditions and approvals as defined in the Agreement, is expected to take
place in the second quarter of 1996 or shortly thereafter. SFX's option to
purchase the assets of WHSL-FM expires on June 30, 1996.
These financial statements include the historical basis of assets,
liabilities and operations of the Stations, which, for each of the
Acquisitions, was based on fair market value on the dates of acquisition. All
significant intercompany accounts and transactions have been eliminated in
combination of the individual stations.
INTERIM PERIODS
The combined balance sheet as of March 31, 1996 and the related combined
statements of operations and cash flows for the three month periods ended
March 31, 1996 and 1995 and the combined statement of shareholders' equity
for the three month period ended March 31, 1996 are unaudited. However, in
the opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
F-59
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC") to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections
from competing applications for their broadcast licenses. The ultimate effect
of this legislation on the competitive environment is currently
undeterminable.
REVENUE RECOGNITION
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national
advertisers. Revenue is recognized when the program and commercial
announcements are broadcast.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is determined
using the straight-line method based upon the estimated useful lives of the
various classes of assets ranging from five to twenty years. Leasehold
improvements are amortized over the shorter of their useful lives or the
terms of the related leases.
INTANGIBLE ASSETS
Intangible assets are stated at cost, which is based on fair market value
on the date of acquisition, and are being amortized on a straight-line basis
as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Goodwill and regulatory licenses and
permits ................................... 40
Organization costs ......................... 5
Non-compete agreements ..................... 5
</TABLE>
Accumulated amortization was $1,817,331 and $808,062 at December 31, 1995
and 1994, respectively.
The Stations evaluate intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Stations, as
well as by comparing them to their competitors. The Stations also take into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any
other events or circumstances which might indicate potential impairment.
CONCENTRATION OF CREDIT RISK
Revenue and accounts receivable primarily relate to advertising of
products and services within the Stations' broadcast areas in North Carolina.
Credit losses have been within management's expectations.
TRADE TRANSACTIONS
Trade transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment and services. The fair value of trade
agreement transactions is included in revenue and is expensed or capitalized,
as appropriate.
F-60
<PAGE>
INCOME TAXES
The Stations are expected to be included in the consolidated federal
income tax returns of HMW. For the purposes of these combined financial
statements, the income taxes have been calculated on a separate company
basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting No. 107, "Disclosure About Fair Value of
Financial Instruments" requires the Companies to disclose estimated fair
values of its financial instruments. The Companies' financial instruments
consist of cash and cash equivalents, long-term debt and non-compete
agreements, whose carrying value approximates fair value. The Companies'
remaining assets and liabilities are not considered financial instruments.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount more likely than
not to be realized. Income tax expense is the tax payable for the period and
the change during the period in deferred tax assets and liabilities.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Buildings and leasehold improvements ......... $ 349,362 $ 313,618
Towers and ground systems ..................... 3,217,457 3,179,376
Studio, technical and transmitting equipment . 6,159,411 5,925,671
Furniture and fixtures ........................ 710,316 667,723
Vehicles ...................................... 42,872 42,873
------------- -------------
10,479,418 10,129,261
Less accumulated depreciation and amortization (2,392,828) (1,055,841)
------------- -------------
$ 8,086,590 $ 9,073,420
============= =============
</TABLE>
4. NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- -----------
<S> <C> <C>
Notes payable to First Union National Bank in aggregate
monthly installments of $675, including interest at
8.75%, through September 5, 1997 ........................ $ 13,457 $ 20,277
Note payable to former WMAG owner due in 1996. This
note is collateralized by substantially all the assets
of WMAG ................................................. 625,000 2,220,567
Notes payable to HMW due in 1996, interest at 9% ........ 217,257 217,257
--------- -----------
855,714 2,458,101
Less current maturities .................................. 849,695 1,819,643
--------- -----------
$ 6,019 $ 638,458
========= ===========
</TABLE>
5. NON-COMPETE AGREEMENTS
The Stations entered into two non-compete agreements with the former
owners of WTRG. The agreements stipulate that the former owners will not
compete against the Stations for a minimum of three years. The amounts under
these agreements are payable at $387,500 in 1996 and $162,500 in 1997.
F-61
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
6. LEASES
The Stations lease their facilities and certain equipment under various
operating leases. The Stations also lease certain equipment under
noncancelable long-term lease agreements, recorded as capital leases, with
interest rates up to 21%. The costs of equipment recorded under capital
leases are approximately $40,000 at December 31, 1995 and 1994. Related
accumulated amortization is approximately $17,000 and $7,000 at December 31,
1995 and 1994, respectively. Rental expense under operating leases for the
year ended December 31, 1995 was approximately $396,000.
