SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
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 9, 1996
(May 1, 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
Tender Offer and Consent Solicitation
On May 2, 1996, SFX Broadcasting, Inc. (the "Company") commenced a
tender offer (the "Tender Offer") to purchase for cash all of its outstanding 11
3/8% Senior Subordinated Notes due 2000 (the "Old Notes"), subject to the terms
and conditions set forth in the Company's Offer to Purchase and Consent
Solicitation dated May 2, 1996 (the "Offer to Purchase"). As of April 29, 1996,
there was $80.0 million in principal amount of Notes outstanding. The Company is
offering to purchase the Notes in the Tender Offer for a cash purchase price of
$1,080.00 per $1,000.00 principal amount plus accrued interest up to, but not
including, the date of acceptance by the Company of Notes which have been
validly tendered for purchase.
In connection with the Tender Offer, the Company is soliciting
consents (the "Consent Solicitation") to certain proposed amendments to the
indenture pursuant to which the Notes were issued (the "Old Indenture"). Holders
of Notes who tender their Notes will be required to consent to the proposed
amendments to the Indenture. There will be no separate payment for the
consents.
The description of the Offer to Purchase set forth above does not
purport to be complete and is qualified in its entirety by reference to the
Offer to Purchase attached hereto as an exhibit, which is incorporated herein by
reference. A copy of the press release announcing the commencement of the Tender
Offer and the Consent Solicitation is also attached hereto as an exhibit.
Amended and Restated Merger Agreement
On April 18, 1996, the Company filed a Form 8-K announcing that it had
entered into an Agreement and Plan of Merger (the "Initial Merger Agreement"),
dated April 15, 1996, with SFX Merger Company, a Delaware corporation and a
wholly-owned subsidiary of the Company ("Acquisition Sub"), and Multi-Market
Radio, Inc., a Delaware corporation ("MMR"), pursuant to which Acquisition Sub
would merge with and into MMR and MMR would become a wholly-owned subsidiary of
the Company (the "MMR Merger"). The Company, Acquisition Sub and MMR
subsequently entered into an Amended and Restated Agreement and Plan of Merger
(the "Amended Merger Agreement"). The Amended Merger Agreement amends and
restates the Initial Merger Agreement and supersedes all prior agreements,
including the Initial Merger Agreement relating to the subject matter thereof.
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Preferred Stock Offering, Note Offering and New Credit Agreement
The Company will offer in private placements (i) $120.0 million in
aggregate liquidation preference of ___% Series D Cumulative Convertible
Exchangeable Preferred Stock due 2007 (the "Preferred Stock Offering") and (ii)
$440.0 million in aggregate principal amount of ___% 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 is currently negotiating with its lender to increase amounts
available under its senior credit facility from $50.0 million to up to $150.0
million (the "New Credit Agreement"). A copy of the press release announcing the
commencement of the Preferred Stock Offering and the Note Offering is attached
hereto as an exhibit.
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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger, dated
as of April 15, 1996, among SFX Broadcasting, Inc., SFX
Merger Company and Multi-Market Radio, Inc., including
exhibits.
4.1 Offer to Purchase and Consent Solicitation, dated May 2,
1996, of SFX Broadcasting, Inc. with respect to its 11 3/8
Senior Subordinated Notes due 2000.
10.1 Amendment No. 1 to Amended and Restated Employment
Agreement, effective as of April 15, 1996, between SFX
Broadcasting, Inc. and D. Geoffrey Armstrong.
10.2 Asset Purchase Agreement, dated May 1, 1996, among SFX
Broadcasting, Inc., KIRO, Inc. and Bonneville Holding
Company.
10.3 Asset Exchange Agreement, dated May 1, 1996, by and
between SFX Broadcasting of Texas (KRLD), Inc., SFX
Broadcasting of Texas (KRLD) Licensee, Inc., SFX
Broadcasting of Texas (TSN), Inc., SFX Broadcasting
of Texas (TSN) Licensee, Inc., SFX Broadcasting of
the Southwest, Inc., SFX Broadcasting, Inc. and CBS Inc.
99.1 Press release, dated May 6, 1996, announcing the
commencement of a tender offer and consent solicitation by
SFX Broadcasting, Inc. in respect of its 11 3/8% Senior
Subordinated Note, due 2000.
99.2 Press release, dated May 8, 1996, announcing the
commencement of private placements by SFX Broadcasting, Inc.
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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
and duopoly integration 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 Note Offering and the Preferred
Stock 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 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" refers to Multi-Market Radio, Inc., a publicly-held owner and operator
of radio stations.
"MMR Dispositions" refers collectively to the sale by Multi-Market Radio,
Inc. of KOLL-FM, Little Rock, Arkansas, pursuant to a letter of intent and
WRXR-FM and WKBG-FM, both operating in Augusta, Georgia, pursuant to an
agreement.
"MMR Hartford Acquisition" refers to the acquisition by Multi-Market
Radio, Inc. of WKSS-FM, Hartford, Connecticut.
5
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"MMR Merger" refers to the acquisition 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.
6
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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 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 will 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 and
the Transactions as of January 1, 1995, the Company would have had pro forma
net revenues, Broadcast Cash Flow and EBITDA of $189.0 million, $69.3 million
and $63.0 million, respectively, for the year ended December 31, 1995 and
$188.7 million, $72.1 million and $65.4 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. On a pro forma basis for the three months ended
March 31, 1996, assuming all stations owned and operated by the Company on
March 31, 1996 had been owned for the full three month period, net revenues
would have increased 10.95% to $20.2 million and Broadcast Cash Flow would
have increased 37.3% to $5.8 million from the three months ended March 31,
1995.
7
The following chart sets forth certain information with respect to the
Company's stations after giving effect to the Acquisitions and the
Dispositions:
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NUMBER OF NUMBER OF
NUMBER OF STATIONS NUMBER OF STATIONS TO BE
STATIONS CURRENTLY STATIONS TO UNDER LMA OR
MARKET CURRENTLY UNDER LMA OR BE JSA AFTER
MARKET RANK OWNED(1) JSA(2) ACQUIRED(2) ACQUISITIONS(2)
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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 1
Springfield/Northampton, MA 76 - - 3 -
New Haven, CT ............. 95 - - 1 1
South-Atlantic Region
Charlotte, NC ............. 37 2 - - -
Greensboro, NC ............ 42 - 4 3 1
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 -
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NUMBER OF
STATIONS
FOLLOWING COMBINED COMBINED COMBINED
ACQUISITIONS MARKET MARKET MARKET
AND AUDIENCE REVENUE REVENUE
DISPOSITIONS SHARE SHARE RANK
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AM FM
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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 16.2% 26.8% 2
Albany, NY ................ 2 3 21.5% 32.4% 1
Springfield/Northampton, MA 1 2 12.7% 31.4% 1
New Haven, CT ............. - 2 12.1% 49.7% 1
South-Atlantic Region
Charlotte, NC ............. - 2 11.9% 13.6% 3
Greensboro, NC ............ 2 2 9.2% 13.7% 3
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
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8
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NUMBER OF NUMBER OF
NUMBER OF STATIONS NUMBER OF STATIONS TO BE
STATIONS CURRENTLY STATIONS TO UNDER LMA OR
MARKET CURRENTLY UNDER LMA OR BE JSA AFTER
MARKET RANK OWNED(1) JSA(2) ACQUIRED(2) ACQUISITIONS(2)
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Augusta, GA (3) ........... 116 - - - 3
Jackson, MS ............... 118 3 2 3 -
Biloxi, MS ................ 134 - - 2 -
Myrtle Beach, SC .......... 185 - - 2 1
Southwest Region
Houston, TX ............... 9 1 - 1 -
San Diego, CA ............. 15 2 - - -
Tucson, AZ ................ 62 - - 4 -
Wichita, KS ............... 91 - - 3 -
Total .................... 13 7 49 7
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NUMBER OF
STATIONS
FOLLOWING COMBINED COMBINED COMBINED
ACQUISITIONS MARKET MARKET MARKET
AND AUDIENCE REVENUE REVENUE
DISPOSITIONS SHARE SHARE RANK
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MARKET AM FM
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Augusta, GA (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 .......... - 3 6.8% 13.1% 3
Southwest Region
Houston, TX ............... - 2 9.5% 13.4% 2
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 .................... 16 53
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(1) Does not include radio stations to be sold in the Dallas Disposition
and exchanged in the Houston Exchange.
(2) Includes radio stations to which the Company currently provides
programming and sells advertising pursuant to a local marketing
agreement ("LMA") or sells advertising pursuant to a joint sales
agreement ("JSA").
(3) MMR is currently negotiating the termination of a JSA and an LMA with
respect to three stations in this market. The table does not include
two additional stations, which MMR has agreed to sell.
9
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 an efficient means of targeting advertising dollars at
well-defined audiences. Such stations can better capitalize on the operating
leverage 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 allows it the flexibility to develop either protective
programming formats for its market leading stations or to develop
independently successful program formats to meet the needs of particular
market conditions.
10
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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 based primarily 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.
PENDING ACQUISITIONS AND DISPOSITIONS
In November 1995, the Company entered into an agreement to acquire Liberty
Broadcasting, Incorporated ("Liberty"), which owns and operates, provides
programming to or sells advertising on behalf of 14 FM and six AM radio
stations (the "Liberty Stations") located in six markets: Washington,
DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence, Rhode Island;
Hartford, Connecticut; Albany, New York and Richmond, Virginia (the "Liberty
Acquisition"). On May 1, 1996, the Company entered into an agreement to sell
three of the Liberty Stations operating in the Washington, DC/Baltimore,
Maryland market (the "Washington Dispositions").
In February 1996, the Company entered into an agreement to acquire from
Prism Radio Partners L.P. ("Prism") substantially all of the assets used in
the operation of ten FM and six AM radio stations (the "Prism Stations")
located in five markets: Louisville, Kentucky; Jacksonville, Florida;
Raleigh, North Carolina; Tucson, Arizona and Wichita, Kansas (the "Prism
Acquisition"). In April 1996, the Company entered into a letter of intent to
sell three of the Prism Stations operating in the Louisville, Kentucky market
(the "Louisville Dispositions").
In April 1996, the Company entered into an agreement and plan of merger
pursuant to which it will acquire MMR, which owns and operates, provides
programming to or sells advertising on behalf of 16 FM radio stations and one
AM radio station (the "MMR Stations") 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 (the "MMR Merger"). MMR has entered into agreements to
acquire WKSS-FM, Hartford, Connecticut (the "MMR Hartford Acquisition") and
WMYB-FM, Myrtle Beach, South Carolina (the "MMR Myrtle Beach Acquisition"),
and to sell WRXR-FM and WKBG-FM, both operating in Augusta, Georgia, and
entered into a letter of intent to sell KOLL-FM, Little Rock, Arkansas
(collectively, the "MMR Dispositions"). Except where the context otherwise
requires, the term "MMR Merger" as used herein gives effect to the MMR
Hartford Acquisition, the MMR Myrtle Beach Acquisition and the consummation
of the MMR Dispositions. MMR is currently negotiating the termination of a
joint sales agreement ("JSA") with WCHZ-FM and the termination of a local
marketing agreement ("LMA") with WAEG-FM and WAEJ-FM, each operating in
Augusta, Georgia. The MMR Hartford Acquisition, the MMR Myrtle Beach
Acquisition and the MMR Dispositions are anticipated to be completed prior to
the consummation of the MMR
11
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Merger. MMR was organized in 1992 by Robert F.X. Sillerman, Executive
Chairman and controlling stockholder of the Company, Michael G. Ferrel and
Howard J. Tytel, a Director and Executive Vice President of the Company. Mr.
Sillerman owns a substantial equity interest in MMR which will be exchanged
for common stock of the Company upon the consummation of the MMR Merger.
Pursuant to four separate agreements, the Company has agreed to acquire
substantially 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, North Carolina, and WMFR-AM, WMAG-FM
and WTCK-AM, each operating in Greensboro, North Carolina, and, pursuant to a
separate agreement, has an option to acquire WHSL-FM, Greensboro, North
Carolina (collectively, the "Additional Acquisitions"). In addition, the
Company has entered into an agreement to exchange radio station KRLD-AM,
Dallas, Texas, and the Texas State Networks for radio station KKRW-FM,
Houston, Texas (the "Houston Exchange"), and has entered into a letter of
intent to sell radio station KTCK-AM, Dallas, Texas (the "Dallas
Disposition").
The Liberty Acquisition, the Prism Acquisition, the MMR Merger, the
Additional Acquisitions and the Houston Exchange are referred to herein
collectively as the "Acquisitions." The Washington Dispositions, the
Louisville Dispositions and the Dallas Disposition are referred to herein
collectively as the "Dispositions."
The Company anticipates that it will consummate all of the Acquisitions
and the Dispositions within 60 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 approved by the FCC or completed on
the terms described herein, or at all.
CONCURRENT TRANSACTIONS
Agreement with SCMC. In April 1996, the Company and Sillerman
Communications Management Corporation ("SCMC"), a corporation controlled by
Mr. Sillerman, entered into an agreement to terminate SCMC's financial
consulting services to the Company in exchange for the cancellation of
certain indebtedness owing from SCMC to the Company and the grant to SCMC of
certain options to purchase common stock of the Company (the "SCMC
Termination Agreement"). Pursuant to such agreement, SCMC has also assigned
to the Company its rights to receive certain fees payable by MMR and
Triathlon Broadcasting Company ("Triathlon"), a publicly-traded radio company
operating in small and medium-sized markets in the Midwest and the West, for
services that SCMC provides in connection with consulting agreements between
SCMC and such companies. In addition, pursuant to the SCMC Termination
Agreement, SCMC has agreed to continue to provide financial consulting
services to MMR (until completion of the MMR Merger) and to Triathlon at
SCMC's expense. See "Certain Relationships and Related Transactions
- --Relationship of the Company with SCMC."
Preferred Stock Offering, Note Offering and New Credit Agreement.
The Company will offer in private placements (i) $120.0 million in aggregate
liquidation preference of its % Series D Cumulative Convertible Exchangeable
Preferred Stock due 2007 (the "Series D Preferred Stock") and (ii) $440.0
million in aggregate principal amount of % Senior Subordinated Notes due 2006
(the "Notes") in the Note Offering. In addition, the Company is currently
negotiating with its lender to increase amounts available under its senior
credit facility from $50.0 million to up to $150.0 million (the "New Credit
Agreement") for additional acquisitions and for working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources."
12
Tender Offer and Consent Solicitation. On May 2, 1996, the Company
commenced an offer to purchase for cash up to all (but not less than a
majority in principal amount) of the Old Notes and a related Consent
Solicitation to modify certain terms of the Old Indenture. The Note Offering,
the Preferred Stock Offering and the receipt of a commitment for the New Credit
Agreement are conditioned upon the concurrent consummation of each other and
the consummation of the Tender Offer and the related Consent Solicitation.
Agreements with Messrs. Hicks and Armstrong. In April 1996, the Company
entered into an agreement (the "Hicks Agreement") with R. Steven Hicks, the
current President, Chief Executive Officer and Chief Operating Officer of the
Company, pursuant to which Mr. Hicks agreed to terminate his employment
arrangement with the Company concurrently with the completion of the MMR
Merger. The Hicks Agreement provides that Mr. Hicks will continue to serve as
a Director of, and will become a consultant to, the Company. 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 certain of the Company's
target markets. Also, in the Hicks Agreement, the Company agreed to repurchase
certain securities owned by Mr. Hicks. Additionally, the Company has entered
into an agreement (the "Armstrong Agreement") with D. Geoffrey Armstrong, Chief
Financial Officer of the Company, effective as of April, 1996, pursuant to
which Mr. Armstrong will become Chief Operating Officer of the Company
concurrently with the completion of the MMR Merger and will defer certain
payments due to him under his employment agreement. The Company will also
repurchase certain securities of the Company owned by Mr. Armstrong.
See "Management -- Employment Agreements."
The Acquisitions, the Dispositions, the Financing, the Tender Offer
(assuming all of the Old Notes are tendered) and the implementation of the
SCMC Termination Agreement, the Hicks Agreement and the Armstrong Agreement
are collectively referred to hereinafter as the "Transactions."
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.
13
<TABLE>
<CAPTION>
MARKET
STATION(1) RANK STATION FORMAT(2)
- ----------------------------------- ---------- -------------------------------
<S> <C> <C>
NORTHEAST REGION
Washington, DC/ 8
Baltimore, MD (3)
WHFS-FM (4) ......................... Alternative Rock
Nassau-Suffolk, NY 14
WBAB-FM (4) ......................... Album Oriented Rock
WHFM-FM (4) ........................ Hot Album
WBLI-FM (4) ........................ Contemporary
WGBB-AM (4) ......................... News/Talk
Providence, RI 31
WSNE-FM (4) ........................ Adult Contemporary ("AC")
WHJY-FM (4) ........................ Adult Oriented Rock
WHJJ-AM (4) ......................... News/Talk
Hartford, CT 41
WHCN-FM (4) ........................ Album Oriented Rock
WMRQ-FM (4) ........................ Modern Rock
WPOP-AM (4) ........................ News/Talk
WKSS-FM (5) ......................... Contemporary Hit Radio
Albany, NY 57
WGNA-FM (4) ........................ Country
WGNA-AM (4) ........................ Country
WPYX-FM (4) ........................ Album Rock
WTRY-AM (4) ........................ Oldies
WYSR-FM (6) ......................... Oldies
Springfield/Northampton, MA (7) 76
WHMP-FM (8) ........................ Modern Rock
WHMP-AM (8) ........................ Information
WPKX-FM (8) ......................... Hot Country
New Haven, CT 95
WPLR-FM (8) ........................ Album Oriented Rock
WYBC-FM (8)(9) ...................... Urban Rock
SOUTH-ATLANTIC REGION (12)
Charlotte, NC 37
WTDR-FM ............................. Country
WLYT-FM (13) ........................ AC
Greensboro, NC 42
WMAG-FM (11)(14) .................... AC
WTCK-AM (11)(14)(15) ................ News/Talk
WMFR-AM (11)(14) .................... News/Talk
WHSL-FM (16) ........................ Country
Nashville, TN 44
WSIX-FM ............................. Country
WRVW-FM (17) ........................ Top 40
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARKET
STATION(1) RANK STATION FORMAT(2)
- ----------------------------------- ---------- -------------------------------
<S> <C> <C>
Raleigh-Durham, NC 50
WZZU-FM (10) ....................... Classic Rock
WDCG-FM (10) ....................... Contemporary Radio
WRDU-FM (11) ....................... Album Oriented Rock
WTRG-FM (11) ........................ Oldies
Richmond, VA 56
WMXB-FM (4) ......................... AC
Greenville-Spartanburg, SC 59
WSSL-FM ............................. Country
WMYI-FM ............................. AC
WGVL-AM ............................. Talk
WROQ-FM (18) ........................ Classic Rock
SOUTHERN REGION
Jacksonville, FL 53
WKQL-FM (10) ....................... Oldies/Adult
WIVY-FM (10) ....................... AC
WOKV-AM (10) ....................... News/Talk
WPDQ-AM (10) ........................ Nostalgia
Daytona Beach, FL 93
WGNE-FM (8) ......................... Country
Augusta, Georgia (19) 116
WAEG-FM (8)(20) ..................... Urban/AC
WAEJ-FM (8)(20) ..................... Urban/AC
WCHZ-FM (8)(21) ..................... Modern Rock
Jackson, MS 118
WMSI-FM ............................. Country
WKTF-FM ............................. Country
WJDS-AM ............................. AC
WSTZ-FM (22)(23) .................... Album Oriented Rock
WJDX-FM (24) ....................... Sports
WZRX-AM (22) ........................ Gospel
Biloxi, MS 134
WKNN-FM (8) ......................... Country
WMJY-FM (8) ......................... AC
Myrtle Beach, SC 185
WYAK-FM ............................. Hot Country
WVCO-FM (25) ........................ Hot Country
WMYB-FM (26) ........................ 70's Rock
SOUTHWEST REGION (27)
Houston, TX 9
KODA-FM ............................. AC
KKRW-FM (28) ........................ Classic Rock
San Diego, CA 15
KYXY-FM ............................. AC
KMKX-FM (29) ........................ Rock
Tucson, AZ 62 Contemporary Hit Radio
KRQQ-FM (10) ........................ Oldies
KCEE-AM (10) ........................ Nostalgia
KNST-AM (10) ........................ News/Talk
Wichita, KS 91
KRZZ-FM (10) ....................... Classic Rock
KKRD-FM (10) ....................... Contemporary Hit Radio
KNSS-AM (10) ........................ News/Talk
</TABLE>
15
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
STATION RANK TOTAL NUMBER OF
TARGET AMONG TARGET AUDIENCE 1995 STATION STATIONS IN
STATION(1) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE REVENUE RANK MARKET
- ----------------------------------- -------------------- ---------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION
Washington, DC/
Baltimore, MD (3)
WHFS-FM (4) ......................... Adults 18-34 4 3.8% 14 45
Nassau-Suffolk, NY
WBAB-FM (4) ......................... Adults 25-54 8 3.1% 2 27
WHFM-FM (4) ......................... Adults 25-54 37* 0.1% 16 27
WBLI-FM (4) ......................... Adults 25-54 5 4.0% 3 27
WGBB-AM (4) ......................... Adults 35 & over NR NR NR 27
Providence, RI
WSNE-FM (4) ......................... Adults 25-54 5 4.6% 5 30
WHJY-FM (4) ......................... Adults 18-34 1 8.7% 1 30
WHJJ-AM (4) ......................... Adults 35-64 10 4.3% 9 30
Hartford, CT
WHCN-FM (4) ......................... Men 25-54 1 4.0% 7 21
WMRQ-FM (4) ......................... Adults 18-34 1 4.8% 8 21
WPOP-AM (4) ......................... Adults 35-64 15 1.6% 11 21
WKSS-FM (5) ......................... Adults 18-34 3 6.8% 5 21
Albany, NY
WGNA-FM (4) ......................... Adults 25-54 1 11.4% 1 41
WGNA-AM (4) ......................... Adults 25-54 25 0.1% 24 41
WPYX-FM (4) ......................... Adults 18-34 3 6.8% 2 41
WTRY-AM (4) ......................... Adults 35-64 11* 1.5% 16 41
WYSR-FM (6) ......................... Adults 25-54 12* 1.7% 10 41
Springfield/Northampton, MA (7)
WHMP-FM (8) ......................... Adults 18-34 8 2.0% 6 16
WHMP-AM (8) ......................... Adults 35-64 11 1.3% 10 16
WPKX-FM (8) ......................... Adults 25-54 3 9.4% 2 16
New Haven, CT
WPLR-FM (8) ........................ Adults 18-34 1 7.4% 1 8
WYBC-FM (8)(9) ...................... Adults 18-34 2 4.7% 4 8
SOUTH-ATLANTIC REGION (12)
Charlotte, NC
WTDR-FM ............................. Adults 25-54 6 6.0% 6 42
WLYT-FM (13) ........................ Adults 25-54 3 5.9% 8 42
Greensboro, NC
WMAG-FM (11)(14) .................... Adults 25-54 2 6.1% 4 34
WTCK-AM (11)(14)(15) ................ Adults 25-54 NR NR 19 34
WMFR-AM (11)(14) .................... Adults 25-54 24 1.1% 12 34
WHSL-FM (16) ........................ Adults 25-54 13 2.0% 13 34
Nashville, TN
WSIX-FM ............................. Adults 25-54 1 15.5% 1 45
WRVW-FM (17) ........................ Adults 18-34 4 6.3% 9 45
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
STATION RANK TOTAL NUMBER OF
TARGET AMONG TARGET AUDIENCE 1995 STATION STATIONS IN
STATION(1) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE REVENUE RANK MARKET
- ----------------------------------- -------------------- ---------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Raleigh-Durham, NC
WZZU-FM (10) ....................... Adults 25-54 5 4.2% 9 33
WDCG-FM (10) ....................... Adults 18-34 1 7.9% 4 33
WRDU-FM (11) ....................... Adults 25-54 3 5.8% 2 33
WTRG-FM (11) ........................ Adults 35-64 1 5.5% 7 33
Richmond, VA
WMXB-FM (4) ......................... Adults 25-54 4 5.5% 3 26
Greenville-Spartanburg, SC
WSSL-FM ............................. Adults 25-54 1 14.8% 1 39
WMYI-FM ............................. Adults 25-54 2 8.0% 2 39
WGVL-AM ............................. Adults 25-54 NR NR NR 39
WROQ-FM (18) ........................ Adults 25-54 5 9.2% 3 39
SOUTHERN REGION
Jacksonville, FL
WKQL-FM (10) ....................... Adults 25-54 6 5.4% 6 23
WIVY-FM (10) ....................... Adults 25-54 7 4.1% 7 23
WOKV-AM (10) ....................... Adults 18-49 11 4.3% 8 23
WPDQ-AM (10) ........................ Adults 50 & over 8 1.5% 16 23
Daytona Beach, FL
WGNE-FM (8) ......................... Adults 25-54 1 8.2% 1 13
Augusta, Georgia (19)
WAEG-FM (8)(20) ..................... Adults 25-54 17 1.7% 7 25
WAEJ-FM (8)(20) ..................... Adults 25-54 13 3.3% 16 25
WCHZ-FM (8)(21) ..................... Adults 18-34 6 3.2% 15 25
Jackson, MS
WMSI-FM ............................. Adults 25-54 1 12.8% 1 29
WKTF-FM ............................. Adults 25-54 7 3.0% 7 29
WJDS-AM ............................. Adults 25-54 19 0.3% 17 29
WSTZ-FM (22)(23) .................... Adults 25-54 5* 6.6% 4 29
WJDX-FM (24) ....................... Adults 25-54 5* 6.0% 3 29
WZRX-AM (22) ........................ Adults 25-54 13 2.6% 12 29
Biloxi, MS
WKNN-FM (8) ......................... Adults 25-54 1 15.6% 1 20
WMJY-FM (8) ......................... Women 25-54 5 3.9% 6 20
Myrtle Beach, SC
WYAK-FM ............................. Adults 25-54 9 6.0% 1 23
WVCO-FM (25) ........................ Adults 25-54 18 0.8% 13 23
WMYB-FM (26) ........................ Adults 25-54 NR NR NR 23
SOUTHWEST REGION (27)
Houston, TX
KODA-FM ............................. Adults 25-54 1 6.4% 1 48
KKRW-FM (28) ........................ Adults 25-54 13 3.1% 11 48
San Diego, CA
KYXY-FM ............................. Adults 25-54 2 6.8% 5 36
KMKX-FM (29) ........................ Adults 25-54 15 2.4% 11 36
Tucson, AZ
KRQQ-FM (10) ....................... Adults 18-34 3 7.5% 5 28
KWFM-FM (10) ....................... Adults 25-54 6 5.6% 6 28
KCEE-AM (10) ....................... Adults 61 & over 1 3.6% 13 28
KNST-AM (10) ........................ Adults 25-54 7 6.1% 4 28
Wichita, KS
KRZZ-FM (10) ....................... Adults 18-54 2 6.2% 6 23
KKRD-FM (10) ....................... Adults 18-34 3 8.1% 4 23
KNSS-AM (10) ........................ Adults 25-54 17 3.5% 8 23
</TABLE>
17
- ------------
* 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
the 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. See
"Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations."
(9)MMR sells advertising on WYBC-FM pursuant to a JSA.
(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.
(12)Does not include WVEZ-FM, WTFX-FM and WWKY-AM, each operating in the
Louisville, Kentucky market, which are to be acquired pursuant to the
Prism Purchase Agreement (as defined) and thereafter sold to a third
party. 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. See
"Agreements Related to the Acquisitions and the
Dispositions--Agreements for 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."
18
(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.
(20)MMR provides programming and sells advertising on WAEG-FM and WAEJ-FM
pursuant to an LMA.
(21)MMR sells advertising on WCHZ-FM pursuant to a JSA.
(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.
(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.
(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.
(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.
19
<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.
20
<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
At 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 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. 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.
21
<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>
METROPOLITAN MARKET SERVED
AND STATION CALL LETTERS CITY OF LICENSE
- -------------------------- --------------------
<S> <C>
NORTHEAST REGION
Washington, DC/Baltimore, MD
WHFS-FM (1) ............... Annapolis, MD
Nassau-Suffolk, NY
WBAB-FM ................... Babylon, NY
WHFM-FM ................... Southampton, NY
WBLI-FM(2) ................ Patchogue, NY
WGBB-AM ................... Freeport, NY
Providence, RI
WSNE-FM ................... Taunton, MA
WHJY-FM ................... Providence, RI
WHJJ-AM ................... Providence, RI
Hartford, CT
WHCN-FM ................... Hartford, CT
WMRQ-FM ................... Waterbury, CT
WPOP-AM ................... Hartford, CT
WKSS-FM ................... Hartford-Meriden, CT
Albany, NY
WGNA-FM ................... Albany, NY
WGNA-AM ................... Albany, NY
WPYX-FM (3) ............... Albany, NY
WTRY-AM ................... Troy, NY
WYSR-FM ................... Rotterdam, NY
Springfield/Northampton, MA
WHMP-FM .................. Northampton, MA
WHMP-AM .................. Northampton, MA
WPKX-FM ................... Enfield, CT
New Haven, CT
WPLR-FM ................... New Haven, CT
WYBC-FM ................... New Haven, CT
SOUTH-ATLANTIC REGION
Charlotte, NC
WTDR-FM ................... Statesville, NC
WLYT-FM ................... Hickory, NC
Greensboro, NC
WMAG-FM ................... High Point, NC
WTCK-AM ................... Greensboro, NC
WMFR-AM ................... High Point, NC
WHSL-FM ................... High Point, NC
Nashville, TN
WSIX-FM ................... Nashville, TN
WRVW-FM ................... Lebanon, TN
Raleigh/Durham, NC
WZZU-FM ................... Burlington, NC
WDCG-FM ................... Durham, NC
WRDU-FM ................... Wilson, NC Rocky
WTRG-FM ................... Mount, NC
Richmond, VA
WMXB-FM ................... Richmond, VA
Greenville-Spartanburg, SC
WSSL-FM ................... Gray Court, SC
WMYI-FM ................... Hendersonville, NC
WGVL-AM ................... Greenville, SC
WROQ-FM ................... Anderson, SC
SOUTHERN REGION
Jacksonville, FL
WKQL-FM ................... Jacksonville, FL
WIVY-FM ................... Jacksonville, FL
WOKV-AM ................... Jacksonville, FL
WPDQ-AM ................... Jacksonville, FL
Daytona Beach, FL
WGNE-FM ................... Titusville, FL
</TABLE>
22
<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED
AND STATION CALL LETTERS CITY OF LICENSE
- -------------------------- --------------------
<S> <C>
Augusta, GA
WAEG-FM.................... Evans, GA
WAEJ-FM.................... Waynesboro, GA
WCHZ-FM ................... Harlem, GA
Jackson, MS
WMSI-FM ................... Jackson, MS
WKTF-FM ................... Jackson, MS
WJDS-AM ................... Jackson, MS
WSTZ-FM ................... Vicksburg, MS
WJDX-FM ................... Jackson, MS
WZRX-AM ................... Jackson, MS
Biloxi, MS
WKNN-FM ................... Pascagoula, MS
WMJY-FM ................... Biloxi, MS
Myrtle Beach, SC
WYAK-FM ................... Surfside Beach, SC
WVCO-FM ................... Loris, SC
WMYB-FM ................... Socastee, SC
SOUTHWEST REGION
Houston, TX
KODA-FM ................... Houston, TX
KKRW-FM ................... Houston, TX
San Diego, CA
KYXY-FM ................... San Diego, CA
KMKX-FM ................... San Diego, CA
Tucson, AZ
KRQQ-FM ................... Tucson, AZ
KWFM-FM ................... Tucson, AZ
KCEE-AM ................... Tucson, AZ
KNST-AM ................... Tucson, AZ
Wichita, KS
KRZZ-FM ................... Derby, KS
KKRD-FM ................... Wichita, KS
KNSS-AM ................... Wichita, KS
</TABLE>
23
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTERS POWER IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ---------------- ----------- ------------------
<S> <C> <C> <C>
NORTHEAST REGION
Washington, DC/Baltimore, MD
WHFS-FM (1) ............... 50 99.1 MHz 10/1/02
Nassau-Suffolk, NY
WBAB-FM ................... 3 102.3 MHz 6/1/98
WHFM-FM ................... 5 95.3 MHz 6/1/98
WBLI-FM(2) ................ 49 106.1 MHz 6/1/98
WGBB-AM ................... 1 1240 kHz 6/1/98
Providence, RI
WSNE-FM ................... 30 93.3 MHz 4/1/98
WHJY-FM ................... 50 94.1 MHz 4/1/98
WHJJ-AM ................... 5 920 kHz 4/1/98
Hartford, CT
WHCN-FM ................... 16 105.9 MHz 4/1/98
WMRQ-FM ................... 18 104.1 MHz 4/1/98
WPOP-AM ................... 5 1410 kHz 4/1/98
WKSS-FM ................... 16.5 95.7 MHz 4/1/98
Albany, NY
WGNA-FM ................... 12.5 107.7 MHz 6/1/98
WGNA-AM ................... 5 1460 kHz 6/1/98
WPYX-FM (3) ............... 15.5 106.5 MHz 6/1/98
WTRY-AM ................... 5 980 kHz 6/1/98
WYSR-FM ................... 6 98.3 MHz 6/1/98
Springfield/Northampton, MA
WHMP-FM .................. 3 99.3 MHz 4/1/98
WHMP-AM .................. 1 1400 kHz 4/1/98
WPKX-FM ................... 2.2 97.9 MHz 4/1/98
New Haven, CT
WPLR-FM ................... 14 99.1 MHz 4/1/98
WYBC-FM ................... 1.8 94.3 MHz 4/1/98
SOUTH-ATLANTIC REGION
Charlotte, NC
WTDR-FM ................... 100 96.9 MHz 12/1/02
WLYT-FM ................... 31 102.9 MHz 12/1/02
Greensboro, NC
WMAG-FM ................... 100 99.5 MHz 12/1/02
WTCK-AM ................... 5 1320 kHz 12/1/02
WMFR-AM ................... 1 1230 kHz 12/1/02
WHSL-FM ................... 100 100.3 MHz 12/1/02
Nashville, TN
WSIX-FM ................... 100 97.9 MHz 8/1/96
WRVW-FM ................... 58 107.5 MHz 8/1/96
Raleigh/Durham, NC
WZZU-FM ................... 100 93.9 MHz 12/1/02
WDCG-FM ................... 100 105.1 MHz 12/1/02
WRDU-FM ................... 100 106.1 MHz 12/1/02
WTRG-FM ................... 100 100.7 MHz 12/1/02
Richmond, VA
WMXB-FM ................... 20 103.7 MHz 10/1/02
Greenville-Spartanburg, SC
WSSL-FM ................... 100 100.5 MHz 12/1/02
WMYI-FM ................... 20 102.5 MHz 12/1/02
WGVL-AM ................... 5 1440 kHz 12/1/02
WROQ-FM ................... 100 101.1 MHz 12/1/95*
SOUTHERN REGION
Jacksonville, FL
WKQL-FM ................... 98 96.9 MHz 2/1/03
WIVY-FM ................... 98 102.9 MHz 2/1/96*
WOKV-AM ................... 50 Day, 10 Night 690 kHz 2/1/03
WPDQ-AM ................... 5 Day 600 kHz 2/1/03
Daytona Beach, FL
WGNE-FM ................... 100 98.1 MHz 2/1/03
</TABLE>
24
<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTERS POWER IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ---------------- ----------- ------------------
<S> <C> <C> <C>
Augusta, GA
WAEG-FM.................... 3 92.3 MHz 4/1/96*
WAEJ-FM.................... 6 100.9 MHz 4/1/96*
WCHZ-FM ................... 5.7 95.1 MHz 4/1/96*
Jackson, MS
WMSI-FM ................... 100 102.9 MHz
WKTF-FM ................... 100 95.5 MHz 6/1/96*
WJDS-AM ................... 5 Day, 1 Night 620 kHz 6/1/96*
WSTZ-FM ................... 100 106.7 MHz 6/1/96*
WJDX-FM ................... 96 96.3 MHz 6/1/96*
WZRX-AM ................... 5 Day, 1 Night 1590 kHz 6/1/96*
Biloxi, MS WKNN-FM ........ 99 99.1 MHz 6/1/96*
WMJY-FM ................... 100 93.7 MHz 6/1/96*
Myrtle Beach, SC
WYAK-FM ................... 12.5 103.1 MHz 12/1/02
WVCO-FM ................... 2.65 94.9 MHz 12/1/02
WMYB-FM ................... 13.5 99.5 MHz 12/1/02
SOUTHWEST REGION
Houston, TX
KODA-FM ................... 95 99.1 MHz 8/1/97
KKRW-FM ................... 100 93.7 MHz 8/1/97
San Diego, CA
KYXY-FM ................... 41 96.5 MHz 12/1/97
KMKX-FM ................... 36 103.7 MHz 12/1/97
Tucson, AZ
KRQQ-FM ................... 91 93.7 MHz 10/1/97
KWFM-FM ................... 90 92.9 MHz 10/1/97
KCEE-AM ................... 1 940 kHz 10/1/97
KNST-AM ................... 5 Day, 0.5 Night 790 kHz 10/1/97
Wichita, KS
KRZZ-FM ................... 50 96.3 MHz 6/1/97
KKRD-FM ................... 95 107.3 MHz 6/1/97
KNSS-AM ................... .6 1240 kHz 6/1/97
</TABLE>
25
- ------------
(*) 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.
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.
26
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 that market; 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 that
market.
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 the FCC should modify its attribution rules by (i) restricting the
availability of the single majority shareholder 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.
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.
27
Robert F.X. Sillerman, the Executive Chairman of the Company has
non-voting common and preferred stock interests in 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.
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. Prior to consummation of the Prism Acquisition,
the FCC will need to determine that its cross-interest policy does not
prohibit the Company's acquisition of KNSS-AM, KKRD-FM and KRZZ-FM, each
operating in the Wichita, Kansas market, a market in which Triathlon already
owns stations. In accordance with the cross-interest policy, the Company will
need to demonstrate that competition for the sale of spot advertising in the
Wichita, Kansas market will not be impaired as a result of Robert F.X.
Sillerman's passive interest in Triathlon and his active interest in the
Company. The Company believes that because Mr. Sillerman is not active in
Triathlon's daily operations and is not an officer or director of Triathlon,
the FCC is not likely to invoke its cross-interest policy in this case.
However, there can be no assurance that the FCC will not invoke its
cross-interest policy and prohibit the acquisition of such stations by the
Company.
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 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,
28
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. 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 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.
29
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 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
30
<PAGE>
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.
LEGAL PROCEEDINGS
In a complaint (Civil Action No. 96602056) 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.
In the opinion of management, there are no other material threatened or
pending legal proceedings against the Company or any entity affiliated with
Messrs. Sillerman or Hicks, which, if adversely decided, would have a
material effect on the financial condition or prospects of the Company.
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 its in-house Master Access Radio Database, (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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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 FCC approval of the
acquisition of WHFS-FM by Liberty of Maryland, shall have become "final" and
(vi)
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the FCC shall have granted the pending license renewal applications of
WHFS-FM, WXTR-FM, WMXB-FM, WQSI-AM and WXVR-FM. See "-- Regulatory Issues
Related to the Liberty Acquisition." 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 this Note Offering 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.
Certain Regulatory Issues Related to the Liberty Stations.
WHFS-FM (Annapolis, MD)--On December 21, 1993, the FCC approved the
assignment of the license for radio station WHFS-FM from Duchossois to
Liberty of Maryland. 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., 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
and review periods for this FCC action have not yet expired.
WBLI-FM (Patchogue, NY) -- A petition to deny the transfer of control of
radio station 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 and review periods for this FCC
action have not yet expired.
33
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 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.
34
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.
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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 April 1996, the Company entered into a letter
of intent to sell three of the Prism Stations (WVEZ-FM, WWKY-AM and WTFX-FM,
each operating in Louisville, Kentucky) for approximately $19.5 million.
There can be no assurance that the Company will enter into a definitive
agreement with respect to the Louisville Dispositions. The consummation of
the Louisville Dispositions is subject to customary closing conditions,
including the receipt of FCC approval.
Certain Regulatory Issues Relating to the Prism Stations. Prior to the
consummation of the Prism Acquisition, the FCC will need to determine that
its cross-interest policy does not prohibit the Company's acquisitions of
KNSS-AM, KKRD-FM and KRZZ-FM, each operating in the Wichita, Kansas market, a
market in which Triathlon already owns and operates stations. In accordance
therewith, the Company will need to demonstrate that competition for the sale
of spot advertising in the Wichita, Kansas market will not be impaired as a
result of Mr. Sillerman's passive interests in Triathlon in conjunction with
his active interest in the Company. The Company believes that because Mr.
Sillerman is not active in Triathlon's daily operations and is not an officer
or director of Triathlon, the FCC is likely not to invoke its cross-interest
policy in this case. There can, however, be no assurance that the FCC will
not invoke such policy and prohibit the acquisition of such stations by the
Company.
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 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 MMR Merger is fair
to the respective companies from a financial point of view. 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 3,016,500 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
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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 National Association of Securities Dealers, 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. 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 (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.
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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% 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
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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 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 to the Company from a financial point of view, 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.
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 and (viii) 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
39
<PAGE>
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 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 January 26, 1996, MMR
entered into an agreement to acquire substantially all of the assets of
WSTZ-FM and WZRX-AM, both operating in Jackson, Mississippi, for a purchase
price of $3.5 million. On January 22, 1996, MMR entered into an agreement to
acquire substantially all of the assets of WROQ-FM, operating in Greenville,
South Carolina, for a purchase price of $14.0 million. On January 18, 1996,
MMR entered into an agreement to acquire substantially all of the assets of
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina, and WMFR-AM,
WMAG-FM and WTCK-AM (formerly, WWWB-AM), each operating in Greensboro, North
Carolina, for a purchase price of
40
<PAGE>
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 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. 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 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. MMR has 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. In March 1996,
the Company entered into an agreement to sell WRXR-FM and WKBG-FM, both
operating in Augusta, Georgia, for a purchase price of $5.0 million. The
closings of such transactions are subject to customary closing conditions,
including the receipt of FCC approval.
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. MMR has deposited $3.0 million in escrow to
secure its 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
41
<PAGE>
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 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-AM 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 immediately thereafter 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. MMR and the seller have
deposited $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.
42
<PAGE>
WHSL-FM (Greensboro, NC). On January 18, 1996, the Company entered into an
agreement pursuant to which the Company was granted, in consideration for
$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 seller has agreed that, until the
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.
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 60 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 $50,000 and $100,000. 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
43
<PAGE>
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 available commercial advertising
time on WSTZ-FM to third parties. During the term of the JSA, the Company
shall pay to MMR a fee which shall equal the fee payable by MMR under the LMA
with respect to such station. 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 Board 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 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. MMR deposited $2.0 million in escrow to
secure its obligations under the agreement. The funds for the escrow deposit
were advanced to MMR by the Company. Based upon an audit conducted by an
environmental consultant of one of the sites used in connection with the
stations' business, MMR has the right to terminate such purchase agreement.
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."
44
<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."
47
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO FORMA
FOR THE
RECENT
ACQUISITIONS
AND THE
TRANSACTIONS
OTHER THAN THE
MMR
MERGER (7)
1991 1992 1993 1994 1995 1995
- ---------------------------------------- -------- -------- --------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $13,442 $15,003 $ 34,233 $55,556 $76,830 $166,002
Station operating expenses .............. 9,105 9,624 21,555 33,956 51,039 106,790
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 3,726 3,208 4,475 5,873 9,137 26,937
Corporate expenses ...................... 726 769 1,808 2,964 3,797 6,060
Corporate expenses -- non-recurring
charge(3) .............................. 13,980
Write down of broadcast rights agreement
and other .............................. 5,000
-------- -------- --------- ------- -------- --------------
Operating income (loss) ................. (115) 1,402 (7,585) 12,763 7,857 26,215
Other (income) loss, net ................ (124) (17) 121 (650) (1,174)
Interest expense, including amortization
of deferred financing costs ............ 4,241 3,610 7,351 9,332 12,903 46,900
-------- -------- --------- ------- -------- --------------
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) (19,511)
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) (19,511)
Redeemable preferred stock dividends and
accretion(4) ........................... 302 385 557 348 291 8,091
-------- -------- --------- ------- -------- --------------
Net income (loss) applicable to common
stock .................................. $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(27,602)
======== ======== ========= ======= ======== ==============
Net income (loss) per share ............. $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (3.70)
======== ======== ========= ======= ======== ==============
Weighted average common shares
outstanding ............................ 1,179 1,179 2,589 5,792 6,596 7,458
======== ======== ========= ======= ======== ==============
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 $ 59,212
EBITDA(6) ............................... 3,611 4,610 10,870 18,636 21,994 53,152
</TABLE>
48
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------- --------- ------------------------------------------------------------
PRO FORMA
PRO FORMA FOR THE
FOR THE RECENT PRO FORMA
RECENT ACQUISITIONS FOR THE
ACQUISITIONS AND THE RECENT
AND THE TRANSACTIONS ACQUISITIONS
TRANSACTIONS OTHER THAN THE AND THE
(7) (UNAUDITED) (UNAUDITED) MMR MERGER (7) TRANSACTIONS (7)
------------------- -------------------
1995 1995 1996 1995 1996 1995 1996
- ---------------------------------------- -------------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ......................... $188,968 $13,717 $19,800 $39,026 $39,031 $44,403 $44,111
Station operating expenses .............. 119,682 9,676 14,056 28,389 25,901 31,879 28,803
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) ....................... 31,198 1,697 2,299 6,537 6,599 7,694 7,559
Corporate expenses ...................... 6,300 807 1,210 1,423 1,759 1,483 1,819
Corporate expenses -- non-recurring
charge(3) ..............................