At December 31, 1995, future minimum lease payments due under operating
and capital leases with initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
- -------------------------------------------- ---------------- --------------
<S> <C> <C>
1996 ........................................ $ 560,460 $ 9,820
1997 ........................................ 534,326 2,073
1998 ........................................ 530,339 --
1999 ........................................ 510,236 --
2000 ........................................ 511,222 --
Thereafter .................................. 1,810,064 --
---------------- --------------
Total minimum lease payments ................ $ 4,456,647 11,893
================
Less amount representing interest ........... 3,288
--------------
Present value of net minimum lease payments $ 8,605
==============
</TABLE>
7. INCOME TAXES
Income tax expense for the periods ended December 31, 1995 and 1994
consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current:
Federal .. $ 41,000 $207,000
State ..... -- 40,000
----------- -----------
41,000 247,000
----------- -----------
Deferred:
Federal .. 422,000 127,000
State ..... 99,000 42,000
----------- -----------
521,000 169,000
----------- -----------
$562,000 $416,000
=========== ===========
</TABLE>
A reconciliation of expected income tax at the statutory federal rate with
the actual income tax expense for the periods ended December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Expected income tax benefit at the statutory rate (34%) $(194,532) $(198,000)
State tax provision (benefit) .......................... (26,700) 16,000
Valuation allowance .................................... 812,000 598,000
Other .................................................. (28,768) --
------------ ------------
Net income tax provision ............................... $ 562,000 $ 416,000
============ ============
</TABLE>
F-62
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
7. INCOME TAXES (Continued)
The components of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Deferred tax assets:
Bad debts .............................. $ 7,000 $ 39,000
Covenant not to compete ................ -- 95,000
Charitable ............................. 2,000 --
Net operating loss carryforward ....... 1,703,000 632,000
Valuation allowance .................... (1,410,000) (598,000)
------------- -----------
302,000 168,000
------------- -----------
Deferred tax liabilities:
Fixed assets ........................... (521,000) (26,000)
FCC license and covenant not to compete (471,000) (311,000)
------------- -----------
(992,000) (337,000)
------------- -----------
Net deferred tax liability .............. $ (690,000) $(169,000)
============= ===========
</TABLE>
Certain of the Stations have approximately $4,354,000 at December 31, 1995
in net operating loss carryforwards for both federal and state purposes. The
losses expire beginning in 2009 for federal purposes and beginning in 1999
for state purposes.
8. RELATED PARTY TRANSACTIONS
For working capital purposes, the Stations periodically make payments to
and receive payments from other entities that are related to the Stations
through common ownership. The Stations had net receivables from these
transactions of $1,653,743 and $874,458 at December 31, 1995 and 1994,
respectively.
9. COMMITMENTS AND CONTINGENCIES:
Substantially all of the Stations' assets are pledged as collateral
against obligations of Holdings 2 totaling approximately $16,000,000 at
December 31, 1995 to a creditor bank under an agreement dated February 28,
1994. Holdings 2 is currently in default as defined under the terms of the
agreement. Although the creditor bank has not exercised certain rights as a
result of the default, it may, among other things, demand immediate payment
of the outstanding principal balance through sale or liquidation of the
Stations or their assets. Certain of the Stations are guarantors of the
obligation.
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of ABS Greenville Partners, L.P.
We have audited the accompanying balance sheet of ABS Greenville Partners,
L.P. as of December 31, 1995 and the related statements of operations and
partners' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership'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 ABS Greenville Partners,
L.P. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
CHEELY BURCHAM EDDINS ROKENBROD & CARROLL
Richmond, Virginia
February 1, 1996
F-64
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash ................................................................ $ 21,893 $ 4,778
Accounts receivable, net of allowance for doubtful accounts of
$8,857 and $7,291, respectively .................................... 124,261 842,112
------------- --------------
TOTAL CURRENT ASSETS ............................................. 146,154 846,890
Property and equipment, net .......................................... 349,917 370,917
Intangible assets, net ............................................... 1,606,884 1,709,185
------------- --------------
TOTAL ASSETS ..................................................... $ 2,102,955 $ 2,926,992
============= ==============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts payable .................................................... $ 28,457 $ 188,328
Accrued expenses .................................................... -- 132,016
Current portion, long-term debt ..................................... 477,440 478,080
------------- --------------
TOTAL CURRENT LIABILITIES ........................................ 505,897 798,424
Long-term debt, less current portion ................................. 9,340,469 9,340,469
Accrued interest ..................................................... 1,979,584 1,950,000
Due to related entities .............................................. 199,000 500,000
------------- --------------
TOTAL LIABILITIES ................................................ 12,024,950 12,588,893
Partners' deficit .................................................... (9,921,995) (9,661,901)
------------- --------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT .......................... $ 2,102,955 $ 2,926,992
============= ==============
</TABLE>
See notes to financial statements.
F-65
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED
----------------------------- DECEMBER 31,
1996 1995 1995
------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales ...................................... $ 381,447 $ 900,845 $ 4,674,227
Less commissions .......................... 45,243 127,534 600,161
------------- ------------- --------------
NET SALES .............................. 336,204 773,311 4,074,066
Broadcast expenses:
Sales and promotion ....................... 71,893 279,355 1,394,407
Programming and production ................ 60,054 145,112 828,083
General and administrative ................ 108,170 175,131 757,988
Engineering ............................... 9,439 21,708 87,192
------------- ------------- --------------
249,556 621,306 3,067,670
------------- ------------- --------------
BROADCAST PROFIT ....................... 86,648 152,005 1,006,396
Interest ................................... 184,850 188,487 792,149
Corporate expenses ......................... 62,699 45,334 194,820
Depreciation and amortization .............. 123,300 127,300 513,752
Barter, net ................................ (24,107) 14,003 170,631
Loss on disposal of assets ................. -- -- 2,099
------------- ------------- --------------
346,742 375,124 1,673,451
------------- ------------- --------------
NET LOSS ............................... (260,094) (223,119) (667,055)
Partners' deficit, beginning of year ...... (9,661,901) (6,381,598) (6,381,598)
Liabilities transferred from related entity -- (2,613,248) (2,613,248)
------------- ------------- --------------
PARTNERS' DEFICIT, END OF YEAR ........ (9,921,995) (9,217,965) $(9,661,901)
============= ============= ==============
</TABLE>
See notes to financial statements.
F-66
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEAR ENDED
31, DECEMBER 31,
1996 1995 1995
------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................. $(260,094) $(223,119) $(667,055)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ....................... 127,299 127,299 513,752
Barter, net ......................................... 24,107 (14,003) 170,631
Loss on disposal of assets .......................... 2,099
Change in:
Accounts receivable ................................ 693,744 148,885 (145,897)
Accounts payable ................................... (159,871) 21,456 2,391
Accrued expenses ................................... (132,016) (39,642) 56,836
Accrued interest ................................... 29,584 27,910 125,310
Due to related entities ............................ (301,000) 313,248 --
------------ ------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...... 21,753 362,034 58,067
------------ ------------ --------------
INVESTING ACTIVITIES
Purchases of property and equipment .................. (3,998) (23,483) (76,466)
Proceeds from sale of assets ......................... -- 800
------------ ------------ --------------
NET CASH USED IN INVESTING ACTIVITIES .......... (3,998) (23,483) (75,666)
------------ ------------ --------------
FINANCING ACTIVITIES
Payments of long-term debt ........................... (640) -- (4,480)
Proceeds from long-term debt ......................... -- 23,029
------------ ------------ --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...... (640) -- 18,549
------------ ------------ --------------
Net increase in cash .................................. 17,115 338,551 950
Cash, beginning of year ............................... 4,778 3,828 3,828
------------ ------------ --------------
CASH, END OF YEAR ............................... 21,893 $ 342,379 $ 4,778
============ ============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year ........................ 184,850 $ 188,487 $ 666,967
============ ============ ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
The partnership assumed $1,900,000 of long-term debt and $713,248 of
accrued interest from a related entity during 1995.
See notes to financial statements.
F-67
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A--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.
ORGANIZATION: ABS Greenville Partners, L.P. (the Partnership) was formed
on August 29, 1989 to purchase, sell, operate, and otherwise own radio
broadcast facilities in the United States. The Partnership currently owns and
operates WROQ (FM) in Greenville, South Carolina. The Partnership consists of
two general partners, ABS Communications, Inc. (ABS) (1/2% ownership) and
EBF, Inc. (EBF) (1% ownership), and two limited partners (98.5% ownership).
Profits and losses are allocated in accordance with ownership interests.
ABS is the managing general partner for ABS Greenville Partners, L.P. and
three other partnerships with common ownership. The four partnerships are
referred to collectively as the ABS Partnerships.
The station's license to broadcast is granted by the Federal
Communications Commission (FCC) and is subject to renewal every seven years.
As of the date of this financial statement the FCC is in the process of
reviewing the station's renewal application. Management is aware of no reason
the FCC would deny the stations application.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at assigned or
actual cost and depreciated using accelerated methods over their estimated
useful lives ranging from 5 to 40 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
intangible assets is being amortized over periods of 5 to 40 years.
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.
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. 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 advertisements. These receivables and payables are included net
in the financial statements as $149,792 of trade payables.
INCOME TAXES: No provision has been made for federal, state and local
income taxes in the financial statements because the applicable portion of
taxable income or loss is includable in the tax returns of the partners.
BAD DEBTS: Management has established an allowance for doubtful accounts
based upon current year revenues and historical losses.
ADVERTISING: The Partnership expenses all advertising costs when incurred.
Advertising expense was $234,854 for the year.
F-68
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Land and improvements ......... $ 57,254
Building ...................... 101,160
Tower and tower equipment .... 690,318
Furniture and fixtures ........ 158,984
Leasehold improvements ........ 72,307
Broadcast and other equipment 720,958
-----------
1,800,981
Less accumulated depreciation 1,430,064
-----------
$ 370,917
===========
</TABLE>
Depreciation expense was $104,551 for the year.
[/TABLE]
NOTE C--INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
FCC license ................... $4,067,883
Going concern ................. 96,508
Prepaid consulting ............ 30,000
Tower space lease income ..... 131,224
Assembled staff ............... 92,800
Other intangibles ............. 92,600
------------
4,511,015
Less accumulated amortization 2,801,830
------------
$1,709,185
============
</TABLE>
Amortization expense was $409,201 for the year.
NOTE D--LINE OF CREDIT
The ABS Partnerships have a line of credit with a bank which expires
December 31, 1998 and is guaranteed by a related party. The line allows
borrowings up to $1,000,000 and bears interest at the Prime rate, Eurodollar
rate or a combination of the two rates. There was no balance outstanding
under the line of credit at December 31, 1995.
NOTE E--LONG-TERM DEBT
The ABS Partnerships have entered into a credit agreement with Chemical
Bank providing $25,000,000 of term debt. ABS Greenville Partners, L.P. was
allocated $9,800,000 of this term debt. The note bears interest at the rate
specified in the Credit Agreement. This rate was 6.44% at December 31, 1995.
Interest is payable monthly. The loan is guaranteed by a related party.
During 1995, ABS Greenville Partners, L.P. borrowed $23,029 from a bank to
purchase a vehicle. The note is payable in monthly installments of $640 plus
interest at prime plus one half percent (9.25% at December 31, 1995) for 36
months.
F-69
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E--LONG-TERM DEBT (Continued)
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ...................... $ 478,080
1997 ...................... 693,680
1998 ...................... 8,646,789
</TABLE>
NOTE F--RELATED-PARTY TRANSACTIONS
The ABS Partnerships are managed by ABS Communications, Inc. (ABS), the
managing general partner. For the year ended December 31, 1995, the
management fee charged to ABS Greenville Partners, L.P. was $46,875. ABS also
incurs certain direct and indirect expenses on behalf of the ABS
Partnerships. Direct and allocated indirect expenses charged to ABS
Greenville Partners, L.P. amounted to $147,945 in 1995. Such expenses are
recorded by ABS Greenville Partners, L.P. as corporate expenses in the
accompanying statement of operations and partners' deficit.
ABS Greenville Partners, L.P. has entered into an operating agreement with
ABS to lease a remote vehicle for a period of five years from January 1, 1992
for $1,750 per month. The future minimum lease payments required under this
lease are included in the schedule of future minimum lease payments in Note
G.