Write down of broadcast rights agreement
and other .............................. 281 -- -- (37) -- 43 65
-------------- --------- --------- --------- -------- --------- --------
Operating income (loss) ................. 31,507 1,537 2,235 2,714 4,772 3,304 5,865
Other (income) loss, net ................ (1,174) 3 (164) (27) (444) (27) (444)
Interest expense, including amortization
of deferred financing costs ............ 46,900 2,432 3,384 11,725 11,725 11,725 11,725
-------------- --------- --------- --------- -------- --------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle .............................. (14,219) (898) (985) (8,984) (6,509) (8,394) (5,416)
Income tax expense ...................... (377)
Extraordinary loss on debt retirement ..
Cumulative effect of a change in
accounting principle ...................
-------------- --------- --------- --------- -------- --------- --------
</TABLE>
49
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------- --------- ------------------------------------------------------------
PRO FORMA
PRO FORMA FOR THE
FOR THE RECENT PRO FORMA
RECENT ACQUISITIONS FOR THE
ACQUISITIONS AND THE RECENT
AND THE TRANSACTIONS ACQUISITIONS
TRANSACTIONS OTHER THAN THE AND THE
(7) (UNAUDITED) (UNAUDITED) MMR MERGER (7) TRANSACTIONS (7)
------------------- -------------------
1995 1995 1996 1995 1996 1995 1996
- ---------------------------------------- -------------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) ....................... (14,219) (521) (985) (8,984) (6,509) (8,394) (5,416)
Redeemable preferred stock dividends and
accretion(4) ........................... 8,091 71 136 2,021 2,086 2,021 2,086
-------------- --------- --------- --------- -------- --------- --------
Net income (loss) applicable to common
stock .................................. $(22,310) $(592) $(1,121) $(11,005) $(8,595) $(10,415) $(7,502)
============== ========= ========= ========= ======== ========= ========
Net income (loss) per share ............. $(2.36) $(0.10) $ (0.15) $ (1.48) $ (1.15) $ (1.10) $ (0.79)
============== ========= ========= ========= ======== ========= ========
Weighted average common shares
outstanding ............................ 9,459 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) .................. $69,286 4,041 5,744 10,637 13,130 12,525 15,309
EBITDA(6) ............................... 62,986 3,234 4,534 9,214 11,371 11,042 13,490
</TABLE>
(Table continued on following page)
50
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
FORMA FOR
THE PRO FORMA FOR
DECEMBER 31, 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 $ 67,749 $ 2,849
Current assets ............. 3,065 4,515 31,273 28,367 32,505 22,750 99,956 46,856
Total assets ............... 37,367 36,127 152,871 145,808 187,337 202,852 674,890 766,450
Long-term debt ............. 38,828 39,011 81,627 81,516 81,850 98,500 440,000 440,000
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 0 0
Series D Cumulative
Convertible Exchangeable
Preferred Stock .......... -- -- -- -- -- 0 120,000 120,000
Stockholders' equity ....... (6,951) (9,411) 48,598 48,856 83,061 81,940 41,830 113,830
</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.
(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.
51
(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 $8,595,000, $11,005,000 and $27,602,000, respectively, pro
forma for the Recent Acquisitions and the Transactions other than the
MMR Merger, and $7,502,000, $10,415,000 and $22,310,000, 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
$6,509,000, $8,984,000 and $19,511,000, respectively, pro forma for the
Recent Acquisitions and the Transactions other than the MMR Merger and
$5,416,000, $8,394,000 and $14,219,000, 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, $4,221,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger, and $14,295,000 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 $681,000 pro forma for the Recent Acquisitions and the
Transactions other than the MMR Merger and exceeded by $1,498,000 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 and duopoly integration 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.
52
<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)
implementation of the Hicks Agreement and the Armstrong Agreement, (vi)
repayment of the Old Credit Agreement and (vii) 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) implementation of
the Hicks Agreement and the Armstrong Agreement, (vii) repayment of the Old
Credit Agreement and (viii) 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."
53
<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 7,731 8,524
Intangible assets, net .... 154,256 108,799 14,347 27,080
Other assets ............... 7,689
------------- ------------- ------------- -------------
Total assets ............... $202,852 $138,015 $29,308 $41,421
============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........ $ 9,549 $ 7,461 $ 5,404 $ 2,846
Other liabilities .......... 2,092 1,100
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>
54
(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 $112,000 (a) $(19,500)(a) $99,956 $(53,100) $46,856
440,000 (b) (211,000)(b)
(18,000)(c) (85,750)(c)
(105,183)(d) (63,500)(d)
(8,334)(e)
(2,000)(g)
Property and equipment, net (1,228) 47,549 2,619 50,168
Intangible assets, net .... (9,117) 18,000 (c) 124,016 (b) 518,531 140,115 658,646
(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 $441,112 $(178,048) $674,890 $91,560 $766,450
============= ============ ============ ============ ========= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........ (283)(d) $(5,404)(c) $17,477 $3,127 $20,604
(2,846)(d)
750 (a)
Other liabilities .......... 700 (a) 3,892 3,621 7,513
Long-term debt:
New Credit Agreement ....
Note Offering ............ 440,000 (b) 440,000 440,000
Old Notes and Old
Credit Agreement ........ (98,500)(d) 0 0
Acquired company debt ... (70,140)(b) 0 0
(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) 0 0
Series D Preferred Stock 120,000 (a) 120,000 120,000
</TABLE>
55
<PAGE>
<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>
Stockholders' equity ....... 230 (12,105)(d) (26,222)(d) 41,830 72,000 113,830
(8,000)(a) (48,996)(b)
(10,585)(c)
(23,200)(a)
3,415 (f)
(450)(g)
- --------------------------- ------------- ------------ ------------ ------------ --------- ------------
Total liabilities and
stockholders' equity ...... $230 $441,112 $(178,048) $674,890 $91,560 $766,450
============= ============ ============ ============ ========= ============
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Liberty Acquisition
Reflects the Liberty Acquisition for $236,000,000 adjusted for the
Washington Dispositions of $25,000,000. 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
Other assets ...............................
------------- -------------- -------------
Total assets .............................. $163,015 $(25,000) $138,015
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 9,135 $ (1,674) $ 7,461
Other liabilities .......................... 1,101 (1) 1,100
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>
56
(2) Prism Acquisition
Reflects the Prism Acquisition for $105,250,000 adjusted for the Louisville
Dispositions of $19,500,000. 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 (1,475) 7,731
Intangible assets, net ..................... 32,372 (18,025) 14,347
------------- -------------- -------------
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>
(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 which is $2.9 million), (ii) WROQ-FM from ABS Greenville Partners,
L.P. (the "Greenville Acquisition") of approximately $14 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 $63,500,000.
<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>
57
(4) Other Acquisitions and Dispositions
To reflect the Dallas Disposition for $11,500,000 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 Redeemable
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 ......................... $ $ $ 0
Long-term liabilities ....................... 0
Stockholders' equity ........................ 11,500 11,270 230
--------------- --------- ------------
Total liabilities and stockholders' equity $11,500 $11,270 $ 230
=============== ========= ============
</TABLE>
(5) Financing
(a) To reflect the Preferred Stock Offering for $120,000,000 and the
costs related to its issuance of $8,000,000, a net of
$112,000,000.
(b) To reflect the $440,000,000 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 $11,750,000, (ii) fees for the New Credit
Agreement of $2,500,000 and (iii) other fees of $3,750,000,
including $2,000,000 payable to SCMC. See "Certain Relationships
and Related Transactions."
(d) To repurchase the Old Notes for an aggregate price of $86,400,000
which includes their carrying cost of $80,000,000 and estimated
costs related to the Tender Offer of $6,400,000. 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
$12,105,000 will be recognized at the time these transactions are
consummated consisting of $6,400,000 in costs associated with the
Tender Offer and $5,705,000 related to the write-off of deferred
financing costs.
58
(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 and Mr. Armstrong pursuant to the
Armstrong Agreement 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 to
purchase 410,000 shares of Class A Common Stock, (iii) $500,000
in connection with the non-competition and non-solicitation
agreement from Mr. Hicks 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
to purchase 200,000 shares of 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 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.
59
<PAGE>
(f) To reflect the SCMC Termination Agreement under which a warrant
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 in the second quarter, 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.
(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>
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) 0
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>
60
- ------------------
(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.
61
<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
INC. DISPOSITIONS(1) DISPOSITION(2)
------------- ------------- ------------
<S> <C> <C> <C>
Net revenues ............................ $19,800 $10,122 $6,068
Station operating expenses .............. 14,056 7,985 5,370
Depreciation, amortization and 2,299(**) 2,451 558
acquisition related costs ..............
Corporate expenses ...................... 1,210 605 373
Other ...................................
------------- ------------- ------------
Operating income ........................ 2,235 (919) (233)
Interest expense, including amortization 3,384 1,940 357
of deferred financing costs ............
Other expense (income) .................. (164)
Income tax expense (benefit) ............ (916)
------------- ------------- ------------
Net income (loss) ....................... (985) (1,943) (590)
Preferred stock dividend requirement ... 136
------------- ------------- ------------
Net loss applicable to common shares ... $(1,121) $(1,943) $ (590)
============= ============= ============
Net loss per common share ............... $ (0.15)
=============
Average common shares outstanding ...... 7,458
</TABLE>
62
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
OTHER FINANCING & TRANSACTIONS PRO FORMA
ADDITIONAL ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR FOR THE
ACQUISITIONS(3) DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) TRANSACTIONS
------------- ------------- ------------ -------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............................ $2,417 $(2,021) $ 2,645 (a) $39,031(*) $5,080 $44,111(*)
Station operating expenses .............. 1,730 (2,608) (632)(b) 25,901 2,902 28,803
Depreciation, amortization and 716 (475) 574 (c) 6,599 960 7,559
acquisition related costs .............. (408)(c)
353 (c)
138 (c)
201 (d)
52 (e)
140 (f)
Corporate expenses ...................... 63 549 (g) 1,759 60 1,819
(1,041)(g)
Other ................................... 65 65
------------- ------------- ------------ -------------- ------- ------------
Operating income ........................ (92) 1,062 2,719 4,772 1,093 5,865
Interest expense, including amortization 242 (477) 11,275 (h) 11,725 11,725
of deferred financing costs ............ (5,446)(h)
450 (h)
Other expense (income) .................. (280) (444) (444)
Income tax expense (benefit) ............ 93 823 (i) 0 0
------------- ------------- ------------ -------------- ------- ------------
Net income (loss) ....................... (147) 1,539 (4,383) (6,509) 1,093 (5,416)
Preferred stock dividend requirement ... 1,950 (j) 2,086 2,086
------------- ------------- ------------ -------------- ------- ------------
Net loss applicable to common shares ... $ (147) $ 1,539 $(6,333) $(8,595) $1,093 $(7,502)
============= ============= ============ ============== ======= ============
Net loss per common share ............... $ (1.15) $ (0.79)
============= ============== ============
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.
63
<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
INC. DISPOSITIONS(1) DISPOSITION(2)
------------- ------------- ------------
<S> <C> <C> <C>
Net revenues ............................ $13,717 $10,563 $ 6,553
Station operating expenses .............. 9,676 8,586 6,662
Depreciation and amortization ........... 1,697 1,566 673
Corporate expenses ...................... 807 698 420
Other ...................................
------------- ------------- ------------
Operating income ........................ 1,537 (287) (1,202)
Interest expense, including amortization 2,432 1,357 427
of deferred acquisition costs ..........
Other expense (income) .................. 3 56
Income tax expense (benefit) ............ (377) 6
------------- ------------- ------------
Net income (loss) ....................... (521) (1,706) (1,629)
Preferred stock dividend requirement ... 71
------------- ------------- ------------
Net loss applicable to common shares ... $ (592) $(1,706) $(1,629)
============= ============= ============
Net loss per common share ............... $ (0.10)
=============
Average common shares outstanding ...... 5,916
</TABLE>
64
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
OTHER FINANCING & TRANSACTIONS PRO FORMA
ADDITIONAL ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR FOR THE
ACQUISITIONS(3) DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) TRANSACTIONS
------------- ------------- ------------ -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............................ $3,844 $(1,390) $ 5,739 (a) $ 39,026(*) $5,377 $ 44,403(*)
Station operating expenses .............. 3,250 (1,119) (632)(b) 28,389 3,490 31,879
1,966 (a)
Depreciation and amortization ........... 580 (504) 574 (c) 6,537 1,157 7,694
(408)(c)
353 (c)
138 (c)
201 (d)
52 (e)
140 (f)
1,475 (a)
Corporate expenses ...................... 45 549 (g) 1,423 60 1,483
(1,163)(g)
67 (a)
Other ................................... (37) (37) 80 43
------------- ------------- ------------ -------------- ------- ------------
Operating income ........................ (31) 270 2,427 2,714 590 3,304
Interest expense, including amortization 191 (454) 11,275 (h) 11,725 11,725
of deferred acquisition costs .......... (3,953)(h)
450 (h)
Other expense (income) .................. (36) (50) (27) (27)
Income tax expense (benefit) ............ 120 251 (i) 0 0
------------- ------------- ------------ -------------- ------- ------------
Net income (loss) ....................... (306) 774 (5,596) (8,984) 590 (8,394)
Preferred stock dividend requirement ... 1,950 (j) 2,021 2,021
------------- ------------- ------------ -------------- ------- ------------
Net loss applicable to common shares ... $ (306) $ 774 $(7,546) $(11,005) $ 590 $(10,415)
============= ============= ============ ============== ======= ============
Net loss per common share ............... $ (1.48) $ (1.10)
============= ============== ============
Average common shares outstanding ...... 7,458 9,459
</TABLE>
- ------------
(*) Includes $3,584,000 of fees from Triathlon; see Note 5(a).
65
<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
INC. DISPOSITIONS(1) DISPOSITION(2)
------------- ------------- ------------
<S> <C> <C> <C>
Net revenues ............................ $76,830 $48,032 $26,959
Station operating expenses .............. 51,039 30,660 22,411
Depreciation, amortization and duopoly 9,137(**) 9,052 2,232
integration costs ......................
Corporate expenses ...................... 3,797 4,653 1,827
Other ................................... 5,000
------------- ------------- ------------
Operating income ........................ 7,857 3,667 489
Interest expense, including amortization 12,903 7,275 1,565
of deferred financing costs ............
Other expense (income) .................. (650)
Income tax expense ...................... (2,725)
------------- ------------- ------------
Net income (loss) ....................... (4,396) (883) (1,076)
Preferred stock dividend requirement ... 291
------------- ------------- ------------
Net loss applicable to common shares ... $(4,687) $ (883) $(1,076)
============= ============= ============
Net loss per common share ............... $ (0.71)
=============
Average common shares outstanding ...... 6,596
</TABLE>
66
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE RECENT
ACQUISITIONS PRO FORMA
AND THE FOR THE RECENT
OTHER FINANCING & TRANSACTIONS ACQUISITIONS
ADDITIONAL ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR AND THE
ACQUISITIONS(3) DISPOSITIONS(4) ADJUSTMENTS(5) MMR MERGER MERGER(6) TRANSACTIONS
------------- ------------- ------------ -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............................ $18,463 $(10,021) $ 5,739 (a) $166,002(*) $22,966 $188,968(*)
Station operating expenses .............. 15,570 (9,918) (4,938)(b) 106,790 12,892 119,682
1,966 (a)
Depreciation, amortization and duopoly 2,947 (2,105) 2,297 (c) 26,937 4,261 31,198
integration costs ...................... (1,632)(c)
1,411 (c)
552 (c)
804 (d)
208 (e)
559 (f)
1,475 (a)
Corporate expenses ...................... 265 2,196 (g) 6,060 240 6,300
(6,745)(g)
67 (a)
Other ................................... (5,000) 281 281
----------- ------------- ------------ ---------- ------- ---------
Operating income ........................ (319) 7,002 7,519 26,215 5,292 31,507
Interest expense, including amortization 948 (1,841) 45,100 (h) 46,900 46,900
of deferred financing costs ............ (20,850)(h)
1,800 (h)
Other expense (income) .................. (201) (323) (1,174) (1,174)
Income tax expense ...................... 562 2,163 (i) 0 0
----------- ------------- ------------ ---------- ------- ---------
Net income (loss) ....................... (1,628) 9,166 (20,694) (19,511) 5,292 (14,219)
Preferred stock dividend requirement ... 7,800 (j) 8,091 8,091
----------- ------------- ------------ ---------- ------- ---------
Net loss applicable to common shares ... $(1,628) $ 9,166 $(28,494) $(27,602) $ 5,292 $(22,310)
=========== ============= ============ ========== =======
Net loss per common share ............... $ (3.70) $ (2.36)
=========== ============= ============ ========== =======
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.
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT 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
--------------------------------------
WASHINGTON LIBERTY AS
LIBERTY(*) DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues ................ $11,257 $ (694) $10,563
Station operating expenses . 9,633 (1,047) 8,586
Depreciation & amortization 1,869 (303) 1,566
Corporate expenses .......... 698 698
---------- -------------- ----------
Operating income (loss) .... (943) 656 (287)
Interest expense, net ....... 1,357 1,357
Other expense (income) ..... 50 6 56
Income tax expense (benefit) 6 6
---------- -------------- ----------
Net income (loss) ........... $(2,356) $ 650 $(1,706)
========== ============== ==========
</TABLE>
- -------------
(*)Includes the results of Liberty as reported and the stations acquired
by Liberty during 1995.
68
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
LIBERTY AS WASHINGTON LIBERTY AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues ............... $51,407 $(3,375) $48,032
Station operating expenses 34,725 (4,065) 30,660
Depreciation & amortization 10,429 (1,377) 9,052
Corporate expenses ......... 4,653 4,653
---------- -------------- ----------
Operating income (loss) ... 1,600 2,067 3,667
Interest expense, net ..... 7,373 (98) 7,275
Income tax expense ......... (2,725) (2,725)
---------- -------------- ----------
Net income (loss) .......... $(3,048) $ 2,165 $ (883)
========== ============== ==========
</TABLE>
69
<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 $(242) $ 6,553
Station operation expenses .. 6,669 (7) 6,662
Depreciation and amortization 673 673
Corporate expenses ........... 420 420
---------- -------------- ----------
Operating income/(loss) ..... (967) (235) (1,202)
Interest expense ............. 427 427
---------- -------------- ----------
Net loss ..................... $(1,394) $(235) $(1,629)
========== ============== ==========
</TABLE>
70
<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 ........... 1,827 1,827
---------- -------------- ----------
Operating income/(loss) ..... 820 (331) 489
Interest expense ............. 1,565 1,565
---------- -------------- ----------
Net loss ..................... $ (745) $ (331) $(1,076)
========== ============== ==========
</TABLE>
(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>
71
<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>
72
<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 NET
-------------------------------- ------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- -------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $(2,109) $(515) $(1,022) $1,625 $(2,021)
Station operating expenses .. (1,991) (532) (1,241) 1,156 (2,608)
Depreciation and amortization (341) (63) (93) 22 (475)
---------- -------- ---------- ------------- ----------
Operating income (loss) ..... 223 80 312 447 1,062
Interest expense ............. (369) (106) (2) (477)
Other income .................
---------- -------- ---------- ------------- ----------
Net loss (income) ............ $ 592 $ 186 $ 314 $ 447 $ 1,539
========== ======== ========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
----------------------------------------------------------
DISPOSITIONS ACQUISITION NET
------------------------------- ------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- -------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $(1,758) $(684) $(426) $1,478 $(1,390)
Station operating expenses .. (1,805) (541) (295) 1,522 (1,119)
Depreciation and amortization (305) (199) (504)
Other income (expense) ....... 0 0 (37) 0 (37)
---------- -------- --------- ------------- ----------
Operating income (loss) ..... 352 56 (94) (44) 270
Interest expense ............. (359) (95) (454)
Other income ................. (50) (50)
---------- -------- --------- ------------- ----------
Net loss (income) ............ $ 711 $ 151 $ (44) $ (44) $ 774
========== ======== ========= ============= ==========
</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)
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>
73
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ACQUISITION NET
------------- -----------
KKRW-FM
-------------
<S> <C> <C>
Net revenues .................. $7,063 $(10,021)
Station operating expenses ... 4,938 (9,918)
Depreciation and amortization 94 (2,105)
Write-down of broadcast rights (5,000)
------------- -----------
Operating income (loss) ...... 2,031 7,002
Interest expense .............. (1,841)
Other income .................. (323)
------------- -----------
Net loss ...................... $2,031 $ 9,166
============= ===========
</TABLE>
(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 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 $3,584,000 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
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.
74
The Company believes that if KYKX-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 $1,041,000, $1,163,000 and $6,745,000 for the three months
ended March 31, 1996 and 1995 and year ended December 31, 1995,
respectively of the corporate overhead of the sellers.
(h) To reflect interest expense of $11,275,000, $11,275,000 and
$45,100,000 for the three months ended March 31, 1996 and 1995 and year
ended December 31, 1995, respectively, related to the $440,000,000 Note
Offering at 10.25%, 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,
75
<PAGE>
1995, respectively, and the elimination of existing interest expense of
$5,446,000, $3,953,000 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) 0
Other expense (income) ..... 2,042 (2,042)(f) 0
Income tax expense .......... 2 (2) (f) 0
---------- -------------- -------------- ------------- -------------
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
AS DISPOSITIONS MMR HARTFORD PRO FORMA PRO FORMA AS
REPORTED (A) ACQUISITION ADJUSTMENTS ADJUSTED
---------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues ................ $1,796 $2,692 $889 $5,377
Station operating expenses . 1,255 1,863 629 $(257)(b) 3,490
Depreciation & amortization 299 327 43 441 (c) 1,157
47 (d)
Corporate expenses .......... 220 (220)(e) 60
60 (e)
Non-cash compensation charge 80 80
---------- -------------- -------------- ------------- -------------
Operating income (loss) .... (58) 502 217 (71) 590
Interest expense, net ....... 311 131 (442)(f) 0
Other expense (income) ..... (1) 1 (f) 0
Income tax expense .......... 6 (6)(f) 0
---------- -------------- -------------- ------------- -------------
Income (loss) before
extraordinary item ......... $ (374) $ 502 $ 86 $ 376 $ 590
========== ============== ============== ============= =============
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------
MULTI-MARKET RADIO, INC.
------------------------------------------------------------------------------------
(IN THOUSANDS)
SOUTHERN
MMR STARR
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) 0
Other expense (income) ....... (11) 11 (f) 0
Income tax expense (benefit) (59) 59 (f) 0
---------- -------------- -------------- ---------- ------------- -------------
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
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.
77
<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, 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. The Company
intends to finance the Acquisitions from the proceeds of the Financing and
the Dispositions.
Certain Cost Savings. Management believes that such transactions 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 $0.2 million 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 $0.6
million, (iv) reductions in national representative commissions of $0.2
million, (v) the elimination of $0.2 million of non-recurring start-up costs
related to duopolies created by the Prism Acquisition, and (vi) the
elimination of $0.3 million of non-recurring start-up costs related to
duopolies created by the Liberty Acquisition.
78
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
$0.9 million, and the elimination of redundant facilities aggregating, upon
consummation of the MMR Merger, $0.1 million. 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 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 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 reasonable 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.
Certain Adjustments to Revenues. The Company believes that if KYKX-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 "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."
79
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 will recognize an extraordinary loss if all of the Old Notes are
tendered, of approximately $12.1 million relating to the write-off of
deferred financing costs of the Old Credit Agreement and the costs of the
Tender Offer 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 in
this Offering Memorandum.
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.
80
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 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 in the manner contemplated by the
registration statement filed in connection therewith) 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, both
operating 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.
81
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-FM, 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.
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 1995 quarter.
Additionally, salaries, bonuses and deferred compensation for the Company's
executive officers increased by $133,000 over 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 32% to $3.2
million from $2.4 million in 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.
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-FM 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.
82
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, 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 rates at
the Company's stations. On a same station basis, assuming that all of the
stations owned and/or operated by
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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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<PAGE>
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 from 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
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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 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) 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 April 1996, the Company entered into an
agreement 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."
87
In April 1996, the Company entered into the MMR 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, 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 1,840,000 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. The Company anticipates
that such notice will be issued and the warrants will be exercised within
ninety days. Such exercise would result in net proceeds 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 repaid by the Company with additional
borrowings under the New Credit Agreement at the time of the MMR Merger. See
"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, both operating in Jackson, Mississippi,
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina and WMFR-AM,
WMAG-FM and WTCK-AM, each operating in Greensboro, North Carolina. The
Company and MMR have agreed that the Company will finance the purchase of
such stations and 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
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 the
Additional Acquisitions is approximately $63.5 million.
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 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 and
available cash.
The Company anticipates that it will consummate all of the pending
Acquisitions and Dispositions within 60 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."
88
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."
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. Upon completion of
the Financing, the Company will repay all amounts owing under the Old Credit
Agreement.
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
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.
Concurrently with the Note Offering, the Company is offering $120.0
million in aggregate liquidation preference of the Series D Preferred Stock.
The Company is currently negotiating with its lender with respect to the
New Credit Agreement to increase availability under this facility from $50.0
million to up to $150.0 million for additional acquisitions and for working
capital to the extent that the Dispositions and the exercise of the MMR Class
A Warrants do not occur within 60 days of the closing of the Financing, as
currently expected, borrowings will be required under the 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) and to make dividend
payments on the Series D 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, 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, scheduled payments of
interest on its debt and to make dividend payments on the Series D 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 the Series D 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
"-- Executive Compensation -- 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 "-- Executive Compensation --
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 to foreign investors. Mr. Kramer was a partner in the New York
office of Ernst & Young from 1968 to 1992, and from 1987 to 1992 was Ernst &
Young's designated Broadcasting Industry Specialist.
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
91
<PAGE>
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 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 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."
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<PAGE>
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 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 has received a one-time fee of $50,000 as
remuneration for attending the independent committee meetings.
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 is the amount of 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 $100,000 for 1995 for services rendered in all
capacities to the Company, its subsidiaries and its predecessor, Capstar, for
the last three fiscal years. The Executive Chairman and such executive
officers are collectively referred to as the "Named Executive Officers."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NAME AND FISCAL ANNUAL OTHER ANNUAL
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS COMPENSATION($)(2)
- ------------------------- -------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman 1995 300,000 0 0
Executive Chairman 1994 250,000 0 0
1993 250,000 0 0
R. Steven Hicks 1995 300,000 200,000 0
President and Chief 1994 250,000 0 0
Executive Officer 1993 189,377(4) 0 0
D. Geoffrey Armstrong 1995 200,000 0 0
Executive Vice 1994 150,000 0 0
President, Chief 1993 105,000(6) 303,000(7) 0
Financial Officer and
Treasurer
Richard A. Liese 1995 52,083(8) 0 0
Vice President and 1994 0 0 0
Assistant General 1993 0 0 0
Counsel
</TABLE>
93
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- ------------------------- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman 0 60,000 0 0
Executive Chairman 0 30,000 0 0
0 130,000 0 0
R. Steven Hicks 0 50,000 0 250,000(3)(9)
President and Chief 0 30,000 0 0
Executive Officer 0 130,000 0 0
D. Geoffrey Armstrong 0 50,000 0 150,000(5)(9)
Executive Vice 0 20,000 0 0
President, Chief 0 65,000 0 0
Financial Officer and
Treasurer
Richard A. Liese 0 2,000 0 0
Vice President and 0 0 0 0
Assistant General 0 0 0 0
Counsel
</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.
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<PAGE>
(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."
(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 Note Offering.
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 commenc-
95
<PAGE>
ing 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
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. 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
an assumed exercise price of $34.00 per share and an assumed 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
96
<PAGE>
agreements) each is to receive his base salary through the date of such
termination and his respective bonus and deferred compensation, if
applicable, for the year in which he was terminated pro rated over the time
in which he was employed by 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 in 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
97
<PAGE>
the exercise of options granted under the Stock Option Plans, (ii) withdraw
the administration of the Stock Option Plans from the Committee, (iii) change
the eligibility requirements for participation in the Stock Option Plans,
(iv) extend the maximum term of options granted under the Stock Option Plans
or the period during which options may be granted under the Stock Option
Plans, (v) decrease the minimum option exercise price for incentive stock
options or (vii) otherwise materially increase the benefits accruing to
participants under the Stock Option Plans.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
The following table provides information with respect to stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION 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)
- ---------------------- -------------- -------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F) (G)
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 $192,906,882, respectively, over the ten-year period
ending on May 16, 2005. These prescribed rates are not intended to
forecast possible future appreciation, if any, of the Class A Common
Stock.
98
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information with respect to the stock options
exercised during 1995 and the value as of December 31, 1995 of unexercised
"in-the-money" options held by the Named Executive Officers. The value of
unexercised in-the-money options at fiscal year end is the difference between
the option exercise price and the fair market value of a share of the Class A
Common Stock at fiscal year end, December 31, 1995 multiplied by the number
of options.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE REALIZED OPTIONS/SARS AT IN-THE-MONEY OPTIONS
NAME ON EXERCISE (#) ($) 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.
99
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 OF 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>
100
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AS ADJUSTED(2)
----------------------------------------------------------
CLASS A VOTING CLASS B VOTING
PERCENTAGE COMMON STOCK COMMON STOCK PERCENTAGE
OF ----------------------- -------------------- OF
NAME AND ADDRESS OF TOTAL VOTING NUMBER OF PERCENT NUMBER OF PERCENT TOTAL 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.
101
(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 -- 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.
(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.
102
(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.
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, which section is hereby incorporated by
reference herein. Such incorporated section includes 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.
103
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 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 a fee of $500,000 to SCMC and Triathlon
currently pays a 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 provided by SCMC. Pursuant to the SCMC Termination Agreement, SCMC has
agreed to continue to provide consulting and marketing services to each of
MMR and Triathlon during the term of the respective agreements between such
parties and SCMC, 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 a warrant 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. 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.
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.
104
<PAGE>
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. 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 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
MMR Merger is fair to the Company from a financial point of view. Prior to
entering into the MMR Merger Agreement, MMR and the Company had entered into
an exchange 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 exchange 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."
105
<PAGE>
THE OFFERING
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 $440.0 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 events of default could result in the
acceleration of the Company's obligations under the New Credit Agreement.
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 members to the Company's Board of Directors.
Mandatory Redemption. The Series D Preferred Stock will be subject to
mandatory redemption on , 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.
Exchange Rights. At the Company's option, the Series D Preferred Stock
will be exchangeable into % 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, covenants 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. The Exchange Notes will not be guaranteed by any of
the Company's subsidiaries.
106
<PAGE>
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 make restricted payments, incur indebtedness or issue
preferred stock, engage in transactions with their affiliates and engage in
mergers or consolidations.
107
<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
(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
(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
(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
(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 (unaudited) and for
each of the years in the three-year 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 years in the three-year period ended December 31, 1995 .......... F-44
Statements of Cash Flows for the three months ended March 31, 1996 (unaudited) and for
each of the years in the three-year 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
(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
(unaudited), the year ended December 31, 1995 and various periods from January 6,
1994 to December 31, 1994 ............................................................ F-57
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Combined Statements of Cash Flows for the three months ended March 31, 1996
(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 (unaudited) and for the year ended December 31, 1995 ............................ F-66
Statement of Cash Flows for the three months ended March 31, 1996 (unaudited) and for
the year ended December 31, 1995 ..................................................... F-67
Notes to Financial Statements ......................................................... F-68
Multi-Market Radio, Inc. and Subsidaries:
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
(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
(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
</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>
DECEMBER 31,
MARCH 31, ---------------------
----------- 1995 1994
1996 ---------- ---------
(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 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>
(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
XXXXXXXXXXXXXXXXXXXXXX
<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:
Buildings and improvements ...7-20 years
Equipment and furniture ...... 5-7 years
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>
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>
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>
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.
PRO FORMA YEAR ENDED
DECEMBER 31, 1995 (DOLLARS
IN THOUSANDS)
----------------------------
(UNAUDITED)
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
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
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:
1995 1994 1993
------ -------- -------
Current
Federal .. $-- $ 65 $ --
State ..... -- 100 --
------ -------- -------
-- 165 --
------ -------- -------
Deferred
Federal .. -- 1,170 863
State ..... -- 139 152
------ -------- -------
-- 1,309 1,015
------ -------- -------
$-- $1,474 $1,015
====== ======== =======
The net deferred tax liability at December 31, 1995 and 1994 results from the
following temporary differences (in thousands):
1995 1994
---------- ---------
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)
========== =========
F-19
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
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>
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
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
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):
1996 ................ $ 5,598
1997 ................ 5,551
1998 ................ 6,033
1999 ................ 953
2000 ................ 916
2001 and thereafter 3,756
--------
Total .............. $22,807
========
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):
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
========
F-22
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
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):
1996 ................ $ 4,217
1997 ................ 4,114
1998 ................ 3,626
1999 ................ 3,296
2000 ................ 1,892
2001 and thereafter 484
--------
$17,629
========
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
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
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
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 15, 1996, except as to Note 14 for
which the date is March 26, 1996
F-27
<PAGE>
<TABLE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
------------------------------
1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <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>
THREE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------ ------------------
1996 1995 1995 1994 1993
-------------- -------------- -------------- -------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <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)
============== ============== ============== ============== ==================
F-29
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
</TABLE>
<TABLE>
PREFERRED STOCK
--------------------------------------
SERIES A SERIES B COMMON STOCK
------------------ ------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- ----------- ---------
<S> <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
======== ======== ======== ======== =========== =========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CAPITAL IN LOAN TO ACCUMULATED
EXCESS OF PAR STOCKHOLDERS DEFICIT TOTAL
------------- -------------- -------------- -------------
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
============= ============== ============== =============
F-30
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
THREE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED DECEMBER
MARCH 31, DECEMBER 31, 31,
------------------------------ ------------------------------ --------------
1996 1995 1995 1994 1995
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <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:
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
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.
1995 1994
------------- -------------
Gross revenues $61,159,000 $61,676,000
Net loss ...... (3,955,000) (5,445,000)
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:
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
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
============== ==============
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:
FCC BROADCAST LICENSES ......... $111,976,000 $80,471,000
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
============== =============
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:
1995 1994 1993
-------- -------- --------
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)% -- %
======== ======== ========
Deferred tax assets and liabilities are comprised of the following
elements:
DECEMBER 31, DECEMBER 31,
1995 1994
--------------- --------------
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) --
=============== ==============
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>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <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:
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
=============
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:
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------------- -----------
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
===========
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.
NUMBER OF SHARES
-----------------------------
1995 1994 1993
--------- -------- --------
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 --
========= ======== ========
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:
Property and equipment ........ $ 3,373,000
Intangibles ................... 44,400,000
Deferred taxes ................ 12,260,000
Capital in excess of par value 17,378,000
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:
Property and equipment ........ $ 2,615,000
Intangibles ................... 31,275,000
Capital in excess of par value (4,229,000)
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:
Property and equipment $ 846,000
Intangibles ........... 15,304,000
Long-term debt ........ (3,304,000)
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:
Property and equipment $ 1,172,000
Intangibles ........... 13,073,000
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:
Property and equipment ........ $ 5,565,000
Intangibles ................... 17,667,000
Capital in excess of par value (5,147,000)
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:
Property and equipment $ 2,215,000
Intangibles ........... 14,962,000
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>
MARCH 31, DECEMBER 31,
1996
1995 1994 1994
------------- ------------- -------------
(UNAUDITED)
<S> <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>
THREE MONTHS ENDED MARCH 31, DECEMBER 31,
---------------------------- --------------------------------------------
1996 1995 1995 1994 1993
------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <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>
TOTAL
GENERAL LIMITED PARTNER ACCUMULATED PARTNERS'
PARTNER PARTNERS RECEIVABLES DEFICIT CAPITAL
----------- ------------- ------------- -------------- -------------
<S> <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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
-------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <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 ............. $ -- $ --
============== ============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DECEMBER 31,
---------------------------------------------
1995 1994 1993
------------- -------------- --------------
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
------------- -------------- --------------
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):
1994 1993
-------------- ------------
Property and equipment $ 1,601,439 $ 5,165,086
Intangible assets ...... 12,530,812 22,582,088
-------------- ------------
$ 14,132,251 $27,747,174
============== ============
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:
ESTIMATED
1995 1994 USEFUL LIFE
------------ ------------ -------------
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
============ ============
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31:
ESTIMATED
1995 1994 USEFUL LIFE
------------- ------------ -------------
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
============= ============
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31:
1995 1994
------------ -----------
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
============ ===========
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>
1995 1994
------------- -------------
<S> <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:
YEAR ENDING
DECEMBER 31,
- --------------
1996 .......... $ 2,812,000
1997 .......... 3,341,875
1998 .......... 3,522,000
1999 .......... 4,191,000
2000 .......... 3,055,938
------------
$16,922,813
============
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:
CAPITAL CAPITAL
PARTNER CONTRIBUTIONS COMMITMENTS
- ------------------------------- --------------- -------------
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
=============== =============
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:
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
===========
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:
DECEMBER 31, 1995
----------------------------
CARRYING
AMOUNT FAIR VALUE
------------- -------------
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
============= =============
(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>
MARCH 31, DECEMBER 31,
1996
ASSETS 1995 1994
------------- ------------- -------------
(UNAUDITED)
<S> <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>
THREE MONTHS ENDED MARCH
31, DECEMBER 31,
-------------------------- ------------------------------
1996 1995 1995 1994
------------ ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <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>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ------------- -------------- -------------
<S> <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>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------ -----------------------------
1996 1995 1995 1994
----------- ----------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <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>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
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:
YEARS
-------
Goodwill and regulatory licenses and
permits ................................... 40
Organization costs ......................... 5
Non-compete agreements ..................... 5
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>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
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:
1995 1994
------------- -------------
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
============= =============
4. NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consist of the following:
<TABLE>
1995 1994
--------- -----------
<S> <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:
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
- -------------------------------------------- ---------------- --------------
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
==============
7. INCOME TAXES
Income tax expense for the periods ended December 31, 1995 and 1994
consists of the following:
1995 1994
----------- -----------
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
=========== ===========
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>
1995 1994
------------ ------------
<S> <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:
1995 1994
------------- -----------
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)
============= ===========
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>
MARCH 31, DECEMBER 31,
1996 1995
------------- --------------
(UNAUDITED)
ASSETS
<S> <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>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------------- 1995
1996 1995 -------------
------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <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>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------------- 1995
1996 1995 -------------
------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <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:
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
===========
Depreciation expense was $104,551 for the year.
NOTE C--INTANGIBLE ASSETS
Intangible assets consisted of the following:
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
============
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:
1996 ...... $ 478,080
1997 ...... 693,680
1998 ...... 8,646,789
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:
1996 ...... $142,300
1997 ...... 120,900
1998 ...... 116,700
1999 ...... 116,900
2000 ...... 28,700
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>
MARCH 31, DECEMBER 31,
----------------------------
1996 1995 1994
------------- ------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
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>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------------- ------------------------------
1996 1995 1995 1994
-------------- ------------ --------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <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>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1995
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <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 ...........................................
(RESTUBBED TABLE CONTINUED FROM ABOVE)
YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
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)
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>
CLASS A CLASS B CLASS C
COMMON COMMON COMMON PREFERRED
STOCK STOCK STOCK STOCK
--------- --------- --------- -----------
<S> <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
========= ========= ========= ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
TOTAL
WARRANTS & PAID-IN ACCUMULATED STOCKHOLDERS'
OPTIONS CAPITAL DEFICIT EQUITY
----------- ------------- -------------- ---------------
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:
1994 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
Net revenue ............................ $18,727,556 $20,979,939
Operating income ....................... 2,058,555 4,325,233
Income (loss) before extraordinary item 691,257 (709,544)
Net loss ............................... (282,964) (1,038,115)
Net loss per share ..................... (.08) (.30)
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:
1994 1995
------------- -------------
FCC Licenses .................. $17,993,052 $46,433,407
Goodwill ...................... 0 7,112,938
Covenant not to compete ...... 1,000,000 1,000,000
Deferred financing costs ..... 480,836 4,236,682
------------- -------------
19,473,888 58,783,027
Less accumulated amortization (1,379,593) (3,037,292)
------------- -------------
Net intangible assets ......... $18,094,295 $55,745,735
============= =============
4. RECEIVABLE FROM AFFILIATE
In connection with the acquisition of the Myrtle Beach Stations in July
1993, the Company loaned certain funds to Jones Eastern in excess of the
stated $3,000,000 purchase price in order for Jones Eastern to settle certain
liabilities and obtain the release of certain liens on the Myrtle Beach
Stations. The Company had received a promissory note from Jones Inc., the
parent of Jones Eastern, in the amount of $504,730. This amount was
satisfied, including interest at the rate of 8%, upon the sale, by Jones
Inc., of its WRSF-FM, Nags Head, North Carolina station, to the Company on
May 12, 1995. The Company acquired the assets of radio station WRSF-FM (Nags
Head, North Carolina) from Jones Eastern of the Outer Banks, Inc. for
$827,714, a portion of which represents the satisfaction of the
aforementioned
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:
FINOVA HUFF TOTAL
------------- ------------- -------------
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
============= ============= =============
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:
Year ending December 31:
1996 ................. $ 1,804,000
1997 .................... 2,024,000
1998 .................... 2,374,000
1999 .................... 2,798,000
2000 and thereafter .... 34,611,440
------------
$43,611,440
============
At December 31, 1995, the Company was in compliance with all payment
obligations and covenants under the Loan Agreement and Subordinated
Debentures except for the corporate overhead and capital expenditure
covenants for the year ended December 31, 1995 the Company has received
waivers for these violations in 1995.
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:
Years ending December 31:
1996 .................. $203,437
1997 ..................... 187,741
1998 ..................... 181,451
1999 ..................... 181,451
2000 ..................... 179,689
----------
$933,769
==========
Rent expense for the years ended December 31, 1994 and 1995 was $70,306
and $254,019 respectively.
Local Marketing Agreements and Joint Selling Agreements
In November 1993, the Company began providing programming to WVCO-FM, in
Myrtle Beach, South Carolina licensed to Loris, South Carolina pursuant to a
letter of intent granting the owner an option (the "Option") to sell WVCO-FM
to the Company for $650,000. Pursuant to the local marketing agreement
("LMA"), the Company provides a substantial portion of the programming
broadcast on WVCO-FM and sells advertising time during such programming
segments for its own account. In consideration for these rights, the Company
agreed to pay certain operating expenses of WVCO-FM and to make certain other
payments based on the combined revenue growth of WYAK-FM and WVCO-FM. On
December 15, 1994, the owner of WVCO-FM exercised the Option to sell the
station to the Company. Payments made by the Company under the LMA were
credited against the purchase price.
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:
1994 1995
----------- ------------
Deferred Compensation ........... $ 138,700 $ 384,600
Net Operating Loss Carryforwards 264,480 748,600
Allowance for Doubtful Accounts 0 115,600
Accrued Interest ................ 0 241,900
----------- ------------
403,180 1,490,700
Valuation Allowance ............. (290,680) (532,800)
----------- ------------
Net Deferred Tax Asset ......... $ 112,500 $ 957,900
----------- ------------
Intangible Assets ............... $ 207,500 $8,177,800
Fixed Assets and Other .......... 10,000 83,600
----------- ------------
Deferred Tax Liabilities ...... 217,500 8,261,400
----------- ------------
Net Deferred Tax Liability ..... $ 105,000 $7,303,500
=========== ============
The provision for (benefit from) income taxes consists of the following:
CURRENT 1994 1995
--------- -----------
Federal .. $ 0 $ 0
State ..... 15,000 143,000
DEFERRED
Federal .. 0 (169,783)
State ..... 0 (32,217)
--------- -----------
Total ..... $15,000 $ (59,000)
========= ===========
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
1994 1995
------------ ------------
Benefit at statutory rate $(255,266) $(472,722)
State and local tax ..... 15,000 110,783
Valuation allowance ..... 255,266 290,960
Non-deductible expenses . 0 11,979
------------ ------------
$ 15,000 $ (59,000)
============ ============
9. DEFINED CONTRIBUTION PLAN
In July 1994, the Company established a 401(k) defined contribution plan
in which most of the Company's employees are eligible to participate. The
Plan presently provides for employer contributions of 25% of the first 4%
each participant defers. Employer contributions for the year ended December
31, 1994 and 1995 totaled $4,438 and $27,266, respectively.
10. ACQUISITIONS AND FINANCINGS
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>
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
SFX BROADCASTING, INC.,
SFX MERGER COMPANY
AND
MULTI-MARKET RADIO, INC.
DATED AS OF APRIL 15, 1996
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I -- THE MERGER
1.01. The Merger ......................................................... 2
1.02. Effective Time; Closing ............................................ 2
1.03. Effect of the Merger ............................................... 2
1.04. Certificate of Incorporation; Bylaws ............................... 2
1.05. Directors and Officers ............................................. 3
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01. Conversion of Securities ............................................ 3
2.02. Exchange of MMR Stock Certificates .................................. 6
2.03. Stock Transfer Books ................................................ 8
2.04. Stock Options and Stock Appreciation Rights ......................... 8
2.05. Warrants ............................................................ 9
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF MMR
3.01. Organization and Qualification; Subsidiaries ........................ 10
3.02. Certificate of Incorporation and Bylaws ............................. 11
3.03. Capitalization ...................................................... 11
3.04. Authority Relative to this Agreement ................................ 12
3.05. No Conflict; Required Filings and Consents .......................... 12
3.06. Permits; Compliance ................................................. 13
3.07. SEC Filings; Financial Statements ................................... 13
3.08. Absence of Certain Changes or Events ................................ 14
3.09. Absence of Litigation ............................................... 15
3.10. Employee Benefit Matters ............................................ 16
3.11. Labor Matters ....................................................... 16
3.12. Intellectual Property ............................................... 16
3.13. Taxes ............................................................... 16
3.14. Opinion of Financial Advisor ........................................ 18
3.15. Vote Required ....................................................... 19
3.16. Brokers ............................................................. 19
3.17. Tangible Property ................................................... 19
3.18. Material Contracts .................................................. 19
3.19. [Intentionally Omitted] ............................................. 20
3.20. Certain Business Practices .......................................... 20
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.21. Board Recommendation ................................................ 20
3.22. Change in Control ................................................... 20
3.23. FCC Compliance ...................................................... 20
3.24. Environmental Matters ............................................... 21
3.25. Accounts Receivable ................................................. 22
3.26. Insurance ........................................................... 22
3.27. Real Property and Leases ............................................ 23
3.28. Interested Party Transactions ....................................... 24
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES
OF SFX AND ACQUISITION SUB
4.01. Corporate Organization and Qualification ............................ 24
4.02. Certificate of Incorporation and Bylaws ............................. 24
4.03. Capitalization ...................................................... 24
4.04. Authority Relative to this Agreement ................................ 25
4.05. No Conflict; Required Filings and Consents .......................... 25
4.06. SEC Filings; Financial Statements ................................... 26
4.07. Absence of Certain Changes or Events ................................ 27
4.08. Taxes ............................................................... 27
4.09. Permits; Compliance ................................................. 29
4.10. Absence of Litigation ............................................... 29
4.11. Employee Benefit Matters ............................................ 30
4.12. Labor Matters ....................................................... 30
4.13. Intellectual Property ............................................... 30
4.14. Opinion of Financial Advisor ........................................ 30
4.15. Vote Required ....................................................... 30
4.16. Tangible Property ................................................... 31
4.17. Certain Business Practices .......................................... 31
4.18. Board Recommendation ................................................ 31
4.19. FCC Compliance ...................................................... 31
4.20. Interested Party Transactions ....................................... 32
ARTICLE V -- CONDUCT OF BUSINESS PENDING THE MERGER
5.01. Conduct of Business by MMR Pending the Merger ....................... 32
5.02. Conduct of Business by SFX Pending the Merger ....................... 32
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.01. Registration Statement; Proxy Statement ............................. 33
6.02. Stockholders' Meetings .............................................. 35
6.03. Appropriate Action; Consents; Filings ............................... 36
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6.04. Access to Information ............................................... 37
6.05. Acquisition Proposals .............................................. 38
6.06. Directors' and Officers' Indemnification ............................ 39
6.07. Obligations of Acquisition Sub ...................................... 40
6.08. Public Announcements ................................................ 40
6.09. Delivery of SEC Documents ........................................... 40
6.10. Notification of Certain Matters ..................................... 40
6.11. Further Action ...................................................... 40
6.12. Tax Treatment ....................................................... 41
6.13. FCC Application(s) and Approval ..................................... 41
6.14. Employee Benefit Plans .............................................. 42
6.15. Repayment of Indebtedness; Redemption of MMR Senior Preferred Stock . 42
6.16. Warrants; Make Whole Adjustment ..................................... 42
6.17. The Exchange Agreement and Related Matters .......................... 43
6.18. Governance .......................................................... 44
6.19. Withdrawal of Registration Statements ............................... 45
ARTICLE VII -- CONDITIONS TO THE MERGER
7.01. Conditions to the Obligations of Each Party ......................... 45
7.02. Conditions to the Obligations of SFX and Acquisition Sub ............ 46
7.03. Conditions to the Obligations of MMR ................................ 47
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER
8.01. Termination ......................................................... 47
8.02. Fees and Expenses ................................................... 50
8.03. Amendment ........................................................... 52
8.04. Waiver .............................................................. 52
ARTICLE IX -- GENERAL PROVISIONS
9.01. Non-Survival of Representations, Warranties and Agreements .......... 52
9.02. Notices ............................................................. 52
9.03. Certain Definitions ................................................. 53
9.04. Severability ........................................................ 54
9.05. Assignment; Binding Effect; Benefit ................................. 54
9.06. Incorporation of Schedules .......................................... 55
9.07. Specific Performance ................................................ 55
9.08. Governing Law ....................................................... 55
9.09. Headings ............................................................ 55
9.10. Counterparts ........................................................ 55
9.11. Waiver of Jury Trial ................................................ 55
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.12. Entire Agreement .................................................... 56
9.13. Waiver of Certain Rights ............................................ 56
</TABLE>
Exhibit A - [Intentionally omitted]
Exhibit B - Affiliate Agreement
Exhibit C - Amendments to MMR's Certificate of Incorporation
Exhibit D - Amendments to SFX's Certificate of Incorporation
Exhibit E-1 - SFX Tax Certificate
Exhibit E-2 - MMR Tax Certificate
(iv)
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of April 15,
1996 (this "Agreement"), by and among SFX BROADCASTING, INC., a Delaware
corporation ("SFX"), SFX MERGER COMPANY, a Delaware corporation and a direct
wholly-owned subsidiary of SFX ("Acquisition Sub"), and MULTI-MARKET RADIO,
INC., a Delaware corporation ("MMR").
W I T N E SS E T H:
WHEREAS, Acquisition Sub, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law"), intends to merge with and into MMR (the
"Merger");
WHEREAS, the Board of Directors of MMR (a) has determined that the Merger
is in the best interests of MMR and its stockholders and has approved and
adopted this Agreement and the transactions contemplated hereby (the
"Transactions") and (b) has recommended the approval and adoption of this
Agreement and the approval of the Merger by, and directed that this Agreement
and the Merger be submitted to a vote of, the stockholders of MMR;
WHEREAS, the Board of Directors of SFX (a) has determined that the Merger
is in the best interests of SFX and its stockholders and has approved and
adopted this Agreement and the Transactions and (b) has recommended the
approval and adoption of this Agreement and the approval of the Merger by, and
directed that this Agreement and the Merger be submitted to a vote of, the
stockholders of SFX;
WHEREAS, the Board of Directors of Acquisition Sub has determined that
the Merger is in the best interests of Acquisition Sub and its stockholder and
has approved and adopted this Agreement and the Transactions; and
WHEREAS, SFX and MMR intend that the Merger constitute a tax-free
"reorganization" to the extent of the receipt of stock within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, SFX, Acquisition Sub and MMR hereby agree as follows:
1
<PAGE>
ARTICLE I -- THE MERGER
SECTION 1.01. THE MERGER . Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined), Acquisition Sub shall be merged with
and into MMR, the separate corporate existence of Acquisition Sub shall cease
and MMR shall continue as the surviving corporation of the Merger (the
"Surviving Corporation"). The name of the Surviving Corporation shall be
Multi-Market Radio, Inc.
SECTION 1.02. EFFECTIVE TIME; CLOSING . Unless this Agreement shall have
been terminated and the Transactions abandoned pursuant to Article VIII, as
promptly as practicable (and in any event within five business days) following
the satisfaction or waiver of the conditions set forth in Article VII (or such
other date as may be agreed to in writing by each of the parties hereto), the
parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware (the "Secretary") in such form as is required
by, and executed in accordance with the relevant provisions of, Delaware Law.
The term "Effective Time" means the date and time of the filing of the
Certificate of Merger with the Secretary (or such later time as may be agreed
to in writing by each of the parties hereto and specified in the Certificate
of Merger). Immediately prior to the filing of the Certificate of Merger, a
closing (the "Closing") will be held at the offices of Baker & McKenzie, 805
Third Avenue, New York, New York (or such other place and time as the parties
hereto may agree).
SECTION 1.03. EFFECT OF THE MERGER . The effect of the Merger shall be as
provided in the applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
property, rights, privileges, powers and franchises of MMR and Acquisition Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of MMR and Acquisition Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS . (a) The Certificate
of Incorporation of MMR, as in effect at the Effective Time and as amended as
set forth below, shall be the Certificate of Incorporation of the Surviving
Corporation until amended in accordance with applicable law.
"ARTICLE IV
The total number of shares of capital stock which the Corporation shall
have authority to issue is one thousand (1,000), $.01 par value per
share, all of which shall be shares of common stock."
(b) At the Effective Time, the Bylaws of MMR in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof.
2
<PAGE>
SECTION 1.05. DIRECTORS AND OFFICERS . The directors of Acquisition Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation until a successor is
elected or appointed and qualified, and the officers of Acquisition Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified, or as otherwise provided in the Bylaws of
the Surviving Corporation.
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES . (a) At the Effective Time, by
virtue of the Merger and without any action on the part of Acquisition Sub,
MMR or the holders of any of the following shares of capital stock, and
subject to the other provisions of Sections 2.01 and 2.02:
(i) MMR CLASS A COMMON STOCK -- each share of Class A Common Stock,
$.01 par value, of MMR (the "MMR Class A Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted
into the right to receive the number of validly issued, fully paid and
non-assessable shares of Class A Common Stock, $.01 par value, of SFX
(the "SFX Class A Common Stock") equal to the Exchange Ratio (as defined
in Section 2.01(b));
(ii) MMR CLASS B COMMON STOCK -- each share of Class B Common Stock,
$.01 par value, of MMR (the "MMR Class B Common Stock") issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as defined in Section 2.01(d))) shall be converted
into the right to receive the number of validly issued, fully paid and
non-assessable shares of Class B Common Stock, $.01 par value, of SFX
(the "SFX Class B Common Stock") equal to the Exchange Ratio
(iii) MMR CLASS C COMMON STOCK -- each share of Class C Common
Stock, $.01 par value, of MMR (the "MMR Class C Common Stock") issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares) shall be converted into the right to receive the
number of validly issued, fully paid and non-assessable shares of SFX
Class B Common Stock equal to the Exchange Ratio;
(iv) MMR ORIGINAL PREFERRED STOCK -- each share of Preferred Stock,
$.01 par value, of MMR (the "MMR Original Preferred Stock") issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares) shall be converted into the right to receive the
number of validly issued, fully paid and non-assessable shares of SFX
Class B Common Stock equal to the Exchange Ratio; and
3
<PAGE>
(v) MMR SERIES B CONVERTIBLE PREFERRED STOCK -- each share of Series
B Convertible Preferred Stock, $.01 par value, of MMR (the "MMR Series B
Preferred Stock") issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares) shall be converted into the
right to receive the number of validly issued, fully paid and
non-assessable shares of SFX Class A Common Stock equal to the Exchange
Ratio, which shares of SFX Class A Common Stock shall be subject to
certain mutually acceptable forfeiture restrictions through February 14,
1998;
provided, however, that in the event that the stockholders of MMR fail to
approve the amendments to the Certificate of Incorporation of MMR as set forth
in Exhibit C, or the National Association of Securities Dealers, Inc. ("NASD")
or the Nasdaq Stock Market does not approve the issuance of SFX Class B Common
Stock in the Merger, then each share of MMR Class B Common Stock, MMR Class C
Common Stock and MMR Original Preferred Stock shall be converted into the
right to receive the number of validly issued, fully paid and non-assessable
shares of SFX Class A Common Stock equal to the Exchange Ratio.
(vi) all shares (other than Dissenting Shares) of MMR Class A Common
Stock, MMR Class B Common Stock, MMR Class C Common Stock, MMR Original
Preferred Stock, and MMR Series B Preferred Stock (collectively, the "MMR
Securities") shall no longer be outstanding and shall automatically be
canceled and cease to exist, and each certificate previously evidencing
any such shares (other than Dissenting Shares) shall thereafter represent
the right to receive a certificate representing the shares of SFX Class A
Common Stock or SFX Class B Common Stock (collectively, the "SFX Common
Stock") into which such MMR Securities were converted in the Merger. The
holders of certificates previously evidencing such MMR Securities
outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such MMR Securities except as otherwise
provided herein or by Delaware Law. Such certificates previously
evidencing MMR Securities shall be exchanged for certificates
representing whole shares of SFX Common Stock issued in consideration
therefor upon the surrender of such certificates previously evidencing
MMR Securities in accordance with the provisions of Section 2.02. No
fractional shares of SFX Common Stock shall be issued, and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e);
(vii) any MMR Securities held in the treasury of MMR and any MMR
Securities owned by SFX or any wholly-owned subsidiary of SFX or of MMR
immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto; and
(viii) each share of common stock, $.01 par value, of Acquisition
Sub (the "Acquisition Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and
become one validly issued, fully paid and
4
<PAGE>
non-assessable share of Common Stock, $.01 par value, of the Surviving
Corporation.
(b) For purposes of this Agreement, subject to adjustments required
by Section 6.16, "Exchange Ratio" shall mean the number of shares of SFX
Class A Common Stock or SFX Class B Common Stock, as the case may be,
equal to the quotient obtained by dividing $11.50 by the average of the
Reported Price (as defined hereafter) for the twenty (20) consecutive
trading days ending on the fifth trading day prior to the Effective Time
(such average Reported Price being the "SFX Class A Common Stock Price")
(the fifth trading day prior to the Effective Time being referred to as
the "Determination Date"), on the primary exchange on which the SFX Class
A Common Stock is traded, including the Nasdaq National Market; provided,
however, that (1) in the event that the SFX Class A Common Stock Price
exceeds $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 SFX Class A Common Stock Price and
$42.00 by (ii) the SFX Class A Common Stock Price; (2) in the event that
the SFX Class A Common Stock Price exceeds $44.00, then the Exchange
Ratio shall be the quotient obtained by dividing (i) the sum of (A)
$12.00, plus (B) the product of (I) thirty percent (30%), multiplied by
(II) the difference between the SFX Class A Common Stock Price and $44.00
by (ii) the SFX Class A Common Stock Price; or (3) in the event that the
SFX Class A Common Stock Price is less than $32.00 then the Exchange
Ratio shall be .3593. All arithmetic calculations pursuant to this
paragraph shall be made through the fourth decimal place (i.e., to the
closest ten-thousandth). For purposes of this Agreement, "Reported Price"
shall mean, with respect to each trading day, the average of the last
reported bid and asked prices of the SFX Class A Common Stock on such
trading day.
(c) If between the date of this Agreement and the Effective Time,
except as otherwise contemplated herein, the outstanding MMR Securities
or SFX Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend,
reclassification, recapitalization, split, division, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted
to reflect such stock dividend, reclassification, recapitalization,
split, division, combination or exchange of shares.
(d) If appraisal rights are available under Delaware Law to holders
of shares of MMR Securities in connection with the Merger, any issued and
outstanding share of MMR Securities (other than MMR Class A Common Stock)
which has not been voted for adoption of this Agreement and the
Transactions and with respect to which appraisal shall have been properly
demanded in accordance with Section 262 of Delaware Law ("Dissenting
Shares") shall not be converted into the right to receive the
consideration described in Section 2.01(a), and the holders thereof shall
have only such rights as are provided in such Section 262 of Delaware
Law, unless and until the holder of any such share of MMR Securities
withdraws such holder's demand for appraisal in accordance with Section
262(k) of Delaware Law or otherwise loses the right to such appraisal. If
a holder of MMR Securities shall withdraw such holder's demand for
appraisal or shall otherwise lose the right to such appraisal, then, as
of the Effective Time or the occurrence of such event,
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whichever last occurs, such holder's MMR Securities shall cease to be
Dissenting Shares and shall be converted into the consideration described
in Section 2.01(a), without interest. Prior to the Effective Time, MMR
shall give SFX prompt notice of any written demands for appraisal or
withdrawals of demands for appraisal received by MMR and, except with the
prior written consent of SFX, shall not settle or offer to settle any
such demands.
SECTION 2.02. EXCHANGE OF MMR STOCK CERTIFICATES .
(a) EXCHANGE AGENT. As of or before the Effective Time, SFX shall
deposit, or shall cause to be deposited, with a bank or trust company
organized under the laws of, and having an office in, the United States or any
state thereof (the "Exchange Agent") and designated by SFX and approved by
MMR, which approval shall not be unreasonably withheld, for the benefit of the
holders of MMR Securities, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the whole shares of SFX
Common Stock issuable pursuant to Section 2.01 in exchange for outstanding MMR
Securities and cash in an amount sufficient to permit payment of cash payable
in lieu of fractional shares pursuant to Section 2.02(e) (such certificates
for shares of SFX Common Stock, together with any dividends or distributions
with respect thereto, and cash, being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions from
SFX, be instructed to deliver the SFX Common Stock contemplated to be issued
pursuant to Section 2.01 and cash contemplated by Section 2.02(e) out of the
Exchange Fund.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, SFX will instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding MMR Securities (other than Dissenting
Shares) (each a "Certificate" and collectively, the "Certificates") (i) a
letter of transmittal and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates evidencing shares of SFX
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of SFX Common Stock which
such holder has the right to receive in respect of the MMR Securities formerly
represented by such Certificate (after taking into account all MMR Securities
then held by such holder), together with cash in lieu of fractional SFX Common
Stock to which such holder is entitled pursuant to Section 2.02(e) and any
dividends or distributions to which such holder is entitled pursuant to
Section 2.02(c), and the Certificate so surrendered shall forthwith be
canceled. Subject to Section 2.02(h), under no circumstances will any holder
of a Certificate be entitled to receive any part of the shares of SFX Common
Stock into which the MMR Securities were converted in the Merger until such
holder shall have surrendered such Certificate. In the event of a transfer of
ownership of MMR Securities which is not registered in the transfer records of
MMR, the shares of SFX Common Stock into which such MMR Securities were
converted in the Merger may be issued in accordance with this Article II to
the transferee if the Certificate evidencing such MMR Securities is presented
to the Exchange Agent, accompanied by all documents required
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to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the Effective
Time to evidence only the right to receive upon such surrender the certificate
representing the number of whole shares of SFX Common Stock which the holder
has the right to receive in respect of the MMR Securities formerly represented
by such Certificate (after taking into account all MMR Securities then held by
such holder), together with cash in lieu of fractional shares of SFX Common
Stock to which such holder is entitled pursuant to Section 2.02(e) and any
dividends or distributions to which such holder is entitled pursuant to
Section 2.02(c). SFX agrees, from and after the Effective Time, to treat each
holder of Certificates as holding of record the whole number of shares of SFX
Common Stock which such holder has the right to receive pursuant to this
Agreement for purposes of voting and determinations of quorums for voting.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF SFX COMMON STOCK.
No dividends or other distributions declared or made after the Effective Time
with respect to SFX Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to
the shares of SFX Common Stock into which such MMR Securities were converted
in the Merger, until the holder of such Certificate shall surrender such
Certificate for exchange as provided herein. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of such Certificate, in addition to the certificates
representing shares of SFX Common Stock as provided in Section 2.02(b)
(including any cash paid or other distributions pursuant to Section 2.02(e)),
without interest, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to the whole
shares of SFX Common Stock evidenced by such Certificate.
(d) NO FURTHER RIGHTS IN MMR SECURITIES. All shares of SFX Common Stock
delivered upon conversion of the MMR Securities in accordance with the terms
hereof (including any cash paid or other distributions pursuant to Sections
2.02(c) and (e)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such MMR Securities.
(e) NO FRACTIONAL SHARES. No certificates or scrip evidencing fractional
shares of SFX Common Stock shall be issued upon the surrender for exchange of
Certificates, but in lieu thereof each holder of MMR Securities who would
otherwise be entitled to receive a fraction of a share of SFX Common Stock,
after aggregating all shares of SFX Common Stock which such holder would be
entitled to receive under Section 2.01, shall receive an amount equal to the
SFX Class A Common Stock Price multiplied by the fraction of a share of SFX
Common Stock to which such holder would otherwise be entitled, without
interest.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of MMR Securities for one year after the
Effective Time shall be delivered to SFX, upon demand, and, subject to Section
2.02(g), any holders of MMR Securities who have not theretofore complied with
this Article II shall thereafter look only to SFX for the shares of SFX Common
Stock, any cash in lieu of fractional shares of SFX Common Stock and any
dividends or other distributions to which they are entitled pursuant to this
Section 2.02.
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(g) NO LIABILITY. Neither SFX nor the Surviving Corporation shall be
liable to any holder of MMR Securities for any shares of SFX Common Stock (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(h) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the execution of an indemnity agreement by such person
and/or the posting by such person of a bond in such reasonable amount as the
Surviving Corporation may reasonably direct, as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the shares of SFX Common Stock, cash in lieu of fractional shares of SFX
Common Stock and unpaid dividends and distributions on shares of SFX Common
Stock deliverable in respect thereof pursuant to this Agreement.
SECTION 2.03. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of MMR shall be closed and there shall be no further
registration of transfers of MMR Securities thereafter on the records of MMR.
At or after the Effective Time, any Certificates presented to the Exchange
Agent or SFX for any reason shall be converted into the right to receive
shares of SFX Common Stock, cash in lieu of fractional shares of SFX Common
Stock and any dividends or other distributions to which they are entitled
pursuant to Section 2.02.
SECTION 2.04. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. (a) Pursuant
to the Multi-Market Radio, Inc. 1993 Stock Option Plan (the "1993 Plan"), the
Multi-Market Radio, Inc. 1994 Stock Option Plan (the "1994 Plan") and the
Multi-Market Radio, Inc. 1995 Stock Option Plan (the "1995 Plan" and, together
with the 1993 Plan and the 1994 Plan, the "Option Plans"), all outstanding
options issued thereunder (the "Options") shall, as of the Effective Time,
automatically and without any action on the part of the holder thereof, be
assumed by SFX. The holders of such Options shall continue to have, and be
subject to, the same terms and conditions set forth in the stock option plans
and agreements pursuant to which such Options were issued as in effect
immediately prior to the Effective Time, except that (i) such Options shall be
exercisable for that number of whole shares of SFX Class A Common Stock equal
to the product of the number of shares of MMR Class A Common Stock covered by
the Option immediately prior to the Effective Time multiplied by the Exchange
Ratio rounded up to the nearest whole number of shares of SFX Class A Common
Stock, and (ii) the per share exercise price for the shares of SFX Class A
Common Stock issuable upon the exercise of such assumed Option shall be equal
to the quotient determined by dividing the exercise price per share of MMR
Class A Common Stock specified for such Option under the applicable stock
option plan or agreement in effect immediately prior to the Effective Time by
the Exchange Ratio rounding the resulting exercise price down to the nearest
whole cent. The date of grant for such Option shall be the date on which the
Option was originally granted. At the Effective Time, SFX shall reserve for
issuance the number of shares of SFX Class A Common Stock that will become
issuable upon the exercise of such Options pursuant to this Section 2.04.
Nothing in this Section 2.04 shall affect the schedule of vesting (or the
acceleration thereof) with respect to the
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Options to be assumed by SFX as provided in this Section 2.04. As soon as
practicable after the Effective Time, SFX shall file a registration statement
or registration statements on Form S-8 (or any successor form), or another
appropriate form with respect to the shares of SFX Class A Common Stock
subject to such options, and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Options remain outstanding. It is the intention
of the parties that, subject to applicable law, the Options assumed by SFX
qualify following the Effective Time as "incentive stock options" (as defined
in Section 422 of the Code) to the extent that the Options qualified as
incentive stock options prior to the Effective Time.
(b) At the Effective Time, each outstanding stock appreciation right
("SAR") issued by MMR shall, as of the Effective Time, automatically and
without any action on the part of the holder thereof, be assumed by SFX. The
holders of such SARs shall continue to have, and be subject to, the same terms
and conditions set forth in the agreements pursuant to which such SARs were
issued as in effect immediately prior to the Effective Time, except that (i)
such SARs shall be exercisable for that number of whole shares of SFX Class A
Common Stock equal to the product of the number of shares of MMR Class A
Common Stock covered by the SAR immediately prior to the Effective Time
multiplied by the Exchange Ratio rounded up to the nearest whole number of
shares of SFX Class A Common Stock, and (ii) the per share strike price for
the shares of SFX Class A Common Stock issuable upon the exercise of such
assumed SAR shall be equal to the quotient determined by dividing the strike
price per share of MMR Class A Common Stock specified for such SAR under the
applicable agreement in effect immediately prior to the Effective Time by the
Exchange Ratio, rounding the resulting strike price down to the nearest whole
cent. SFX may elect, in its sole discretion, to pay cash upon exercise of the
SARs in lieu of shares of SFX Class A Common Stock as such amount shall be
determined in accordance with the agreements pursuant to which the SARs were
issued. The date of grant of such SAR shall be the date on which the SAR was
originally granted. At the Effective Time, SFX shall reserve for issuance the
number of shares of SFX Class A Common Stock that will become issuable upon
the exercise of such SARs pursuant to this Section 2.04. Nothing in this
Section 2.04 shall affect the schedule of vesting (or the acceleration
thereof) with respect to the SARs to be assumed by SFX as provided in this
Section 2.04. As soon as practicable after the Effective Time, SFX shall file
a registration statement with respect to the shares of SFX Class A Common
Stock subject to such SARs and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus contained therein) for so long
as such SARs remain outstanding.
SECTION 2.05. WARRANTS. (a) At the Effective Time, each outstanding (i)
Class A Warrant (the "Class A Warrants") and Class B Warrant (the "Class B
Warrants") issued pursuant to that certain Warrant Agreement dated March 23,
1994 by and among MMR, American Stock Transfer & Trust Company (the "Warrant
Agent"), D.H. Blair Investment Banking Corp. and Americorp Securities, Inc.
(the "Warrant Agreement"), (ii) option issued pursuant to those certain unit
purchase options dated March 23, 1994 (the "Unit Purchase Options"), (iii)
warrant issued to the underwriters of MMR's initial public offering pursuant
to common stock purchase warrants dated
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July 28, 1993 (the "IPO Warrants"), (iv) warrant issued to The Huff
Alternative Income Fund, L.P. ("Huff") dated March 27, 1995 and September 26,
1995 and exercisable to purchase 595,000 and 133,201.54 shares, respectively,
of MMR Class A Common Stock (subject to adjustment as therein described) (the
"Huff Warrants") and any additional warrant granted to Huff after the date
hereof (the "Additional Huff Warrant"), and (v) option issued to Robert F.X.
Sillerman (each a "Warrant" and collectively, the "Warrants") shall be assumed
by SFX. The holders of such Warrants shall continue to have, and be subject
to, the same terms and conditions set forth in such Warrant (including,
without limitation, any provision contained therein relating to the repurchase
or redemption thereof), except that (i) such Warrants shall be exercisable for
that number of whole shares of SFX Class A Common Stock equal to the product
of the number of shares of MMR Class A Common Stock covered by the Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio, and
(ii) the per share exercise price for the shares of SFX Class A Common Stock
issuable upon the exercise of such assumed Warrant shall be equal to the
quotient determined by dividing the exercise price per share of MMR Class A
Common Stock specified for such Warrant under the applicable Warrant
immediately prior to the Effective Time by the Exchange Ratio rounding the
resulting exercise price down to the nearest whole cent. SFX shall also assume
the obligations under the Registration Rights Agreement, dated as of March 27,
1995 between Huff and MMR and certain obligations of MMR under the Securities
Purchase Agreement, dated as of March 27, 1995, between Huff and MMR, on terms
reasonably satisfactory to Huff.
(b) At or prior to the Effective Time, SFX shall deliver to the holders
of the Warrants appropriate and timely notices setting forth such holders'
rights pursuant to the Warrants and the agreements evidencing the issuance of
the Warrants shall continue in effect on the same terms and conditions
(subject to the assumption by SFX as set forth above).
(c) At the Effective Time, SFX shall reserve for issuance the number of
shares of SFX Class A Common Stock that will become issuable upon exercise of
the Warrants assumed by SFX. SFX shall file a registration statement on Form
S-3 or another appropriate form with respect to the shares of SFX Class A
Common Stock subject to the Warrants assumed by SFX and shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus
contained therein) for so long as such Warrants remain outstanding.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF MMR
Except as set forth in the disclosure schedule delivered by MMR to SFX,
and signed by MMR and SFX for identification, within ten (10) business days
after the execution and delivery of this Agreement (the "MMR Disclosure
Schedule"), which shall identify exceptions by specific section references,
MMR hereby represents and warrants to SFX and Acquisition Sub that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. MMR is a
corporation, and each subsidiary of MMR (each a "MMR Subsidiary" and
collectively, the "MMR Subsidiaries") is a corporation or a partnership, as
the case may be, in each case duly organized,
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validly existing and in good standing under the laws of the jurisdiction of
its organization and has the requisite corporate power and authority (or
partnership power and authority) to own, lease and operate its properties and
to carry on its business as it is now being conducted. MMR and each MMR
Subsidiary are duly qualified or licensed as a foreign corporation (or
partnership) to do business, and are in good standing, in each jurisdiction
where the character of the properties owned, leased or operated by them or the
nature of their business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in good standing
that would not, individually or in the aggregate, have a Material Adverse
Effect. As used in this Agreement, the term "Material Adverse Effect" means,
with respect to any person, any change or effect that, individually or when
taken together with all other changes or effects that have occurred on or
prior to the date of determination of the occurrence of the Material Adverse
Effect and which are continuing as of that date, is or is reasonably likely to
be materially adverse to the financial condition, business, results of
operations or prospects of such person and its subsidiaries, taken as a whole.
As of the date hereof, a true and correct list of all MMR Subsidiaries,
together with the jurisdiction of organization of each MMR Subsidiary and the
percentage of the outstanding capital stock (or other ownership interest) of
each MMR Subsidiary owned by MMR and each other MMR Subsidiary, is set forth
in Section 3.01 of the MMR Disclosure Schedule. Except as disclosed in Section
3.01 of the MMR Disclosure Schedule, MMR does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS. MMR has
heretofore made available to SFX a complete and correct copy of the
Certificate of Incorporation and Bylaws, each as amended to date, of MMR and
each MMR Subsidiary. Neither MMR nor any MMR Subsidiary is in violation of any
provision of its Certificate of Incorporation or Bylaws or other
organizational document, as applicable.
SECTION 3.03. CAPITALIZATION . The authorized capital stock of MMR
consists of 15,000,000 shares of Class A Common Stock, 1,200,000 shares of
Class B Common Stock, 700,000 shares of Class C Common Stock and 1,200,000
shares of preferred stock. As of the date hereof (a) 3,216,500 shares of MMR
Class A Common Stock were issued and outstanding, (b) 140,000 shares of MMR
Class B Common Stock were issued and outstanding, (c) 360,000 shares of MMR
Class C Common Stock were issued and outstanding, (d) 200,000 shares of MMR
Original Preferred Stock were issued and outstanding, (e) 1,250 shares of
Senior Cumulative Preferred Stock, $.01 par value, of MMR (the "MMR Senior
Preferred Stock") were issued and outstanding, and (f) 200,000 shares of MMR
Series B Preferred Stock were issued and outstanding; all of which are validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Except as set forth in Sections 2.04 and 2.05 hereof or Section 3.03 of the
MMR Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of, or other equity interests in, MMR or any
MMR Subsidiary obligating MMR or any MMR Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, MMR or any MMR
Subsidiary. Subject to the terms of Sections 2.02, 2.04 and
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2.05, after the Effective Time, neither SFX nor the Surviving Corporation will
have any obligation to issue, transfer or sell any SFX Common Stock or
securities convertible into SFX Common Stock or common stock or other securities
of the Surviving Corporation or any securities convertible into common stock or
other securities of the Surviving Corporation. Except as contemplated by this
Agreement, there are no outstanding contractual obligations of MMR or any MMR
Subsidiary to repurchase, redeem or otherwise acquire any MMR Securities or
any capital stock of, or any equity interest in, any MMR Subsidiary. Each
outstanding share of capital stock of, or other equity interest in, each MMR
Subsidiary is duly authorized, validly issued, fully paid and nonassessable
and, except as described in Section 3.03 of the MMR Disclosure Schedule, each
such share or interest owned by MMR or another MMR Subsidiary is free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on MMR's or such other MMR Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. MMR has all
necessary corporate power and authority to execute and deliver this Agreement
and, with respect to the Merger, upon the approval and adoption of this
Agreement by MMR's stockholders in accordance with this Agreement and Delaware
Law, to perform its obligations hereunder and to consummate the Transactions.
The execution and delivery of this Agreement by MMR and the consummation by
MMR of the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of MMR are
necessary to authorize this Agreement or to consummate the Transactions (other
than, with respect to the Merger, the approval and adoption of this Agreement
by the stockholders of MMR as set forth in Section 3.15 and the filing and
recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law and with respect to certain amendments to the
Certificate of Incorporation of MMR, the approval by the stockholders of MMR
as set forth in Exhibit C). This Agreement has been duly and validly executed
and delivered by MMR and, assuming the due authorization, execution and
delivery of this Agreement by SFX and Acquisition Sub, constitutes a legal,
valid and binding obligation of MMR, enforceable against MMR in accordance
with its terms.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by MMR do not, and the performance of
this Agreement by MMR will not, subject to, (x) with respect to the Merger,
obtaining the requisite approval and adoption of this Agreement by MMR's
stockholders in accordance with this Agreement and Delaware Law, and (y)
obtaining the consents, approvals, authorizations and permits and making the
filings described in Section 3.05(b) of the MMR Disclosure Schedule, in
Section 3.05(b) or Section 8.01(l)(B) of this Agreement, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of MMR or any MMR
Subsidiary, (ii) conflict with or violate any domestic (federal, state or
local) or foreign law, rule, regulation, order, judgment or decree
(collectively, "Law" or "Laws") applicable to MMR or any MMR Subsidiary or by
which any property or asset of MMR or any MMR Subsidiary is bound or affected,
or (iii) except as specified in Section 3.05(a)(iii) of the MMR Disclosure
Schedule, result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any right of termination, unilateral amendment, acceleration or
cancellation of, or give to others any right to invalidate or terminate any
purchase or
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other right to acquire property under, or result in the creation
of a lien or other encumbrance on any property or asset of MMR or any MMR
Subsidiary or require the consent of any third party pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which MMR or any MMR Subsidiary
is a party or by which MMR or any MMR Subsidiary or any property or asset of
MMR or any MMR Subsidiary is bound or affected, except for such conflicts,
violations, breaches, defaults, rights, liens and consents which individually
or in the aggregate would not reasonably be expected to have a Material
Adverse Effect on MMR.
(b) The execution and delivery of this Agreement by MMR do not, and the
performance of this Agreement by MMR will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) pursuant
to the Securities Exchange Act of 1934, as amended (the"Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), state securities or
"blue sky" laws ("Blue Sky Laws"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Communications Act
(as hereinafter defined), and filing and recordation of an appropriate
Certificate of Amendment to MMR's Certificate of Incorporation and Certificate
of Merger with the Secretary as required by Delaware Law, (ii) as specified in
Section 3.05(b) of the MMR Disclosure Schedule and (iii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not reasonably be likely to have a Material
Adverse Effect on MMR and would not prevent or delay consummation of the
Transactions, or otherwise prevent MMR from timely performing its obligations
under this Agreement.
SECTION 3.06. PERMITS; COMPLIANCE. Except as disclosed in Sections 3.06
and 3.24 of the MMR Disclosure Schedule, each of MMR and the MMR Subsidiaries
is now and on the Effective Time will be in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any United States (federal,
state or local) or foreign government, or governmental, regulatory or
administrative authority, agency or commission or court of competent
jurisdiction ("Governmental Authority") legally necessary for MMR or any MMR
Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted, except for those which the failure to
possess would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect on MMR (the "MMR Permits") and, as of the date
hereof, no suspension or cancellation of any of the MMR Permits is pending or,
to the knowledge of MMR, threatened. Except as disclosed in Section 3.06 of
the MMR Disclosure Schedule, neither MMR nor any MMR Subsidiary is in conflict
with, or in default or violation of, or, with the giving of notice or the
passage of time, would be in conflict with, or in default or violation of, (i)
any Law applicable to MMR or any MMR Subsidiary or by which any property or
asset of MMR or any MMR Subsidiary is bound or affected, except in the case of
any such conflict, default or violation which would not reasonably be expected
to have a Material Adverse Effect, or (ii) any of the MMR Permits.
SECTION 3.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) MMR has filed all
forms, reports and documents required to be filed by it with the Securities
and Exchange Commission
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(collectively, the "MMR SEC Reports"). The MMR SEC Reports (i) were prepared
in all material respects in accordance with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (ii) did not, at the time they were filed (or at the effective
date thereof in the case of registration statements), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No
MMR Subsidiary is currently required to file any form, report or other
document with the Securities and Exchange Commission (the "SEC").
(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the MMR SEC Reports was prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis ("U.S. GAAP") throughout the periods indicated (except as may be
indicated in the notes thereto and except that financial statements included
with quarterly reports on Form 10-QSB do not contain all U.S. GAAP notes to
such financial statements) and each fairly presented in all material respects
the financial position, results of operations and changes in stockholders'
equity and cash flows of MMR as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which were not and
are not expected, individually or in the aggregate, to have a Material Adverse
Effect on MMR).
(c) Except (i) to the extent set forth on the audited consolidated
balance sheet of MMR as of December 31, 1995, including the notes to the
audited financial statements of which such balance sheet is a part and which
is included in MMR's Form 10-KSB for the year ended December 31, 1995 (the
"MMR December 31, 1995 Balance Sheet"), (ii) as set forth in Section 3.07(c)
of the MMR Disclosure Schedule or (iii) as disclosed in any SEC Report filed
by MMR after December 31, 1995, neither MMR nor any MMR Subsidiary has any
liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a balance sheet, or
in the notes thereto, prepared in accordance with U.S. GAAP, except for
liabilities and obligations incurred in (x) the ordinary course of business
consistent with past practice since December 31, 1995 which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on MMR or (y) connection with this Agreement.
(d) MMR has heretofore made available to SFX complete and correct copies
of all amendments and modifications (if any) that have not been filed by MMR
with the SEC to all agreements, documents and other instruments that
previously had been filed by MMR as exhibits to the MMR SEC Reports and are
currently in effect.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1995, except in the ordinary course and in a manner consistent with MMR's past
practice or as contemplated by, or disclosed pursuant to, this Agreement,
including Section 3.08 of the MMR Disclosure Schedule, there has not been (a)
any amendment or other change to the Certificate of Incorporation or Bylaws of
MMR or any MMR Subsidiary, (b) any issuance, sale, pledge, disposal, grant,
encumbrance, or authorization of the issuance, sale, pledge, disposition,
grant or encumbrance
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by MMR or any MMR Subsidiary of (i) any shares of their capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of MMR or any
MMR Subsidiary (except for the issuance of shares of capital stock issuable
pursuant to Options and Warrants outstanding on December 31, 1995 and the
authorization and issuance of the Additional Huff Warrant), or (ii) any of
their assets, (c) any declaration, setting aside, making or payment of any
dividend or other distribution, payable in cash, stock, property or otherwise,
with respect to any of their capital stock by MMR or any MMR Subsidiary, (d)
any reclassification, combination, split or division by MMR or any MMR
Subsidiary of any of their capital stock or redemption, purchase or other
acquisition, directly or indirectly, of any of their capital stock or
securities or obligations convertible into or exchangeable or exercisable for
such capital stock, (e) any commitment or incurrence by MMR or any MMR
Subsidiary of any capital expenditure in excess of $100,000, (f) any
incurrence of any indebtedness for borrowed money in excess of $100,000 or
issuance of any debt securities or assumption, guarantee or endorsement, or
otherwise becoming responsible as an accommodation, for the obligations of any
person, or making of any loans or advances, (g) any acquisition by MMR or any
MMR Subsidiary (including, without limitation, by merger, consolidation or
acquisition of stock or assets) of any interest in any corporation,
partnership, other business organization or any division thereof or any
assets, (h) any contract or agreement entered into or amended by MMR or any
MMR Subsidiary material to their businesses, results of operations or
financial condition except for advertising, programming, and similar contracts
consistent with past practices, (i) any increase in the compensation payable
or to become payable to any director, officer or other employee, or consultant
or advisor, of MMR or any MMR Subsidiary, or grant of any bonus to, or grant
of any severance or termination pay to, except pursuant to existing
compensation and benefit plans, practices or arrangements that have been
previously disclosed to SFX, or any employment or severance agreement entered
into with, any director, officer or other employee, or consultant or advisor,
of MMR or any MMR Subsidiary that has a potential duration of more than 90
days or that involves an aggregate payment of more than $50,000, or any
collective bargaining agreement entered into or amended, (j) any bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation or other plan, trust or fund established,
adopted, entered into or amended for the benefit of any director, officer or
class of employees of MMR or any MMR Subsidiary, (k) any settlement or
compromise by MMR or any MMR Subsidiary of any pending or threatened
litigation which would reasonably be expected to have a Material Adverse
Effect on MMR or which relates to the Transactions, (l) any event or events
(whether or not covered by insurance), individually or in the aggregate,
having a Material Adverse Effect on MMR, or (m) any change by MMR or any MMR
Subsidiary in its accounting methods, principles or practices.
SECTION 3.09. ABSENCE OF LITIGATION. Section 3.09 of the MMR Disclosure
Schedule sets forth each instance in which any of MMR and the MMR Subsidiaries
(i) is subject to any outstanding injunction, judgment, order, decree, ruling,
or charge or (ii) is a party or, to the knowledge of MMR and the MMR
Subsidiaries, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator, which has not
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otherwise been disclosed in the MMR SEC Reports and which would reasonably be
expected to have a Material Adverse Effect on MMR. Neither MMR nor any MMR
Subsidiary nor any property or asset of MMR or any MMR Subsidiary is in
violation of any order, writ, judgment, injunction, decree, determination or
award.
SECTION 3.10. EMPLOYEE BENEFIT MATTERS. Except as set forth in Section
3.10 of the MMR Disclosure Schedule, there are no material employee benefit or
compensation plans, agreements or arrangements, including "employee benefit
plans" as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and including, but not limited to, plans,
agreements or arrangements relating to former employees to which MMR or any of
the MMR Subsidiaries is a party (together, the "MMR Benefits Plans"). To the
best knowledge of MMR, no default exists with respect to the obligations of
MMR or any of the MMR Subsidiaries under such MMR Benefit Plans, which
default, alone or in the aggregate, would have a Material Adverse Effect on
MMR. All MMR Benefit Plans have been administered in accordance, and are in
compliance, with the applicable provisions of ERISA, except where such failure
to administer or comply would not have a Material Adverse Effect on MMR.
SECTION 3.11. LABOR MATTERS. Neither MMR nor any MMR Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by MMR or any MMR Subsidiary.
SECTION 3.12. INTELLECTUAL PROPERTY. MMR and the MMR Subsidiaries own or
have valid, binding and enforceable rights to use each patent, invention,
copyright, trademark, industrial model, process, design and all registrations
and applications for any of the foregoing used, employed or exploited in the
business of MMR or any MMR Subsidiary without any known conflict with the
rights of others.