Unpaid accrued interest of $1,950,000 on related party notes at December
31, 1995, is due upon demand. Payment is not expected by management to be
demanded within one year from the date of these financial statements. The
unpaid balance accrues interest at a rate determined by the General Partners.
This rate was 6.83% as of December 31, 1995.
ABS Greenville Partners, L.P. has been advanced $500,000 from the other
ABS Partnerships to fund current operations.
NOTE G--LEASE COMMITMENTS
The Partnership has 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 February 2000 and certain leases contain renewal and/or purchase
options.
Lease expense was approximately $112,250 for the year.
Future minimum lease payments for the Partnership under non-cancelable
operating leases that have an initial or remaining lease term in excess of
one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ........................... $142,300
1997 ........................... 120,900
1998 ........................... 116,700
1999 ........................... 116,900
2000 ........................... 28,700
</TABLE>
NOTE H--EMPLOYEE BENEFIT PLAN
Effective January 1, 1991, ABS, the managing general partner, established
a 401(k) savings plan for the ABS Partnerships. This plan is open to all of
the ABS Partnerships' salaried employees who are 21 years of age or older and
have completed one year of service. Participants may defer up to 10% of their
F-70
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H--EMPLOYEE BENEFIT PLAN (Continued)
salary into the plan and the ABS Partnerships will match 15% of each
employee's contribution to the plan up to 3% of that employee's salary. ABS
Greenville Partners, L.P. made a matching contribution to the plan of $4,784
in 1995.
NOTE I--LIQUIDITY
The Partnership has incurred net losses since inception. The Partnership
has prepared cash flow projections for 1996 which indicate that the
Partnership would need additional funding in 1996 to meet operating and debt
service requirements, if principal repayment schedules cannot be
renegotiated. The partners are, however, willing to provide funding to enable
the Partnership to meet operating and debt service requirements during 1996,
as needed.
NOTE J--SUBSEQUENT EVENT
In January 1996, the Partnership entered into an asset purchase agreement
to sell its radio station (WROQ-FM) located in Greenville, South Carolina. A
time brokerage agreement, related to the sale, was entered into effective
February 1, 1996. It is anticipated the asset purchase agreement will be
finalized by June 1996.
F-71
<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. (the "Company") 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 May 1, 1996
F-72
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------
1996 1995 1994
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash & cash equivalents ........................................... $ 3,959,815 $ 1,258,212 $ 712,502
Accounts receivable, net of allowance of $270,436, $304,162 and
$88,957, respectively ............................................ 3,437,335 4,232,995 1,460,791
Receivable from affiliate (Note 4) ................................ 0 0 504,730
Other current assets .............................................. 470,495 429,060 331,889
------------- ------------- -------------
7,867,645 5,920,267 3,009,912
Property, plant and equipment, at cost:
Land ............................................................. 651,070 723,070 375,760
Building and improvements ........................................ 766,253 762,822 112,358
Technical and equipment .......................................... 2,075,346 3,077,350 1,239,571
Furniture and equipment .......................................... 438,979 524,718 226,525
Vehicles ......................................................... 119,216 123,066 73,653
------------- ------------- -------------
4,050,864 5,211,026 2,027,867
Less-accumulated depreciation .................................... (401,143) (450,174) (163,876)
------------- ------------- -------------
3,649,721 4,760,852 1,863,991
Other assets:
Deferred costs--pending acquisitions and financings ............. 0 0 307,177
Intangible assets, net (Note 3) .................................. 48,948,016 55,745,735 18,094,295
Deposits ......................................................... 1,871,000 0 0
Net assets to be sold ............................................ 5,050,000 0 0
Other assets ..................................................... 54,954 37,884 52,900
------------- ------------- -------------
Total Assets ...................................................... $67,441,336 $66,464,738 $23,328,275
============= ============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities to affiliate (Notes 7) ................................ $ 302,019 $ 175,070 $ 130,000
Accounts payable and accrued expenses ............................. 1,555,061 1,678,754 784,829
Accrued interest .................................................. 1,298,298 910,596 182,290
Current portion of long-term debt (Note 5) ........................ 1,826,000 1,804,000 538,982
------------- ------------- -------------
Total current liabilities ......................................... 4,981,378 4,568,420 1,636,101
------------- ------------- -------------
Deferred taxes (Note 8) ........................................... 7,373,483 7,303,483 105,000
Long term debt (Note 5) ........................................... 39,341,049 39,677,937 6,070,117
Station sales deposits ............................................ 3,562,903 0 0
Other ............................................................. 57,694 100,045 0
------------- ------------- -------------
Total liabilities ................................................. 55,316,507 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; 2,990,000 shares issued and outstanding ............ 29,905 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 .................................................. 17,575,377 17,506,509 17,100,274
Accumulated Deficit .............................................. (6,039,204) (3,280,307) (1,620,377)
------------- ------------- -------------
Total Stockholders' Equity ........................................ 12,124,829 14,814,853 15,517,057
------------- ------------- -------------
Total Liabilities and Stockholders' Equity ........................ $67,441,336 $66,464,738 $23,328,275
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-73
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------------- ------------------------------
1996 1995 1995 1994
-------------- ------------ --------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenues ................................. 5,347,120 1,944,793 $20,324,494 $7,750,514
Agency commissions ............................. (520,980) (148,366) (2,036,749) (633,476)
-------------- ------------ --------------- -------------
Net revenues ................................... 4,826,140 1,796,427 18,287,745 7,117,038
Station operating expenses ..................... 3,092,636 1,254,736 11,026,222 4,806,722
Depreciation and amortization expense ......... 423,517 298,742 1,750,310 1,146,640
Non-cash compensation .......................... 64,999 80,000 281,247 364,933
Corporate expenses ............................. 622,337 220,807 1,665,227 774,856
-------------- ------------ --------------- -------------
Total operating expenses ....................... 4,203,489 1,854,285 14,723,006 7,093,151
-------------- ------------ --------------- -------------
OPERATING INCOME ............................... 622,651 (57,858) 3,564,739 23,887
Provision for loss on pending sale of WRXR .... (1,539,838) 0 0 0
Write-off of pending acquisition and financing
costs ......................................... (569,576) 0 0 0
Gain on sale of WRSF ........................... 68,842 0 0 0
Interest income (expense), net ................. (1,338,415) 1,402 (4,965,527) (765,829)
Other income (loss) ............................ (2,561) (312,314) 10,429 (8,840)
-------------- ------------ --------------- -------------
Loss before income taxes and extraordinary item (2,758,897) (368,770) (1,390,359) (750,782)
Provision for (benefit) from income taxes ..... 0 6,000 (59,000) 15,000
-------------- ------------ --------------- -------------
Loss before extraordinary item ................. (2,758,897) (374,770) (1,331,359) (765,782)
Extraordinary item-loss on early extinguishment
of debt ....................................... 0 (328,571) (328,571) 0
-------------- ------------ --------------- -------------
NET LOSS ....................................... $(2,758,897) $ (703,341) $ (1,659,930) $ (765,782)
============== ============ =============== =============
PER COMMON SHARE ...............................