SECTION 3.13. TAXES. (a) Except as otherwise disclosed in Section
3.13(a) of the MMR Disclosure Schedule: MMR and each of the MMR Subsidiaries
has filed (or received an appropriate extension of time to file) all federal,
state, local, and foreign Tax Returns required to be filed by them prior to
the Effective Time. From 1992 through the Effective Time, MMR and the MMR
Subsidiaries filed consolidated U.S. federal income tax returns as members of
an affiliated group, the common parent of which is MMR. All such Tax Returns
were true and correct in all material respects. MMR and each of the MMR
Subsidiaries has paid all Taxes shown to be due on such Tax Returns, and has
made appropriate provisions in the MMR December 31, 1995 Balance Sheet for any
Taxes not yet due, or which are being contested in good faith. MMR and each of
the MMR Subsidiaries has disclosed on all Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
tax within the meaning of Section 6662 of the Code or any similar provision of
state, local or foreign law. MMR and each of the MMR Subsidiaries has withheld
and paid over to the appropriate Governmental Authority all Taxes required by
law to have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other third
party, except for amounts which would not, individually or in the aggregate,
have a Material Adverse Effect. MMR and each
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of the MMR Subsidiaries has made all payments of estimated Taxes required to
be made under federal, state, local or foreign law. All tax deficiencies
asserted or assessed against MMR and each of the MMR Subsidiaries have been
paid or finally settled. Neither MMR nor any of the MMR Subsidiaries expects
any federal, state, local or foreign taxing authority to assess any additional
Taxes for any period for which Tax Returns have been filed. No claims have
ever been made by any tax authority in a jurisdiction where MMR and each of
the MMR Subsidiaries do not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. Neither MMR nor any of the MMR Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a tax assessment or deficiency. There is no
pending or, to the knowledge of MMR, threatened action, audit, proceeding or
investigation for the assessment or collection of any Taxes. There are no
requests for rulings, subpoenas or requests for information pending with
respect to any taxing authority. Any adjustments of Taxes made by any federal
taxing authority in any examination which is required to be reported to a
state, local, or foreign taxing authority has been reported, and any
additional Taxes due with respect thereto have been paid. No power of attorney
has been granted by MMR or any of the MMR Subsidiaries, and is currently in
force, with respect to any matter relating to Taxes. There are no liens (other
than liens for Taxes that are not yet due or which are being contested in good
faith) on any assets of MMR or any of the MMR Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax, except for
liens which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as otherwise disclosed in Section 3.13(b) of the
MMR Disclosure Schedule: Neither MMR nor any of the MMR Subsidiaries has made
an election under Section 341(f) of the Code. Neither MMR nor any of the MMR
Subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
Neither MMR nor any of the MMR Subsidiaries has been a United States real
property holding company within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii). No excess
loss account (within the meaning of Treas. Reg. ss. 1.1502-19) exists with
respect to any of the MMR Subsidiaries. Neither MMR nor any of the MMR
Subsidiaries has, or will have, as of the Effective Time, any deferred gain or
loss arising from deferred intercompany transactions within the meaning of
Treas. Reg. ss. 1.1502-13. Neither MMR nor any of the MMR Subsidiaries was
acquired in a "qualified stock purchase" under Section 338(d)(3) of the Code
and no election under Section 338(g) of the Code, protective carryover basis
election, or offset prohibition election is applicable to MMR or any of the
MMR Subsidiaries. Neither MMR nor any of the MMR Subsidiaries has participated
in or cooperated with any international boycott within the meaning of Section
999 of the Code. Neither MMR nor any of the MMR Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code (or
any similar provision of law or regulations) by reason of a change in
accounting method, nor is any taxing authority considering such change in
accounting method. Neither MMR nor any of the MMR Subsidiaries has disposed of
any property which has been accounted for tax purposes under the installment
method. Neither MMR nor any of the MMR Subsidiaries is a party to any interest
rate swap, currency swap or similar transaction. The net operating loss and
other carryovers available to MMR and each of the MMR Subsidiaries as of the
most recent practicable date will be set forth
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in Section 3.13(b) of the MMR Disclosure Schedule. As of the Effective Time
but prior to the Merger, the ability of MMR and each of the MMR Subsidiaries
to use their net operating losses and carryovers will not have been affected
by Sections 382, 383 or 384 of the Code or by the SRLY or CRCO limitations of
Treas. Reg. ss.ss. 1.1502-21 or 1.1502-22. Neither MMR nor any of the MMR
Subsidiaries owns any interest in an entity which is characterized as a
partnership for U.S. federal income tax purposes. Neither MMR nor any of the
MMR Subsidiaries would be liable for any increase in Tax under Section 47 of
the Code, were such entity to dispose of all of its assets on the Effective
Time. As of the Effective Time, neither MMR nor any of the MMR Subsidiaries
will have sustained an "overall foreign loss" within the meaning of Section
904(f) of the Code. As of the Effective Time, neither MMR nor any of the MMR
Subsidiaries will have any "non-recapture net section 1231 losses" within the
meaning of Section 1231(c) of the Code. No election under Section 1504(d) of
the Code has been made with respect to MMR or any of the MMR Subsidiaries.
(c) Regarding the Merger: Neither MMR nor any of the MMR Subsidiaries is
an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code. Except as set forth on Section 3.13(c) of the MMR Disclosure Schedule,
neither MMR nor any of the MMR Subsidiaries is under the jurisdiction of a
court in Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code. Neither MMR or any of the MMR Subsidiaries holds stock of SFX and
will not hold stock of SFX prior to the Merger.
(d) For purposes of this Section 3.13, the following terms will have the
following meanings:
(i) "Tax" or "Taxes" shall mean any and all federal, state, local,
foreign, and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax
imposed in connection therewith or with respect thereto), whether imposed on
MMR or any of the MMR Subsidiaries, including, without limitation, taxes
imposed on, or measured by, income, franchise, profits, or gross receipts, and
also ad valorem, value added, sales, use, service, real or personal property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer,
and gains taxes and customs duties.
(ii) "Tax Return" shall mean returns, reports, information statements, or
other documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained in connection with the
calculation, determination, assessment or collection of any Tax.
SECTION 3.14. OPINION OF FINANCIAL ADVISOR. MMR has received the written
opinion of Oppenheimer & Co., Inc. (the "MMR Banker") on the date of this
Agreement to the effect that, as of the date hereof, the Exchange Ratio is
fair, from a financial point of view, to the holders of MMR's Class A Common
Stock (excluding for purposes of such opinion, Robert F.X. Sillerman, Bruce
Morrow and Michael Ferrel).
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SECTION 3.15. VOTE REQUIRED. (a) Assuming the redemption of
all outstanding MMR Senior Preferred Stock at or prior to the Effective Time,
the affirmative vote of the holders of a majority of the voting power of the
then outstanding shares of MMR Class A Common Stock and MMR Class B Common
Stock (with each class entitled to one vote per share in connection with the
Merger) is the only vote of the holders of any class or series of capital
stock of MMR necessary to approve the Merger. (b) The affirmative vote of the
holders of a majority of the outstanding shares of MMR Class A Common Stock,
MMR Class B Common Stock and MMR Class C Common Stock, each voting separately
as a class, is the only vote of the holders of any class or series of capital
stock of MMR necessary to approve the amendments to the Certificate of
Incorporation of MMR as set forth on Exhibit C, which amendments are required
in order to issue SFX Class B Common Stock in respect of the MMR Class B
Common Stock and MMR Class C Common Stock.
SECTION 3.16. BROKERS. No broker, finder or investment
banker (other than the MMR Banker and Sillerman Communications Management
Corporation ("SCMC")) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of MMR or any MMR Subsidiary.
SECTION 3.17. TANGIBLE PROPERTY. MMR and the MMR
Subsidiaries have good title to, or a valid leasehold interest in, the
tangible personal properties and assets used by them or shown on the MMR
December 31, 1995 Balance Sheet or acquired after the date thereof, which are
free and clear of any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) mechanic's, materialmen's and similar liens,
(b) liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, (d)
liens which would not reasonably be expected to have a Material Adverse Effect
on MMR, (e) liens and encumbrances identified and reflected on the MMR
December 31, 1995 Balance Sheet and (f) mortgages, pledges, liens,
encumbrances, charges or other security interests that do not, individually,
or in the aggregate, adversely affect the current use of such property.
SECTION 3.18. MATERIAL CONTRACTS. Section 3.18 of the MMR
Disclosure Schedule lists each contract which is required by its terms or is
currently expected to result in the payment or receipt by MMR or any MMR
Subsidiary of more than $50,000 per year or $150,000 in the aggregate over the
term of the contract or which is not terminable by MMR without the payment of
any penalty or fine on not more than three months' notice (collectively,
"Material Contracts"), to which MMR or any MMR Subsidiary is a party, other
than contracts which have been filed as an exhibit to or have been
incorporated by reference in any MMR SEC Report. Each Material Contract is in
full force and effect and, to the knowledge of MMR, is enforceable against the
parties thereto (other than MMR or any such MMR Subsidiary) in accordance with
its terms and no condition or state of facts exists that, with notice or the
passage of time, or both, would constitute a default by MMR or any MMR
Subsidiary or, to the best knowledge of MMR, any third party under such
Material Contracts, except for such defaults which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect
on MMR.
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MMR or the applicable MMR Subsidiary has duly complied in all material
respects with the provisions of each Material Contract to which it is a party.
SECTION 3.19. [Intentionally Omitted]
SECTION 3.20. CERTAIN BUSINESS PRACTICES. As of the date of
this Agreement, neither MMR nor any MMR Subsidiary, nor any director, officer,
or, to the knowledge of MMR, any authorized agent or employee of MMR or any
MMR Subsidiary has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
made any other unlawful payment, or (iv) violated any of the provisions of
Section 999 of the Code or Section 8 of the Export Administration Act, as
amended.
SECTION 3.21. BOARD RECOMMENDATION. At a meeting duly
called and held in compliance with Delaware Law, (a) the Independent Committee
of the Board of Directors of MMR has unanimously adopted a resolution
approving the Merger and recommended that the Board of Directors of MMR
approve this Agreement and the Transactions, (b) the Board of Directors of MMR
has unanimously (with one abstention) adopted a resolution (i) approving the
Merger, based on a determination that the Merger is in the best interests of
the MMR stockholders, and (ii) approving and adopting this Agreement and the
Transactions and recommending approval and adoption of this Agreement and the
Transactions by the stockholders of MMR.
SECTION 3.22. CHANGE IN CONTROL. Except as set forth in
Section 3.22 of the MMR Disclosure Schedule, neither MMR nor any MMR
Subsidiary is a party to any contract, agreement or understanding which is
currently expected to result in the payment or receipt by MMR or any MMR
Subsidiary of $50,000 or more individually and $100,000 or more in the
aggregate which contains a "change in control," "potential change in control"
or similar provision. Except as set forth in Section 3.22 of the MMR
Disclosure Schedule, the consummation of the Transactions does not result in
any payment (whether of severance pay or otherwise) becoming due from MMR or
any MMR Subsidiary to any person.
SECTION 3.23. FCC COMPLIANCE. MMR and the MMR Subsidiaries
hold, as of the date of this Agreement, and immediately prior to the Effective
Time, MMR and the MMR Subsidiaries will hold, the Federal Communications
Commission (the "FCC") licenses as set forth in Section 3.23 of the MMR
Disclosure Schedule (the "FCC Licenses"), and such licenses are now and at the
Effective Time will be in full force and effect. The FCC Licenses are the only
material FCC licenses, permits and authorizations necessary for or used in
connection with the operation of the radio stations (the "Stations") set forth
in Section 3.23 of the MMR Disclosure Schedule.
Except as set forth in Section 3.23 of the MMR Disclosure
Schedule, the Stations are being operated in all material respects in
accordance with the Communications Act of 1934, as amended (the
"Communications Act"), the FCC rules, regulations and policies (the "FCC
Rules"),
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and FCC and court interpretations thereof, all as in effect on the
date of this Agreement. Except as set forth in Section 3.23 of the MMR
Disclosure Schedule, (i) no application, action or proceeding is pending or,
to the best of MMR's knowledge, threatened against MMR or the MMR Subsidiaries
that may result in the revocation, nonrenewal or suspension of any of the FCC
Licenses, or the imposition of any administrative sanction with respect
thereto, and (ii) to the best of MMR's knowledge, there is no fact which would
disqualify MMR or any of the MMR Subsidiaries from obtaining the approval of
the FCC as provided for in this Agreement or from completing the transactions
contemplated by this Agreement. All material applications, reports and other
disclosures required by the FCC with respect to the Stations other than the
applications to obtain the FCC consents as provided in Section 6.13 have been
duly filed with the FCC.
SECTION 3.24. ENVIRONMENTAL MATTERS. (a) For purposes of
this Agreement, the following terms shall have the following meanings: (i)
"Hazardous Substances" means (A) those substances defined in or regulated
under the following federal statutes and their state counterparts, as each may
be amended from time to time, and all regulations thereunder: the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act, the Toxic Substances
Control Act and the Clean Air Act, (B) petroleum and petroleum products,
byproducts and breakdown products including crude oil and any fractions
thereof, (C) natural gas, synthetic gas, and any mixtures thereof, (D)
polychlorinated biphenyls, (E) any other chemicals, materials or substances
defined or regulated as toxic or hazardous or as a pollutant or contaminant or
as a waste under any applicable Environmental Law, and (F) any substance with
respect to which a federal, state or local agency requires environmental
investigation, monitoring, reporting or remediation, and (ii) "Environmental
Laws" means any federal, state, foreign, or local law, rule or regulation, now
or hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of the
environment, health, safety or natural resources, including without
limitation, those relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances or (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances.
(b) Except as described in Section 3.24(b) of the MMR
Disclosure Schedule and except as would not, individually or in the aggregate,
be reasonably likely to have a Material Adverse Effect on MMR: (i) MMR and
each MMR Subsidiary are in compliance with all applicable Environmental Laws,
(ii) MMR and each MMR Subsidiary have obtained all permits, approvals,
identification numbers, licenses or other authorizations required under any
applicable Environmental Laws ("Environmental Permits") and are in compliance
with their requirements, (iii) such Environmental Permits are transferable to
the Surviving Corporation pursuant to the Merger without the consent of any
Governmental Authority, (iv) to the best of MMR's knowledge there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Substances are being or have
been treated, stored or disposed of on
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any owned or leased real property or on any real property formerly owned,
leased or occupied by MMR or any MMR Subsidiary, (v) there is, to the
knowledge of MMR, no friable asbestos or asbestos-containing material on any
owned or leased real property in violation of applicable Environmental Laws,
(vi) MMR and the MMR Subsidiaries have not released, discharged or disposed of
Hazardous Substances on any owned or leased real property or on any real
property formerly owned, leased or occupied by MMR or any MMR Subsidiary in an
amount requiring remediation, (vii) other than routine operational matters
neither MMR nor any of the MMR Subsidiaries is undertaking, and neither MMR
nor any of the MMR Subsidiaries has completed, any investigation or assessment
or remedial or response action relating to any such release, discharge or
disposal of or contamination with Hazardous Substances at any site, location
or operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law, and (viii) there are
no pending or, to the knowledge of MMR, past or threatened actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to
Environmental Laws, any Environmental Permits or any Hazardous Substances
("Environmental Claims") against MMR or any MMR Subsidiary or any of their
property, and there are no existing circumstances that can reasonably be
expected to form the basis of any such Environmental Claim, including without
limitation with respect to any off-site disposal location presently or
formerly used by MMR or any MMR Subsidiaries or any of their predecessors.
(c) MMR and the MMR Subsidiaries have made available to SFX
or Acquisition Sub copies of any environmental reports, studies or analyses in
its possession or under its control relating to owned or leased real property
or the operations of MMR or the MMR Subsidiaries.
SECTION 3.25. ACCOUNTS RECEIVABLE. All of the accounts
receivable reflected in the MMR December 31, 1995 Balance Sheet or created
thereafter, to MMR's knowledge, are valid receivables subject to no setoffs or
counterclaims (except for such setoffs and counterclaims which would not be
reasonably likely to have a Material Adverse Effect on MMR), are current and
collectible and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth in the
MMR December 31, 1995 Balance Sheet as adjusted for operations and
transactions through the Effective Time in accordance with the past custom and
practice of MMR and the MMR Subsidiaries.
SECTION 3.26. INSURANCE. Section 3.26 of the MMR Disclosure
Schedule sets forth a list of each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage
and bond and surety arrangements) to which any of MMR or any MMR Subsidiary
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past one year. With respect to each such insurance policy
designated as "current": (a) the policy is in full force and effect, (b) MMR
has not received notice from any insurance carrier of the intention of such
carrier to discontinue any such policy, (c) neither any of MMR or any MMR
Subsidiary nor, to the knowledge of MMR, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit
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termination, modification, or acceleration, under the policy, and (d) no party
to the policy has repudiated any provision thereof. Section 3.26 of the MMR
Disclosure Schedule lists any self-insurance arrangements affecting any of MMR
and the MMR Subsidiaries. All material assets and risks of MMR and each MMR
Subsidiary are covered by valid and currently effective insurance policies in
such types and amounts as are consistent with customary practices and
standards of companies engaged in business and operations similar to those of
MMR or such MMR Subsidiary.
SECTION 3.27. REAL PROPERTY AND LEASES.
(a) Section 3.27(a) of the MMR Disclosure Schedule lists and
describes briefly all real property that any of MMR and each MMR Subsidiary
owns. With respect to each such parcel of owned real property and except as
noted in Section 3.27(a) of the MMR Disclosure Schedule: (i) the identified
owner has good and marketable title to the parcel of real property, free and
clear of any liens or encumbrances, easement, covenant, or other restriction,
except for installments of special assessments not yet delinquent, recorded
easements, covenants, and other restrictions, and utility easements, building
restrictions, zoning restrictions, and other easements and restrictions
existing generally with respect to properties of a similar character which do
not affect materially and adversely the current use, occupancy, or value, or
the marketability of title, of the property subject thereto, (ii) there are no
leases, subleases, licenses, concessions, or other agreements, written or
oral, granting to any party or parties the right of use or occupancy of any
portion of the parcel of real property that would interfere with MMR's use of
such property, and (iii) there are no outstanding options or rights of first
refusal to purchase, lease or occupy the parcel of real property, or any
portion thereof or interest therein which would interfere with MMR's use of
such property.
(b) Section 3.27(b) of the MMR Disclosure Schedule lists and
describes briefly all real property leased or subleased to any of MMR and any
MMR Subsidiary. With respect to each lease and sublease (i) the lease or
sublease is legal, valid, binding and enforceable against MMR or such MMR
Subsidiary, and in full force and effect in all material respects, (ii) except
as set forth in Section 3.27(b) of the MMR Disclosure Schedule to the
knowledge of MMR, no party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification,
or acceleration thereunder, (iii) to the knowledge of MMR, no party to the
lease or sublease has repudiated any material provision thereof, (iv) there
are no material disputes, oral agreements, or forbearance programs in effect
as to the lease or sublease, (v) none of MMR or any MMR Subsidiary has
assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold, and (vi) all facilities leased or
subleased thereunder have received all approvals of governmental authorities
(including material licenses and permits) legally required in connection with
the operation thereof, and have been operated and maintained in accordance
with applicable laws, rules, and regulations in all material respects.
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SECTION 3.28. INTERESTED PARTY TRANSACTIONS. Except as set
forth in Section 3.28 of the MMR Disclosure Schedule, between the MMR December
31, 1995 Balance Sheet and the date hereof, no event has occurred that would
be, and has not been, required to be reported as a "Certain Relationship or
Related Transaction" pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SFX
AND ACQUISITION SUB
Except as set forth in the Disclosure Schedules delivered by
SFX to MMR, and signed by MMR and SFX for identification, within ten (10)
business days after the execution and delivery of this Agreement (the "SFX
Disclosure Schedules"), which shall identify exceptions by specific section
references, SFX and Acquisition Sub hereby, jointly and severally, represent
and warrant to MMR that:
SECTION 4.01. CORPORATE ORGANIZATION AND QUALIFICATION. SFX
and Acquisition Sub are corporations duly organized, validly existing and in
good standing under the laws of the jurisdiction of their incorporation and
have the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate their properties and to carry
on their respective businesses as they are now being conducted, except where
the failure to have such governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect on SFX. SFX and Acquisition Sub
are duly qualified or licensed as a foreign corporation to do business, and
are in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by them or the nature of their respective
businesses makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing as would not,
individually or in the aggregate, have a Material Adverse Effect on SFX.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS. SFX
has heretofore made available to MMR a complete and correct copy of the
Certificate of Incorporation and Bylaws of SFX, and the Certificate of
Incorporation and Bylaws of Acquisition Sub, each as amended to date. Neither
SFX nor Acquisition Sub is in violation of any provision of its Certificate of
Incorporation or Bylaws.
SECTION 4.03. CAPITALIZATION. The authorized capital stock
of SFX consists of 10,000,000 shares of SFX Class A Common Stock, 1,000,000
shares of SFX Class B Common Stock, 1,200,000 shares of SFX Class C Common
Stock, par value $.01 per share, and 10,010,000 shares of preferred stock, par
value $.01 per share. As of the date of this Agreement, (a) 6,458,215 shares
of SFX Class A Common Stock were issued and outstanding, all of which are
validly issued fully paid and nonassessable and not subject to preemptive
rights, (b) 1,000,000 shares of SFX Class B Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
not subject to preemptive rights, (c) no shares of SFX Class C Common Stock
were issued and outstanding, (d) 2,000 shares of Series B Redeemable Preferred
Stock were issued and outstanding, and (e) 2,000 shares of Series C Redeemable
Preferred Stock were issued and
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outstanding. The authorized capital stock of Acquisition Sub consists of 1,000
shares of common stock, of which, as of the date of this Agreement, 100 shares
are issued and outstanding and held by SFX. Except as contemplated by this
Agreement or as set forth in Section 4.03 of the SFX Disclosure Schedule, as
of the date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of SFX or any subsidiary of SFX, including
Acquisition Sub (each a "SFX Subsidiary" and collectively, "SFX
Subsidiaries"), obligating SFX or any SFX Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, SFX or any SFX
Subsidiary. There are no outstanding contractual obligations of SFX or any SFX
Subsidiary to repurchase, redeem or otherwise acquire any shares of SFX Common
Stock, or any capital stock of, or any equity interests in, any SFX
Subsidiary. The shares of SFX Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, SFX's Certificate of
Incorporation or Bylaws or any agreement to which SFX is a party or by which
SFX is bound and will, when issued, be registered under the Securities Act and
the Exchange Act and registered or exempt from registration under applicable
Blue Sky Laws.
SECTION 4.04. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
SFX and Acquisition Sub has all necessary corporate power and authority to
execute and deliver this Agreement and, with respect to the Merger, to perform
its obligations hereunder and to consummate the Transactions. The execution
and delivery of this Agreement by SFX and Acquisition Sub and the consummation
by SFX and Acquisition Sub of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of SFX or Acquisition Sub are necessary to authorize
this Agreement or to consummate the Transactions (other than, with respect to
the issuance of SFX Common Stock pursuant to the Merger, the applicable rules
and regulations of the Nasdaq Stock Market, and with respect to the Merger,
the filing and recordation of an appropriate Certificate of Merger with the
Secretary as required by Delaware Law and with respect to certain amendments
in the Certificate of Incorporation of SFX, the approval by the stockholders
of SFX as set forth in Exhibit D). This Agreement has been duly and validly
executed and delivered by SFX and Acquisition Sub and, assuming the due
authorization, execution and delivery of this Agreement by MMR, constitutes a
legal, valid and binding obligation of each of SFX and Acquisition Sub
enforceable against each of SFX and Acquisition Sub in accordance with its
terms.
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by SFX and Acquisition Sub do
not, and the performance of this Agreement by SFX and Acquisition Sub will
not, subject to obtaining the consents, approvals, authorizations and permits
and making the filings described in Section 4.05(b) of the SFX Disclosure
Schedule or in Section 4.05(b) of this Agreement, and subject to obtaining the
approval of the stockholders of SFX with respect to the amendments to the
Certificate of Incorporation of SFX as set forth in Exhibit D, (i) conflict
with or violate the Certificate of Incorporation or Bylaws of either SFX or
any SFX Subsidiary, (ii) conflict with or violate any Law applicable to SFX or
any SFX Subsidiary or by which any property or asset of any of them is bound
or affected or (iii) except as specified in Section 4.05(a)(iii) of the SFX
Disclosure Schedule, result in any breach of or constitute
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a default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of SFX or any SFX Subsidiary or require
the consent of any third party pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which SFX or any SFX Subsidiary is a party or by
which SFX or any SFX Subsidiary or any property or asset of any of them is
bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the
aggregate, reasonably be likely to have a Material Adverse Effect on SFX or
prevent SFX and Acquisition Sub from timely performing their respective
obligations under this Agreement and consummating the Transactions.
(b) The execution and delivery of this Agreement by SFX and
Acquisition Sub do not, and the performance of this Agreement by SFX and
Acquisition Sub will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) pursuant to the Exchange Act, the
Securities Act, Blue Sky Laws, the HSR Act, the Communications Act and FCC
Rules and filing and recordation of an appropriate Certificate of Amendment to
SFX's Certificate of Incorporation and Certificate of Merger with the
Secretary as required by Delaware Law, (ii) as specified in Section 4.05(b) of
the SFX Disclosure Schedule, and (iii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not reasonably be likely to have a Material Adverse
Effect on SFX and would not prevent or delay consummation of the Transactions,
or otherwise prevent SFX or Acquisition Sub from performing their respective
obligations under this Agreement.
(c) On the Closing Date, SFX will be legally and financially
qualified under the Communications Act and the FCC Rules, and as of the date
hereof has neither knowledge nor reason to know of any fact, event, condition,
occurrence or circumstance, pertaining to SFX, that would cause any material
delay in the FCC's grant of the transfer of control applications.
SECTION 4.06. SEC FILINGS; FINANCIAL STATEMENTS. (a) SFX
has filed all forms, reports and documents required to be filed by it with the
SEC (collectively, the "SFX SEC Reports"). The SFX SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (ii) did not, at the time they were filed (or at
the effective date thereof in the case of registration statements), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. No SFX Subsidiary is currently required to file any form, report
or other document with the SEC under Section 12 of the Exchange Act.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the SFX SEC Reports
was prepared in accordance with U.S. GAAP throughout the periods indicated
(except as may be indicated in the notes thereto and except that
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financial statements included with interim reports do not contain all U.S.
GAAP notes to such financial statements) and each fairly presented in all
material respects the consolidated financial position, results of operations
and changes in stockholders' equity and cash flows of SFX and its consolidated
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Material Adverse Effect on SFX).
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
December 31, 1995, except in the ordinary course and in a manner consistent
with SFX's past practice or as contemplated by, or disclosed pursuant to, this
Agreement, including Section 4.07 of the SFX Disclosure Schedule, or disclosed
in any SFX SEC Report filed since December 31, 1995, there has not been (a)
any event or events (whether or not covered by insurance), individually or in
the aggregate, having a Material Adverse Effect on SFX, (b) any material
change by SFX in its accounting methods, principles or practices, (c) any
entry by SFX or any SFX Subsidiary into any commitment or transaction material
to SFX or any SFX Subsidiary, (d) any declaration, setting aside or payment of
any dividend or distribution in respect of any capital stock of SFX or any
redemption, purchase or other acquisition of any of its securities or (e)
other than pursuant to SFX's benefit plans, any increase in or establishment
of any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Acquisition Sub has
not and will not have incurred, directly or indirectly, through any subsidiary
or affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
SECTION 4.08. TAXES. (a) Except as otherwise disclosed in
Section 4.08(a) of the SFX Disclosure Schedule: SFX and each of the SFX
Subsidiaries has filed (or received an appropriate extension of time to file)
all federal, state, local, and foreign Tax Returns required to be filed by
them prior to the Effective Time. From 1992 through the Effective Time, SFX
and the SFX Subsidiaries filed consolidated U.S. federal income tax returns as
members of an affiliated group, the common parent of which is SFX. All such
Tax Returns were true and correct in all material respects. SFX and each of
the SFX Subsidiaries has paid all Taxes shown to be due on such Tax Returns,
and has made appropriate provisions in the audited consolidated balance sheet
of SFX as of December 31, 1995 including the notes to the audited financial
statements of which such balance sheet is a part (the "SFX December 31, 1995
Balance Sheet") for any Taxes not yet due or which are being contested in good
faith. SFX and each of the SFX Subsidiaries has disclosed on all Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662 of the
Code or any similar provision of state, local or foreign law. SFX and each of
the SFX Subsidiaries has withheld and paid over to the appropriate
Governmental Authority all Taxes required by law to have been withheld and
paid in connection
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with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party, except for amounts which would not,
individually or in the aggregate, have a Material Adverse Effect. SFX and each
of the SFX Subsidiaries have made all payments of estimated Taxes required to
be made under federal, state, local or foreign law. All tax deficiencies
asserted or assessed against SFX and each of the SFX Subsidiaries has been
paid or finally settled. Neither SFX nor any of the SFX Subsidiaries expects
any federal, state, local or foreign taxing authority to assess any additional
Taxes for any period for which Tax Returns have been filed. No claims have
ever been made by any tax authority in a jurisdiction where SFX and each of
the SFX Subsidiaries do not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. Neither SFX nor any of the SFX Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a tax assessment or deficiency. There is no
pending or, to the knowledge of SFX, threatened action, audit, proceeding or
investigation for the assessment or collection of any Taxes. There are no
requests for rulings, subpoenas or requests for information pending with
respect to any taxing authority. Any adjustments of Taxes made by any federal
taxing authority in any examination which is required to be reported to a
state, local, or foreign taxing authority have been reported, and any
additional Taxes due with respect thereto have been paid. No power of attorney
has been granted by SFX or any of the SFX Subsidiaries, and is currently in
force, with respect to any matter relating to Taxes. There are no liens (other
than liens for Taxes that are not yet due, or which are being contested in
good faith) on any assets of SFX or any of the SFX Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any tax, except for
liens which would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as otherwise disclosed in Section 4.08(b) of the
SFX Disclosure Schedule: Neither SFX nor any of the SFX Subsidiaries has made
an election under Section 341(f) of the Code. Neither SFX nor any of the SFX
Subsidiaries has participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code. Neither SFX nor any of the SFX
Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar provision of law or regulations) by
reason of a change in accounting method, nor is any taxing authority
considering such change in accounting method. Neither SFX nor any of the SFX
Subsidiaries has disposed of any property which has been accounted for tax
purposes under the installment method. As of the Effective Time but prior to
the Merger, the ability of SFX and each of the SFX Subsidiaries to use their
net operating losses and carryovers will not have been affected by Sections
382, 383 or 384 of the Code or by the SRLY or CRCO limitations of Treas. Reg.
ss.ss. 1.1502-21 or 1.1502-22. As of the Effective Time, neither SFX nor any
of the SFX Subsidiaries will have sustained an "overall foreign loss" within
the meaning of Section 904(f) of the Code.
(c) Regarding the Merger:
(i) Neither SFX nor any of the SFX Subsidiaries is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
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(ii) Neither SFX nor any of the SFX Subsidiaries is under
the jurisdiction of a court in Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(iii) Neither SFX or any of the SFX Subsidiaries holds stock
of MMR and will not hold stock of SFX prior to the Merger.
(d) For purposes of this Section 4.08, the following terms
will have the following meanings:
(i) "Tax" or "Taxes" shall mean any and all federal, state,
local, foreign, and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax
imposed in connection therewith or with respect thereto), whether imposed on
SFX or any of the SFX Subsidiaries, including, without limitation, taxes
imposed on, or measured by, income, franchise, profits, or gross receipts, and
also ad valorem, value added, sales, use, service, real or personal property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer,
and gains taxes and customs duties.
(ii) "Tax Return" shall mean returns, reports, information
statements, or other documentation (including any additional or supporting
material) filed or maintained, or required to be filed or maintained in
connection with the calculation, determination, assessment or collection of
any Tax.
SECTION 4.09. PERMITS; COMPLIANCE. Except as disclosed in
Section 4.09 of the SFX Disclosure Schedule, each of SFX and the SFX
Subsidiaries is now and as of the Effective Time will be in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Authority legally necessary for SFX or any SFX Subsidiary to own, lease and
operate its properties or to carry on its business as it is now being
conducted, except for those which the failure to possess would not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on SFX (the "SFX Permits") and, as of the date hereof, no
suspension or cancellation of any of the SFX Permits is pending or, to the
knowledge of SFX, threatened. Except as disclosed in Section 4.09 of the SFX
Disclosure Schedule, neither SFX nor any SFX Subsidiary is in conflict with,
or in default or violation of, or, with the giving of notice or the passage of
time, would be in conflict with, or in default or violation of, (i) any Law
applicable to SFX or any SFX Subsidiary or by which any property or asset of
SFX or any SFX Subsidiary is bound or affected, except in the case of any such
conflict, default or violation which would not reasonably be expected to have
a Material Adverse Effect, or (ii) any of the SFX Permits.
SECTION 4.10. ABSENCE OF LITIGATION. Section 4.10 of the
SFX Disclosure Schedule sets forth each instance in which any of SFX and the
SFX Subsidiaries (i) is subject to any
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outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is
a party or, to the knowledge of SFX and the SFX Subsidiaries, is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator, which
has not otherwise been disclosed in the SFX SEC Reports and which would
reasonably be expected to have a Material Adverse Effect on SFX. Neither SFX
nor any SFX Subsidiary nor any property or asset of SFX or any SFX Subsidiary
is in violation of any order, writ, judgment, injunction, decree,
determination or award.
SECTION 4.11. EMPLOYEE BENEFIT MATTERS. Except as set forth
in Section 4.11 of the SFX Disclosure Schedule, there are no material employee
benefit or compensation plans, agreements or arrangements, including "employee
benefit plans" as defined in Section 3(3) of ERISA, and including, but not
limited to, plans, agreements or arrangements relating to former employees to
which SFX or any of the SFX Subsidiaries is a party (together, the "SFX
Benefit Plans"). To the best knowledge of SFX, no default exists with respect
to the obligations of SFX or any of the SFX Subsidiaries under such SFX
Benefit Plans, which default, alone or in the aggregate, would have a Material
Adverse Effect on SFX. All SFX Benefit Plans have been administered in
accordance, and are in compliance, with the applicable provisions of ERISA,
except where such failure to administer or comply would not have a Material
Adverse Effect on SFX.
SECTION 4.12. LABOR MATTERS. Neither SFX nor any SFX
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons
employed by SFX or any SFX Subsidiary.
SECTION 4.13. INTELLECTUAL PROPERTY. SFX and the SFX
Subsidiaries own or have valid, binding and enforceable rights to use each
patent, invention, copyright, trademark, industrial model, process, design and
all registrations and applications for any of the foregoing used, employed or
exploited in the business of SFX or any SFX Subsidiary without any known
conflict with the rights of others.
SECTION 4.14. OPINION OF FINANCIAL ADVISOR. SFX has
received the written opinion of Furman Selz L.L.C. (the "SFX Banker") on the
date of this Agreement to the effect that the Exchange Ratio to be offered by
SFX in the Merger is fair from a financial point of view to SFX's stockholders
(other than Robert F.X. Sillerman and his affiliates) as of the date thereof.
SECTION 4.15. VOTE REQUIRED. The affirmative vote of the
holders of a majority of the voting power of the then outstanding shares of
SFX Class A Common Stock and SFX Class B Common Stock is the only vote of the
holders of any class or series of capital stock of SFX necessary to approve
the Merger. The affirmative vote of the holders of a majority of the
outstanding shares of SFX Class A Common Stock and SFX Class B Common Stock,
voting separately as a class, is the only vote of the holders of any class or
series of capital stock of SFX necessary to approve the amendments to the
Certificate of Incorporation of SFX as set forth on Exhibit D which amendments
are required in order to increase the authorized shares of SFX Class
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A Common Stock and SFX Class B Common Stock to be issued in exchange for the
MMR Securities or to be reserved for issuance upon the exercise of the Options
and Warrants.
SECTION 4.16. TANGIBLE PROPERTY. SFX and the SFX
Subsidiaries have good title to, or a valid leasehold interest in, the
tangible personal properties and assets used by them or shown on the SFX
December 31, 1995 Balance Sheet or acquired after the date thereof, which are
free and clear of any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) mechanic's, materialmen's and similar liens,
(b) liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, (d)
liens which would not reasonably be expected to have a Material Adverse Effect
on SFX, (e) liens and encumbrances identified and reflected on the SFX
December 31, 1995 Balance Sheet, and (f) mortgages, pledges, liens,
encumbrances, charges or other security interests that do not individually, or
in the aggregate, adversely affect the current use of such property.
SECTION 4.17. CERTAIN BUSINESS PRACTICES. As of the date of
this Agreement, neither SFX nor any SFX Subsidiary, nor any director, officer,
or, to the knowledge of SFX, any agent or employee of SFX or any SFX
Subsidiary has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
made any other unlawful payment, or (iv) violated any of the provisions of
Section 999 of the Code or Section 8 of the Export Administration Act, as
amended.
SECTION 4.18. BOARD RECOMMENDATION. At a meeting duly
called and held in compliance with Delaware Law, (a) the Independent Committee
of the Board of Directors of SFX has unanimously adopted a resolution
approving the Merger and recommended that the Board of Directors of SFX
approve the Merger, (b) the Board of Directors of SFX has unanimously adopted
a resolution (i) approving the Merger, based on a determination that the
Merger is in the best interests of the SFX stockholders, and (ii) approving
and adopting this Agreement and the Transactions and recommending approval and
adoption of this Agreement and the Transactions by the stockholders of SFX.
SECTION 4.19. FCC COMPLIANCE. SFX and the SFX Subsidiaries
hold, as of the date of this Agreement, and immediately prior to the Effective
Time, SFX and the SFX Subsidiaries will hold, the FCC licenses as set forth in
Section 4.19 of the SFX Disclosure Schedule (the "SFX FCC Licenses"), and such
licenses are now and at the Effective Time will be in full force and effect.
The SFX FCC Licenses are the only material FCC licenses, permits and
authorizations necessary for or used in connection with the operation of the
radio stations (the "SFX Stations") set forth in Section 4.19 of the SFX
Disclosure Schedule. Except as set forth in Section 4.19 of the SFX Disclosure
Schedule, the SFX Stations are being operated in all material respects in
accordance with the Communications Act, the FCC Rules and FCC and court
interpretations thereof, all as in effect on the date of this Agreement.
Except as set forth in Section 4.19 of the SFX Disclosure Schedule
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(i) no application, action or proceeding is pending or, to the best of SFX's
knowledge, threatened against SFX or the SFX Subsidiaries that may result in
the revocation, nonrenewal or suspension of any of the SFX FCC Licenses, or
the imposition of any administrative sanction with respect thereto, and (ii)
to the best of SFX's knowledge there is no fact which would disqualify SFX or
any of the SFX Subsidiaries from obtaining the approval of the FCC as provided
for in this Agreement or from completing the transactions contemplated by this
Agreement. All material applications, reports and other disclosures required
by the FCC with respect to the SFX Stations have been duly filed with the FCC.
SECTION 4.20. INTERESTED PARTY TRANSACTIONS. Except as set
forth in Section 4.20 of the SFX Disclosure Schedule, between the SFX December
31, 1995 Balance Sheet and the date hereof, no event has occurred that would
be required to be, and has not been, reported as a "Certain Relationship or
Related Transaction" pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
ARTICLE V -- CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY MMR PENDING THE MERGER.
MMR covenants and agrees that, between the date of this Agreement and until
the earlier of the (x) date on which this Agreement is terminated and (y)
Effective Time, except as set forth in Section 5.01 of the MMR Disclosure
Schedule or as contemplated in this Agreement, including but not limited to
Section 5.03 below, unless SFX shall otherwise agree in writing (which
agreement shall not be unreasonably withheld and shall not be exercised in a
manner inconsistent with the Communications Act and FCC Rules), (a) the
business of MMR and the MMR Subsidiaries shall be conducted only in, and MMR
and the MMR Subsidiaries shall not take any action except in, the ordinary
course of business consistent with past practice and in accordance with all
applicable Laws, (b) MMR shall use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of MMR and the MMR
Subsidiaries and to preserve the current relationships of MMR and the MMR
Subsidiaries with customers, suppliers and other persons with which MMR or any
MMR Subsidiary has significant business relations, and (c) MMR shall not and
shall not permit any MMR Subsidiary to engage in any practice, take any
action, or enter into any transaction of the kind described in Section 3.08
above, except as otherwise contemplated herein.
SECTION 5.02. CONDUCT OF BUSINESS BY SFX PENDING THE MERGER.
SFX covenants and agrees that, between the date of this Agreement and until
the earlier of the (x) date on which this Agreement is terminated and (y)
Effective Time, except as set forth in Section 5.02 of the SFX Disclosure
Schedule or as contemplated in this Agreement, unless MMR shall otherwise
agree in writing (which agreement shall not be unreasonably withheld and shall
not be exercised in a manner inconsistent with the Communications Act and FCC
Rules), (a) the businesses of SFX and Acquisition Sub shall be conducted only
in, and SFX shall not, and shall cause Acquisition Sub not to, take any
action, except in the ordinary course of business consistent with past
practice and in accordance with all applicable Laws, and (b) SFX shall use all
reasonable efforts to preserve
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substantially intact its business organization and to preserve the current
relationships of SFX and the SFX Subsidiaries with customers, suppliers and
other persons with which SFX or any SFX Subsidiary has significant business
relations, and (c) SFX shall not and shall not permit any SFX Subsidiary to
amend, supplement or otherwise modify the Termination and Assignment Agreement
dated as of the date hereof between SFX and SCMC or enter into any other
arrangement with SCMC, engage in any practice, take any action, or enter into
any transaction of the kind described in Section 4.07, except as otherwise
contemplated herein. Notwithstanding anything herein to the contrary, nothing
contained in this Agreement shall prohibit SFX from (i) consummating the Asset
Purchase Agreements and other acquisitions with respect to which definitive
agreements have been executed as of the date hereof, (ii) entering into
transactions, on an arm's length basis, in connection with the consummation of
such acquisitions, including, without limitation, debt and/or equity
financing, (iii) entering into local market agreements or radio station swaps
on an arm's length basis, or (iv) entering into severance, employment or
related agreements with executive officers of SFX in connection with the
Transactions including, without limitation, with R. Steven Hicks and Geoff
Armstrong.
SECTION 5.03. CONTROL OF STATIONS. Between the date of this
Agreement and the Closing Date, MMR will supervise, or direct, the operations
of the Stations, including programming, employees, finances, and operational
policies. Such operations shall be the sole responsibility of, and in the
complete discretion of, MMR and the MMR Subsidiaries, subject to Section 5.01
above.
ARTICLE VI -- ADDITIONAL AGREEMENTS
SECTION 6.01. REGISTRATION STATEMENT; PROXY STATEMENT. (a)
Within 120 days after the execution of this Agreement, SFX and MMR shall
prepare and file with the SEC a preliminary proxy statement or a registration
statement on Form S-4 (together with all amendments thereto, the "Registration
Statement") including therein a combined proxy statement to be sent to the
stockholders of MMR and SFX (the "Proxy Statement") and prospectus, in
connection with the registration under the Securities Act of the shares of SFX
Common Stock to be issued to the holders of the MMR Securities pursuant to the
Merger. SFX and MMR shall cooperate with each other in connection with any
other filings with the SEC that either is obligated to make as a result of the
Transactions. SFX and MMR each shall use all reasonable efforts to cause the
Registration Statement to become effective as promptly as practicable, and,
prior to the effective date of the Registration Statement, SFX shall take all
or any action required under any applicable federal or state securities laws
in connection with the issuance of shares of SFX Common Stock pursuant to the
Merger. Each of MMR and SFX shall pay its own expenses incurred in connection
with the Registration Statement, Proxy Statement, SFX's Stockholders' Meeting
(as defined hereinafter) and MMR's Stockholders' Meeting (as defined
hereinafter), including, without limitation, the fees and disbursements of
their respective counsel, accountants and other representatives, except that
MMR and SFX each shall pay one-half of any printing expenses incurred in
connection therewith. MMR shall furnish all information concerning MMR as SFX
may reasonably request in connection with such actions and the preparation of
the Registration Statement and Proxy Statement. As promptly as practicable
after the Registration Statement shall have become effective, SFX and MMR
shall
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mail the Proxy Statement to their respective stockholders. The Proxy
Statement shall include the unanimous recommendation of the Independent
Committees and the recommendation of the Boards of Directors of MMR and SFX in
favor of the Merger, unless otherwise required by the applicable fiduciary
duties of the directors as determined by such directors in good faith after
consultation with independent legal counsel.
No amendment or supplement to the Proxy Statement or the
Registration Statement will be made by SFX or MMR without the approval of the
other party, which shall not be unreasonably withheld. SFX and MMR each will
advise the other, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the SFX Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
SFX shall promptly prepare and submit to the Nasdaq Stock
Market a listing application covering the shares of SFX Class A Common Stock
issuable in the Merger, and shall use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such SFX Class A
Common Stock, subject to official notice of issuance, and MMR shall cooperate
fully with SFX with respect to such listing. SFX shall use its reasonable best
efforts to list, prior to the Effective Time, shares of SFX Class A Common
Stock issuable upon exercise of the Warrants on the Nasdaq National Market.
(b) SFX represents, warrants and agrees that the information
supplied by SFX for inclusion in the Registration Statement and the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of MMR, (iii) the time
of MMR's Stockholder Meeting, (iv) the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein, or necessary in order to make the
statements therein not false or misleading. If at any time prior to the
Effective Time any event or circumstance relating to SFX or any SFX
Subsidiary, or their respective officers or directors, should be discovered by
SFX which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, SFX shall promptly inform MMR.
Notwithstanding the foregoing, SFX and Acquisition Sub make no representation
or warranty with respect to any information supplied by MMR or any of its
representatives which is contained in the Registration Statement or Proxy
Statement. All documents that SFX is responsible for filing with the SEC in
connection with the Transactions will comply as to form and substance in all
material aspects with the applicable requirements of the Securities Act and
the rules and regulations promulgated thereunder and the Exchange Act and the
rules and regulations promulgated thereunder.
(c) MMR represents, warrants and agrees that the information
supplied by MMR for inclusion in the Registration Statement and the Proxy
Statement shall not, at (i) the time the
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Registration Statement is declared effective, (ii) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of SFX, (iii) the time of SFX's Stockholder Meeting, and (iv)
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact required to be stated
therein, or necessary in order to make the statements therein not false or
misleading. If at any time prior to the Effective Time any event or
circumstance relating to MMR or any MMR Subsidiary, or their respective
officers or directors, should be discovered by MMR which should be set forth
in an amendment or a supplement to the Registration Statement or Proxy
Statement, MMR shall promptly inform SFX. Notwithstanding the foregoing, MMR
makes no representation or warranty with respect to any information supplied
by SFX or Acquisition Sub or any of their representatives in the Registration
Statement or Proxy Statement. All documents that MMR is responsible for filing
with the SEC in connection with the Transactions will comply as to form and
substance in all material respects with the applicable requirements of the
Securities Act and the rules and regulations promulgated thereunder and the
Exchange Act and the rules and regulations promulgated thereunder.
(d) MMR, SFX and Acquisition Sub each hereby (i) consents to
the use of its name and, on behalf of its subsidiaries and affiliates, the
names of such subsidiaries and affiliates, and to the inclusion of financial
statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by
applicable securities laws), in the Registration Statement and the Proxy
Statement, (ii) agrees to use all reasonable efforts to obtain the written
consent of any person or entity retained by it which may be required to be
named (as an expert or otherwise) in the Registration Statement or the Proxy
Statement, and (iii) agrees to cooperate fully, and agrees to use all
reasonable efforts to cause its subsidiaries and affiliates to cooperate
fully, with any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) above in
connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, to be disclosed by
applicable securities laws in the Registration Statement or the Proxy
Statement.
SECTION 6.02. STOCKHOLDERS' MEETINGS. (a) MMR shall call a
meeting of its stockholders ("MMR's Stockholder Meeting") as promptly as
practicable for the purpose of voting upon the approval of this Agreement, the
Merger and the matters set forth on Exhibit C hereto, and MMR shall use all
commercially reasonable efforts to hold MMR's Stockholder Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. Unless otherwise required under applicable fiduciary duties of
MMR's directors, as determined in good faith after consultation with
independent legal counsel, MMR shall use all commercially reasonable efforts
to solicit from its stockholders proxies in favor of the approval of this
Agreement, the Merger and the matters set forth on Exhibit C hereto, and shall
take all other action reasonably necessary or advisable to secure the vote or
consent of stockholders required by Delaware Law to obtain such approvals.
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(b) SFX shall call a meeting of its stockholders ("SFX's
Stockholder Meeting") as promptly as practicable for the purpose of voting
upon the approval of this Agreement, the Merger and the matters set forth on
Exhibit D hereto, and SFX shall use all commercially reasonable efforts to
hold SFX's Stockholder Meeting as soon as practicable after the date on which
the Registration Statement becomes effective. Unless otherwise required under
applicable fiduciary duties of SFX's directors, as determined in good faith
after consultation with independent legal counsel, SFX shall use all
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement, the Merger and the matters set forth
on Exhibit D hereto, and shall take all other action reasonably necessary or
advisable to secure the vote or consent of stockholders required by Delaware
Law to obtain such approvals.
(c) Each of MMR and SFX shall use commercially reasonable
efforts to hold their respective Stockholders' Meetings on the same day (and
at or about the same time of day).
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS. (a)
MMR, SFX and Acquisition Sub shall use their commercially reasonable efforts
to (i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary, proper or advisable under applicable Laws or
required to be taken by any Governmental Authority or otherwise to consummate
and make effective the Transactions as promptly as practicable, (ii) obtain
from all applicable Governmental Authorities all consents, licenses, permits,
waivers, approvals, authorizations or orders legally required to be obtained
or made by SFX or MMR or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation
of the Transactions, including, without limitation, the Merger, and (iii) as
promptly as practicable, make all necessary filings, and thereafter make any
other required submissions, with respect to this Agreement and the Merger
required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities Laws, (B) the rules and regulations of
the Nasdaq National Market, (C) Delaware Law, (D) the HSR Act and any related
governmental request thereunder, (E) the Communications Act, and (F) all other
applicable Laws; provided that SFX and MMR shall cooperate fully with each
other in connection with the making of all such filings, including providing
copies of all such documents to the non-filing party and its advisors prior to
filing and, if requested, accepting all reasonable additions, deletions or
changes suggested in connection therewith. MMR and SFX shall use reasonable
best efforts to furnish to each other all information required for each
application or other filing to be made pursuant to the rules and regulations
of all applicable Laws (including all information required to be included in
the Proxy Statement and the Registration Statement) in connection with the
Transactions.
(b) (i) Each of SFX and MMR shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, their commercially reasonable
efforts to obtain any third party consents (including those set forth in
Section 3.05(a)(iii) of the MMR Disclosure Schedule and Section 4.05(a)(iii)
of the SFX Disclosure Schedule), (A) legally necessary to consummate the
Transactions, (B) disclosed or required to be disclosed in the MMR Disclosure
Schedule or the SFX Disclosure Schedule or (C) required to prevent a Material
Adverse Effect from occurring prior to or after the Effective Time;
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provided, however, that as used in this Agreement "commercially reasonable
efforts" shall not require any party to undertake extraordinary or
unreasonable measures to obtain any approvals or consents, including, without
limitation, the initiation or prosecution of legal proceedings.
(ii) In the event that SFX or MMR shall fail to obtain any
third party consent described in subsection (b)(i) above, it shall use its
commercially reasonable efforts, and shall take any such actions reasonably
requested by the other party, to minimize any adverse effect upon MMR and SFX,
their respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
(iii) With respect to the consents which may be required
from Huff in connection with the consummation of the Transactions and the
Merger, it is acknowledged that Huff has not granted any such consents nor
waived any other rights it may have and has notified MMR to that effect.
Without limiting the generality of the foregoing, no action (or abstention
from action) of the Huff designee to the MMR Board of Directors is, or shall
be construed to be, such a consent or waiver.
(c) From the date of this Agreement until the earlier of the
(x) termination of this Agreement and (y) Effective Time, each party shall
promptly notify the other party of any, or to the best knowledge of the first
party, threatened, action, proceeding or investigation by or before any
Governmental Authority or any other person (i) challenging or seeking material
damages in connection with the Merger, the conversion of MMR Securities into
SFX Common Stock pursuant to the Merger or the Transactions or (ii) seeking to
restrain or prohibit the consummation of the Merger, the Transactions or
otherwise limit the right of SFX to own or operate all or any portion of the
businesses or assets of MMR, which in either case is reasonably likely to have
a Material Adverse Effect on MMR prior to the Effective Time, or a Material
Adverse Effect on SFX and the Acquisition Sub (including the Surviving
Corporation) after the Effective Time.
SECTION 6.04. ACCESS TO INFORMATION. (a) From the date
hereof until the earlier of the (x) termination of this Agreement and (y)
Effective Time, SFX and MMR will each provide to the other, during normal
business hours and upon reasonable notice, access to all information and
documents which the other may reasonably request regarding the business,
assets, liabilities, employees and other aspects of the other party, other
than information and documents that in the opinion of such other party's
counsel may not be disclosed under applicable Law.
(b) Each of the parties hereto shall provide to the other
monthly unaudited financial statements to the extent that such financial
statements are currently prepared. Such monthly financial statements shall be
provided within 15 days of the end of each month.
(c) MMR shall cooperate fully (with SFX responsible for all
reasonable costs and expenses) with SFX in connection with certain financings
SFX will undertake. In connection therewith, at the request of SFX, MMR (with
SFX responsible for all reasonable costs and expenses)
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will cause its officers, directors, employees, representatives, consultants
and advisors to assist in the preparation of offering memoranda and pro forma
financial information and to participate in any road show presentations SFX
shall undertake in connection therewith, provided that such assistance shall
not unreasonably interfere with the performance by any of such officers,
directors, employees, representatives, consultants or advisors of services for
MMR. In furtherance of the foregoing, MMR shall cause its auditors to provide
and allow the filing of consents and "comfort letters" and other documentation
as may be required for the inclusion of any financial statements of MMR
prepared at the request of SFX, to allow such financial statements to be used
in public or private financing documents.
SECTION 6.05. ACQUISITION PROPOSALS. Neither MMR nor any
MMR Subsidiary shall initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as hereinafter
defined), or enter into discussions or negotiate with any person or entity in
furtherance of such inquiries to obtain a Competing Transaction, or enter into
an agreement with respect to any Competing Transaction or agree to or endorse
any Competing Transaction, or authorize or permit any of the officers,
directors or employees of MMR or any MMR Subsidiary or any investment banker,
financial advisor, attorney, accountant or other representative retained by
MMR or any MMR Subsidiary to take any such action, and MMR shall promptly
notify SFX of all relevant terms and conditions of any such inquiries and
proposals received by MMR or any MMR Subsidiary or by any such officer,
director, investment banker, financial advisor or attorney (including the
identity of the person from whom such inquiry or proposal was received), and
if such inquiry or proposal is in writing, MMR shall deliver or cause to be
delivered to SFX a copy of such inquiry or proposal; provided, however, that
nothing contained in this Agreement shall prohibit the Board of Directors of
MMR or its representatives from (i) furnishing information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide proposal in writing by such person or entity to
acquire MMR pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially
all of the assets of MMR or any MMR Subsidiary, if, and only to the extent
that (A) the Board of Directors of MMR, after consultation with independent
legal counsel and the MMR Banker, determines in good faith that such action is
required for the Board of Directors of MMR to comply with its fiduciary duties
to stockholders imposed by Delaware Law and (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity MMR (x) provides as promptly as practicable written notice to SFX of
MMR's intention to furnish such information to, or begin such discussions or
negotiations with, such person or entity and (y) obtains from such person or
entity a confidentiality agreement, or (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
following involving MMR or any MMR Subsidiary: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction (other than
the transactions contemplated by this Agreement), (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 25% or more of
the assets of MMR and the MMR Subsidiaries, taken as a whole, in a single
transaction or series of transactions, (iii) any tender offer or exchange
offer
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for 25% or more of any outstanding class of capital stock of MMR or the
filing of a registration statement under the Securities Act in connection
therewith, (iv) the acquisition by any person of "beneficial ownership" or the
right to acquire beneficial ownership of, or the formation of any "group" (as
such terms are defined under Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) which beneficially owns, or has the
right to acquire beneficial ownership of, 30% or more of the then outstanding
shares of any class of capital stock of MMR (other than persons affiliated
with Robert F.X. Sillerman), or (v) any public announcement of a proposal,
plan or intention to do any of the foregoing.
SECTION 6.06. DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a)
From and after the Effective Time, the Surviving Corporation shall indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date of this Agreement or who becomes prior to the Effective Time, an
officer or director of MMR or any of the MMR Subsidiaries, or an employee of
MMR or any of the MMR Subsidiaries who acts as a fiduciary under any employee
benefit plan of MMR or any of the MMR Subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees), claims, damages, liabilities or amounts that are paid in
settlement of, or otherwise in connection with, any threatened or actual
claim, action, suit, proceeding or investigation (a "Claim"), based in whole
or in part on or arising in whole or in part out of the fact that the
Indemnified Party (or the person controlled by the Indemnified Party) is or
was a director, officer or such an employee of MMR or any of the MMR
Subsidiaries and pertaining to any matter existing or arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, any Claim arising out of this Agreement or any of the
Transactions), whether asserted or claimed prior to, at or after the Effective
Time, in each case to the fullest extent permitted under Delaware Law or the
Surviving Corporation's charter and by-laws, and shall pay any expenses, as
incurred, in advance of the final disposition of any such action or proceeding
to each Indemnified Party to the fullest extent permitted under Delaware Law
or the Surviving Corporation's charter and by-laws; provided, however, that
the Surviving Corporation shall not be liable for any settlement effected
without its written consent (which shall not be unreasonably withheld).
Without limiting the foregoing, in the event any such claim is brought against
any of the Indemnified Parties, such Indemnified Parties may retain counsel
(including local counsel) satisfactory to them and which shall be reasonably
satisfactory to SFX, and the Surviving Corporation shall pay all fees and
expenses of such counsel for such Indemnified Parties. The Indemnified Parties
as a group shall retain only one law firm (plus appropriate local counsel) to
represent them with respect to each such Claim unless there is, as determined
by counsel to the Indemnified Parties, under applicable standards of
professional conduct, a conflict or a reasonable likelihood of a conflict on
any significant issue between the positions of any two or more Indemnified
Parties, in which event each such Indemnified Party shall be entitled to
retain separate legal counsel at the expense of the Surviving Corporation. SFX
hereby unconditionally and irrevocably guarantees the full and prompt payment
and performance of any and all of the Surviving Corporation's obligations
under this Section 6.06.
(b) For a period of six (6) years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers'
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liability insurance maintained by MMR covering all of the individuals
currently covered thereby (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to such
officers and directors) with respect to claims arising from facts or events
which occurred at or prior to the Effective Time; provided, however, that the
Surviving Corporation shall not be required to pay annual premiums for such
insurance in excess of 200% in the aggregate of MMR's current annual premium
unless SFX continues to maintain its directors' and officers' liability
insurance despite a comparable increase; and provided further, that if the
premium for such coverage exceeds such amount, the Surviving Corporation shall
purchase a policy with the greatest coverage available for such 200% of the
annual premium.
SECTION 6.07. OBLIGATIONS OF ACQUISITION SUB. SFX shall
take all action necessary to cause Acquisition Sub to perform its obligations
under this Agreement and to consummate the Merger on the terms and subject to
conditions set forth in this Agreement and hereby irrevocably and
unconditionally guarantees all such obligations of Acquisition Sub.
SECTION 6.08. PUBLIC ANNOUNCEMENTS. (a) SFX and MMR shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or any Transaction and
shall not issue any such press release or make any such public statement prior
to such consultation and (b) prior to the Effective Time, MMR will not issue
any other press release or otherwise make any public statements regarding its
business, except, in each case, as may be required by Law or any listing
agreement with the Nasdaq Stock Market to which MMR or SFX is a party.
SECTION 6.09. DELIVERY OF SEC DOCUMENTS. Each of MMR and
SFX shall promptly deliver to the other true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement.
SECTION 6.10. NOTIFICATION OF CERTAIN MATTERS. MMR shall
give prompt notice to SFX, and SFX shall give prompt notice to MMR, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate and (ii) any failure of MMR, SFX or
Acquisition Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
6.10 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 6.11. FURTHER ACTION. At any time and from time to
time, each party to this Agreement agrees, subject to the terms and conditions
of this Agreement, to take such actions and to execute and deliver such
documents as may be necessary to effectuate the purposes of this Agreement at
the earliest practicable time; provided, however, that this Section shall not
require either party to undertake extraordinary or unreasonable measures in
connection therewith, including, without limitation, the initiation or
prosecution of legal proceedings.
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SECTION 6.12. TAX TREATMENT. (a) Section 6.12 of the MMR
Disclosure Schedule lists the names and addresses of those persons who are, in
MMR's reasonable judgment, "affiliates" of MMR within the meaning of Rule 145
under the Securities Act (each, an "MMR Affiliate"). MMR shall use all
commercially reasonable efforts to obtain Affiliate Agreements in the form of
Exhibit B hereto ("Affiliate Agreements") from (i) at least 30 days prior to
the Effective Time, each of the officers, directors and stockholders of MMR
specified in Section 6.12 of the MMR Disclosure Schedule and (ii) any person
who may be deemed to have become an MMR Affiliate (under Rule 145 under the
Securities Act) after the date of this Agreement and on or prior to the
Effective Time as soon as practicable after the date on which such person
attains such status. Each party hereto shall use its best efforts to cause the
Merger to qualify as a reorganization qualifying under the provisions of
Section 368(a) of the Code, including, without limitation, that SFX agrees
that it will cause MMR, in its new capacity as a subsidiary of SFX, to (i)
continue MMR's historic business and (ii) use a significant portion of its
historic business assets in such business.
(b) Both on the date that is two days prior to the date the
Proxy Statement is first mailed to stockholders of SFX and MMR and on the date
that the Merger is consummated, SFX and MMR shall receive an opinion of Baker
& McKenzie, reasonably satisfactory in form and substance to MMR, its counsel
Paul, Hastings, Janofsky & Walker and SFX, based, in each case, upon
representation letters substantially in the form of Exhibits E-1 and E-2,
dated on or about the date of such opinion, and such other facts and
representations as counsel may reasonably deem relevant, to the effect that
(i) the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
(ii) SFX, Acquisition Sub and MMR will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, and (iii) the stockholders
of MMR shall not recognize any gain or loss for U.S. federal income tax
purposes as a result of the Merger, other than to the extent such stockholders
receive cash in lieu of fractional shares or payments pursuant to dissenter's
rights.
SECTION 6.13. FCC APPLICATION(S) AND APPROVAL.
(a) COMMISSION ORDER. Consummation of the Transactions is
subject to and conditioned upon prior receipt from the FCC of its consent in
writing to the transfer of control of the license of the Stations from MMR to
SFX, which consent shall have become final before the date of the Merger,
provided that the parties may mutually agree in writing to waive this finality
requirement. Notwithstanding all other provisions in this Agreement to the
contrary, if any, however, except as to finality, such requirement of
receiving FCC consent shall not be waiveable by the parties. The FCC's
consent(s) shall be deemed to have become final when each such consent has
been granted and published, has not been vacated, reversed, stayed, set aside,
annulled or suspended, the time for the filing by anyone other than the FCC of
any protest, petition to deny, request for stay, petition for rehearing or
reconsideration, application for review or appeal of each such consent has
expired, no such protest, petition to deny, request for stay, petition for
rehearing or reconsideration, application for review or appeal is pending
before the FCC or a court of competent jurisdiction and the statutory or
regulatory time within which the FCC may review each such consent on its own
motion has expired and the FCC has not undertaken such review, and in the
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event of review, reconsideration, or appeal that does not result in such FCC
consent being reversed, stayed, enjoined, set aside, annulled or suspended,
the statutory or regulatory time for further review, reconsideration, or
appeal has expired. As used in this Agreement, the term "Commission Order"
refers to either (i) such FCC consent(s) (collectively as to all such
consents) when they are deemed to have become final or, (ii) if such finality
has been waived by agreement of all the parties in writing, such FCC
consent(s) (collectively as to all such consents) without finality.
(b) APPLICATION(S) FOR CONSENT. The parties to this
Agreement agree to proceed as expeditiously as practicable to file or cause to
be filed an application or applications requesting FCC consent (collectively,
the "Consent Application") to the transfer of control of the licenses of the
Stations from MMR to SFX, as contemplated by this Agreement. The parties agree
that the Consent Application shall be duly filed with the FCC not later than
forty-five (45) business days after the date of this Agreement, and that such
Consent Application shall be prosecuted in good faith and with due diligence.
The failure of either party to timely file or prosecute in good faith and with
due diligence its portion of the Consent Application shall be deemed a
material breach of this Agreement. MMR and SFX each agree to pay, when due,
one-half (1/2) of the filing fee(s) for the Consent Application.
(c) CONDITIONS. If the Consent Application as approved by
the FCC imposes any condition on any party hereto, such party shall use its
best efforts to comply with such condition; provided, however, that none of
the parties hereto shall be required hereunder to comply with any conditions
that would have a Material Adverse Effect upon it, except for any Equal
Employment Opportunity conditions. If administrative or judicial
reconsideration or review is sought with respect to the FCC Consents, MMR and
SFX shall oppose such efforts to obtain reconsideration or review.
SECTION 6.14. EMPLOYEE BENEFIT PLANS. SFX and MMR agree
that the MMR Benefits Plans in effect at the date of this Agreement shall, to
the extent practicable, remain in effect until otherwise determined after the
Effective Time and, to the extent such MMR Benefit Plans are not continued, it
is the current nonbinding intent of the parties that employee benefit plans of
SFX which are no less favorable, in the aggregate, to the employees covered by
such plans shall be provided.
SECTION 6.15. REPAYMENT OF INDEBTEDNESS; REDEMPTION OF MMR
SENIOR PREFERRED STOCK. On or prior to the Effective Time, MMR shall use its
best efforts to (a) repay all amounts outstanding under the Loan Agreement
(the "Finova Loan") dated March 27, 1995 between Finova Capital Corporation
and certain MMR Subsidiaries, and (b) repay all amounts due under the Senior
Subordinated Debentures due 2001 ("Subordinated Debentures") issued to Huff
and redeem all shares of the MMR Senior Preferred Stock.
SECTION 6.16. WARRANTS; MAKE WHOLE ADJUSTMENT. (a) Subject
to applicable laws, MMR shall, at the request of SFX, use all commercially
reasonable efforts to (a) commence an offer to exchange MMR Class A Common
Stock for all outstanding Class B Warrants, which offer shall not be greater
than 0.2 (two-tenths) shares of MMR Class A Common Stock for each such
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Class B Warrant and (b) cooperate with SFX in connection with the solicitation
of the purchase of all of the outstanding Unit Purchase Options and IPO
Warrants. Any documents prepared by MMR to effectuate such offer to exchange
and solicitations shall be in form and substance reasonably satisfactory to
SFX and its counsel.
In the event that MMR is unsuccessful in obtaining the exchange of at
least 50% of the outstanding Class B Warrants at the ratio set forth above on
or prior to the Determination Date, the Exchange Ratio set forth in Section
2.01(b) above shall be adjusted downward to the extent necessary to reduce the
total dollar value of the SFX Class A Common Stock and SFX Class B Common
Stock that would have otherwise been received by MMR security holders on the
Effective Date (in each case calculated with reference to the SFX Class A
Common Stock Price) by a dollar amount equal to the product of $2.30 times the
number of Class B Warrants outstanding immediately after such exchange in
excess of such 50% number. In calculating the total value of SFX Class A
Common Stock and SFX Class B Common Stock received by MMR security holders,
each share of SFX Class B Common Stock shall be deemed to have the same value
as a share of SFX Class A Common Stock.
(b) In the event that SFX delivers the Make Whole Notice (as
defined in and subject to the conditions of Section 8.01(l)) to MMR and does
not deliver a Make Whole Rescission Notice (as defined in Section 8.01(l)),
the Exchange Ratio (x) shall be determined pursuant to Section 2.01(b) if the
SFX Class A Common Stock Price equals or exceeds $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) SFX Class A Common Stock Price shall be an amount
equal to $10.25 (such amount being referred to as the "Minimum Per Share
Amount").
SECTION 6.17. THE EXCHANGE AGREEMENT AND RELATED MATTERS.
(a) SFX and MMR hereby agree that the exchange contemplated by that certain
Exchange Agreement dated November 13, 1995 between SFX and MMR (the "Letter
Agreement") is hereby canceled effective on and as of the date hereof and,
except as provided herein, all rights and obligations arising thereunder are
hereby terminated without any further action or liability on the part of
either party. Each of MMR and Multi-Market Radio Acquisition Corporation
("MMRAC") shall use all commercially reasonable efforts to obtain consents and
shall assign its rights under the following agreements to SFX or a
wholly-owned subsidiary of SFX, and SFX or such subsidiary shall assume any
and all obligations under such agreements and shall relieve MMR of all
obligations thereunder: (i) the Asset Purchase Agreement dated as of December
27, 1995 between Texas Coast Broadcasters, Inc. and MMR, (ii) the Asset
Purchase Agreement dated as of January 26, 1996 between Lewis Broadcasting
Corporation and MMRAC, (iii) the Asset Purchase Agreement dated January 22,
1996 between ABS Greenville Partners, L.P. and MMRAC and (iv) the Asset
Purchase Agreement dated January 18, 1996 between HMW Communications, Inc. and
MMRAC (collectively, the "Asset Purchase Agreements"). SFX shall reimburse MMR
for any costs and expenses incurred by MMR in connection with obtaining such
consents.
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(b) Upon consummation of SFX's acquisition of all of the
capital stock of Liberty Broadcasting, Incorporated ("Liberty"), pursuant to
that certain Stock Purchase Agreement (as such agreement may be amended,
supplemented or otherwise modified from time to time), dated as of November
15, 1995 among SFX, Liberty and the stockholders thereof, SFX and MMR shall
enter into a local marketing agreement (the "Liberty LMA") pursuant to which
MMR shall, among other things, provide programming to and sell advertising on
radio stations WHCN(FM), Hartford, Connecticut; WMRQ(FM), Waterbury,
Connecticut; WPOP-AM, Hartford, Connecticut; WSNE(FM), Taunton, Massachusetts;
WHJY(FM), Providence, Rhode Island; WHJJ-AM, Providence, Rhode Island;
WGNA(FM), Albany, New York; WPYX(FM), Albany, New York; WTRY-AM, Troy, New
York; WGNA-AM, Albany, New York; WYSR(FM), Rotterdam, New York and WMXB(FM),
Richmond, Virginia (collectively, the "Liberty Stations"). The Liberty LMA
shall provide for the payment by MMR to SFX of a monthly fee, in arrears, in
an amount equal to the broadcast cash flow of the Liberty Stations. The
Liberty LMA shall terminate at the earlier of (i) the Effective Time or (ii)
the date this Agreement is terminated pursuant to Section 8.01(e) or (c)(i)
(except in the event such termination is due to the occurrence of an event
described in Section 8.01(g), (h), (j), (l), (m) or (n)). In the event that
this Agreement is terminated pursuant to Section 8.01(a), (b), (c)(ii),
(c)(iii), (f), (g), (h), (j), (l), (m) or (n), MMR will have the right but not
the obligation to acquire, subject to FCC approval, the Liberty Stations for
$100 million in cash payable in full at the closing. To exercise its right to
purchase the Liberty Stations, MMR shall give written notice of such exercise
to SFX within forty-five (45) days following the termination of this
Agreement. Such notice shall be accompanied by a $1.0 million cash deposit to
secure its obligation to purchase the Liberty Stations. MMR shall further
deposit $2.0 million cash within twenty (20) business days thereafter. In the
event that MMR exercises its right to acquire the Liberty Stations, the
parties shall use their best efforts to cause such acquisition to be
consummated as soon as practicable and in any event within nine months
following the termination of this Agreement. In the event that this Agreement
is terminated pursuant to Section 8.01(a), (b), (f), (h), (j) or (l), SFX
shall have the right to structure an exchange of stations (the "Exchange") for
the Liberty Stations, intended to qualify as a like-kind exchange under
Section 1031 of the Code and MMR and SFX shall use their best efforts to
consummate the Exchange as soon as practicable and in any event within nine
months following the termination of this Agreement. In the event that SFX does
not acquire Liberty and this Agreement is terminated pursuant to a section
other than Section 8.01(e) or (c)(i) (except in the event such termination is
due to the occurrence of an event described in Section 8.01(g), (h), (j), (l),
(m) or (n)), SFX shall pay MMR liquidated damages in the amount of $3.5
million. Notwithstanding the foregoing, the parties acknowledge that, in the
event MMR acquires radio station WYSR(FM) under this Section 6.17, such
acquisition will be of an interest in a joint sales agreement with respect to
WYSR(FM) rather than that station itself.
SECTION 6.18. GOVERNANCE. At or prior to the Effective
Time, SFX's Board of Directors shall amend SFX's Bylaws to increase the number
of directors constituting the entire Board of Directors by two. At or prior to
the Effective Time, SFX shall take all action necessary to cause (i) Michael
Ferrel to be named a director and Chief Executive Officer of SFX, and (ii) an
additional Independent Director (as defined in SFX's Certificate of
Incorporation) to be appointed to the Board of Directors of SFX.
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SECTION 6.19. WITHDRAWAL OF REGISTRATION STATEMENTS. Upon
written request of SFX, MMR shall cause its Registration Statement on Form
SB-2 (Reg. No. 333-1712) in respect of 5,750,000 shares of MMR Class A Common
Stock and its Registration Statement on Form SB-2 (Reg. No. 333-1892) in
respect of $110,000,000 Senior Subordinated Notes due 2006 to be withdrawn in
accordance with the rules of the SEC.
ARTICLE VII -- CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The obligations of MMR, SFX and Acquisition Sub to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Transactions contemplated hereby
shall have been approved and adopted by the affirmative vote of the
stockholders of MMR in accordance with Delaware Law and MMR's Certificate of
Incorporation and Bylaws;
(b) this Agreement and the Transactions contemplated hereby
shall have been approved and adopted by the affirmative vote of the
stockholders of SFX in accordance with Delaware Law and SFX's Certificate of
Incorporation and By-laws and the rules of the Nasdaq Stock Market.
(c) the Certificate of Incorporation of SFX shall have been
amended as set forth in Exhibit D, provided, however, that SFX may waive this
condition only with the approval of the Independent Committee of SFX;
(d) no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute, rule or regulation which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger;
(e) the Registration Statement shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect;
(f) SFX and MMR shall have received from the Nasdaq Stock
Market evidence that the shares of SFX Class A Common Stock to be issued to
the stockholders of MMR in the Merger shall be listed on the Nasdaq National
Market immediately following the Effective Time;
(g) any applicable waiting period under the HSR Act relating
to the Merger shall have expired or been terminated;
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(h) all applicable consents to the Merger from the FCC shall
have been received and be final, or SFX and MMR shall have agreed in writing
to waive the finality requirement pursuant to Section 6.13(a) above;
(i) SFX and MMR shall have received the tax opinions
provided for in Section 6.12;
(j) SFX shall have entered into an agreement to amend the
employment agreement of D. Geoffrey Armstrong dated as of April 1, 1995; and
(k) all other consents, authorizations, orders and approvals
of (or filings or registrations with) any third party or governmental
commission, board or other regulatory body required in connection with the
execution, delivery and performance of this Agreement shall have been obtained
or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on
the business of MMR or SFX (or their respective subsidiaries), taken as a
whole, following the Effective Time, and the agreement described in Section
8.01(l)(B) shall have been reached and the transactions contemplated therein
consummated prior to the Effective Time.
SECTION 7.02. CONDITIONS TO THE OBLIGATIONS OF SFX AND
ACQUISITION SUB. The obligations of SFX and Acquisition Sub to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) MMR shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Effective Time and each of
the representations and warranties of MMR contained in this Agreement shall be
true and correct in all material respects as of the Effective Time as though
made on and as of the Effective Time, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, and SFX shall have received a certificate of
an executive officer of MMR to that effect;
(b) SFX shall have received from each MMR Affiliate and any
other person who may be deemed to have become an affiliate of MMR (under Rule
145 under the Securities Act) after the date of this Agreement and at or prior
to the Effective Time a signed Affiliate Agreement;
(c) since the date of this Agreement, no material adverse
change in the financial condition, results of operations or business of MMR
and the MMR Subsidiaries, taken as a whole, shall have occurred, and neither
MMR nor any MMR Subsidiary shall have suffered any damage, destruction or loss
materially affecting the business or properties of MMR and the MMR
Subsidiaries, taken as a whole;
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(d) SFX shall have received evidence reasonably satisfactory
to it that MMR has repaid or provided for the repayment at the Effective Time
of the Finova Loan; and
(e) SFX shall have received a written fairness opinion from
the SFX Banker dated as of the date of the Proxy Statement, provided, however,
that SFX will only be able to waive this condition with the approval of the
Independent Committee of SFX.
SECTION 7.03. CONDITIONS TO THE OBLIGATIONS OF MMR. The
obligations of MMR to consummate the Merger are subject are subject to the
satisfaction of the following further conditions:
(a) SFX and Acquisition Sub shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them at or prior to the
Effective Time and each of the representations and warranties of SFX and
Acquisition Sub contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, as though made on and as of the
Effective Time, except that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date and MMR shall have received a certificate of an executive officer of SFX
to that effect;
(b) since the date of this Agreement, no material adverse
change in the financial condition, results of operations or business of SFX
and the SFX Subsidiaries, taken as a whole, shall have occurred, and SFX and
the SFX Subsidiaries shall not have suffered any damage, destruction or loss
materially affecting the business or properties of SFX and the SFX
Subsidiaries, taken as a whole; and
(c) MMR shall have received a written fairness opinion from
the MMR Banker dated as of the date of the Proxy Statement, provided, however,
that MMR will only be able to waive this condition with the approval of the
Independent Committee of MMR.
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior
to the Effective Time, notwithstanding any requisite approval and adoption of
this Agreement and the Transactions, as follows:
(a) by mutual written consent duly authorized by the Boards
of Directors (including the Independent Committees) of each of SFX and MMR;
(b) by either SFX or MMR, if either (i) the Effective Time
shall not have occurred on or before December 31, 1997; provided, however,
that the right to terminate this Agreement under
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this Section 8.01(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date;
provided further, however, that such December 31, 1997 deadline shall be
extended to and including June 30, 1998 in the event that all other conditions
to the consummation of the Merger shall have been satisfied but (x) the FCC
has granted its consent to the Merger and (y) a third party petition seeking
reconsideration or review of such consent is permitted to be filed, or FCC
review of such consent is permitted to be taken pursuant to 47 C.F.R. ss.
1.117, or (ii) there shall be any Order which is final and nonappealable
preventing the consummation of the Merger, except if the party relying on such
Order has not complied with its obligations under Section 6.03(a);
(c) by SFX, if (i) the Independent Committee or the Board of
Directors of MMR fails to recommend, withdraws, or materially modifies or
materially changes, their recommendations of this Agreement or the Merger in a
manner adverse to SFX or shall have resolved to do any of the foregoing, (ii)
the Independent Committee or the Board of Directors of MMR shall have
recommended to the stockholders of MMR a Competing Transaction or shall have
failed to recommend against accepting a Competing Transaction or take no
position with respect thereto or shall have resolved to do any of the
foregoing, or (iii) any person (other than SFX, Acquisition Sub or any
affiliate thereof) shall have acquired "beneficial ownership" or the right to
acquire beneficial ownership of, or any "group" (as such terms are defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder), shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, more than 30% of the then
outstanding shares of any class of capital stock of MMR;
(d) by SFX, if the stockholders of MMR shall have failed to
approve and adopt this Agreement, the Merger and other Transactions at a
meeting duly convened therefor;
(e) by SFX, upon a breach of any representation, warranty,
covenant or agreement on the part of MMR set forth in this Agreement, or if
any representation or warranty of MMR shall have become untrue, in either case
such that the conditions set forth in Section 7.02 would not be satisfied (a
"Terminating MMR Breach"); provided, however, that, if such Terminating MMR
Breach is curable by MMR through the exercise of its best efforts and for so
long as MMR continues to exercise such best efforts, SFX may not terminate
this Agreement under this Section 8.01(e);
(f) by MMR, if the stockholders of SFX shall have failed to
approve and adopt this Agreement, the Merger and other Transactions at a
meeting duly convened therefor;
(g) by MMR, upon breach of any representation, warranty,
covenant or agreement on the part of SFX set forth in this Agreement, or if
any representation or warranty of SFX shall have become untrue, in either case
such that the conditions set forth in Section 7.03 would not be satisfied
("Terminating SFX Breach"); provided, however, that, if such Terminating SFX
Breach is curable by SFX through best efforts and for so long as SFX continues
to exercise such best efforts, MMR may not terminate this Agreement under this
Section 8.01(g);
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(h) by MMR or the Independent Committee of MMR, upon (1) the
revocation by the MMR Banker of its written fairness opinion if such
revocation was (A) (i) directly related to the material misstatement or
omission contained in the information provided to the MMR Banker by SFX, and
(ii) MMR does not directly or indirectly solicit such a revocation or (B) a
direct result of a Material Adverse Effect with respect to SFX or (2) failure
of the MMR Banker to confirm its written fairness opinion at the time the
Proxy Statement is first mailed to MMR stockholders;
(i) by SFX or the Independent Committee of SFX, upon (1) the
revocation by the SFX Banker of its written fairness opinion if such
revocation was (A)(i) directly related to the material misstatement or
omission contained in the information provided to the SFX Banker by MMR, and
(ii) SFX does not directly or indirectly solicit such a revocation or (B) a
direct result of a Material Adverse Effect with respect to MMR or (2) failure
of the SFX Banker to confirm its written fairness opinion at the time of the
Proxy Statement is first mailed to SFX stockholders;
(j) by MMR or the Independent Committee of MMR within ten
(10) business days of the delivery of the SFX Disclosure Schedules, if such
schedules contain information inconsistent with information contained in the
SFX SEC Reports or if such schedules contain information which was omitted
from the SFX SEC Reports filed prior to the date hereof and such inconsistent
or omitted information would, in the reasonable good faith determination of
the Independent Committee of MMR after consultation with its advisors
supported (if practicable) by a written evaluation by the MMR Banker,
reasonably be expected to have a Material Adverse Effect on SFX;
(k) by SFX or the Independent Committee of SFX within ten
(10) business days of the delivery of the MMR Disclosure Schedules, if such
schedules contain information inconsistent with information contained in the
MMR SEC Reports or if such schedules contain information which was omitted
from the MMR SEC Reports filed prior to the date hereof and such inconsistent
or omitted information would, in the reasonable good faith determination of
the Independent Committee of SFX after consultation with its advisors
supported (if practicable) by a written evaluation by the SFX Banker
reasonably be expected to have a Material Adverse Effect on MMR;
(l) (A) by MMR or the Independent Committee of MMR, in the
event that (i) the Reported Price for the SFX Class A Common Stock for any
seven (7) consecutive trading days (the "Average Price") during any period
commencing with the first trading day following June 15, 1996 and ending on
the Determination Date shall be less than $28.52 and (ii) MMR has delivered
written notice to SFX of its intention to terminate this Agreement (the "Price
Termination Notice") within forty-eight (48) hours following the date on which
the Average Price is less than $28.52; provided, that SFX, upon the
recommendation of the Independent Committee of SFX, shall have the right, but
not the obligation, to deliver, within forty-eight (48) hours after the
receipt of the Price Termination Notice, a written notice pursuant to which
SFX agrees that MMR stockholders shall receive no less than the Minimum Per
Share Amount (the "Make Whole Notice"); and provided, further, that SFX, upon
the recommendation of the Independent Committee of SFX, shall, subject to the
next
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succeeding sentence, have the right to rescind such Make Whole Notice by
delivery of an additional notice (the "Make Whole Rescission Notice") in the
event that the Average Price at any time following the delivery of the Make
Whole Notice is at least $0.25 less than the Average Price as set forth in,
and which triggered, the Price Termination Notice (such Average Price at the
time of the first Make Whole Rescission Notice being referred to as the
"Reduced Average Price," which term, after any subsequent decline of the
Average Price of at least an additional $0.25, shall thereafter be deemed the
"Reduced Average Price"). The Make Whole Rescission Notice shall be effected
by delivery of written notice to MMR within forty-eight (48) hours following
the date on which a particular Reduced Average Price occurred, it being
understood that in the event SFX elects not to deliver a Make Whole Rescission
Notice within such 48-hour period with respect to any particular Reduced
Average Price, then SFX shall retain the right to deliver a Make Whole
Rescission Notice with respect to any subsequent Reduced Average Price. In the
event SFX either fails to deliver the Make Whole Notice within the forty-eight
(48) hour period following the receipt of a Price Termination Notice or
delivers a Make Whole Rescission Notice, this Agreement shall terminate
forthwith. (B) by MMR or the Independent Committee of MMR during the period
commencing on the end of the fifth (5th) business day following the delivery
of the SFX Disclosure Schedules and ending on the tenth (10th) business day
following the delivery of the SFX Disclosure Schedules if a binding,
definitive agreement is not reached, by the close of business on such fifth
(5th) business day, with respect to the repayment and redemption in full at or
prior to the Effective Time of the Subordinated Debentures and the MMR Senior
Preferred Stock;
(m) by MMR, if MMR accepts a Competing Transaction; or
(n) by MMR, if the Independent Committee or the Board of
Directors of SFX fails to recommend, withdraws or materially changes their
recommendation of this Agreement or the Merger in a manner adverse to MMR or
shall have resolved to do any of the foregoing.
SECTION 8.02. FEES AND EXPENSES. (a) MMR shall pay SFX a
fee (an "Alternative Proposal Fee") of $3,500,000, which amount is inclusive
of all of Specified Expenses (as hereinafter defined) and all other costs and
expenses, if:
(i) this Agreement is terminated pursuant to Section 8.01(m)
or (c) (except in the event a termination occurs pursuant to Section
8.01(c)(i) due to the occurrence of an event described in Section
8.01(g), (h)(1), (j), (l) or (n)); or
(ii) (A) this Agreement is terminated pursuant to Section
8.01(d) as a result of the failure of the stockholders of MMR to approve
the Merger, (B) a proposal for Competing Transaction shall have been made
prior to such termination, and (C) any Competing Transaction is
thereafter consummated within 12 months of such termination.
(b) SFX shall pay MMR a fee (the "MMR Termination Fee") of
$1,000,000, which amount is inclusive of all of the Specified Expenses, if the
majority of the combined voting power of SFX votes with respect to, but does
not vote in favor of, the Merger.
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(c) Except in connection with a termination pursuant to
which the Alternative Proposal Fee would otherwise be due and owing, MMR shall
pay SFX a fee (the "SFX Termination Fee") of $1,000,000, which amount is
inclusive of all of the Specified Expenses, if the majority of the combined
voting power of MMR votes with respect to, but does not vote in favor of, the
Merger.
(d) SFX shall be entitled to receive its Specified Expenses
(but not the Alternative Proposal Fee) in immediately available funds in the
event that this Agreement is terminated pursuant to Section 8.01(e), (i) or
(k). MMR shall be entitled to receive its Specified Expenses in immediately
available funds in the event that this Agreement is terminated pursuant to
Section 8.01(g), (h) or (j). In addition, MMR shall also be entitled to
receive in immediately available funds one-half (1/2) of its out-of-pocket
expenses incurred in connection with the transactions contemplated by Section
6.16 in the event that this Agreement is terminated pursuant to Section
8.01(f), (g), (h), (j) or (l).
(e) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to Section 8.01, all obligations of the
parties hereto shall terminate except the obligations of the parties pursuant
to this Section 8.02 and Sections 6.17, 8.03, 8.04, 9.02, 9.05, 9.08, 9.11 and
9.13.
No termination of this Agreement pursuant to Section
8.01(e), (g), (h) or (i) shall prejudice the ability of a non-breaching party
from seeking damages from any other party for any breach of this Agreement,
including, without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity. Notwithstanding the foregoing, if SFX is required
to file suit to seek the Alternative Proposal Fee or either SFX or MMR is
required to file suit to seek its Specified Expenses or to recover its
Termination Fee, and it ultimately succeeds on the merits, it shall be
entitled to all expenses, including attorneys' fees, which it has incurred in
enforcing its rights under this Section 8.02.
(f) As used herein, "Specified Expenses" means all
reasonable out-of-pocket expenses and fees actually incurred or accrued by a
party or on its behalf in connection with the Transactions prior to the
termination of this Agreement (including, without limitation, all fees and
expenses of counsel, financial advisors, banks or other entities providing
financing to such party (including financing, commitment and other fees
payable thereto), accountants and other experts and consultants to such party
and its affiliates, and all printing and advertising expenses) and in
connection with the negotiation, preparation, execution, performance and
termination of this Agreement, the structuring of the Transactions, any
agreements relating thereto and any filings to be made in connection
therewith; provided however in no event shall Specified Expenses include the
expenses incurred under Section 6.16 hereof.
(g) Except as set forth in this Section and in Sections
6.01, 6.13(a) and the last sentence of Section 6.17(a), all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid
by the party incurring such expenses, whether or not any Transaction is
consummated.
51
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SECTION 8.03. AMENDMENT. This Agreement may be amended by
the parties hereto by action taken by or on behalf of their respective
Independent Committees and Boards of Directors at any time prior to the
Effective Time; provided, however, that, after the approval and adoption of
this Agreement and the Transactions by the stockholders of MMR, no amendment
may be made which would violate Delaware Law. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective
Time, any party hereto with the consent of its Independent Committee and Board
of Directors may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE IX -- GENERAL PROVISIONS
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS. The representations, warranties and agreements in this
Agreement and any certificate delivered pursuant hereto by any person shall
terminate at the Effective Time, except that the agreements set forth in
Articles I and II and Sections 6.06, 6.18 and 6.19 and the agreements
delivered pursuant to this Agreement shall survive the Effective Time
indefinitely.
SECTION 9.02. NOTICES. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, facsimile, telegram or telex or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 9.02):
if to SFX or Acquisition Sub:
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Attention: Robert F.X. Sillerman
Facsimile: (212) 753-3188
52
<PAGE>
with copies to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Attention: Howard M. Berkower
Facsimile: (212) 759-9133
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Morton A. Pierce
Facsimile: (212) 259-6333
if to MMR:
Multi-Market Radio, Inc.
One Monarch Place
Suite 220
Springfield, Massachusetts 01144
Attention: Michael G. Ferrel
Facsimile: (413) 732-7851
with a copy to:
Paul, Hastings, Janofsky & Walker
399 Park Avenue, 31st Floor
New York, New York 10022
Attention: William F. Schwitter
Facsimile: (212) 319-4090
SECTION 9.03. CERTAIN DEFINITIONS. Unless the context
requires otherwise, for purposes of this Agreement, the term:
(a) "affiliate" of a specified person means a person who,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only
53
<PAGE>
to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding, (iii) which are beneficially owned,
directly or indirectly, by any other persons with whom such person or any of
its affiliates or associates or any person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any such shares, or
(iv) pursuant to Section 13(d) of the Exchange Act and any rules or
regulations promulgated thereunder;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in New York, New York;
(d) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary), owns
or has rights to acquire, directly or indirectly, more than 50% of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.04. SEVERABILITY. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of Law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.05. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties.