Loss before extraordinary item ................. $(.79) $(.11) $(.38) $(.25)
Extraordinary item ............................. $(.00) $(.09) $(.10) $(.00)
-------------- ------------ --------------- -------------
Net loss ....................................... $(.79) $(.20) $(.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-74
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1995
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(2,758,897) $ (703,341)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ................... 423,517 298,742
Non-cash compensation ........................... 64,999 80,000
Extraordinary item-debt extinguishment ......... 0 328,571
Loss on impairment of net assets, WRXR ......... 1,539,838 0
Write-off of pending acquisition and financing
costs .......................................... 569,576 0
Gain on sale of WRSF ............................ (68,842) 0
Deferred taxes .................................. 0 0
Non-cash interest expense ....................... 248,316 0
CHANGES IN ASSETS AND LIABILITIES, NET OF AMOUNTS
ACQUIRED:
Accounts receivable ............................. 795,660 95,265
Other current assets ............................ (41,435) 109,994
Other assets .................................... (17,070) (48,151)
Liabilities to affiliate ........................ 126,949 (29,450)
Accrued interest ................................ 387,702 (127,019)
Deferred taxes .................................. 70,000 0
Other ........................................... (42,351) 843
Accounts payable and accrued expenses ........... (123,693) 1,831,941
-------------- --------------
Total adjustments ........................... 3,933,166 2,540,736
-------------- --------------
Net cash provided by operating activities ....... 1,174,269 1,837,395
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred acquisition costs ....................... 0 0
Proceeds from deposits on sale of stations ...... 3,562,903 0
Proceeds from sale of WRSF ....................... 900,000 0
Disposition of net assets of radio station ...... 0 48,649
Payments for deposits on radio stations ......... (1,871,000) (31,932,137)
Receivable from affiliates ....................... 0
Proceeds from disposition of net assets of radio
station ......................................... 0
Acquisition of net assets of radio stations ..... 0 0
Capital expenditures ............................. (73,487) (47,745)
-------------- --------------
Net cash used in investing activities ........... 2,518,416 (31,931,233)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIEs:
Repayments of long- term debt .................... (440,000) (6,478,309)
Proceeds from issuance of long-term debt, net of
issuance costs .................................. 0 41,328,750
Proceeds from sale of common and preferred stock,
net of equity issuance costs .................... 0 0
Debt issuance costs .............................. (554,957) (3,702,951)
Proceeds from sale of warrants and options ...... 3,875 446,250
-------------- --------------
Net cash provided by financing activities ...... (991,082) 31,593,740
-------------- --------------
NET INCREASE IN CASH ............................. 2,701,603 1,499,902
Cash and cash equivalents at beginning of period 1,258,212 712,502
-------------- --------------
Cash and cash equivalents at end of period ...... $ 3,959,815 $ 2,212,404
============== ==============
NON-CASH INVESTING ACTIVITY:
Satisfaction of promissory note receivable upon
acquisition of radio station assets .............
SUPPLEMENTAL INFORMATION:
Cash payments made during the year for interest .
Cash payments made during the year for income
taxes ...........................................