54
<PAGE>
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement
to the contrary, except for the provisions of Article II (including, without
limitation, provisions relating to the holders of any Warrants) and Section
6.06 (collectively, the "Third Party Provisions"), nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.06. INCORPORATION OF SCHEDULES. The MMR
Disclosure Schedule and the SFX Disclosure Schedule referred to herein and
signed for identification by the parties hereto and all exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein. For purposes of this
Agreement, any disclosure made (i) on any Schedule to this Agreement shall be
deemed included in any other Schedule to which such disclosure is relevant and
(ii) in any MMR or SFX SEC Reports filed prior to the date hereto shall be
deemed to have been disclosed for all purposes relevant, and shall be deemed
included in all Schedules annexed, to this Agreement.
SECTION 9.07. SPECIFIC PERFORMANCE. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
SECTION 9.08. GOVERNING LAW. EXCEPT TO THE EXTENT THAT
DELAWARE LAW IS MANDATORILY APPLICABLE TO THE MERGER AND THE RIGHTS OF THE
STOCKHOLDERS OF MMR AND ACQUISITION SUB, THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE RULES OF CONFLICTS OF LAW THEREOF. ALL ACTIONS AND PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN
ANY COURT SITTING IN THE CITY OF NEW YORK, STATE OF NEW YORK.
SECTION 9.09. HEADINGS. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.10. COUNTERPARTS. This Agreement may be executed
and delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
SECTION 9.11. WAIVER OF JURY TRIAL. Each of SFX, MMR and
Acquisition Sub hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the
55
<PAGE>
actions of SFX, MMR or Acquisition Sub in the negotiation, administration,
performance and enforcement thereof.
SECTION 9.12. ENTIRE AGREEMENT. This Agreement, the MMR
Disclosure Schedule, the SFX Disclosure Schedule, the Exhibits attached
hereto, and all documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon any party hereto unless made in
writing and signed by all parties hereto.
SECTION 9.13. WAIVER OF CERTAIN RIGHTS. (a) SFX hereby
waives any right to terminate this Agreement, during the period prior to the
delivery of the MMR Disclosure Schedule to SFX, to the extent that such right
is based upon any purported breach of any representation or warranty of MMR,
except if any such purported breach relates to a representation or warranty
which is not qualified by reference to the MMR Disclosure Schedule.
(b) MMR hereby waives any right to terminate this Agreement,
during the period prior to the delivery of the SFX Disclosure Schedule to MMR,
to the extent that such right is based upon any purported breach of any
representation or warranty of SFX, except if any such purported breach relates
to a representation or warranty which is not qualified by reference to the SFX
Disclosure Schedule.
(c) The information contained in the disclosure schedules
will be deemed to have been disclosed for all relevant purposes as of the date
of this Agreement.
56
<PAGE>
IN WITNESS WHEREOF, SFX, Acquisition Sub and MMR have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
SFX BROADCASTING, INC.
By /s/ Robert F.X. Sillerman
------------------------------------------
Robert F.X. Sillerman, Executive Chairman
SFX MERGER COMPANY
By /s/ Robert F.X. Sillerman
------------------------------------------
Robert F.X. Sillerman, President
MULTI-MARKET RADIO, INC.
By /s/ Michael G. Ferrel
------------------------------------------
Michael G. Ferrel, Chief Executive Officer
57
<PAGE>
EXHIBIT A
[INTENTIONALLY OMITTED]
A-1
<PAGE>
EXHIBIT B
AFFILIATE AGREEMENT
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of Multi-Market Radio, Inc., a Delaware
corporation ("MMR"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"). Pursuant to the
terms of the Agreement and Plan of Merger dated April 11, 1996 (the
"Agreement"), between SFX Broadcasting, Inc., a Delaware corporation ("SFX"),
SFX Merger Company, a Delaware corporation and a wholly owned subsidiary of
SFX ("Acquisition Sub"), and MMR, Acquisition Sub will be merged with and into
MMR (the "Merger").
In connection with the transactions contemplated by the Agreement, I
may receive shares of Class A Common Stock, par value $.01 per share, or Class
A Common Stock, par value $.01 per share, of SFX (the "SFX Securities").
I represent, warrant and covenant to SFX that in the event I receive
any SFX Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of
the SFX Securities in violation of the Act or the Rules and
Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of the SFX
Securities to the extent I felt necessary with my counsel or counsel
for MMR.
C. I have been advised that the issuance of SFX Securities to me in
connection with the transactions contemplated by the Agreement has
been registered with the Commission under the Act on a Registration
Statement on Form S-4. However, I have also been advised that, since
at the time the Merger and the Agreement were submitted for a vote of
the stockholders of MMR, I may be deemed to have been an affiliate of
MMR and the distribution by me of the SFX Securities has not been
registered under the Act, I may be prohibited from selling,
transferring or otherwise disposing of the SFX Securities issued to
me in connection with the transactions contemplated by the Agreement
unless (i) such sale, transfer or other disposition
B-1
<PAGE>
has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel
reasonably acceptable to SFX, or a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or
other disposition is otherwise exempt from registration under the
Act.
D. I understand that SFX is under no obligation to register the sale,
transfer or other disposition of the SFX Securities by me or on my
behalf under the Act or to take any other action necessary in order
to make compliance with an exemption from such registration
available.
It is understood and agreed that prior to any transfer of any of the
SFX Securities, I will give written notice to SFX of my intention to effect
such offer, sale or transfer, describing the proposed transaction in
sufficient detail to enable SFX and its counsel to determine that the proposed
transaction will not violate the Act.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of MMR as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
-----------------------------------
Name:
Accepted this _____ day of
1996 by
SFX Broadcasting, Inc.
By:
B-2
<PAGE>
EXHIBIT C
AMENDMENTS TO MMR'S
CERTIFICATE OF INCORPORATION
(i) to permit different classes of common stock to receive
different consideration in a merger.
C-1
<PAGE>
EXHIBIT D
AMENDMENTS TO SFX'S
CERTIFICATE OF INCORPORATION
(i) to increase the authorized shares of Class A Common Stock
and Class B Common Stock.
D-1
<PAGE>
EXHIBIT E-1
[SFX Letterhead]
[date]
Baker & McKenzie
805 Third Avenue
New York, NY 10022
Dear Sirs:
SFX Broadcasting, Inc. ("SFX"), a Delaware corporation, hereby
certifies that:
For purposes of this certificate, capitalized terms used and
otherwise defined herein shall have the meanings ascribed thereto in that
certain Agreement and Plan of Merger, dated April 11, 1996, among SFX, SFX
Merger Company, and Multi-Market Radio, Inc.
1. The fair market value of the SFX Class A Common Stock, Class B
Common Stock ("SFX Common Stock") and other consideration received by each MMR
stockholder will be approximately equal to the fair market value of the MMR
Class A Common Stock, Class B Common Stock, Class C Common Stock, Original
Preferred Stock, Senior Cumulative Preferred Stock, if outstanding as of the
date hereof, Series B Convertible Preferred Stock (collectively, "MMR Stock")
surrendered in the exchange.
2. There is no intercorporate indebtedness existing between SFX and
MMR or between SFX Merger Company and MMR that was issued, acquired, or will
be settled at a discount.
3. Neither SFX nor SFX Merger Company is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of
1986, as amended (the "Code").
4. Following the Merger, SFX Merger Company will hold at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by SFX Merger Company
immediately prior to the Merger. For purposes of this representation, amounts
paid by SFX Merger Company to dissenters, amounts paid by SFX Merger Company
to stockholders who receive cash or other property, assets of SFX Merger
Company used to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by SFX Merger
Company immediately before the Merger will be included as assets held by SFX
Merger Company immediately prior to the Merger.
E-1-1
<PAGE>
5. Prior to the Merger, SFX will be in control of SFX Merger Company
within the meaning of sections 368(c) of the Code.
6. SFX has no plan or intention to reacquire any of its stock issued
in the Merger.
7. SFX has no plan or intention to liquidate SFX Merger Company; to
merge SFX Merger Company with and into another corporation; to sell or
otherwise dispose of any of the stock of SFX Merger Company; or to cause SFX
Merger Company to sell or otherwise dispose of any of the assets of MMR
acquired in the Merger, except for dispositions, made in the ordinary course
of business, or transfers described in section 368(a)(2)(C) of the Code.
8. Following the Merger, SFX Merger Company will continue the
historic business of MMR or use a significant portion of MMR's business assets
in a business.
9. Following the Merger, Surviving Corporation will not issue
additional shares of its stock that would result in SFX losing control of
Surviving Corporation within the meaning of section 368(c) of the Code.
10. No stock of SFX Merger Company will be issued in the Merger.
11. The payment of cash in lieu of fractional shares of SFX Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
SFX of issuing fractional shares of SFX Common Stock and does not represent
separately bargained-for consideration.
12. None of the compensation received by any stockholder-employees of
MMR will be separate consideration for, or allocable to, any of their shares
of MMR Stock.
13. SFX Merger Company will have no liabilities assumed by MMR, and
will not transfer to MMR any assets subject to liabilities in the Merger.
14. SFX and SFX Merger Company will pay their respective expenses, if
any, incurred in connection with the Merger.
15. SFX does not own, nor has it owned during the past five years,
any shares of the stock of MMR.
I understand that Baker & McKenzie, as counsel for SFX, will rely on
this certificate in rendering their opinion concerning certain of the federal
income tax consequences of the Merger.
This ______ day of _________________, 1996.
------------------------
(Name)
(Title)
E-1-2
<PAGE>
EXHIBIT E-2
[MMR Letterhead]
[date]
Baker & McKenzie
805 Third Avenue
New York, NY 10022
Dear Sirs:
Multi-Market Radio, Inc. ("MMR"), a Delaware corporation, hereby
certifies that:
For purposes of this certificate, capitalized terms used and not
otherwise defined herein shall have the meanings ascribed thereto in that
certain Agreement and Plan of Merger, dated April 11, 1996, among SFX
Broadcasting, Inc., SFX Merger Company, and MMR.
1. The fair market value of the SFX Class A Common Stock, Class B
Common Stock and other consideration received by each MMR stockholder will be
approximately equal to the fair market value of the MMR Class A Common Stock,
Class B Common Stock, Class C Common Stock, Original Preferred Stock, Senior
Cumulative Preferred Stock, if outstanding as of the date hereof, Series B
Convertible Preferred Stock (collectively, "MMR Stock") surrendered in the
exchange.
2. There is no intercorporate indebtedness existing between SFX and
MMR or between SFX Merger Company and MMR that was issued, acquired, or will
be settled at a discount.
3. MMR is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code").
4. There is no plan or intention by the officers and directors of MMR
or stockholders of MMR who own five percent or more of the value of MMR stock,
and to the best of the knowledge of the management of MMR, there is no plan or
intention on the part of the remaining stockholders of MMR to sell, exchange,
or otherwise dispose of a number of shares of SFX stock to be received in the
transaction that would reduce the MMR stockholders' ownership of SFX stock to
a number of shares having a value, as of the date of the Merger, of less than
40 percent of the value of all of the formerly outstanding stock of MMR as of
the same date. For purposes of this representation: (1) shares of MMR stock
exchanged for cash or other property, surrendered by dissenters, or exchanged
for cash in lieu of fractional shares of SFX stock will be treated as
outstanding MMR stock on the date of the transaction, (2) shares of MMR stock
and shares of SFX stock held by MMR stockholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the transaction will be considered in
making this representation, (3) any MMR shares received by MMR Class B
E-2-1
<PAGE>
Warrant holders pursuant to the offer to exchange MMR Class B Warrants,
pursuant to Section 6.16 of the Agreement will be considered shares with
respect to which a disposition is planned.
5. At the Effective Time, MMR will hold at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by MMR immediately prior to the Merger. For
purposes of this representation, amounts used by MMR to pay its reorganization
expenses and all redemptions and distributions (except for regular, normal
dividends) made by MMR immediately preceding the transfer will be included as
assets of MMR held immediately prior to the Merger.
6. The fair market value of the assets of MMR will exceed the sum of
its liabilities, plus the amount of liabilities, if any, to which the assets
are subject.
7. MMR is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
8. MMR and the stockholders of MMR will pay their respective
expenses, if any, incurred in connection with the Merger.
9. At the effective time, MMR will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in MMR that, if exercised or converted, would
affect SFX's acquisition or retention of control of MMR, as defined in section
368(c) of the Code.
I understand that Baker & McKenzie, as counsel for SFX, will rely on
this certificate in rendering their opinion concerning certain of the federal
income tax consequences of the merger.
This ______ day of _________________, 1996.
------------------------
(Name)
(Title)
E-2-2
<PAGE>
OFFER TO PURCHASE AND CONSENT SOLICITATION
SFX BROADCASTING, INC.
OFFER TO PURCHASE AND SOLICITATION OF CONSENTS
WITH RESPECT TO THE
11 3/8 % SENIOR SUBORDINATED NOTES DUE 2000
OF
SFX BROADCASTING, INC.
AT A PRICE OF $1,080.00 PER $1,000 PRINCIPAL AMOUNT
PLUS ACCRUED AND UNPAID INTEREST
UP TO, BUT NOT INCLUDING, THE ACCEPTANCE DATE
SFX Broadcasting, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Tender Offer") to purchase for cash, upon the terms and subject
to the conditions set forth in this Offer to Purchase and Consent
Solicitation (the "Offer to Purchase") and in the accompanying Letter of
Transmittal and Consent (the "Letter of Transmittal and Consent"), any and
all of its outstanding 11 3/8 % Senior Subordinated Notes due 2000 (the
"Notes") at a price of $1,080.00 per $1,000 principal amount, plus accrued
and unpaid interest up to, but not including, the Acceptance Date (as defined
herein). As of April 29, 1996, there was $80.0 million in aggregate principal
amount of Notes outstanding, excluding Notes held by the Company and its
affiliates. See "Principal Terms of the Tender Offer and the Consent
Solicitation--The Tender Offer and Consent Solicitation."
Concurrent with the Tender Offer, the Company is soliciting (the "Consent
Solicitation") consents (the "Consents") to the adoption of certain proposed
amendments (the "Proposed Amendments") to the indenture pursuant to which the
Notes were issued (as amended through the date hereof, the "Indenture") upon
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal and Consent. The Proposed Amendments would modify certain of the
restrictive covenants and other provisions contained in the Indenture, as
more fully described in Annex A hereto. The Proposed Amendments are being
presented as one proposal. Consequently, the delivery of a Consent by a
holder of Notes shall be deemed to be a consent to all of the Proposed
Amendments. See "Summary--Proposed Amendments" and "Annex A--The Proposed
Amendments--Comparison of Indenture Provisions" for a description of the
Proposed Amendments. HOLDERS WHO TENDER THEIR NOTES IN THE TENDER OFFER
PURSUANT TO THE LETTER OF TRANSMITTAL AND CONSENT AND IN ACCORDANCE WITH THE
PROCEDURES DESCRIBED HEREIN WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSED
AMENDMENTS WITH RESPECT TO SUCH NOTES. THERE WILL BE NO SEPARATE PAYMENT FOR
THE CONSENTS. SEE "PRINCIPAL TERMS OF THE TENDER OFFER AND THE CONSENT
SOLICITATION--PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS."
The Company has commenced the Tender Offer and Consent Solicitation in
connection with a private placement (the "Preferred Stock Offering") of
$120.0 million in aggregate liquidation preference of its % Series D
Cumulative Convertible Exchangeable Preferred Stock (the "Series D Preferred
Stock"), a private placement of $440.0 million in aggregate principal amount
of % Senior Subordinated Notes due 2006 (the "Debt Offering" or the "Note
Offering") and the establishment of a $150.0 million senior secured revolving
credit facility (the "New Credit Agreement"), which the Company is currently
negotiating. The Preferred Stock Offering and the Debt Offering are
collectively referred to herein as the "Financing." The net proceeds of the
Financing and borrowings under the New Credit Agreement will be used to
finance the Acquisitions (as defined herein), to effect the Tender Offer and
for general corporate purposes. See "Summary--Pending Acquisitions,"
"Summary--Financing Plan," "Agreements Related to the Acquisitions" and
"Description of Certain Indebtedness." The Company is seeking Consents to the
Proposed Amendments in order to permit the Financing and the execution of the
New Credit Agreement, to permit the consummation of the Acquisitions and to
enhance the Company's flexibility in effecting future acquisitions, if any.
The Company reserves the right to structure the Financing and the New Credit
Agreement in a manner different than that described in this Offer to
Purchase.
THE TENDER OFFER AND THE CONSENT SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MAY 30, 1996, UNLESS EXTENDED (THE "EXPIRATION
DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME UNTIL SUCH TIME AS THE
REQUISITE CONSENTS (AS DEFINED HEREIN) HAVE BEEN RECEIVED AND THE
SUPPLEMENTAL INDENTURE (AS DEFINED HEREIN) HAS BEEN EXECUTED. IN NO EVENT
WILL THE SUPPLEMENTAL INDENTURE BE EXECUTED PRIOR TO MAY 15, 1996.
THE DEALER MANAGER FOR THE TENDER OFFER AND CONSENT SOLICITATION IS:
BT SECURITIES CORPORATION
THE DATE OF THIS OFFER TO PURCHASE AND CONSENT SOLICITATION IS MAY 2, 1996.
<PAGE>
Notwithstanding any other provision of the Tender Offer and the Consent
Solicitation, the Company will not be required to accept any Notes tendered
pursuant to the Tender Offer and may terminate, extend or amend the Tender
Offer and the Consent Solicitation and may, subject to Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), postpone
the acceptance of Notes so tendered, if: (a) the Financing or any part
thereof (and execution of the New Credit Agreement) shall not have been
consummated, (b) there shall not have been validly tendered (and not
withdrawn) prior to the Expiration Date a majority in aggregate principal
amount of the Notes outstanding, excluding Notes held by the Company or its
affiliates (the "Minimum Tender Condition"), (c) the Company and the Trustee
(as defined herein) shall not have executed the Supplemental Indenture (as
defined herein) to the Indenture providing for the Proposed Amendments and
(d) any of the General Conditions (as defined herein) shall not have been
satisfied. The Company may waive any of the conditions to the Tender Offer
and/or the Consent Solicitation, in whole or in part, at any time and from
time to time. See "Principal Terms of the Tender Offer and the Consent
Solicitation--Conditions of the Tender Offer and the Consent Solicitation."
The Tender Offer is not conditioned upon the consummation of any of the
Acquisitions.
Only (i) those persons in whose name Notes are registered in the registry
maintained by the Trustee under the Indenture (referred to herein as
"Registered Holders") or (ii) persons, such as brokers, dealers, commercial
banks, trust companies and other nominees, who (a) are participants in one of
the Book-Entry Transfer Facilities (as defined herein) and whose names appear
on a security listing as owners of the Notes and (b) hold valid proxies which
authorize such persons (or any persons claiming title by or through such
persons) to vote Notes with respect to the Consent Solicitation
(collectively, and together with the Registered Holders, the "Holders"), will
be eligible to tender Notes and to consent to the Proposed Amendments.
Beneficial owners of Notes having Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
Holder if they desire to deliver a Consent in respect of such Notes.
See "Risk Factors" and "Certain Federal Income Tax Considerations" for
discussions of certain factors that should be considered in evaluating the
Tender Offer and the Consent Solicitation, and also see "Proposed Amendments
to the Indenture" and "Annex A--The Proposed Amendments-- Comparison of
Indenture Provisions" for a description of the Proposed Amendments.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Notes not tendered in the Tender Offer by means
of open market purchases, privately negotiated acquisitions, subsequent
exchange or tender offers, redemptions or otherwise, at prices or on terms
which may be higher or lower or more or less favorable than those in the
Tender Offer.
THE TENDER OFFER AND CONSENT SOLICITATION ARE NOT BEING MADE TO (NOR WILL
THE SURRENDER OF NOTES FOR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS
IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE TENDER OFFER OR
CONSENT SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION.
IMPORTANT
Any Holder of Notes desiring to tender such Notes should either (a)
complete and sign the Letter of Transmittal and Consent (or a facsimile
thereof) in accordance with the instructions set forth therein and mail or
deliver such manually signed Letter of Transmittal and Consent (or such
manually signed facsimile), together with the certificates evidencing the
Notes (or confirmation of the transfer of such Notes into the account of
Chemical Bank (the "Depositary") at a Book-Entry Transfer Facility (as
defined herein) pursuant to procedures for book-entry transfer set forth
herein) and any other documents required by such Letter of Transmittal and
Consent to the Depositary or (b) request such Holder's broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such Holder. Beneficial owners whose Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if they
desire to tender their Notes so registered. See "Principal Terms of the
Tender Offer and the Consent Solicitation--Procedures for Tendering Notes and
Delivering Consents."
<PAGE>
A Holder or beneficial owner who desires to tender Notes and who cannot
comply with the procedures set forth herein for tender on a timely basis or
whose Notes are not immediately available may Tender such Notes by following
the procedures for guaranteed delivery set forth herein. See "Principal Terms
of the Tender Offer and the Consent Solicitation--Procedures for Tendering
Notes and Delivering Consents--Guaranteed Delivery."
A Holder who tenders Notes must consent to the Proposed Amendments. THE
TENDER OF THE NOTES PURSUANT TO THE LETTER OF TRANSMITTAL AND CONSENT WILL BE
DEEMED TO CONSTITUTE A CONSENT BY THE HOLDER OF SUCH NOTES TO THE PROPOSED
AMENDMENTS. See "Principal Terms of the Tender Offer and the Consent
Solicitation--Procedures for Tendering Notes and Delivering Consents."
To be valid, tenders must be received by the Depositary by the Expiration
Date. The Letters of Transmittal and Consents, the Notes and any other
required documents should be sent to the Depositary only, and the method of
delivery of such documents to the Depositary is at the election and risk of
the Holder tendering such Notes. Questions and requests for assistance may be
directed to BT Securities Corporation ("BT Securities" or the "Dealer
Manager") or to D.F. King & Co., Inc., in its capacity as information agent
(the "Information Agent"), at either of their respective addresses and
telephone numbers set forth on the last page of this Offer to Purchase.
Additional copies of this Offer to Purchase, the Letter of Transmittal and
Consent and the related Notice of Guaranteed Delivery and Consent (the
"Notice of Guaranteed Delivery") may be obtained from the Information Agent.
THIS OFFER TO PURCHASE, INCLUDING THE ANNEX ATTACHED HERETO, AND THE
LETTER OF TRANSMITTAL AND CONSENT CONTAIN IMPORTANT INFORMATION WHICH SHOULD
BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE TENDER OFFER AND THE
CONSENT SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. The reports and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission (the "Commission") at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located in the New York Regional Office, 7
World Trade Center, New York, New York 10048 and the Chicago Regional Office,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
information also can be obtained from the Commission at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
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 its in-house Master Access Radio Database, (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 Arbitron'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.
iii
<PAGE>
TABLE CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
SUMMARY ................................................... 1
GLOSSARY .................................................. 12
RISK FACTORS .............................................. 14
PURPOSES OF THE TENDER OFFER AND THE CONSENT SOLICITATION 21
PRINCIPAL TERMS OF THE TENDER OFFER AND THE CONSENT
SOLICITATION ............................................. 21
PROPOSED AMENDMENTS TO THE INDENTURE ...................... 32
CAPITALIZATION ............................................ 37
SELECTED FINANCIAL INFORMATION ............................ 38
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS ............................................... 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................... 51
BUSINESS .................................................. 60
MANAGEMENT ................................................ 75
PRINCIPAL STOCKHOLDERS .................................... 83
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........... 86
AGREEMENTS RELATED TO THE ACQUISITIONS AND DISPOSITIONS .. 88
DESCRIPTION OF CAPITAL STOCK .............................. 100
DESCRIPTION OF CERTAIN INDEBTEDNESS ....................... 105
POSSIBLE CHANGES TO FINANCING ............................. 106
MARKET AND TRADING INFORMATION ............................ 106
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ................. 106
INDEPENDENT AUDITORS ...................................... 108
MISCELLANEOUS ............................................. 109
INDEX TO FINANCIAL STATEMENTS ............................. F-1
ANNEX A--THE PROPOSED AMENDMENTS--COMPARISON OF INDENTURE
PROVISIONS ............................................... A-1
</TABLE>
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere in this Offer to Purchase.
Certain capitalized terms used herein have the meanings assigned to them in
the Glossary appearing on pages 12 to 13 in this Offer to Purchase. As used
in this Offer to Purchase, 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 Acquisition and the related MMR Hartford Acquisition,
MMR Myrtle Beach Acquisition and the MMR Dispositions, the ten 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. See "Risk Factors--Risks Relating to the Acquisitions and
the Dispositions" and "Agreements Related to the Acquisitions and the
Dispositions." Investors should consider carefully the information set forth
under "Risk Factors."
THE COMPANY
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 number of stations in the United
States exclusively devoted to radio broadcasting. The Company will be highly
diverse in terms of format and geographic markets, will rank number one in
combined station market revenue in 11 of its 23 markets and will 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 and the Transactions as of January 1, 1995, the Company would
have had pro forma net revenues, Broadcast Cash Flow and EBITDA of $186.4
million, $66.7 million and $60.4 million, respectively, for the year ended
December 31, 1995. 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 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 16.2% 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% 3
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% 2
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 Dispositions.
(2) Includes radio stations to which the Company currently provides
programming pursuant to a local marketing agreement ("LMA") or sells
advertising on behalf of pursuant to a joint sales agreement ("JSA").
(3) MMR is currently negotiating the termination of a JSA with WCHZ-FM and
an LMA with WAEG-FM and WAEJ-FM, both operating in Augusta, Georgia.
Does not include WRXR-FM and WKBG-FM, both operating in Augusta,
Georgia, which MMR has agreed to sell.
1
<PAGE>
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 an efficient means of targeting advertising dollars at
well-defined audiences. Such stations can better capitalize on the operating
leverage 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 sellout.
Target 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 allows it the flexibility to develop either protective
programming formats for its market leading stations or to develop a
spectrum of 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.
2
<PAGE>
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
integrating and operating 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 has
increased the number of stations it owns and operates, provides programming
to or sells advertising on behalf of, to 15 stations.
The Company plans to emphasize both regional and local management of its
radio stations. Regional operations will initially 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 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 based upon their
station's 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.
PENDING ACQUISITIONS AND DISPOSITIONS
In November 1995, the Company entered into an agreement to acquire Liberty
Broadcasting, Incorporated ("Liberty"), which owns and operates, provides
programming to or sells advertising on behalf of 14 FM and six AM radio
stations (the "Liberty Stations") located in six markets: Washington,
DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence, Rhode Island;
Hartford, Connecticut; Albany, New York and Richmond, Virginia (the "Liberty
Acquisition"). On May 1, 1996, the Company entered into an agreement to sell
three of the Liberty Stations operating in the Washington, DC/Baltimore,
Maryland market (the "Washington Dispositions").
In February 1996, the Company entered into an agreement to acquire from
Prism Radio Partners L.P. ("Prism") substantially all of the assets used in
the operation of ten FM and six AM radio stations (the "Prism Stations")
located in five markets: Louisville, Kentucky; Jacksonville, Florida;
Raleigh, North Carolina; Tucson, Arizona and Wichita, Kansas (the "Prism
Acquisition"). In April 1996, the Company entered into a letter of intent to
sell three of the Prism Stations operating in the Louisville, Kentucky market
(the "Louisville Dispositions").
In April 1996, the Company entered into an agreement and plan of merger
pursuant to which it will acquire MMR, which owns and operates, provides
programming to or sells advertising on behalf of 14 FM radio stations and one
AM radio station (the "MMR Stations") 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 (the "MMR Merger"). MMR has entered into agreements or
letters of intent to acquire WKSS-FM, Hartford, Connecticut (the "MMR
Hartford Acquisition") and WMYB-FM, Myrtle Beach, South Carolina (the "MMR
Myrtle Beach Acquisition"), and to sell KOLL-FM, Little Rock, Arkansas, and
WRXR-FM and WKBG-FM, both operating in Augusta, Georgia (collectively, the
"MMR Dispositions"). Except where the context otherwise requires, the term
"MMR Merger" as used herein gives effect to the MMR Hartford Acquisition, the
MMR Myrtle Beach Acquisition and the MMR Dispositions. MMR is currently
negotiating the termination of a joint sales agreement ("JSA") with WCHZ-FM
and a local marketing agreement ("LMA") with WAEG-FM and WAEJ-FM, each
operating in Augusta, Georgia. The MMR Hartford Acquisition, the MMR Myrtle
Beach Acquisition and the MMR Dispositions are anticipated to be completed
prior to the consummation of the MMR Merger. MMR was organized in 1992 by
Robert F.X. Sillerman, Executive Chairman and controlling stockholder of the
Company, Michael G. Ferrel and Howard J. Tytel, a Director and Executive Vice
President of the Company. Mr. Sillerman owns a substantial non-voting equity
interest in MMR which will be exchanged for common stock of the Company upon
the consummation of the MMR Merger. In connection with the MMR Merger, Mr.
Sillerman provided advisory services to MMR and the Company through Sillerman
Communications Management Corporation ("SCMC"), a corporation controlled by
him, which also serves as a financial advisor and consultant to radio
operators.
Pursuant to four separate agreements, the Company has agreed to acquire
substantially all of the assets of WROQ-FM, operating in Greenville, South
Carolina, WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi, WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina,
and WMFR-AM, WMAG-FM and WTCK-AM, each operating in Greensboro, North
Carolina, and, pursuant to a separate option agreement, has an option to
acquire WHSL-FM, Greensboro, North Carolina (collectively, the "Additional
Acquisitions"). In addition, the Company has entered into an agreement to
exchange radio station KRLD-AM, Dallas, Texas, and
3
<PAGE>
the Texas State Networks for radio station KKRW-FM, operating in Houston,
Texas (the "Houston Exchange"), and has entered into a letter of intent to
sell radio station KTCK-AM, operating in Dallas, Texas (the "Dallas
Disposition").
The Liberty Acquisition, the Prism Acquisition, the MMR Merger, the
Additional Acquisitions and the Houston Exchange are referred to herein
collectively as the "Acquisitions." The Washington Dispositions, the
Louisville Dispositions and the Dallas Disposition are referred to herein
collectively as the "Dispositions."
The Company anticipates that it will consummate all of the Acquisitions
and Dispositions within 60 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 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 FCC or completed on the terms
described herein, or at all. See "Risk Factors -- Risks Relating to the
Acquisitions and the Dispositions" and "Agreements Related to the
Acquisitions and the Dispositions."
CONCURRENT TRANSACTIONS
Agreement with SCMC. In April 1996, the Company and SCMC entered into an
agreement to terminate SCMC's financial consulting services to the Company in
exchange for the cancellation of certain indebtedness owing from SCMC to the
Company and the grant to SCMC of certain options to purchase common stock of
the Company (the "SCMC Termination Agreement"). Pursuant to such agreement,
SCMC has also assigned to the Company its rights to receive certain fees
payable by MMR and Triathlon Broadcasting Company ("Triathlon"), a
publicly-traded company engaged in the business of acquiring, developing and
operating radio stations in small and medium-sized markets in the Midwest and
Western regions of the United States, pursuant to services that SCMC provides
in connection with consulting agreements between SCMC and such companies. In
addition, pursuant to the SCMC Termination Agreement, SCMC has agreed to
continue to provide financial consulting services to MMR (until completion of
the MMR Merger) and to Triathlon at SCMC's expense. See "Certain
Relationships and Related Transactions -- Relationship of the Company with
SCMC."
Preferred Stock Offering, Debt Offering and New Credit Agreement.
Concurrently with the Tender Offer, the Company will offer in private
placements (i) $120.0 million in aggregate liquidation preference of
its Series D Preferred Stock in the Preferred Stock Offering and (ii) $440.0
million in aggregate principal amount of % Senior Subordinated Notes due
2006 (the "New Notes") in the Debt Offering. In addition, the Company is
currently negotiating the New Credit Agreement, which will provide
availability of up to $150.0 million of senior financing for additional
acquisitions and for working capital, at least $80.0 million of which will be
committed upon consummation of the Financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources," "Description of Capital Stock" and "Description of
Certain Indebtedness."
Agreements with Messrs. Hicks and Armstrong. In April 1996, the Company
entered into an agreement (the "Hicks Agreement") with R. Steven Hicks, the
current President, Chief Executive Officer and Chief Operating Officer of the
Company, pursuant to which Mr. Hicks agreed to terminate his employment
arrangement with the Company concurrently with the completion of the MMR
Merger. The Hicks Agreement provides that Mr. Hicks will continue to serve as
a Director of, and will become a consultant to, the Company. 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. Also, in the Hicks Agreement, the Company
agreed to repurchase certain securities owned by Mr. Hicks. Additionally, the
Company has entered into an agreement (the "Armstrong Agreement") with D.
Geoffrey Armstrong, Chief Financial Officer of the Company, effective as of
April 15, 1996, pursuant to which Mr. Armstrong will become Chief Operating
Officer of the Company concurrently with the completion of the MMR Merger and
will defer certain payments due to him under his employment agreement. The
Company will also repurchase certain securities of the Company owned by Mr.
Armstrong. See "Management -- Employment Agreements."
The Acquisitions, the Tender Offer (assuming all of the Notes are
tendered), the Dispositions, the Financing, the implementation of the Hicks
Agreement, the Armstrong Agreement and the SCMC Termination Agreement are
collectively referred to hereinafter as the "Transactions."
4
<PAGE>
FINANCING PLAN
The Company intends to use the proceeds of the Financing and the
Dispositions, and the proceeds from the exercise of the MMR Class A Warrants
(as defined) to finance the Acquisitions, to repurchase the Notes, to pay the
costs of the Tender Offer, to make payments to certain executive officers of
the Company and to repay certain indebtedness. The proceeds of the Financing
and the Dispositions will be used by the Company as follows:
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Debt Offering ...................................... $440,000,000
Preferred Stock Offering ........................... 120,000,000
New Credit Agreement (1) ........................... --
Dispositions:
Washington Dispositions ........................ 25,000,000
Louisville Dispositions ........................ 19,500,000
Dallas Disposition (2) ......................... 9,500,000
MMR Dispositions(3) ............................ 10,000,000
Exercise of MMR Class A Warrants (4) ............... 13,600,000
--------------
Total Sources of Funds ........................ $637,600,000
==============
USES OF FUNDS:
Purchase price of the Acquisitions:
Liberty Acquisition (5) ........................ $236,000,000
Prism Acquisition .............................. 105,300,000
MMR Merger (6) ................................. 66,500,000
Additional Acquisitions (7) .................... 63,000,000
Repurchase of the Notes (8) ....................... 80,000,000
Costs of Tender Offer (9) ......................... 9,300,000
Payments to executive officers (10) ............... 19,500,000
Repayment of the Company's Old Credit Agreement
(11) .............................................. 18,500,000
Fees and expenses, including fees to SCMC (12) .... 39,500,000
--------------
Total Uses of Funds ............................. $637,600,000
==============
</TABLE>
- ------------
(1) The Company is currently negotiating with respect to the New Credit
Agreement, which will provide availability of up to $150.0 million for
additional acquisitions and for working capital, of which at least
$80.0 million will be committed upon consummation of the Financing. The
foregoing presentation assumes that all of the Acquisitions and
Dispositions and the exercise of the MMR Class A Warrants occur
simultaneously 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. In the event that the Dispositions
and the exercise of the MMR Class A Warrants do not occur within 60
days of the closing of the Financing, as currently expected, the
Company may be required to borrow up to approximately $78.0 million
under the New Credit Agreement pending consummation of the Dispositions
and such exercise.
(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
in satisfaction of its contingent payment right and will redeem the
Series C Preferred Stock for $2.0 million.
(3) The MMR Dispositions reflect sales proceeds to be received after
December 31, 1995 of (i) $4.0 million for the sale of KOLL-FM, Little
Rock, Arkansas; (ii) $950,000 for the sale of WRSF-FM, Nags Head, North
Carolina; and (iii) $5.0 million for the sale of WRXR-FM and WKBG-FM,
Augusta, Georgia. Subsequent to December 31, 1995, MMR received
deposits of $3.5 million related to KOLL-FM and $300,000 related to
WRXR-FM and WKBG-FM and sale proceeds of $950,000 related to WRSF-FM
which have not been reflected as a diminution of the $10.0 million MMR
Disposition proceeds.
(4) Assumes the exercise of the currently outstanding MMR Class A Warrants
to purchase MMR Class A Common Stock at an exercise price of $7.75 per
share. 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
adjustments. See "Agreements Related to the Acquisitions and the
Dispositions."
5
<PAGE>
(6) Represents the amount required to repay certain indebtedness of MMR
upon the consummation of the MMR Merger, including anticipated
prepayment premiums of $6.0 million. This amount includes the $18.0
million necessary to fund the MMR Hartford Acquisition. Subsequent to
December 31, 1995, MMR made a $1.8 million cash deposit to the seller
with respect to the MMR Hartford 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 WZTZ-FM and WZRX-AM, both operating in Jackson,
Mississippi, (iii) $6.0 million for the acquisition of WMFR-AM, WMAG-FM
and WTCK-AM, each operating in Greensboro, North Carolina, (iv) $32.0
million for the acquisition of WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, (v) $3.0 million for the acquisition of
WJDX-FM, operating in Jackson, Mississippi and (vi) $4.5 million for
the acquisition of WHSL-FM, Greensboro, North Carolina. 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 Notes are tendered in the Tender Offer. In the event that
all of the 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) Consists of a prepayment premium of $7.0 million and $2.3 million of
accrued interest payable in connection with the Tender Offer.
(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. See "Management -- Employment Agreements" and "Certain
Relationships and Related Transactions."
(11) The repayment of the Company's Old Credit Agreement represents the
funds borrowed by the Company to complete the Charlotte Acquisition.
Actual borrowings under the Old Credit Agreement as of May 1, 1996 were
$21.5 million, reflecting additional borrowings of $3.0 million under
the Old Credit Agreement 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 working capital of $3.5 million. See
"Certain Relationships and Related Transactions."
The consummation 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 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 other
radio stations. In the event that any of the Dispositions are not
consummated, the Company will be required to seek to complete other
dispositions in order to satisfy certain anticipated covenants under the New
Credit Agreement. There can be no assurance that the Company will be able to
complete any such dispositions pursuant to such alternate means on a timely
basis or at all.
Pending the foregoing application of the proceeds, the proceeds will be
invested in interest bearing investment grade securities.
PURPOSES OF THE TENDER OFFER AND THE CONSENT SOLICITATION
The Company is making the Tender Offer in order to retire the Notes and is
seeking the Consents to the Proposed Amendments in order to modify certain of
the restrictive covenants and other provisions in the Indenture to permit the
Financing, to permit the consummation of the Acquisitions and to enhance the
Company's flexibility in effecting future acquisitions, if any. See "Proposed
Amendments to the Indenture" and "Annex A--The Proposed Amendments--
Comparison of Indenture Provisions." The Supplemental Indenture will provide
that the Proposed Amendments will become operative on the Acceptance Date (as
defined herein).
THE TENDER OFFER AND CONSENT SOLICITATION
The Tender Offer ....... The Company is offering to purchase any and
all of its outstanding Notes.
The Consent Solicitation
....................... The Company is seeking Consents from Holders
of the Notes to the Proposed Amendments to
the Indenture.
Tender Offer
Consideration .......... $1,080.00 per $1,000 principal amount of the
Notes, plus accrued and unpaid interest up
to, but not including, the Acceptance Date
(the "Tender Offer
6
<PAGE>
Consideration"). No additional consideration
will be paid for the Consents.
Requisite Consents ..... Approval of the Proposed Amendments to the
Indenture requires the written consent of a
majority in aggregate principal amount of
the Notes outstanding, excluding Notes held
by the Company or its affiliates (the
"Requisite Consents"). Subsequent to receipt
of the Requisite Consents, but in no event
prior to May 15, 1996, the Company will
direct the Depositary to deliver to the
trustee under the Indenture (the "Trustee")
certification of receipt of the Requisite
Consents, at which time the Company and the
Trustee will enter into the supplemental
indenture giving effect to the Proposed
Amendments (the "Supplemental Indenture").
The Supplemental Indenture will provide that
the Proposed Amendments will become
operative on the date of acceptance by the
Company of all Notes validly tendered for
purchase (and not withdrawn) pursuant to the
Tender Offer (the "Acceptance Date"), which
is expected to occur on or about May 31,
1996. If the Proposed Amendments become
operative, all persons who continue to hold
Notes thereafter will be subject to the
provisions of the Indenture, as amended by
the Proposed Amendments embodied in the
Supplemental Indenture.
Delivery of Consents ... The tender of Notes by a Holder thereof in
the Tender Offer will be deemed to
constitute a Consent to the Proposed
Amendments with respect to the Notes
tendered, and Holders of Notes may not
deliver Consents with respect to any Notes
without tendering such Notes in the
Tender Offer.
Proposed Amendments .... The Supplemental Indenture will provide that
from and after the Acceptance Date, the
Indenture will be amended to modify certain
of the restrictive covenants and other
provisions set forth therein, as follows:
The covenants in the Indenture set forth
under the headings "Limitation on Restricted
Payments," "Limitation on Dividend
Restrictions Affecting Subsidiaries,"
"Limitation on Incurrence of Additional Debt
and Preferred Stock," "Limitation on
Transactions with Related Persons,"
"Limitation on Disposition of Assets and
Subsidiary Stock," "Limitation on Line of
Business," "Limitation on Subsidiary Debt
and Preferred Stock" and "When Company May
Merge, etc.," which covenants generally
limit the Company's ability to, among other
things, (i) pay dividends and make certain
other payments (including
acquisition-related payments), (ii) incur
indebtedness, (iii) enter into certain
transactions with affiliates, (iv) dispose
of its assets, (v) engage in different lines
of business and (vi) merge or consolidate
with or into another entity, or sell or
transfer substantially all of its assets to
another entity, would be modified to 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 execution of the New Credit
Agreement) and the Acquisitions and (ii)
enhance the Company's ability to effect
future financings and acquisitions, if any.
In addition, certain definitions would be
changed, added or deleted in the Indenture
to effect the changes to the covenants
listed above. The Proposed Amendments also
would amend the Indenture to harmonize the
covenants listed above and the "Events of
Default" provisions in the Indenture with
the corresponding covenants, provisions and
definitions to be contained in the indenture
governing the Company's % Senior
Subordinated Notes due 2006 (the "New
Notes") to be issued pursuant to the Debt
Offering. The Company reserves the right to
make other changes to the Indenture that are
not adverse to the Holders.
7
<PAGE>
Conditions of the Tender
Offer .................. The Company will not be required to accept
or pay for any Notes tendered pursuant to
the Tender Offer if: (a) the Financing or
any part thereof (and execution of the New
Credit Agreement) shall not have been
consummated, (b) the Minimum Tender
Condition shall not have been satisfied, (c)
the Company and the Trustee shall not have
executed the Supplemental Indenture
providing for the Proposed Amendments and
(d) any of the General Conditions shall not
have been satisfied. The Company expressly
reserves the right to delay acceptance for
purchase of Notes tendered pursuant to the
Tender Offer or the payment for Notes
accepted for purchase, or to terminate the
Tender Offer and not accept for purchase any
Notes not theretofore accepted for purchase,
if any of the conditions set forth under
"The Tender Offer and the Consent Solicitation
--Conditions of the Tender Offer and the
Consent Solicitation" shall not have been
satisfied and shall not have been validly
waived by the Company or in order to comply
in whole or in part with any applicable law.
Expiration Date ........ The Tender Offer and the Consent
Solicitation will expire at 12:00 midnight,
New York City time, on May 30, 1996, unless
extended by the Company.
Procedure to Tender .... For a Holder validly to tender Notes
pursuant to the Tender Offer, (a) a properly
completed and validly executed Letter of
Transmittal and Consent (or a facsimile
thereof), together with any signature
guarantees and any other documents required
by the instructions to the Letter of
Transmittal and Consent, must be received by
the Depositary at its address set forth on
the back cover of this Offer to Purchase,
and certificates for tendered Notes must be
received by the Depositary at its address or
such Notes must be transferred pursuant to
the procedures for book-entry transfer
described below and a confirmation of such
book-entry transfer must be received by the
Depositary, in each case, on or prior to the
Expiration Date or (b) the tendering Holder
must comply with the procedures for
guaranteed delivery set forth below. Any
beneficial owner whose Notes are held in the
name of a broker, dealer, commercial bank,
trust company or other nominee and who
wishes to tender Notes and deliver Consents
should contact such Holder promptly and
instruct such Holder to tender Notes and
deliver Consents on such beneficial owner's
behalf. See "Principal Terms of the Tender
Offer and the Consent Solicitation--
Procedures for Tendering Notes and
Delivering Consents" and the Letter
of Transmittal and Consent.
LETTERS OF TRANSMITTAL AND CONSENTS AND
NOTES SHOULD NOT BE SENT TO THE COMPANY, THE
INFORMATION AGENT, THE TRUSTEE OR THE DEALER
MANAGER. LETTERS OF TRANSMITTAL AND CONSENTS
AND NOTES AND ANY OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE DEPOSITARY ONLY.