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(1,659,930) $ (765,782)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ................... 1,750,310 1,146,640
Non-cash compensation ........................... 281,247 364,933
Extraordinary item-debt extinguishment ......... 328,571 0
Loss on impairment of net assets, WRXR ......... 0 0
Write-off of pending acquisition and financing
costs .......................................... 0 0
Gain on sale of WRSF ............................ 0 0
Deferred taxes .................................. (202,000) 0
Non-cash interest expense ....................... 362,569 50,000
CHANGES IN ASSETS AND LIABILITIES, NET OF AMOUNTS
ACQUIRED:
Accounts receivable ............................. (696,296) (587,796)
Other current assets ............................ 165 (221,719)
Other assets .................................... (13,122) (47,698)
Liabilities to affiliate ........................ 45,070 90,000
Accrued interest ................................ 728,306 26,290
Deferred taxes .................................. 0 0
Other ........................................... 7,380 0
Accounts payable and accrued expenses ........... (108,465) 533,427
-------------- -------------
Total adjustments ........................... 2,483,735 1,354,077
-------------- -------------
Net cash provided by operating activities ....... 823,805 588,295
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred acquisition costs ....................... (239,814) (307,177)
Proceeds from deposits on sale of stations ...... 0 0
Proceeds from sale of WRSF ....................... 0 0
Disposition of net assets of radio station ...... 0 0
Payments for deposits on radio stations ......... 0 0
Receivable from affiliates ....................... 0 (20,929)
YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
Proceeds from disposition of net assets of radio
station ......................................... 31,831 0
Acquisition of net assets of radio stations ..... (31,574,156) (6,732,599)
Capital expenditures ............................. (511,097) (162,016)
-------------- -------------
Net cash used in investing activities ........... (32,293,236) (7,222,721)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIEs:
Repayments of long- term debt .................... (7,053,315) (593,623)
Proceeds from issuance of long-term debt, net of
issuance costs .................................. 38,391,977 0
Proceeds from sale of common and preferred stock,
net of equity issuance costs .................... 125,000 7,306,823
Debt issuance costs .............................. 0 0
Proceeds from sale of warrants and options ...... 551,479 160
-------------- -------------
Net cash provided by financing activities ...... 32,015,141 6,713,360
-------------- -------------
NET INCREASE IN CASH ............................. 545,710 78,934
Cash and cash equivalents at beginning of period 712,502 633,568
-------------- -------------
Cash and cash equivalents at end of period ...... $ 1,258,212 $ 712,502
============== =============
NON-CASH INVESTING ACTIVITY:
Satisfaction of promissory note receivable upon
acquisition of radio station assets ............. $ 504,730 $ --
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-75
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THREE MONTHS ENDED MARCH
31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON COMMON COMMON PREFERRED
STOCK STOCK STOCK STOCK
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balances at
January 1, 1994 ...... $11,500 $1,400 $3,600 $2,000
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
Issuance of options to
the underwriters of
the second public
offering .............
Issuance of stock
options below fair
market value .........
Non-cash compensation
(Note 6) .............
Net loss ..............
--------- --------- --------- -----------
Balances at December
31, 1994 ............. 29,900 1,400 3,600 2,000
Issuance of Huff
Warrants .............
Sale of Huff Preferred
Stock ................ 12
Non-cash compensation
(Note 6) .............
Net loss ..............
--------- --------- --------- -----------
Balances at December
31, 1995 ............. 29,900 1,400 3,600 2,012
--------- --------- --------- -----------
Proceeds from exercise
of warrants .......... 5 -- -- --
Non cash compensation -- -- -- --
Net loss .............. -- -- -- --
--------- --------- --------- -----------
Balances at March 31,
1996 (unaudited) ..... $29,905 $1,400 $3,600 $2,012
========= ========= ========= ===========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
WARRANTS & PAID-IN ACCUMULATED STOCKHOLDERS'
OPTIONS CAPITAL DEFICIT EQUITY
----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balances at
January 1, 1994 ...... $ 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 .............. 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 ............. 260 $17,100,274 (1,620,377) 15,517,057
Issuance of Huff
Warrants ............. 551,479 551,479
Sale of Huff Preferred
Stock ................ 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 ............. 551,739 17,506,509 (3,280,307) 14,814,853
----------- ------------- -------------- ---------------
Proceeds from exercise
of warrants .......... -- 3,869 -- 3,874
Non cash compensation -- 64,999 -- 64,999
Net loss .............. -- -- (2,758,897) (2,758,897)
----------- ------------- -------------- ---------------
Balances at March 31,
1996 (unaudited) ..... $551,739 $17,575,377 $(6,039,204) $12,124,829
=========== ============= ============== ===============
</TABLE>
See notes to consolidated financial statements.
F-76
<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:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
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)
</TABLE>
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 intercompany 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.
F-77
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
F-78
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 March
31, 1996 and the results of its operations and cash flows for the three month
periods ended March 31, 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:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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
F-79
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RECEIVABLE FROM AFFILIATE (Continued)
$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 1/2 % 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 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.
F-80
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT (Continued)
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:
<TABLE>
<CAPTION>
<S> <C>
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
============
</TABLE>
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.
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.
F-81
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY (Continued)
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.
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 warrants for the purchase of 728,000 shares of the
Company's Class A Common Stock. The purchase price for these warrants was
$551,479.
F-82
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY (Continued)
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 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 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;
F-83
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND TRANSACTIONS WITH AFFILIATES (Continued)
(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.
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
F-84
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND TRANSACTIONS WITH AFFILIATES (Continued)
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:
<TABLE>
<CAPTION>
<S> <C>
Years ending December 31:
1996 .................. $203,437
1997 ..................... 187,741
1998 ..................... 181,451
1999 ..................... 181,451
2000 ..................... 179,689
----------
$933,769
==========
</TABLE>
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.
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
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.
F-85
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES (Continued)
The principal components of the Company's deferred tax assets and
liabilities are the following:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
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
=========== ============
</TABLE>
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT 1994 1995
--------- -----------
<S> <C> <C>
Federal .. $ 0 $ 0
State ..... 15,000 143,000
DEFERRED
Federal .. 0 (169,783)
State ..... 0 (32,217)
--------- -----------
Total ..... $15,000 $ (59,000)
========= ===========
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
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)
============ ============
</TABLE>
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
The Company has entered into a plan of merger (the "SFX Acquisition")
dated as of April 15, 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.
F-86
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITIONS AND FINANCINGS (Continued)
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 2,990,500 shares of the
Company's Class A Common Stock and the 200,000 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 140,000 shares of the Company's Class B Common
Stock, the 360,000 shares of the Company's Class C Common Stock and 200,000
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 $11.50 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 MMR 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, (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.
On November 13, 1995, the Company and SFX had previously entered into an
exchange agreement (the "Letter 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 Letter 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. 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. 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, for a purchase price of approximately
$40.5 million, subject to adjustment based on the broadcast cash flow of
WTRG-FM and WRDU-FM. SFX and the Company have agreed that SFX will lend to
the Company the financing necessary to complete the purchase of such stations
and that the Company will immediately thereafter transfer the purchased
assets to the Company.
On March 25, 1996 the Company entered into an agreement to sell the assets
of WRXR-FM and WKBG-FM to Wilks Broadcast Acquisitions, Inc. ("the Buyer")
for a price of $5,000,000. A deposit of $300,000 was placed in an escrow
account by the Buyer upon signing of the purchase agreement. Additionally, a
local marketing agreement was entered into simultaneously with the signing of
the
F-87
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITIONS AND FINANCINGS (Continued)
purchase agreement pursuant to which the Buyer will provide programming on
stations WRXR-FM and WKBG-FM from the date of the agreement until the closing
of the transaction. The Company expects to record a loss of approximately
$1,500,000 related to this transaction.
On April 1, 1996, the Company entered into an agreement to acquire
substantially all of the assets of WKSS-FM, Hartford, Connecticut, for an
aggregate purchase price of $18 million. The Company has deposited $1.8
million in escrow to secure its obligations under the agreement. The purchase
agreement contains customary covenants and conditions. The agreement may be
terminated by either party if the other party has not cured a breach of the
agreement within 30 days written notice or if the FCC consent is not
obtained.
F-88
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CBS, Inc.
We have audited the accompanying balance sheets of KKRW-FM (a division of
CBS, Inc.) (the "Station") as of December 31, 1995 and 1994, and the related
statements of income, division equity and cash flows for the years then
ended. These financial statements are the responsibility of the Station's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KKRW-FM (a division of
CBS, Inc.) at December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
New York, New York ERNST & YOUNG LLP
May 20, 1996
F-89
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1994
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash ............................................. $ 5,195 $ 48,031 $ 37,235
Accounts receivable, less allowance for doubtful
accounts of $58,400 at March 31, 1996 and
$61,100 and $50,900 at December 31, 1995
and 1994, respectively .......................... 1,559,826 1,818,619 1,358,432
Prepaid expenses and other current assets ....... 190,681 17,049 22,943
------------- ------------- ------------
Total current assets .............................. 1,755,702 1,883,699 1,418,610
Leasehold improvements ............................ 193,455 186,800 107,808
Equipment and furniture ........................... 837,500 837,500 1,356,833
------------- ------------- ------------
1,030,955 1,024,300 1,464,641
Less accumulated depreciation ..................... (78,145) (21,674) (954,341)
------------- ------------- ------------
Net property and equipment (Note 1) ............... 952,810 1,002,626 510,300
Broadcast license and goodwill, net of accumulated
amortization of $133,700 at March 31, 1996 and
$39,300 and $2,357,800 at 1995 and 1994,
respectively (Note 1) ............................ 14,966,300 15,060,700 7,700,200
------------- ------------- ------------
Total assets ...................................... $17,674,812 $17,947,025 $9,629,110
============= ============= ============
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable and accrued expenses ............ $ 378,024 $ 208,207 $ 239,128
------------- ------------- ------------
Total current liabilities ......................... 378,024 208,207 239,128
Commitments (Note 3)
Division equity ................................... $17,296,788 $17,738,818 $9,389,982
------------- ------------- ------------
Total liabilities and division equity ............. $17,674,812 $17,947,025 $9,629,110
============= ============= ============
</TABLE>
See accompanying notes.
F-90
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
STATEMENTS OF INCOME AND DIVISION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
1996 1995 1995 1994
------------- ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues ........................ $ 1,625,872 $1,428,211 $ 7,117,297 $4,837,507
Operating expenses:
Station operating expenses ......... 1,156,788 1,423,232 5,166,765 4,799,700
Corporate expenses ................. 30,000 30,000 119,800 117,200
Depreciation and amortization ..... 150,871 84,387 371,467 350,707
------------- ------------ ------------- ------------
Total operating expenses ......... 1,337,659 1,537,619 5,658,032 5,267,607
Operating income (loss) ............. 288,213 (109,408) 1,459,265 (430,100)
Other income ........................ 30,665 40,796 174,688 208,364
------------- ------------ ------------- ------------
Income (loss) before income taxes .. 318,878 (68,612) 1,633,953 (221,736)
Income tax expense (benefit) ....... 167,203 (1,999) 664,494 10,417
------------- ------------ ------------- ------------
Net income (loss) ................... 151,675 (66,613) 969,459 (232,153)
Division equity, beginning of period 17,738,818 9,389,982 9,389,982 8,932,906
Net transfers from (to) parent ..... (593,705) (89,398) 7,379,377 689,229
------------- ------------ ------------- ------------
Division equity, end of period ..... $17,296,788 $9,233,971 $17,738,818 $9,389,982
============= ============ ============= ============
</TABLE>
See accompanying notes.