Withdrawal of Tenders
and Consents ........... Tenders of Notes and Consents may be
withdrawn at any time until the Requisite
Consents have been received and the Company
and Trustee have executed the Supplemental
Indenture (the "Consent Date"). In no event
will the Consent Date be prior to May 15,
1996. Notwithstanding any provision of the
Indenture, on and after the Consent Date,
tendered Notes may not be withdrawn unless
the Tender Offer and the Consent
Solicitation are terminated without any
Notes being purchased thereunder. Holders
who tender Notes and deliver Consents after
the Consent Date and prior to the Expiration
Date will not be able to withdraw their
tenders and Consents unless and until the
Company terminates the Tender Offer without
accepting for payment Notes which have been
validly tendered. In order to be effective,
withdrawals of Notes must comply with the
8
<PAGE>
procedures therefor described under
"Principal Terms of the Tender Offer and the
Consent Solicitation--Withdrawal of Tenders;
Revocation of Consents; Absence of Appraisal
Rights."
Certain Federal Income
Tax Considerations .... Generally, for federal income tax purposes,
Holders receiving cash in exchange for Notes
pursuant to the Tender Offer will recognize
taxable gain or loss equal to the difference
between the cash received and the adjusted
tax basis of the Notes exchanged therefor;
and (subject to the market discount rules)
such gain or loss will be long-term capital
gain or loss if the Notes have been held
longer than one year. Although not entirely
free from doubt, Holders retaining their
Notes should not recognize any taxable
income or loss as a result of the
modification of the Indenture by the
Proposed Amendments. See "Certain Federal
Income Tax Considerations."
Dealer Manager ......... BT Securities is serving as Dealer Manager
in connection with the Tender Offer and the
Consent Solicitation. Its telephone number
is (212) 775-4300. In its capacity as Dealer
Manager, BT Securities may contact Holders
regarding the Tender Offer and the Consent
Solicitation and may request brokers,
dealers and other nominees to forward this
Tender Offer and Consent Solicitation and
related materials to beneficial owners of
Notes. See "Principal Terms of the Tender
Offer and the Consent Solicitation--Dealer
Manager."
Depositary ............. Chemical Bank is serving as Depositary in
connection with the Tender Offer and the
Consent Solicitation. Its telephone numbers
are (212) 638-0828 and (212) 638-0454. See
"Principal Terms of the Tender Offer and the
Consent Solicitation-- Depositary and
Information Agent."
Information Agent ...... D.F. King & Co., Inc. is serving as
Information Agent in connection with the
Tender Offer and the Consent Solicitation.
Requests for assistance or additional copies
of this Offer to Purchase, the Letter of
Transmittal and Consent, the Notice of
Guaranteed Delivery or any other required
documents should be directed to the
Information Agent at the address set forth
on the back cover of this Offer to Purchase.
The telephone number of the Information
Agent is (212) 269-5550 (collect) for banks
and brokers; all others may call (800)
769-7666 toll-free. See "Principal Terms of
the Tender Offer and the Consent
Solicitation-- Depositary and Information
Agent."
Risk Factors ........... See "Risk Factors" for a discussion of
certain consequences of the adoption of the
Proposed Amendments to Holders of Notes not
tendered and certain factors that should be
considered in evaluating the Tender Offer
and the Consent Solicitation.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND 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. See "Unaudited Pro Forma Condensed Combined
Financial Statements." The Summary Consolidated Financial Data as of December
31, 1995 have been derived from the audited consolidated financial statements
of the Company included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
PRO FORMA
FOR THE
RECENT
ACQUISITIONS PRO FORMA
AND THE FOR THE
TRANSACTIONS RECENT
OTHER THAN THE ACQUISITIONS
MM AND THE
MERGER (5) TRANSACTION(6)
1991 1992 1993 1994 1995 1995 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues .......................... $13,442 $15,003 $ 34,233 $55,556 $76,830 $163,418 $186,384
Station operating expenses ............ 9,105 9,624 21,555 33,956 51,039 106,790 119,682
Depreciation, amortization and duopoly
integration costs .................... 3,726 3,208 4,475 5,873 9,137 26,862 30,897
Corporate expenses .................... 726 769 1,808 2,964 3,797 6,060 6,300
Corporate expenses -- non-recurring
charge(1) ............................ 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 23,706 29,224
Other (income) loss, net .............. (124) (17) 121 (650) (1,174) (1,174)
Interest expense ...................... 4,241 3,610 7,351 9,332 12,903 46,900 46,900
--------- --------- --------- --------- --------- --------- ---------
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) (22,020) (16,502)
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) (2,020) (16,502)
Redeemable preferred stock dividends
and accretion(2) ..................... 302 385 557 348 291 8,091 8,091
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock ................................ $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(30,111) $(24,593)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share ........... $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (4.04) $ (2.60)
========= ========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding .......................... 1,178,570 1,178,570 2,589,285 5,792,385 6,595,728 7,458,000 9,459,000
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges (3) -- -- -- 1.4x -- -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(3) ......................... -- -- -- 1.3x -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(4) ................ $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791 $ 56,628 $66,702
EBITDA(4) ............................. 3,611 4,610 10,870 18,636 21,994 50,568 60,402
Cash capital expenditures ............. 139 115 569 1,951 3,261
</TABLE>
(Table continued on following page)
10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------
PRO FORMA FOR
THE RECENT PRO FORMA FOR
ACQUISITIONS THE RECENT
AND THE ACQUISITIONS
TRANSACTIONS AND THE
OTHER THAN THE TRANSACTIONS
ACTUAL MMR MERGER (5) (6)
--------- -------------- --------------
BALANCE SHEET DATA:
<S> <C> <C> <C>
Current assets ............ $ 32,505 $110,197 $ 58,729
Total assets .............. 187,337 680,163 765,352
Long-term debt ............ 80,000 440,000 440,000
Redeemable preferred stock 3,285 121,735 121,735
Stockholders' equity ..... 83,061 39,893 111,893
</TABLE>
(1) 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.
(2) 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.
(3) 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 $4,687,000, $15,476,000, $2,593,000 and
$4,534,000 during the years ended December 31, 1995, 1993, 1992 and
1991, respectively. Pro forma earnings for the year ended December 31,
1995 would have been insufficient to cover combined fixed charges and
preferred stock dividends by $30,111,000, pro forma for the Recent
Acquisitions, and the Transactions other than the MMR Merger, and
$24,593,000, pro forma for the Recent Acquisitions and the
Transactions. Earnings were insufficient to cover fixed charges by
$4,396,000, $14,919,000, $2,208,000 and $4,232,000 during the years
ended December 31, 1995, 1993, 1992 and 1991, respectively. Pro forma
earnings for the year ended December 31, 1995 earnings would have been
insufficient to cover fixed charges by $22,020,000, pro forma for the
Recent Acquisitions and the Transactions other than the MMR Merger, and
$16,502,000, pro forma for the Recent Acquisitions and the
Transactions.
(4) Broadcast Cash Flow is defined as net revenues 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
and duopoly integration 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.
(5) The Unaudited Pro Forma Balance Sheet Data at December 31, 1995 and the
Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1995 are presented as if the Company had completed the
Recent Acquisitions and the Transactions (other than the MMR Merger) as
of December 31, 1995 and January 1, 1995, respectively.
(6) The Unaudited Pro Forma Balance Sheet Data at December 31, 1995 and the
Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1995 are presented as if the Company had completed the
Recent Acquisitions and Transactions as of December 31, 1995 and
January 1, 1995, respectively.
11
<PAGE>
GLOSSARY
"Acquisitions" refers to the Liberty Acquisition, the Prism Acquisition,
the MMR Merger, the Additional Acquisitions and the Houston Exchange.
"Additional Acquisitions" refers to the acquisitions by the Company,
pursuant to four separate agreements, of all of the assets of WROQ-FM,
operating in Greenville, South Carolina, WJDX-FM, WSTZ-FM and WZRX-AM, each
operating in Jackson, Mississippi, WTRG-FM and WRDU-FM, both operating in
Raleigh-Durham, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM, each
operating in Greensboro, North Carolina, and, pursuant to an option
agreement, WHSL-FM, operating in Greensboro, North Carolina.
"Broadcast Cash Flow" is defined as net revenues 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 and duopoly integration 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 acquisition of KTCK-AM,
operating in Dallas, Texas.
"Dallas Disposition" refers to the sale of radio station KTCK-AM,
operating in Dallas, Texas.
"Dispositions" refers to the Washington Dispositions, the Louisville
Dispositions and the Dallas Disposition.
"EBITDA" refers to the definition set forth under Broadcast Cash Flow.
"Financing" refers to the Debt Offering and the Preferred Stock 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, operating in Houston, Texas.
"HSR Act" refers to the Hart-Scott-Rodino Antitrust Improvements Act.
"Liberty Acquisition" refers to the acquisition of Liberty Broadcasting,
Incorporated, which owns and operates, provides programming to and 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 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" refers to Multi-Market Radio, Inc., a publicly-held owner and
operator of radio stations.
"MMR Acquisition" or "MMR Merger" refers to the acquisition of
Multi-Market Radio, Inc., which currently owns and operates, provides
programming to or sells advertising on behalf of 16 FM and one
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AM radio stations located in seven markets, after giving effect to the MMR
Hartford Acquisition, the MMR Myrtle Beach Acquisition and the MMR
Dispositions: Hartford and New Haven, Connecticut; Springfield/Northampton,
Massachusetts; Daytona Beach, Florida; Augusta, Georgia; Biloxi, Mississippi
and Myrtle Beach, South Carolina.
"MMR Dispositions" refers to the sale by Multi-Market Radio, Inc. of
KOLL-FM, Little Rock, Arkansas, pursuant to a letter of intent and WRXR-FM
and WKBG-FM, both operating in Augusta, Georgia, pursuant to an agreement.
"MMR Hartford Acquisition" refers to the acquisition by Multi-Market
Radio, Inc. of WKSS-FM, operating in Hartford, Connecticut.
"MMR Myrtle Beach Acquisition" refers to the acquisition by Multi-Market
Radio, Inc. of WMYB-FM, operating in Myrtle Beach, South Carolina.
"New Credit Agreement" refers to the senior secured revolving credit
facility currently being negotiated by the Company.
"New Indenture" refers to the indenture pursuant to which the New Notes
will be issued.
"Old Credit Agreement" refers to the Company's existing senior credit
facility with The Bank of New York, as agent.
"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, operating in San Diego, California.
"Transactions" refers to the Acquisitions, the Tender Offer (assuming all
of the Notes are tendered), the Dispositions, the Financing and the
implementation of the Hicks Agreement, the Armstrong Agreement and the SCMC
Termination Agreement.
"Washington Dispositions" refers to the sale of three of the stations
(WXTR-FM, WXVR-FM, WQSI-AM) to be acquired from Liberty Broadcasting,
Incorporated, each operating in the Washington, DC/Baltimore, Maryland
market.
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RISK FACTORS
Holders and persons with a beneficial interest in Notes should consider
carefully, in addition to the other information contained in this Offer to
Purchase (including the financial statements and notes thereto), the
following factors in connection with a decision to tender Notes and deliver
Consents. Many of the statements in this Offer to Purchase 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 in
this Offer to Purchase. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Offer to Purchase.
POTENTIAL ADVERSE EFFECTS OF TENDER OFFER AND CONSENT SOLICITATION ON MARKET
FOR NOTES NOT TENDERED
In general, there has been limited trading of the Notes and such trading
has taken place primarily in the over-the-counter market. Prices and trading
volumes of the Notes in the over-the-counter market are not reported and can
be difficult to monitor. Quotations for securities that are not widely
traded, such as the Notes, may differ from actual trading prices and should
be viewed as approximations. Beneficial owners of Notes are urged to contact
their brokers for current information regarding the Notes.
To the extent that Notes are tendered and accepted for payment in the
Tender Offer, the trading market for Notes that remain outstanding may be
significantly more limited, which might adversely affect the liquidity of the
Notes. An issue of securities with a smaller outstanding market value
available for trading (the "float") may command a lower price than would a
comparable issue of securities with a greater float. Therefore, the market
price for Notes that are not tendered in the Tender Offer may be affected
adversely to the extent that the amount of Notes purchased pursuant to the
Tender Offer reduces the float. The reduced float also may tend to make the
trading prices of the Notes that are not so purchased more volatile. Holders
of unpurchased Notes may attempt to obtain quotations for the Notes from
their brokers; however, there can be no assurance that any trading market
will exist for the Notes following consummation of the Tender Offer. The
extent of the public market and the availability of price quotations would
depend upon a number of factors, including the number of Holders of the Notes
remaining at such time, the remaining outstanding principal amount of Notes
after consummation of the Tender Offer and the interest in maintaining a
market in the Notes on the part of securities firms. As a result, there can
be no assurance that any trading market for the Notes will exist, or if any
such market exists that it will continue to exist, after consummation of the
Tender Offer and the Consent Solicitation.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS WHO DO NOT TENDER
If the Proposed Amendments become operative, Holders of Notes that remain
outstanding will no longer be entitled to the benefits of certain restrictive
covenants contained in the Indenture to the extent such provisions are
modified by the Proposed Amendments. The modification of the restrictive
covenants would permit the Company to take certain actions previously
prohibited that could significantly increase the credit risks with respect to
the Company faced by the Holders or that could otherwise be materially
adverse to the interests of the Holders. See "Proposed Amendments to the
Indenture" and "Annex A-- The Proposed Amendments--Comparison of Indenture
Provisions" for a description of the Proposed Amendments. In addition, see
"Certain Federal Income Tax Considerations" for discussions of certain tax
matters that should be considered in evaluating the Tender Offer and the
Consent Solicitation.
RISKS RELATED TO THE ACQUISITIONS AND THE DISPOSITIONS
Consummation of each of the Acquisitions and the Dispositions is subject
to certain closing conditions, some 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 changes
in radio station ownership contemplated thereunder 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. 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. 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
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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."
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 $7.9
million. 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. See "Agreements
Related to the Acquisitions and the Dispositions--MMR Stations."
In the event the Dispositions are not completed in a timely manner, the
Company may be in default under the New Credit Agreement.
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.
SUBSTANTIAL LEVERAGE; ABILITY 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 $440.0 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 (in the event that any Notes
remain outstanding following the Tender Offer) and the New 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, 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, the Company's earnings would have been insufficient to cover its fixed
charges by $16.5 million, and would have been insufficient to cover its
combined fixed charges and preferred stock dividends by $24.6 million.
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
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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 have
significantly greater operating and financial flexibility, than the Company.
See "Description of Capital 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 Notes, to the extent
not tendered in the Tender Offer, and the New Notes) and to make dividend
payments on the Series D 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 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. There can be no
assurance 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
Notes, to the extent not tendered in the Tender Offer, and the New Notes), to
make dividend payments on the Series D 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 Notes, to the extent not tendered in
the Tender Offer, and the New Notes prior to their maturity. 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."
HOLDING COMPANY STRUCTURE; DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES
Substantially all of the tangible assets of the Company are held by the
Company's subsidiaries, and all of the Company's operating revenues are
derived from operations of such subsidiaries. In addition, future
acquisitions may be made through present or future subsidiaries of the
Company. Therefore, the Company's ability to pay interest and principal when
due to holders of the Notes is dependent upon the earnings of its
subsidiaries and the receipt of sufficient funds from its direct and indirect
subsidiaries. The Company's subsidiaries will have no obligation, contingent
or otherwise, to make any funds available to the Company for payment of
principal of or interest on the Notes. Under the Proposed Amendments, the New
Indenture and the New Credit Agreement, the Company's subsidiaries will be
restricted in their ability to incur debt in the future. In addition, all
obligations under the New Notes will be guaranteed by each of the Company's
current and future subsidiaries. See "Proposed Amendments to the Indenture"
and "Description of Certain Indebtedness."
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 the Company
would have had a net loss of approximately $24.6 million. In connection with
the SCMC Termination Agreement, the Company has agreed to the cancellation of
$2.0 million of indebtedness plus accrued interest thereon owing from SCMC to
the
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Company and has issued 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 $5.0 million during the three-month period ended June 30,
1996. Approximately $19.5 million of the net proceeds of the Financing has
been allocated to make payments to R. Steven Hicks, the current President and
Chief Executive Officer of the Company, and D. Geoffrey Armstrong, 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 $15.4 million relating to the write-off of deferred financing
costs of the Old Credit Agreement and the costs of the Tender Offer during
the quarterly period in which such payments are made if all of the Notes are
tendered. 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 -- Liquidity and Capital
Resources," "Management" and "Certain Relationships and Related
Transactions."
CHANGE OF CONTROL
The Indenture and the New Indenture provide that, upon the occurrence of a
Change of Control, the holders of the New Notes (and, to the extent not
tendered in the Tender Offer, the Notes) will have the right to require the
Company to repurchase their notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, and, with respect
to the New Notes, liquidated damages, if any, to the date of repurchase. In
addition, a Change of Control may constitute a default under the New Credit
Agreement. Unless waived or cured, any such default could create a default
under the Notes and the New Notes. If a Change of Control were to occur, due
to the highly leveraged nature of the Company, the Company may not have the
financial resources to repay all of its obligations under any indebtedness
that would become payable upon the occurrence of such Change of Control. The
Company's failure to make a required repurchase in the event of a Change of
Control would create an Event of Default under the Notes and the New Notes.
In addition, the Communications Act of 1934, as amended (the "Communications
Act"), and FCC rules require the prior consent of the FCC to any change of
control of the Company. See "-- Substantial Leverage; Ability to Service
Obligations" and "Proposal Amendments to the Indenture."
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. 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 New Indenture. Notwithstanding the foregoing,
the Company believes that the consummation of the Financing, the Dispositions
and the availability of funds under the New Credit Agreement should enable
the Company to pursue its current acquisition strategy. 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" 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. Such holdings include approximately 85.6% of the
outstanding Class B Common Stock, par value $.01 per share ("Class B Common
Stock"). 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 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 three of the Company's nine Directors 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 Capital Stock."
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 non-voting equity interest in, and are parties
to consulting and marketing agreements with, each of MMR and Triathlon.
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 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.
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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."
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.
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 "Management."
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. The Company intends to use a portion of
the net proceeds of the Financing to make such payment 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."
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 anticipates entering 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 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.
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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. The cross-interest
policy could affect the ability of the Company to consummate certain of the
Acquisitions in the Wichita, Kansas market. 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 presently holds an interest which is attributable for
FCC purposes in Gulfstar Communications, Inc., which owns radio stations in
small markets, including markets in Texas, a state in which the Company also
operates radio stations.
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
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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."
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.
PURPOSES OF THE TENDER OFFER AND THE CONSENT SOLICITATION
The Company is making the Tender Offer in order to retire the Notes and is
seeking the Consents to the Proposed Amendments to modify certain of the
restrictive covenants in the Indenture to permit the Financing and execution
of the New Credit Agreement, to permit the consummation of the Acquisitions
and to enhance the Company's flexibility in effecting future acquisitions, if
any. The Tender Offer is not conditioned upon the consummation of the
Acquisitions. In addition, the Proposed Amendments would amend the Indenture
to harmonize its covenants with those of the indenture governing the New
Notes.
PRINCIPAL TERMS OF THE TENDER OFFER AND THE CONSENT SOLICITATION
THE TENDER OFFER AND CONSENT SOLICITATION
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal and Consent, the Company is hereby
offering to purchase for cash any and all outstanding Notes at a price of
$1,080.00 per $1,000 principal amount, plus accrued and unpaid interest up
to, but not including, the Acceptance Date.
Concurrent with the Tender Offer, the Company is soliciting Consents from
Holders of Notes to the Proposed Amendments upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal and Consent.
Holders of Notes who tender their Notes in the Tender Offer pursuant to the
Letter of Transmittal and Consent and in accordance with the procedures
described herein will be deemed to have consented to the Proposed Amendments
with respect to such Notes. There will be no separate payment for the
Consents.
Pursuant to the terms of the Indenture, the Proposed Amendments require
the written consent of the Holders of at least a majority in aggregate
principal amount of the Notes outstanding, excluding Notes held by the
Company and its affiliates. Upon receipt of the Requisite Consents from
Holders of Notes, the Company will certify in writing to the Trustee that the
Requisite Consents to the adoption of the Proposed Amendments have been
received with respect to the Notes. Consents with respect to any Notes
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will not be counted if the tender of such Holders' Notes is defective unless
the Company waives such defect. Subsequent to receipt of certification by the
Depositary that the Requisite Consents have been received (which in no event
shall be prior to May 15, 1996), the Company and the Trustee will execute the
Supplemental Indenture. Upon execution of the Supplemental Indenture, all
tenders of Notes and all Consents to the Proposed Amendments theretofore
received with respect to the Notes will be irrevocable. Any tenders made
after the Consent Date will be irrevocable unless and until the Company
terminates the Tender Offer without accepting for payment Notes validly
tendered.
If the Proposed Amendments become operative (a) the Depositary, as soon as
practicable, will transmit a copy of the Supplemental Indenture to all
registered Holders of Notes that remain outstanding and (b) non-tendering
Holders will hold their Notes under the Indenture as amended by the Proposed
Amendments, whether or not such Holders consented to the Proposed Amendments.
Consents given by Holders of Notes tendered but rejected by the Company
pursuant to the Tender Offer will not be counted for purposes of determining
whether the Requisite Consents have been obtained.
The Company will not be required to accept any Notes tendered pursuant to
the Tender Offer and may terminate, extend or amend the Tender Offer and the
Consent Solicitation and may, subject to Rule 14e-1 under the Exchange Act,
postpone the acceptance of Notes so tendered, if: (a) the Financing or any
part thereof shall not have been consummated, (b) the Minimum Tender
Condition shall not have been satisfied, (c) the Company and the Trustee
shall not have executed the Supplemental Indenture providing for the Proposed
Amendments following receipt of the Requisite Consents and (d) any of the
General Conditions shall not have been satisfied. See "--Conditions of the
Tender Offer and Consent Solicitation."
A record date is not being set with respect to the Consent Solicitation
because Holders of Notes may not consent to the Proposed Amendments without
tendering their corresponding Notes in the Tender Offer and the Indenture
does not require the setting of a record date. As of April 29, 1996, there
was $80.0 million in aggregate principal amount of Notes outstanding,
excluding Notes held by the Company or its affiliates. Notes held by the
Company or its affiliates will not be counted in determining whether the
Requisite Consents have been received but will be accepted for purchase if
properly tendered.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Notes not tendered in the Tender Offer by means
of open market purchases, privately negotiated acquisitions, exchange offers,
subsequent tender offers, redemptions or otherwise, at prices or on terms
which may be higher or lower or more or less favorable than those in the
Tender Offer. The terms of any such purchases or offers could differ from the
terms of the Tender Offer.
Holders of Notes who tender in the Tender Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal and Consent, transfer taxes with respect to the tender
of Notes pursuant to the Tender Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Tender
Offer. See "--Fees and Expenses."
There are no appraisal or other similar statutory rights available to the
Holders in connection with the Tender Offer.
EXPIRATION DATE; EXTENSION; AMENDMENT; TERMINATION
The Tender Offer and the Consent Solicitation will expire at 12:00
midnight, New York City time, on the Expiration Date, unless extended by the
Company. The Company expressly reserves the right to extend the Tender Offer
and the Consent Solicitation on a daily basis or for such period or periods
as it may determine in its sole discretion from time to time by giving
written or oral notice to the Depositary and by making a public announcement
by press release (which shall include disclosure of the approximate principal
amount of Notes deposited to date) to the Dow Jones News Service prior to
9:00 A.M., New York City time, on the next business day following the
previously scheduled Expiration Date, in which event the term "Expiration
Date" shall mean the latest time and date at which the Tender Offer or the
Consent Solicitation, as the case may be, as so extended by the Company,
shall expire. There can be no
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assurance that the Company will exercise its right to extend the Tender Offer
or the Consent Solicitation. During any extension of the Tender Offer and the
Consent Solicitation, all Notes previously tendered and not accepted for
purchase will remain subject to the Tender Offer and the Consent
Solicitation.
Notwithstanding anything herein to the contrary, the Company expressly
reserves the absolute right, in its sole discretion, to (a) waive any
condition to the Tender Offer and the Consent Solicitation, (b) amend any
term of the Tender Offer and the Consent Solicitation or (c) modify the
Tender Offer Consideration. The Tender Offer and the Consent Solicitation may
be amended independently of each other. Any waiver or amendment applicable to
the Tender Offer or the Consent Solicitation, as the case may be, will apply
to all Notes tendered, regardless of when or in what order such Notes were
tendered. If the Company makes a material change in the terms of either the
Tender Offer or the Consent Solicitation, or in the information concerning
the Tender Offer or the Consent Solicitation, or if it waives a material
condition of the Tender Offer or the Consent Solicitation, the Company will
disseminate additional Tender Offer and Consent Solicitation materials and
will extend the Tender Offer and the Consent Solicitation, in each case to
the extent required by applicable law. If the Company decreases the principal
amount of Notes subject to the Tender Offer or increases or decreases the
Tender Offer Consideration, the Company will, to the extent required by
applicable law, cause the Tender Offer and the Consent Solicitation to be
extended, if necessary, so that the Tender Offer and the Consent Solicitation
remain open at least until the expiration of ten business days from the date
that notice of such increase or decrease is first published, sent or given by
the Company to Holders of Notes in respect of the Tender Offer and the
Consent Solicitation. For purposes of the Tender Offer and the Consent
Solicitation, the term "business day" means any day other than a Saturday,
Sunday or Federal holiday and consists of the time period from 12:01 a.m.
through midnight, New York City time. If the Tender Offer or the Consent
Solicitation is amended prior to the Expiration Date in a manner determined
by the Company to constitute a material adverse change to the Holders of
Notes, the Company promptly will disclose such amendment in a public
announcement and will extend the Tender Offer and Consent Solicitation in a
manner deemed by the Company to be adequate to permit such Holders to deliver
or withdraw their tender of Notes and delivery of Consents. See "--Withdrawal
of Tenders; Revocation of Consents."
The Company expressly reserves the right, in its sole discretion, to
terminate the Tender Offer and the Consent Solicitation if any of the
conditions applicable thereto set forth below under "--Conditions of the
Tender Offer and the Consent Solicitation" shall not have been satisfied or
waived by the Company. Any such termination will be followed promptly by
public announcement thereof. The Tender Offer and the Consent Solicitation
may not be terminated independently of each other. In the event the Company
shall terminate the Tender Offer and the Consent Solicitation, it shall give
immediate notice thereof to the Depositary, and all Notes theretofore
tendered and not accepted for payment shall be returned promptly to the
tendering Holders thereof (and the Supplemental Indenture will lapse in
accordance with its terms). See "--Withdrawal of Tenders; Revocations of
Consents" and "--Conditions of the Tender Offer and the Consent
Solicitation."
CONDITIONS OF THE TENDER OFFER AND THE CONSENT SOLICITATION
Notwithstanding any other provision of the Tender Offer and the Consent
Solicitation, the Company will not be required to accept any Notes tendered
pursuant to the Tender Offer and may terminate, extend or amend the Tender
Offer and the Consent Solicitation and may, subject to Rule 14e-1 under the
Exchange Act, postpone the acceptance of Notes so tendered if (a) the
Financing or any part thereof (and execution of the New Credit Agreement)
shall not have been consummated, (b) the Minimum Tender Condition shall not
have been satisfied, (c) the Supplemental Indenture shall not have been
executed by the Company and the Trustee or (d) any of the General Conditions
shall not have been satisfied.
For purposes of the foregoing provisions, all of the "General Conditions"
shall be deemed to have been satisfied unless any of the following conditions
shall occur on or prior to the Acceptance Date:
(a) there shall have been instituted or threatened or be pending any
action or proceeding before or by any court or governmental regulatory or
administrative authority or instrumentality, or
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by any other person, in connection with the Financing, the New Credit
Agreement, the Tender Offer or the Consent Solicitation that is, or is
reasonably likely to be, in the sole judgment of the Company, materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the Company;
(b) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company that, in the
sole judgment of the Company, (i) would or might prohibit, prevent,
restrict or delay consummation of the Tender Offer or the Consent
Solicitation, (ii) will, or is reasonably likely to, materially impair the
contemplated benefits to the Company of the Tender Offer and the Consent
Solicitation or otherwise result in the consummation of the Tender Offer
or the Consent Solicitation not being in the best interests of the
Company, (iii) would or might prevent, restrict, delay or materially
impair the anticipated benefits to the Company of any of the Acquisitions
or (iv) might be material to Holders of Notes in deciding whether to
accept the Tender Offer or the Consent Solicitation;
(c) any order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that,
in the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Tender Offer or the Consent
Solicitation or that is, or is reasonably likely to be, materially adverse
to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the Company;
(d) there shall have occurred or be likely to occur any event
(including that there shall have been instituted or threatened or be
pending any action or proceeding before or by any court or governmental
regulatory or administrative agency or instrumentality, or by any other
person) that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of the Tender Offer or
the Consent Solicitation or the validity or effectiveness of the
Supplemental Indenture or the Proposed Amendments or that will, or is
reasonably likely to, materially impair the contemplated benefits to the
Company of the Tender Offer, the Consent Solicitation, or the Supplemental
Indenture, or otherwise result in the consummation of the Tender Offer or
the Consent Solicitation not being or not being reasonably likely to be in
the best interests of the Company;
(e) the Trustee under the Indenture shall have objected in any respect
to, or taken any action that could, in the sole judgment of the Company,
adversely affect the consummation of, the Tender Offer or the Consent
Solicitation or the Company's ability to cause the Proposed Amendments to
become operative, or shall have taken any action that challenges the
validity or effectiveness of the Supplemental Indenture or the Proposed
Amendments or the procedures used by the Company in soliciting the
Consents to the Proposed Amendments (including the form thereof) or in
making the Tender Offer or the Consent Solicitation or the acceptance of,
or payment for, any of the Notes; and
(f) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (ii) any significant adverse change in
the trading prices for the Notes on any financial market, (iii) a material
impairment in the trading market for debt securities that could, in the
sole judgment of the Company, affect the Tender Offer or the Consent
Solicitation or the Debt Offering, (iv) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (v) any limitation (whether or not mandatory) by any government or
governmental, administrative or regulatory authority or agency, domestic
or foreign, on, or other event that, in the reasonable judgment of the
Company, might affect, the extension of credit by banks or other lending
institutions, (vi) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the
United States or (vii) in the case of any of the foregoing existing on the
date hereof, in the sole judgment of the Company, a material acceleration
or worsening thereof.
The conditions to the Tender Offer and the Consent Solicitation are for
the sole benefit of the Company and may be asserted by the Company in its
sole discretion regardless of the circumstances
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giving rise to such conditions or may be waived by the Company, in whole or
in part, at any time and from time to time, in its sole discretion, whether
or not any other condition of the Tender Offer and the Consent Solicitation
is also waived. Any determination by the Company concerning the events
described in this section shall be final and binding upon all persons.
PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS
General
The tender by a Holder of Notes pursuant to one of the procedures set
forth below will constitute an agreement between such Holder and the Company
in accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal and Consent. Holders of Notes who tender
their Notes in the Tender Offer pursuant to the Letter of Transmittal and
Consent and in accordance with the procedures described below will be deemed
to have consented to the Proposed Amendments with respect to the Notes
tendered. A HOLDER OF NOTES MAY NOT TENDER NOTES WITHOUT DELIVERING THE
CORRESPONDING CONSENTS.
All questions as to the form of all documents and the validity (including
the time of receipt), eligibility, acceptance or withdrawal of tendered Notes
and delivery or revocation of Consents will be determined by the Company,
which determination shall be final and binding. Alternative, conditional or
contingent tenders of Notes and Consents will not be considered valid. The
Company expressly reserves the absolute right to reject any and all tenders
not in proper form and to determine whether the acceptance of or payment by
it for such tenders would be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive or amend any of the conditions to
the Tender Offer or the Consent Solicitation or to waive any defect or
irregularity in the tender as to particular Notes. None of the Company, the
Depositary, the Information Agent, the Dealer Manager, the Trustee or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. No tender of Notes will be deemed to have been validly
made until all defects and irregularities with respect to such Notes have
been cured or waived within such time as the Company determines. Any Notes
received by the Depositary that are not properly tendered and as to which
irregularities have not been cured or waived will be returned by the
Depositary to the appropriate tendering Holder as soon as practicable. The
Company's interpretation of the terms and conditions of the Tender Offer and
the Consent Solicitation (including the Letter of Transmittal and Consent and
the instructions thereto) will be final and binding on all parties.
Notes may be tendered and will be accepted for purchase only in
denominations of $1,000 principal amount and integral multiples thereof. For
a Holder validly to tender Notes pursuant to the Tender Offer, (a) a properly
completed and validly executed Letter of Transmittal and Consent (or a
facsimile thereof), together with any signature guarantees and any other
documents required by the instructions to the Letter of Transmittal and
Consent, must be received by the Depositary at its address set forth on the
back cover of this Offer to Purchase, and certificates for tendered Notes
must be received by the Depositary at such address or such Notes must be
transferred pursuant to the procedures for book-entry transfer described
below and a confirmation of such book-entry transfer must be received by the
Depositary, in each case on or prior to the Expiration Date or (b) the
tendering Holder must comply with the procedures for guaranteed delivery set
forth below.
THE TENDER OFFER AND CONSENT SOLICITATION ARE NOT BEING MADE TO (NOR WILL
THE SURRENDER OF NOTES FOR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS
IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE TENDER OFFER OR
CONSENT SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION.
Holders of Notes should review this Offer to Purchase (including the annex
hereto) and the accompanying Letter of Transmittal and Consent carefully.
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Delivery of Letter of Transmittal and Consent
If the certificates for Notes are registered in the name of a person other
than the person who signs the related Letter of Transmittal and Consent,
then, in order to tender such Notes pursuant to the Tender Offer, the
certificates evidencing such Notes must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of the
registered owner or owners appear on the certificates, with the signatures on
the certificates or bond powers guaranteed as provided below.
Any beneficial owner whose Notes are held in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender
Notes and deliver a Consent should contact such Holder promptly and instruct
such Holder to tender Notes and deliver Consents on such beneficial owner's
behalf. If such beneficial owner wishes to tender such Notes himself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and Consent and, where applicable, delivering such Notes, make
appropriate arrangements to register ownership of the Notes in such
beneficial owner's name. The transfer of record ownership may take a
considerable amount of time.
LETTERS OF TRANSMITTAL AND CONSENTS, NOTES AND ANY OTHER REQUIRED
DOCUMENTS SHOULD BE SENT TO THE DEPOSITARY ONLY AND NOT TO THE COMPANY, THE
TRUSTEE, THE INFORMATION AGENT OR THE DEALER MANAGER.
THE METHOD OF DELIVERY OF THE NOTES, THE LETTERS OF TRANSMITTAL AND
CONSENTS, AND ALL OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY IS AT THE
ELECTION AND RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED
PURSUANT TO GUARANTEED DELIVERY, DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. INSTEAD OF EFFECTING DELIVERY BY MAIL IT IS
RECOMMENDED THAT TENDERING HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY
INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING
BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO
THE DEPOSITARY PRIOR TO SUCH DATE.
Signature Guarantees
Signatures on the Letter of Transmittal and Consent must be guaranteed by
a firm that is a member of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., by a commercial bank or
trust company having an office or correspondent in the United States or by
any other "Eligible Guarantor Institution" as such term is defined in Rule
17Ad-15 under the Exchange Act (each of the foregoing being referred to
herein as an "Eligible Institution") unless (a) the Letter of Transmittal and
Consent is signed by the Holder of the Notes tendered therewith and neither
the "Special Payment Instructions" box nor the "Special Delivery
Instructions" box of the Letter of Transmittal and Consent is completed or
(b) such Notes are tendered for the account of an Eligible Institution. If
Notes are registered in the name of a person other than the signer of the
Letter of Transmittal and Consent or if payment is to be made or certificates
for unpurchased Notes are to be issued or returned to a person other than the
Holder, then the Notes must be endorsed by the Holder, or be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company duly executed by the Holder, with such signatures guaranteed by an
Eligible Institution.
Book-Entry Transfer
The Depositary will seek to establish a new account or utilize an existing
account with respect to the Notes at each of the Depository Trust Company
("DTC"), the Midwest Securities Trust Company ("MSTC") and the Philadelphia
Depository Trust Company ("PDTC") (each of DTC, MSTC and PDTC being a
"Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer
Facilities") promptly after the date of this Offer to Purchase (to the extent
such arrangements have not been made previously by the Depositary), and any
financial institution that is a participant in the Book-Entry Transfer
Facility system and whose name appears on a security position listing as the
owner of the Notes may make
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book-entry delivery of Notes by causing the Book-Entry Transfer Facility to
transfer such Notes into the Depositary's account in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. However,
although delivery of Notes may be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal and Consent (or a
facsimile thereof), properly completed and validly executed, with any
required signature guarantees and any other required documents, must, in any
case, be received by the Depositary at its address set forth on the back
cover of this Offer to Purchase on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
Special Payment and Delivery Instructions
Tendering Holders should indicate in the applicable box in the Letter of
Transmittal and Consent the name and address to which payment of the Tender
Offer Consideration and/or certificates evidencing Notes for amounts not
accepted for tender, each as appropriate, are to be issued or sent, if
different from the name and address of the person signing the Letter of
Transmittal and Consent. In the case of issuance in a different name, the
employer identification or social security number of the person named must
also be indicated and a substitute Form W-9 for such recipient must be
completed. If no such instructions are given, payment of the Tender Offer
Consideration or Notes not accepted for purchase, as the case may be, will be
made or returned, as the case may be, to the Holder of Notes tendered.
Guaranteed Delivery
If a Holder desires to tender Notes pursuant to the Tender Offer and (a)
certificates representing such Notes are not immediately available or (b)
time will not permit such Holder's Letter of Transmittal and Consent,
certificates evidencing such Notes or other required documents to reach the
Depositary on or prior to the Expiration Date, a tender may be effected if
all of the following guaranteed delivery procedures are complied with:
(a) such tender is made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Depositary has received
from such Eligible Institution, at the address of the Depositary set forth
on the back cover of this Offer to Purchase, a properly completed and
validly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail, overnight courier or hand delivery) substantially in the form
provided with this Offer to Purchase, setting forth the name(s),
address(es) and signature(s) of the Holder(s) and the principal amount of
Notes being tendered and with respect to which Consents are being
delivered, and guaranteeing that (i) the tender of Notes and delivery of
Consents is being made thereby and (ii), within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the Letter of Transmittal and Consent (or a
facsimile thereof), properly completed and duly executed, together with
certificates evidencing the Notes in proper form for transfer (or
confirmation of book-entry transfer of such Notes into the Depositary's
account with a Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal and Consent and the instructions
thereto, will be deposited by such Eligible Institution with the
Depositary; and
(c) the Letter of Transmittal and Consent in proper form (or a
facsimile thereof), properly completed and validly executed, with any
required signature guarantees, together with certificates evidencing all
physically delivered Notes in proper form for transfer (or confirmation of
book-entry transfer of such Notes into the Depositary's account with a
Book-Entry Transfer Facility), and any other required documents are
received by the Depositary within three NYSE trading days after the date
of execution of the Notice of Guaranteed Delivery.
Lost or Missing Certificates
If a Holder desires to tender Notes pursuant to the Tender Offer, but the
certificates evidencing such Notes have been mutilated, lost, stolen or
destroyed, such Holder should write to or telephone the Trustee
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under the Indenture at the address or telephone number listed below
concerning the procedures for obtaining replacement certificates for such
Notes or arranging for indemnification or any other matter that requires
handling by the Trustee:
Chemical Bank
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Michael Smith, Corporate Trust Department
Telephone No.: (212) 946-3346
Telecopier No.: (212) 946-7682
Other Matters
NOTWITHSTANDING ANY OTHER PROVISION HEREOF, PAYMENT OF THE TENDER OFFER
CONSIDERATION FOR NOTES TENDERED AND ACCEPTED FOR PURCHASE PURSUANT TO THE
TENDER OFFER WILL OCCUR ONLY AFTER TIMELY RECEIPT BY THE DEPOSITARY OF THE
CERTIFICATES FOR SUCH TENDERED NOTES (OR CONFIRMATION OF BOOK-ENTRY TRANSFER
OF SUCH NOTES INTO THE DEPOSITARY'S ACCOUNT AT A BOOK-ENTRY TRANSFER
FACILITY), TOGETHER WITH A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF
TRANSMITTAL AND CONSENT (OR A FACSIMILE THEREOF) TOGETHER WITH ANY REQUIRED
SIGNATURE GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS.
Tenders of Notes pursuant to any of the procedures described above and
acceptance thereof by the Company will constitute a binding agreement between
the Company and the tendering and consenting Holder of the Notes, upon the
terms and subject to the conditions of the Tender Offer and the Consent
Solicitation.
ACCEPTANCE OF NOTES FOR PAYMENT; PAYMENT FOR NOTES
Upon the terms and subject to the conditions of the Tender Offer and the
Consent Solicitation, the Company will accept for purchase on the Acceptance
Date all Notes validly tendered pursuant to the Tender Offer (or defectively
tendered, if the Company has waived such defect) and not properly withdrawn,
which date will be promptly after the later of (a) the Expiration Date and
(b) the satisfaction or waiver of the conditions to the Tender Offer
described above. The Company will not accept Notes for payment prior to the
Expiration Date. On the Acceptance Date, upon satisfaction or waiver of the
conditions in the first paragraph under the caption "--Conditions of the
Tender Offer and the Consent Solicitation," and acceptance of the tendered
Notes for purchase by the Company, the Company will purchase such Notes.
The Company expressly reserves the right, in its sole discretion, to delay
acceptance of any Notes tendered under the Tender Offer or the purchase of
Notes accepted for payment (subject to Rule 14e-1 under the Exchange Act,
which requires that an offeror pay the consideration offered or return the
Notes deposited by or on behalf of the Holders thereof promptly after the
termination or withdrawal of a tender offer), or to terminate the Tender
Offer and the Consent Solicitation and not accept for purchase any Notes not
theretofore accepted for payment, if any of the conditions set forth under
"--Conditions of the Tender Offer and the Consent Solicitation" shall not
have been satisfied or waived by the Company or in order to comply in whole
or in part with any applicable law. In all cases, the purchase of Notes
accepted for payment pursuant to the Tender Offer will be made only after
timely receipt by the Depositary of Notes (or confirmation of book-entry
transfer thereof) and a properly completed and validly executed Letter of
Transmittal and Consent (or a manually signed facsimile thereof), and any
other documents required thereby.
For purposes of the Tender Offer and the Consent Solicitation, the Company
will be deemed to have accepted for payment validly tendered Notes (or
defectively tendered Notes, if the Company has waived such defect) if, as and
when the Company gives oral or written notice thereof to the Depositary. The
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purchase of Notes accepted for payment in the Tender Offer will be made by
the Company on the Acceptance Date by deposit with the Depositary, which will
act as agent for the tendering Holders for the purposes of receiving the
Tender Offer Consideration and transmitting the Tender Offer Consideration to
such Holders. Upon the terms and subject to the conditions of the Tender
Offer, delivery of the Tender Offer Consideration to Holders for Notes
accepted for payment pursuant to the Tender Offer will be made by the
Depositary promptly after receipt of funds for the payment of such Notes by
the Depositary. Under no circumstances will any additional amount be paid by
the Company or the Depositary by reason of any delay in making such payment
to Holders.
Tenders of Notes pursuant to the Tender Offer and the Consent Solicitation
will be accepted only in principal amounts equal to $1,000 or integral
multiples thereof. No alternative, conditional or contingent tenders will be
accepted. A tendering Holder, by execution of a Letter of Transmittal and
Consent, or facsimile thereof, waives all rights to receive notice of
acceptance of such Holder's Notes for purchase.
If, for any reason, acceptance for payment of validly tendered Notes
pursuant to the Tender Offer and the Consent Solicitation is delayed or the
Company is unable to accept for payment validly tendered Notes pursuant to
the Tender Offer and the Consent Solicitation, then the Depositary may,
nevertheless, on behalf of the Company, retain tendered Notes, without
prejudice to the rights of the Company described under "--Expiration Date;
Extension; Amendment; Termination," "--Conditions of the Tender Offer and the
Consent Solicitation" and "--Withdrawal of Tenders; Revocation of Consents,"
subject to Rule 14e-1 under the Exchange Act.
If any tendered Notes are not accepted for payment for any reason pursuant
to the terms and conditions of the Tender Offer and the Consent Solicitation,
or if certificates are submitted evidencing more Notes than are tendered,
certificates evidencing unpurchased Notes will be returned, without expense,
to the tendering Holder (or, in the case of Notes tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth under the caption "--Procedures for
Tendering Notes and Delivering Consents--Book-Entry Transfer," such Notes
will be credited to the account maintained at such Book-Entry Transfer
Facility from which such Notes were delivered), unless otherwise requested by
such Holder under "Special Delivery Instructions" in the Letter of
Transmittal and Consent, promptly following the Expiration Date or the
termination of the Tender Offer and the Consent Solicitation.
Tendering Holders whose Notes are purchased in the Tender Offer and the
Consent Solicitation will not be obligated to pay brokerage commissions or
fees or to pay transfer taxes with respect to the purchase of their Notes
unless the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal and Consent has
been completed, as described in the instructions thereto. The Company will
pay all other charges and expenses in connection with the Tender Offer and
the Consent Solicitation. See "--Depositary and Information Agent" and
"--Fees and Expenses."