F-91
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ---------------------------
1996 1995 1995 1994
----------- ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ..................................... $ 151,675 $(66,613) $ 969,459 $(232,153)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 150,871 84,387 371,467 350,707
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ........ 258,793 76,574 (460,187) (468,028)
(Increase) decrease in prepaid expenses and
other assets ...................................... (173,632) 12,973 5,894 (2,167)
Increase (decrease) in accounts payable and
accrued expenses .................................. 169,817 (28,824) (30,921) (149,445)
----------- ----------- ------------- ------------
Net cash provided by (used in) operating activities .. 557,524 78,497 855,712 (501,086)
INVESTING ACTIVITIES
Purchases of property and equipment ................... (6,655) (26,334) (67,667) (150,908)
Acquisition of station assets (Note 1) ................ -- -- (8,156,626) --
----------- ----------- ------------- ------------
Net cash used in investing activities ................. (6,655) (26,334) (8,224,293) (150,908)
FINANCING ACTIVITIES
Net transfers from (to) parent ........................ (593,705) (89,398) 7,379,377 689,229
----------- ----------- ------------- ------------
Net cash provided by (used in) financing activities .. (593,705) (89,398) 7,379,377 689,229
----------- ----------- ------------- ------------
Net increase (decrease) in cash ....................... (42,836) (37,235) 10,796 37,235
Cash at beginning of period ........................... 48,031 37,235 37,235 --
----------- ----------- ------------- ------------
Cash at end of period ................................. $ 5,195 $ -- $ 48,031 $ 37,235
=========== =========== ============= ============
</TABLE>
See accompanying notes.
F-92
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
KKRW-FM (the "Station") is a radio station located in Houston, Texas,
owned and operated by CBS Radio Station Group, a division of CBS, Inc.
In November 1995, CBS, Inc. was acquired by Westinghouse Electric
Corporation (Westinghouse). For financial statement purposes, the acquisition
was accounted for using the purchase method, with the aggregate purchase
price allocated to the tangible and indentifiable intangible assets based
upon current estimated fair market values. The allocation resulted in a new
basis of accounting for the Station, including an increase in the carrying
amount of broadcast license and goodwill and property and equipment of
approximately $7,622,000 and $535,000, respectively. There were no other
adjustments made to the carrying amount of assets or liabilities as a result
of the acquisition. The results of operations of the Station from the date of
acquisition through December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net revenues .................. $615,000
Operating expenses:
Station operating expenses .. 374,000
Corporate expenses ........... 10,000
Depreciation and amortization 58,000
----------
Total operating expenses ..... 442,000
----------
Operating Income .............. $173,000
==========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio station's broadcast
area in Houston, Texas. Credit is extended based on an evaluation of the
customer's financial condition, and generally, collateral is not required.
Credit losses are provided for in the financial statements and consistently
have been within management's expectations.
PROPERTY AND EQUIPMENT AND BROADCAST LICENSE AND GOODWILL
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Broadcast license and goodwill are
amortized using the straight-line method over 40 years.
In 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," which
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying amount. The
adoption of Statement 121 in 1996 is not expected to have a material effect
on the financial statements.
FEDERAL INCOME TAXES
The Station is included in the consolidated federal income tax return of
CBS, Inc. or Westinghouse. For purposes of the accompanying financial
statements, income taxes have been calculated on a separate
F-93
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
company basis. The difference between income taxes computed on income before
taxes at the statutory federal rate and the provision for income taxes for
1994 and 1995 relates primarily to non-deductible amortization for federal
income tax purposes. Deferred taxes are included in the division equity
account.
BARTER TRANSACTIONS
The Company barters unsold advertising time for products and services.
Such transactions are recorded in the financial statements at the estimated
fair value of the products or services received . Barter revenue is recorded
when commercials are broadcast and related expenses are recorded when the
bartered product or service is used. For the years ended December 31, 1995
and 1994, the Company recorded barter revenue of approximately $237,000 and
$188,000, respectively, and barter expense of approximately $258,000 and
$178,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The interim financial data for the three months ended March 31, 1996 and
1995 is unaudited. The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with rule 10-01 of Regulation S-X.
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, all adjustments necessary for a
fair statement of results of the interim periods have been made. All such
adjustments are of a normal, recurring nature. The results of operations and
cash flows for the three months ended March 31, 1996 are not necessarily
indicative of the results that can be expected for the entire fiscal year
ending December 31, 1996.
3. COMMITMENTS
The Company leases office space and various equipment under operating
leases. Total rent expense was $207,933 and $252,425 for the years ended
December 31, 1995 and 1994, respectively.
Future minimum payments in the aggregate for all noncancelable operating
leases with initial terms of one year or more consist of the following at
December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 .......................... $199,000
1997 .......................... 199,000
1998 .......................... 199,000
1999 .......................... 104,000
2000 .......................... 72,000
Thereafter .................... 192,000
----------
Total minimum lease payments $965,000
==========
</TABLE>
F-94
<PAGE>
KKRW-FM
(A DIVISION OF CBS, INC.)
NOTES TO FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS
Employees of the Station who elect to participate and who have met certain
eligibility requirements are covered by the employee benefit plans offered by
CBS, Inc., including medical, disability and dental insurance, a defined
contribution plan (i.e., an employee savings plan), and a defined pension
plan. Under the defined contribution plan, employees may contribute up to
12.5% of their annual compensation subject to Internal Revenue Code
limitations. The Station recorded expenses of $325,000 and $290,000 in 1995
and 1994, respectively, related to benefits provided to employees under the
benefit plans. In addition, the Station paid approximately $6,000 in 1995 and
1994 for plan administration costs.
5. RELATED PARTY TRANSACTIONS
CBS, Inc. provides certain services and pays certain costs related to the
operations of the Station, including but not limited to, benefits
administration, payroll services, legal services, and data processing
charges. Corporate expenses charged to the Station for the years ended
December 31, 1995 and 1994 were $119,800 and $117,200, respectively.
6. SUBSEQUENT EVENT
In May 1996, CBS, Inc., entered into an agreement to exchange certain
assets of the Station for certain assets of radio station KRLD-AM, Dallas,
Texas and the Texas State Networks owned by SFX Broadcasting, Inc. The
transaction is expected to be accounted for as a like-kind exchange of assets
under the provisions of the Internal Revenue Code and be substantially tax
free and accounted for as a non-monetary transaction for financial statement
purposes.
F-95