WITHDRAWAL OF TENDERS; REVOCATION OF CONSENTS
Tenders of Notes may be withdrawn and the corresponding Consents revoked
at any time prior to the Consent Date, which in no event will be prior to May
15, 1996. Tendered Notes may not be withdrawn and the corresponding Consents
may not be revoked on or after the Consent Date (regardless of whether the
tender is made prior to or after the Consent Date). Notwithstanding any
provision of the Indenture, Holders who tender their Notes in the Tender
Offer shall be deemed to have waived any rights which they may have under the
Indenture to withdraw their tender of Notes and Consents after the Consent
Date. However, tenders of any Notes may also be withdrawn if the Tender Offer
is terminated without any Notes being purchased thereunder. In the event of
such termination of the Tender Offer, the Notes tendered pursuant thereto
will be returned to the tendering Holders promptly.
Holders who wish to exercise their right of withdrawal with respect to the
Tender Offer and the Consent Solicitation must give written notice of
withdrawal delivered by mail or hand delivery or facsimile transmission,
which notice must be received by the Depositary at its address set forth on
the back cover of this Offer to Purchase prior to the time provided in the
immediately preceding paragraph.
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In order to be effective, a notice of withdrawal must specify the name of the
person who deposited the Notes to be withdrawn (the "Depositor"), the name in
which the Notes are registered, if different from that of the Depositor, and
the principal amount of Notes to be withdrawn. If certificates have been
delivered or otherwise identified (through confirmation of book-entry
transfer of such Notes) to the Depositary, the name of the Registered Holder
and the certificate number or numbers relating to such Notes withdrawn also
must be furnished to the Depositary as aforesaid prior to the physical
release of the certificates for the withdrawn Notes (or, in the case of Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited with withdrawn Notes). The notice
of withdrawal must be signed by the Holder in the same manner as the Letter
of Transmittal and Consent (including, in any case, any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that
the person withdrawing the tender has succeeded to the beneficial ownership
of such Notes.
The withdrawal of Notes prior to the Consent Date in accordance with the
procedures set forth hereunder will effect a revocation of the related
Consent. Any valid revocation of Consents will automatically render the prior
tender of the Notes to which such Consents relate defective and the Company
will have the right, which it may waive, to reject such tender as invalid and
ineffective. Any permitted withdrawal of Notes and revocation of Consents may
not be rescinded, and any Notes properly withdrawn will thereafter be deemed
not validly tendered and any Consents revoked will be deemed not validly
delivered for purposes of the Tender Offer; provided, however, that withdrawn
Notes may be retendered and revoked Consents may be redelivered by again
following one of the appropriate procedures described herein at any time
prior to the Expiration Date.
If the Company extends the Tender Offer or is delayed in its acceptance
for purchase of Notes or is unable to purchase Notes pursuant to the Tender
Offer for any reason, then, without prejudice to the Company's rights
hereunder, tendered Notes may be retained by the Depositary on behalf of the
Company and may not be withdrawn, subject to Rule 14e-1 under the Exchange
Act, which requires that an offeror pay the consideration offered or return
the Notes deposited by or on behalf of Holders thereof promptly after the
termination or withdrawal of a tender offer, except as otherwise provided
herein.
If the Company shall decide to decrease the amount of Notes being sought
in the Tender Offer or to increase or decrease the consideration offered to
the Holders, and if, at the time that notice of such increase or decrease is
first published, sent or given to Holders in the manner specified in this
Offer to Purchase, the Tender Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from
and including the date that such notice is first so published, sent or given,
the Tender Offer will be extended for such purposes until the expiration of
such period of ten business days. As used in this Offer to Purchase,
"business day" has the meaning set forth in Rule 14d-1 (and applicable to
Regulation 14E) under the Exchange Act. In addition, if the Tender Offer or
the Consent Solicitation is amended in a manner determined by the Company to
constitute a material adverse change to the Holders, the Company promptly
will disclose such amendment in a public announcement and will extend the
Tender Offer and the Consent Solicitation for a period deemed by it to be
adequate to permit the Holders to properly deliver or withdraw their Notes.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocation will be determined by the
Company, whose determination will be final and binding on all parties. None
of the Company, the Depositary, the Dealer Manager, the Information Agent,
the Trustee or any other person will be under any duty to give notification
of any defects or irregularities in any notice of withdrawal or revocation or
incur any liability for failure to give any such notification.
BACKUP WITHHOLDING
For a discussion of federal income tax considerations relating to backup
withholding, see "Certain Federal Income Tax Considerations--Backup
Withholding and Substitute Form W-9."
DEALER MANAGER
The Company has retained BT Securities to act as Dealer Manager in
connection with the Tender Offer and the Consent Solicitation. In its
capacity as Dealer Manager, BT Securities may contact Holders
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regarding the Tender Offer and the Consent Solicitation and may request
brokers, dealers, commercial banks, trust companies and other nominees to
forward the Offer to Purchase and related materials to beneficial owners of
Notes.
Subject to the terms of the Dealer Manager Agreement dated May 2, 1996
between the Company and the Dealer Manager, BT Securities will be paid
customary fees for its services as Dealer Manager in connection with the
Tender Offer and the Consent Solicitation. In addition, in the event the
Tender Offer and Consent Solicitation is not consummated, the Dealer Manager
will be reimbursed for its reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of counsel). The Company has also agreed to
indemnify the Dealer Manager and its affiliates against certain liabilities
under federal or state securities laws caused by, arising out of or in
connection with the Tender Offer and the Consent Solicitation.
DEPOSITARY AND INFORMATION AGENT
Chemical Bank has been appointed Depositary for the Tender Offer and the
Consent Solicitation. All deliveries and correspondence sent to the
Depositary should be directed to its address set forth on the back cover of
this Offer to Purchase. Requests for assistance or additional copies of this
Offer to Purchase and the Letter of Transmittal and Consent should be
directed to D.F. King & Co., Inc., as Information Agent, at its address set
forth on the back cover of this Offer to Purchase.
FEES AND EXPENSES
In addition to the fees and expenses payable to the Dealer Manager, the
Company will pay the Depositary and the Information Agent reasonable and
customary fees for their services (and will reimburse them for their
reasonable out-of-pocket expenses in connection therewith), and will pay
brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Offer to Purchase and related documents to the beneficial owners of the
Notes and in handling or forwarding tenders for purchase. In addition, the
Company will indemnify the Depositary and the Information Agent against
certain liabilities in connection with their services, including liabilities
under the federal securities laws.
The Company will pay all transfer taxes, if any, applicable to the
purchase of Notes pursuant to the Tender Offer. If, however, Notes for
principal amounts not accepted for tender are to be delivered to, or are to
be registered or issued in the name of, any person other than the Registered
Holder of the Notes, or if tendered Notes are to be registered in the name of
any person other than the person signing the Letter of Transmittal and
Consent, or if a transfer tax is imposed for any reason other than the
purchase of Notes pursuant to the Tender Offer, then the amount of any such
transfer tax (whether imposed on the registered Holder or any other person)
will be payable by the tendering Holder. If satisfactory evidence of payment
of such tax or exemption therefrom is not submitted, then the amount of such
transfer tax will be deducted from the Tender Offer Consideration otherwise
passable to such tendering Holder.
BT Securities may also act as an initial purchaser in connection with the
Debt Offering and the Preferred Stock Offering, and, in connection therewith,
would receive customary discounts and commissions.
The Company will pay customary fees and expenses for printing, accounting
and legal services, and to the Dealer Manager, the Depositary, the
Information Agent and the Trustee incurred in connection with the Tender
Offer and the Consent Solicitation.
MISCELLANEOUS
The Tender Offer is not subject to Section 13(e) of, or Rules 13e-3 or
13e-4 or Regulation 14D promulgated under, the Exchange Act. The Tender Offer
is being made in compliance with Regulation 14E under the Exchange Act.
In connection with the Tender Offer and the Consent Solicitation,
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) may solicit
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tenders and consents by use of the mails, personally or by telephone,
telegram or facsimile transmissions. Other than with respect to the
Depositary, the Information Agent and the Dealer Manager, neither the Company
nor any of its affiliates has engaged, or made any arrangements for, and has
no contract, arrangement or understanding with, any broker, dealer, agent or
other person regarding the Tender Offer and the Consent Solicitation
hereunder, and no person has been authorized by the Company, or any of its
affiliates to provide any information or to make any representations in
connection with the Tender Offer and the Consent Solicitation, other than
those expressly set forth in this Offer to Purchase, and, if so provided or
made, such other information or representations must not be relied upon as
having been authorized by the Company or any of its affiliates. The delivery
of this Offer to Purchase shall not, under any circumstances, create any
implication that the information set forth herein is correct as of any time
subsequent to the date hereof.
PROPOSED AMENDMENTS TO THE INDENTURE
PURPOSES AND EFFECTS
The Notes were issued under the Indenture between the Company and the
Trustee. The Company is making the Tender Offer to retire the Notes and is
seeking Consents to the Proposed Amendments in the Consent Solicitation in
order to modify certain of the restrictive covenants and other provisions in
the Indenture.
The Supplemental Indenture will be executed and become effective upon
certification by the Depositary to the Trustee (at the direction of the
Company) of receipt of the Requisite Consents, which in no event shall occur
prior to May 15, 1996. However, the Proposed Amendments will not become
operative until the Acceptance Date. Each Holder of Notes, by executing and
delivering a Consent, will consent to the Proposed Amendments as set forth in
Annex A hereto.
PROPOSED AMENDMENTS
Set forth below is a summary description of the Proposed Amendments to the
Indenture for which the Consents of the Holders are being solicited hereby.
This description is qualified by reference to the full provisions of the
existing Indenture and the provisions of the proposed Supplemental Indenture,
which provisions are substantially in the form set forth in Annex A hereto.
The capitalized terms used below and in Annex A and not otherwise defined
shall have the meanings assigned to them in the Indenture or the Supplemental
Indenture, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS
The "Limitation on Restricted Payments" covenant set forth in the
Indenture as currently in effect provides that neither the Company nor any of
its Subsidiaries shall (i) declare or pay any distribution or dividend on or
in respect of any class of its Capital Stock (except dividends or
distributions payable by wholly-owned Subsidiaries of the Company); (ii)
purchase, repurchase, prepay, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries; (iii) make or,
in the case of the Company, permit any Subsidiary to make, any Investment
(other than Permitted Investments) in, any Affiliate or any Related Person;
or (iv) repay, prepay, redeem, retire or refinance, prior to scheduled
maturity or scheduled sinking fund payment, any other Debt which ranks pari
passu with, or subordinate to, the Notes (each a "Restricted Payment");
unless at the time of and after giving effect to the proposed Restricted
Payment (a) no Event of Default (and no event that, after notice or lapse of
time, or both, would become an Event of Default) shall have occurred and be
continuing, (b) the Company could incur an additional $1.00 of Debt pursuant
to the first sentence of the covenant described under the caption "Limitation
on Incurrence of Additional Debt and Preferred Stock" and (c) the aggregate
amount of all Restricted Payments declared or made after June 30, 1993 shall
not exceed the sum of (I) an amount equal to Operating Cash Flow earned from
June 30, 1993 to the end of the fiscal quarter preceding such Restricted
Payment less 1.5 times the sum of Total Interest Expense and Preferred Stock
dividends paid or accrued from June 30, 1993 to the end of the fiscal quarter
preceding such Restricted Payment plus (II) an amount equal to the aggregate
proceeds received by the Company as capital contributions to the Company
after June 30, 1993, or from the issuance and sale after June 30, 1993 of
Capital Stock.
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Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the the covenant described under the caption
"Limitation on Restricted Payments" will be amended with respect to the
Company and its Subsidiaries to, among other things, (i) expand the
restriction on investments to cover investments in any person, not just
affiliates and related persons; (ii) create baskets of permissible
investments (i.e., not restricted by this covenant) (A) of up to $20 million
in the aggregate, in the case of investments in a Broadcast Business or
Advertising Business or (B) of up to $15 million in the aggregate, in the
case of other types of investments; (iii) permit investments in certain cash
equivalents; (iv) permit the issuance of the Exchange Notes in exchange for
the Series D Preferred Stock to be issued pursuant to the Preferred Stock
Offering and certain cash payments in connection with the Exchange Notes; (v)
permit the redemption or prepayment of indebtedness (including the New Notes)
which ranks pari passu with the Notes; (vi) permit the exchange or repurchase
of equity interests with, or out of the proceeds of, other equity interests
and the repurchase of subordinated debt with the proceeds of equity
interests; (vii) permit the payment of dividends on the Series D Preferred
Stock and the redemption of the Company's Series B and Series C Preferred
Stock, subject to certain limitations; and (viii) permit payments to
Sillerman Communications Management Company ("SCMC") for facilities
maintenance and other services, and payments to certain employees pursuant to
certain termination agreements. In addition, the general basket of
permissible Restricted Payments that can be made by the Company and its
Subsidiaries under the formula set forth in clause (c) of the covenant (the
"Basket") would be modified to reduce the interest expense multiple from 1.5
to 1.4 and to amend the definitions of "Consolidated Net Income,"
"Consolidated Interest Expense" (formerly "Total Interest Expense"),
"Consolidated Cash Flow" (formerly "Operating Cash Flow") and certain other
related terms. Such definitional and other changes may have the effect of
increasing the amount of investments permitted under the Basket. As modified,
the covenant described under the caption "Limitation on Restricted Payments"
in the Indenture would be substantially identical to the covenant to be
described under the caption "Limitation on Restricted Payments" to be
included in the indenture governing the New Notes.
LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES COVENANT
The covenant described under the caption "Limitation on Dividend
Restrictions Affecting Subsidiaries" set forth in the Indenture as currently
in effect provides that the Company shall not, and shall not permit any of
its Subsidiaries to, create or cause any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of the Company to
(i) pay dividends or make any other distributions on its Capital Stock, (ii)
pay any Debt owed to the Company or any of its Subsidiaries, (iii) make loans
or advances to the Company or any of its Subsidiaries, or (iv) transfer any
of its Property or assets to the Company or any of its Subsidiaries, with
certain specified exceptions.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "Limitation
on Dividend Restrictions Affecting Subsidiaries" will be amended to, among
other things, expand the exceptions to the above set of restrictions to
include any encumbrances or restrictions set forth in (i) any agreement
governing senior debt of the Company (including the New Credit Agreement), or
(ii) the New Notes or the indenture governing the New Notes. As modified, the
covenant described under the caption "Limitation on Dividend Restrictions
Affecting Subsidiaries" in the Indenture would be substantially identical to
the covenant to be described under the caption "Limitation on Dividend
Restrictions Affecting Subsidiaries" to be included in the indenture
governing the New Notes.
LIMITATION ON INCURRENCE OF ADDITIONAL DEBT AND PREFERRED STOCK COVENANT
The the covenant described under the caption "Limitation on Incurrence of
Additional Debt and Preferred Stock" set forth in the Indenture as currently
in effect provides that the Company and its Subsidiaries may not incur Debt,
other than under various categories of Permitted Debt (which debt may be
incurred by the Company or its Subsidiaries regardless of the Company's Debt
to Cash Flow Ratio),
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unless, after giving effect to the incurrence of such Debt, the Debt to
Operating Cash Flow Ratio is 6.25 to 1 or less. Absent receipt of the
Requisite Consents, the incurrence of the Debt represented by the New Notes
and the New Credit Agreement would violate this provision.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "Limitation
on Incurrence of Additional Debt and Preferred Stock" will be amended to
provide that the Company may incur Debt if, after giving effect to the
incurrence of such Debt, the Company's Debt to Operating Cash Flow Ratio is
7.0 to 1 or less. In addition, the covenant would be revised to, among other
things, (i) permit the Company or a Subsidiary to issue preferred stock if in
compliance with the new Debt to Cash Flow Ratio regardless of the weighted
average life to maturity of the new securities; (ii) permit the Company's
Subsidiaries to incur debt under all of the Permitted Debt categories; and
(iii) expand the definition of Permitted Debt to permit the incurrence of
debt (A) represented by the New Notes and the Series D Preferred Stock to be
issued pursuant to the Preferred Stock Offering, (B) pursuant to bank credit
facilities (including the New Credit Agreement) not to exceed $150.0 million
at any time outstanding, (C) pursuant to certain additional financial
facilities, provided that such facilities are repaid from the proceeds of
certain asset dispositions, (D) in connection with the MMR Acquisition,
provided that existing MMR debt so incurred is repaid by borrowings under
bank facilities, (E) in connection with certain acquisitions of assets or new
subsidiaries and (F) under a general $10.0 million basket for any type of
debt. As modified, the covenant described under the caption "Limitation on
Incurrence of Additional Debt and Preferred Stock" in the Indenture would be
substantially identical to the covenant to be described under the caption
"Limitation on Incurrence of Additional Debt and Preferred Stock" to be
included in the indenture governing the New Notes.
LIMITATION ON TRANSACTIONS WITH RELATED PERSONS
The covenant described under the caption "Limitation on Transactions with
Related Persons" set forth in the Indenture as currently in effect provides
that the Company shall not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of related
transactions (with certain specified exceptions) with any Related Person
unless (i) such transaction or series of transactions is on terms that are no
less favorable to the Company or any such Subsidiary, as the case may be,
than would be available in a comparable transaction with an unrelated third
party and (ii) such transaction or series of transactions is approved by a
majority of the Board of Directors, including the approval of each of the
Independent Directors, and with respect to any transaction or series of
transactions involving aggregate payments in excess of $500,000, the Company
obtains an opinion as to the fairness thereof to the Company or such
Subsidiary from a financial point of view issued by an independent investment
banking firm, appraisal firm or accounting firm, in each case of national
standing.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "Limitation
on Transactions with Related Persons" will be amended to, among other things,
(i) permit the MMR Acquisition and related transactions that are disclosed in
this Offer to Purchase under the caption "Agreements Related to the
Acquisitions and Dispositions"; (ii) permit the issuance of common stock
warrants to SCMC and the forgiveness of a $2.0 million loan to SCMC in
exchange for SCMC's assignment of its rights to receive fees under certain
consulting agreements; (iii) narrow the definition of affiliate by (A)
increasing from 5% to 10% the beneficial ownership of stock level at which a
person automatically will be deemed to be an affiliate under the covenant and
(B) eliminating provisions which automatically classified certain individual
relatives as affiliates; (iv) create a threshold of $1.0 million for
affiliate transactions which require the Company to deliver to the Trustee an
officer's certificate certifying the arms length nature of the transaction
and its approval by a majority (as opposed to the previous unanimity
requirement) of the Company's disinterested directors; (v) increase the
dollar threshold from $500,000 to $5.0 million for affiliate transactions
which require the Company to deliver to the Trustee an opinion as to the
fairness of the transaction from a nationally recognized accounting,
appraisal or investment banking firm; and (vi) permit
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the joint lease with SCMC for the Company's corporate headquarters. As
modified, the covenant described under the caption "Limitation on
Transactions with Related Persons" in the Indenture would be substantially
identical to the covenant to be described under the caption "Limitation on
Transactions with Related Persons" to be included in the indenture governing
the New Notes.
LIMITATION ON DISPOSITION OF ASSETS AND SUBSIDIARY STOCK
The covenant described under the caption "Limitation on Disposition of
Assets and Subsidiary Stock" set forth in the Indenture as currently in
effect requires the Company to use the Net Available Proceeds of certain
Asset Dispositions that have not been used to repay Obligations then
outstanding under the Credit Agreement to purchase any Notes tendered to the
Company pursuant to the offer described in the Indenture.
The indenture governing the New Notes will also contain a "Limitation on
Disposition of Assets and Subsidiary Stock" covenant; however, that covenant
will provide that any offer required to be made by the Company will apply to
the Notes and the New Notes on a pari passu basis.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "Limitation
on Disposition of Assets and Subsidiary Stock" will be amended to require the
Company to use the excess proceeds from certain asset sales (the threshold
amount of proceeds triggering the Company's repurchase obligation will be
raised from $5.0 million to $10.0 million) to purchase Notes and New Notes on
a pro rata basis based on the aggregate principal amount of Notes and New
Notes tendered by the Holders thereof pursuant to a purchase offer by the
Company. In addition, the covenant will be modified by, among other things,
(i) excluding sales and exchanges of certain radio stations from the
definition of Asset Sale and (ii) excluding certain types of permitted asset
swaps from the mandatory redemption provisions of the covenant. As modified,
the covenant described under the caption "Limitation on Disposition of Assets
and Subsidiary Stock" in the Indenture would be substantially identical to
the covenant to be described under the caption "Limitation on Disposition of
Assets and Subsidiary Stock" to be included in the indenture governing the
New Notes.
LIMITATION ON LINE OF BUSINESS COVENANT
The covenant described under the caption "Limitation on Line of Business"
set forth in the Indenture as currently in effect provides that, so long as
any of the Notes are outstanding, the Company and its Subsidiaries will
engage solely in the ownership and operation of radio broadcasting stations
and the ownership and operation of the regional and national radio networks
known as the Texas State Networks.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "Limitation
on Line of Business" will be amended to clarify that the Company may engage
in any business, the majority of whose revenues are derived from the
broadcast of radio programming, and activities incidental thereto. As
modified, the covenant described under the caption "Limitation on Line of
Business" in the Indenture would be substantially identical to the covenant
to be described under the caption "Limitation on Line of Business" to be
included in the indenture governing the New Notes.
WHEN COMPANY MAY MERGE COVENANT
The covenant described under the caption "When Company May Merge" set
forth in the Indenture as currently in effect provides that the Company shall
not consolidate with or merge into, or transfer substantially all of its
assets to, any Person unless (i) the Company is the surviving entity or such
other Person expressly assumes all the Obligations of the Company under the
Notes and the Indenture, (ii) immediately prior to such transaction and
immediately after giving effect to such transaction, no Default
35
<PAGE>
or Event of Default exists, (iii) immediately after giving effect to such
transaction on a pro forma basis, the Company would be able to incur at least
$1.00 of additional Debt under the covenant described under the caption
"Limitation on Incurrence of Additional Debt and Preferred Stock" and (iv)
the Consolidated Net Worth of the surviving entity immediately after the
transaction is no less than the Consolidated Net Worth of the Company
immediately prior to the transaction.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the covenant described under the caption "When
Company May Merge" will be amended to (i) clarify that no such merger,
consolidation or sale of assets transaction shall be permitted if such
transaction would have an adverse effect on any material broadcast license
held by the Company and (ii) exempt a merger of the Company with or into a
Wholly Owned Subsidiary from the Consolidated Net Worth and additional
indebtedness capability requirements. As modified, the covenant described
under the caption "When Company May Merge" in the Indenture would be
substantially identical to the covenant described under the caption "When
Company May Merge" to be included in the indenture governing the New Notes.
EVENTS OF DEFAULT
The "Events of Default" provisions set forth in Section 6.01 of the
Indenture as currently in effect provide that each of the following
constitutes an Event of Default; (i) default in the payment of any principal
or premium due on any Note; (ii) default for 30 days in the payment of any
interest due on any Note; (iii) breach of any covenant or other provision of
the Notes or the Indenture which continues for a period of 30 days after
receipt by the Company of written notice thereof; (iv) default under other
agreements evidencing indebtedness of the Company or its Subsidiaries which
results in such indebtedness becoming due prior to its maturity, provided
that no default shall result if the aggregate amount of other indebtedness
with respect to which a default has occurred is less than $1.0 million; (v)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Significant Subsidiaries; or (vi) the entry of final judgments against
the Company or any of its Subsidiaries in excess of $1.0 million in the
aggregate, which judgments are not vacated, discharged or stayed or bonded
pending appeal within 60 days.
Proposed Revision
If the Requisite Consents are received and the Company enters into the
Supplemental Indenture, the provisions described under the caption "Events of
Default" set forth in Section 6.01 of the Indenture will be amended to, among
other things, (i) replace the existing 30 day notice and cure period for all
types of covenant breaches with (A) no notice or cure period for breaches of
covenant provisions pertaining to restricted payments, incurrence of
indebtedness, change of control, asset sales or mergers and (B) a 60 day
notice and cure period for other types of breaches; and (ii) increase the
dollar threshold from $1.0 million to $10.0 million which triggers the
default provisions relating to (A) defaults under other agreements evidencing
indebtedness of the Company or its Subsidiaries and (B) unsatisfied
judgements against the Company or its Subsidiaries. As modified, the
provisions described under the caption "Events of Default" set forth in
Section 6.01 of the Indenture would be substantially identical to the
corresponding provisions to be included in the indenture governing the New
Notes.
CERTAIN OTHER AMENDMENTS
In addition to the Proposed Amendments set forth above, if the Requisite
Consents are received and the Company enters into the Supplemental Indenture,
the Indenture will be amended to add certain additional defined terms, delete
certain existing defined terms and effect certain other revisions to
implement the Proposed Amendments discussed above. See Annex A hereto.
HOLDERS OF NOTES WHO TENDER THEIR NOTES IN THE TENDER OFFER WILL BE DEEMED
TO HAVE CONSENTED TO ALL THE PROPOSED AMENDMENTS. ACCORDINGLY, A CONSENT
PURPORTING TO CONSENT TO ONLY SOME OF THE PROPOSED AMENDMENTS WILL NOT BE
VALID. NOTWITHSTANDING ANY PROVISION OF THE INDENTURE, HOLDERS WHO TENDER
THEIR NOTES IN THE TENDER OFFER SHALL BE DEEMED TO HAVE WAIVED ANY RIGHTS
WHICH THEY MAY HAVE UNDER THE INDENTURE TO WITHDRAW THEIR TENDER OF NOTES AND
CONSENTS AFTER THE CONSENT DATE.
Copies of the Indenture and the form of Supplemental Indenture are
available from the Information Agent upon request.
36
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at December 31, 1995, (ii) the pro forma capitalization of the
Company at December 31, 1995 giving effect to the Recent Acquisitions and the
Transactions other than the MMR Merger and (iii) the pro forma capitalization
of the Company at December 31, 1995 giving effect to the Recent Acquisitions
and the Transactions.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
(IN THOUSANDS)
PRO FORMA FOR THE
RECENT ACQUISITIONS AND PRO FORMA FOR THE
THE TRANSACTIONS OTHER RECENT ACQUISITIONS
ACTUAL THAN THE MMR MERGER AND THE TRANSACTIONS
---------- ----------------------- --------------------
<S> <C> <C> <C>
DEBT:
New Credit Agreement ........................................ $ 0 $ 0
New Notes ................................................... 440,000 440,000
Notes ....................................................... $ 80,000 0(4) 0(4)
---------- ----------------------- --------------------
Total debt ................................................. 80,000 440,000 440,000
PREFERRED STOCK:
Series B Redeemable Preferred Stock ......................... 1,735 1,735 1,735
Series C Redeemable Preferred Stock ......................... 1,550 0(5) 0(5)
Series D Preferred Stock .................................... 120,000 120,000
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value,
10,000,000 shares authorized, 6,458,215 shares issued and
outstanding (1)(2)(3) ...................................... 64 64 84
Class B Common Stock, $.01 par value,
1,000,000 shares authorized, 1,000,000 shares issued and
outstanding (2)(3) ......................................... 10 10 11
Class C Common Stock, $.01 par value,
1,200,000 shares authorized, 0 shares issued and
outstanding ................................................ 0 0 0
Additional paid-in capital .................................. 115,184 113,884 185,863
Accumulated deficit(5) ...................................... (32,197) (74,065) (74,065)
---------- ----------------------- --------------------
Total stockholders' equity ................................. 83,061 39,893 111,893
---------- ----------------------- --------------------
Total capitalization ....................................... $166,346 $601,628 $673,628
========== ======================= ====================
</TABLE>
- ------------
(1) Does not include (i) 750,000 shares issuable upon the exercise of
outstanding options pursuant to the Stock Option Plans and (ii)
1,000,000 shares issuable, subject to certain conditions, upon
conversion of the Class B Common Stock.
(2) Does not include (i) 150,000 shares issuable in the event the seller of
WHSL-FM elects for the purchase price to be paid in stock, (ii) 600,000
shares issuable upon the exercise of the warrants issued to SCMC and
(iii) shares issuable upon the conversion of the Series D Preferred
Stock. Upon the consummation of the Financing, pursuant to the Hicks
Agreement, (i) 75,000 shares of Class B Common Stock held by Mr. Hicks
will be converted in to an equal number of shares of Class A Common
Stock and (ii) 68,874 shares of Class B Common Stock held by Mr. Hicks
will be purchased by the Company. See "Management--Employment
Agreements."
(3) With respect to the MMR Merger, assumes (i) the Class A Common Stock
Price (as defined) is $35.00, which results in an Exchange Ratio (as
defined) of .3286, (ii) shares of MMR Class B Common Stock, MMR Class C
Common Stock and MMR Preferred Stock are converted into Class B Common
Stock of the Company and all other classes of MMR stock are converted
into Class A Common Stock; except shares of MMR Senior Cumulative
Preferred Stock which are 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. As a result of such assumptions, upon consummation of the
MMR Merger, 8,372,718 shares of Class A Common Stock and 1,086,146
shares of Class B Common Stock would be outstanding. Does not include
(i) 115,010 shares of Class A Common Stock issuable upon exercise of
outstanding options issued under MMR stock option plans, (ii) 41,075
shares of Class A Common Stock issuable upon exercise of warrants
issued in MMR's initial public offering, (iii) 157,728 shares of Class
A Common Stock issuable upon exercise of unit purchase options of MMR,
(iv) stock appreciation rights in respect of 6,572 shares of Class A
Common Stock issuable upon exercise of certain outstanding stock
appreciation rights of MMR, (v) 3,286 shares of Class A Common Stock
issuable upon exercise of options issued by MMR to Robert F.X.
Sillerman in connection with MMR's acquisition of Southern Starr
Broadcasting Group, Inc. and (vi) 239,287 shares of Class A Common
Stock issuable upon exercise of certain subordinated debt warrants
issued by MMR, all of which are to be assumed by the Company upon the
consummation of the MMR Merger. Does not include shares of Class A
Common Stock issuable upon the exercise of options to purchase 175,000
shares of Class A Common Stock of MMR that are to be issued by MMR in
connection with the repayment of certain indebtedness of MMR upon
consummation of the MMR Merger. See "Agreements Related to the
Acquisitions and the Dispositions--MMR Stations."
(4) Assumes that all of the Old Notes are tendered pursuant to the Tender
Offer.
(5) The change in accumulated deficit reflects the following charges to be
taken to earnings in connection with the Transactions: (i) a non-cash
charge of $5.0 million to reflect the SCMC Termination Agreement, (ii)
a $20.9 million charge in connection with the payments to Mr. Hicks and
Mr. Armstrong pursuant to the Hicks Agreement and the Armstrong
Agreement, (iii) a $15.4 million extraordinary charge resulting from
the premium from the Tender Offer and the write-off of deferred
financing costs, (iv) a $0.2 million loss associated with the Dallas
Disposition and (v) a $0.4 million loss assumed with the redemption of
the Series C Preferred Stock.
37
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Selected 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. See "Unaudited Pro Forma Condensed Combined
Financial Statements." The Selected Consolidated Financial Data as of
December 31, 1995 have been derived from the audited consolidated financial
statements of the Company included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
PRO FORMA FOR
THE RECENT
ACQUISITIONS PRO FORMA FOR
AND THE THE RECENT
TRANSACTIONS ACQUISITIONS
OTHER THAN THE AND
MMR MERGER(5) TRANSACTIONS(6)
1991 1992 1993 1994 1995 1995 1995
----------- ----------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ................. $13,442 $15,003 $ 34,233 $55,556 $76,830 $163,418 $186,384
Station operating expenses .. 9,105 9,624 21,555 33,956 51,039 106,790 119,682
Depreciation, amortization
and duopoly integration
costs ....................... 3,726 3,208 4,475 5,873 9,137 26,862 30,897
Corporate expenses ........... 726 769 1,808 2,964 3,797 6,060 6,300
Corporate expenses --
non-recurring charge(1) .... 13,980
Writedown of broadcast rights
agreement and other ......... 5,000 281
----------- ----------- ----------- ----------- ----------- -------------- ---------------
Operating income (loss) ..... (115) 1,402 (7,585) 12,763 7,857 23,706 29,224
Other (income) loss .......... (124) (17) 121 (650) (1,174) (1,174)
Interest expense ............. 4,241 3,610 7,351 9,332 12,903 46,900 46,900
----------- ----------- ----------- ----------- ----------- -------------- ---------------
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) (22,020) (16,502)
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) (22,020) (16,502)
Redeemable preferred stock
dividends and accretion(2) . 302 385 557 348 291 8,091 8,091
----------- ----------- ----------- ----------- ----------- -------------- ---------------
Net income (loss) applicable
to common stock ............. $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687) $(30,111) $(24,593)
=========== =========== =========== =========== =========== ============== ===============
Net income (loss) per share . $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (4.04) $ (2.60)
=========== =========== =========== =========== =========== ============== ===============
Weighted average common
shares outstanding .......... 1,178,570 1,178,570 2,589,285 5,792,385 6,595,728 7,458,000 9,459,000
=========== =========== =========== =========== =========== ============== ===============
Ratio of earnings to fixed
charges(3) .................. -- -- -- 1.4x -- -- --
Ratio of earnings to combined
fixed charges and preferred
stock dividends(3) .......... -- -- -- 1.3x -- -- --
OTHER OPERATING DATA:
Broadcast Cash Flow(4) ....... $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791 $ 56,628 $ 66,702
EBITDA(4) .................... 3,611 4,610 10,870 18,636 21,994 50,568 60,402
Cash capital expenditures ... 139 115 569 1,951 3,261
</TABLE>
(Table continued on following page)
38
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
PRO FORMA
FOR THE
RECENT
ACQUISITIONS PRO FORMA
ACTUAL AND THE FOR THE
TRANSACTIONS RECENT
------------------------------------------------------ OTHER THAN ACQUISITIONS
THE MMR AND
MERGER(5) TRANSACTIONS(6)
1991 1992 1993 1994 1995 1995 1995
--------- ---------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893 $ 67,290 $ 15,408
Working capital (deficit) .... 451 (37,470) 22,088 18,698 20,890 86,569 32,415
Intangible assets, net ........ 29,046 27,856 107,290 102,152 129,543 511,118 644,019
Total assets .................. 37,367 36,127 152,871 145,808 187,337 680,163 765,352
Total debt .................... 38,828 39,011 81,627 81,516 81,850 440,000 440,000
Redeemable preferred stock ... 2,972 4,025 3,701 2,466 3,285 121,735 121,735
Stockholders' equity (deficit) (6,951) (9,411) 48,598 48,856 83,061 39,893 111,893
</TABLE>
- ------------
(1) Includes 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.
(2) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock, and
dividends on the preferred stock to be issued under the Preferred Stock
Offering.
(3) 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 $4,687,000, $15,476,000, $2,593,000 and
$4,534,000 during the years ended December 31, 1995, 1993, 1992 and
1991, respectively. Pro forma earnings for the year ended December 31,
1995 would have been insufficient to cover combined fixed charges and
preferred stock dividends by $30,111,000, pro forma for the Recent
Acquisitions and the Transactions other than the MMR Merger, and
$24,593,000, pro forma for the Recent Acquisitions and the
Transactions. Earnings were insufficient to cover fixed charges by
$4,396,000, $14,919,000, $2,208,000 and $4,232,000 during the years
ended December 31, 1995, 1993, 1992 and 1991, respectively. Pro forma
earnings for the year ended December 31, 1995 would have been
insufficient to cover fixed charges by $22,020,000, pro forma for the
Recent Acquisitions and the Transactions other than the MMR Merger and
$16,502,000, pro forma for the Recent Acquisitions and the
Transactions.
(4) Broadcast Cash Flow is defined as net revenues 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
and duopoly integration 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.
(5) The Unaudited Pro Forma Balance Sheet Data at December 31, 1995 and the
Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1995 are presented as if the Company had completed the
Recent Acquisitions and the Transactions other than the MMR Merger as
of December 31, 1995 and January 1, 1995, respectively.
(6) The Unaudited Pro Forma Balance Sheet Data at December 31, 1995 and the
Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1995 are presented as if the Company had completed the
Recent Acquisitions and the Transactions as of December 31, 1995 and
January 1, 1995, respectively.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet at December 31,
1995 and the Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1995 are 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
Notes are tendered), (vi) implementation of the Hicks Agreement and the
Armstrong Agreement, (vii) repayment of the Old Credit Agreement and (viii)
implementation of the SCMC Termination Agreement as of December 31, 1995 and
January 1, 1995, respectively. No adjustment has been made to the 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 Pro Forma Condensed Combined Statement of Operations as it
would have no 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 in this Offer to
Purchase. 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 pro forma statement of operations data includes 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 assumes 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."
40
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFX LIBERTY PRISM
BROADCASTING, ACQUISITION ACQUISITION
INC. INCLUDING INCLUDING
AS WASHINGTON LOUISVILLE ADDITIONAL
ADJUSTED(1) DISPOSITIONS(2) DISPOSITIONS(3) ACQUISITIONS(4)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ............. $ 32,505 $ 15,608 $ 8,679 $ 6,529
Property and equipment, net 18,312 14,689 7,906 8,876
Intangible assets, net .... 153,008 109,524 14,861 27,428
Other assets ............... 8,522 5
------------- ------------- ------------- -------------
Total assets ............... $212,347 $139,821 $31,446 $42,838
============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........$ 17,875 $ 7,306 $ 6,174 $ 3,793
Other liabilities .......... 2,211 1,062 2,450
Long-term debt:
New Credit Agreement ....
Note Offering ............
Old Notes and Old
Credit Agreement ........ 98,500
Acquired company debt ... 79,945 14,110 9,510
Deferred taxes ............. 7,415 11,613 690
Redeemable preferred stock
Series B Preferred Stock 1,735
Series C Preferred Stock 1,550
Series D Preferred Stock
Stockholders' equity ....... 83,061 39,895 11,162 26,395
- --------------------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity ...... $212,347 $139,821 $31,446 $42,838
============= ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE RECENT
ACQUISITIONS, PRO FORMA
AND THE FOR THE RECENT
OTHER TRANSACTIONS ACQUISITIONS
ACQUISITIONS/ PRO FORMA OTHER THAN THE MMR AND THE
DISPOSITIONS(5) FINANCING(6) ADJUSTMENTS(7) MMR MERGER MERGER(8) TRANSACTIONS
------------- ------------ ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ............. $10,261 $ 112,000 (a) $ (19,500)(a) $110,197 $(51,468) $ 58,729
(211,000)(b)
440,000 (b) (85,750)(c)
(18,000)(c) (63,000)(d)
(107,803)(d) (8,332)(e)
(2,000)(g)
Property and equipment, net (1,241) 48,542 3,718 52,260
Intangible assets, net .... (9,176) 18,000 (c) 123,066 (b) 511,118 132,901 644,019
(8,391)(d) 54,304 (c)
20,162 (d)
8,332 (e)
Other assets ............... 4.029 (f) 10,306 38 10,344
(2,250)(a)
------------- ------------ ------------ -------------- --------- --------------
Total assets ............... $ (156) $ 435,806 $(181,939) $680,163 $ 85,189 $765,352
============= ============ ============ ============== ========= ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ........ $ (2,303)(d) $ (6,174)(c) $ 23,628 $ 2,686 $ 26,314
(3,793)(d)
750 (a)
Other liabilities .......... (2,450)(d) 3,973 100 4,073
700 (a)
Long-term debt:
New Credit Agreement ....
Note Offering ............ 440,000 (b) 440,000 440,000
Old Notes and Old
Credit Agreement ........ (98,500)(d) 0 0
Acquired company debt ... (79,945)(b) 0 0
(14,110)(c)
(9,510)(d)
Deferred taxes ............. 31,906 (b) 50,934 10,403 61,337
(690)(d)
Redeemable preferred stock
Series B Preferred Stock 1,735 1,735
Series C Preferred Stock (1,550)(g) 0 0
Series D Preferred Stock 120,000 (a) 120,000 120,000
Stockholders' equity ....... (156) (15,391)(d) (26,395)(d) 39,893 72,000 111,893
(8,000)(a) (39,895)(b)
(11,162)(c)
(23,200)(a)
4,029 (f)
(450)(g)
- --------------------------- ------------- ------------ ------------ -------------- --------- --------------
Total liabilities and
stockholders' equity ...... $(156) $435,806 $(181,939) $680,163 $85,189 $765,352
============= ============ ============ ============== ========= ==============
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) SFX Broadcasting, Inc., as adjusted
Reflects the Company's balance sheet as reported combined with the balance
sheet of WTDR-FM and WLYT-FM (the "Charlotte Acquisition") which were
acquired by the Company for $25,000,000 in February 1996.
<TABLE>
<CAPTION>
THE COMPANY CHARLOTTE THE COMPANY
AS REPORTED ACQUISITION AS ADJUSTED
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................. $ 32,505 $ 32,505
Property and equipment, net ................ 16,767 $ 1,545 18,312
Intangible assets, net ..................... 129,543 23,465 153,008
Other assets ............................... 8,522 8,522
------------- ------------- -------------
Total assets .............................. $187,337 $25,010 $212,347
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 11,615 $ 6,260 $ 17,875
Other liabilities .......................... 1,961 250 2,211
Long-term debt ............................. 80,000 18,500 98,500
Deferred taxes ............................. 7,415 7,415
Redeemable preferred stock ................. 3,285 3,285
Stockholders' equity ....................... 83,061 83,061
------------- ------------- -------------
Total liabilities and stockholders' equity $187,337 $25,010 $212,347
============= ============= =============
</TABLE>
(2) Liberty Acquisition
Reflects the acquisition of Liberty for $236,000,000 adjusted for the
Washington Dispositions of $25,000,000. 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 ............................. $ 15,608 $ $ 15,608
Property and equipment, net ................ 16,128 (1,439) 14,689
Intangible assets, net ..................... 133,085 (23,561) 109,524
Other assets ...............................
------------- -------------- -------------
Total assets .............................. $164,821 $(25,000) $139,821
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 8,817 $ (1,511) $ 7,306
Other liabilities .......................... 1,063 (1) 1,062
Long-term debt ............................. 80,946 (1,001) 79,945
Deferred taxes ............................. 11,613 11,613
Stockholders' equity ....................... 62,382 (22,487) 39,895
------------- -------------- -------------
Total liabilities and stockholders' equity $164,821 $(25,000) $139,821
============= ============== =============
</TABLE>
42
<PAGE>
(3) Prism Acquisition
Reflects the acquisition of Prism for $105,250,000 adjusted for the
Louisville Dispositions for $19,500,000. 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 ............................. $ 8,679 $ -- $ 8,679
Property and equipment, net ................ 9,381 (1,475) 7,906
Intangible assets, net ..................... 32,886 (18,025) 14,861
------------- -------------- -------------
Total assets .............................. $50,946 $(19,500) $31,446
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 6,174 $ 6,174
Long-term debt ............................. 14,110 14,110
Stockholders' equity ....................... 30,662 (19,500) 11,162
------------- -------------- -------------
Total liabilities and stockholders' equity $50,946 $(19,500) $31,446
============= ============== =============
</TABLE>
(4) 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"), (ii) WROQ-FM from ABS Greenville Centres,
L.P. (the "Greenville Acquisition"), and (iii) WSTZ-FM and WZRX-AM from Lewis
Broadcasting, Inc., and WJDX-FM (the "Jackson Acquisitions"). The aggregate
purchase price is $63,000,000.
<TABLE>
<CAPTION>
RALEIGH- THE ADDITIONAL
GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................ $ 5,318 $ 847 $ 364 $ 6,529
Property and equipment, net ............... 8,087 371 418 8,876
Intangible assets, net .................... 21,942 1,709 3,777 27,428
Other assets .............................. 5 5
-------------- ------------- -------------- --------------
Total assets ............................. $35,347 $ 2,927 $4,564 $42,838
============== ============= ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ....................... $ 2,927 $ 799 $ 67 $ 3,793
Other liabilities ......................... 2,450 2,450
Long-term debt ............................ 170 9,340 9,510
Deferred taxes ............................ 690 690
Stockholders' equity ...................... 31,560 (9,662) 4,497 26,395
-------------- ------------- -------------- --------------
Total liabilities and stockholders'
equity .................................. $35,347 $ 2,927 $4,564 $42,838
============== ============= ============== ==============
</TABLE>
43
<PAGE>
(5) Other Acquisitions and Dispositions
To reflect the disposition of KTCK-AM for $11,500,000 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 swap of
KRLD-AM and the Texas State Networks in Dallas for KKRW-FM in Houston as it
will be recorded at historical cost in thousands. See note 7(g) for the
effect of the related redemption of the Company's Series C Redeemable
Preferred Stock.
<TABLE>
<CAPTION>
SALE PROCEEDS KTCK-AM ADJUSTMENT
--------------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets .............................. $11,500 $ 1,239 $10,261
Property and equipment, net ................. 1,241 (1,241)
Intangible assets, net ...................... 9,176 (9,176)
--------------- --------- ------------
Total assets ............................... $11,500 $11,656 $ (156)
=============== ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ $ $ 0
Long-term liabilities ....................... 0
Stockholders' equity ........................ 11,500 10,826 (156)
--------------- --------- ------------
Total liabilities and stockholders' equity $11,500 $11,656 $ (156)
=============== ========= ============
</TABLE>
(6) Financing
(a) To reflect the sale of the Series D Preferred Stock for
$120,000,000 and the costs related to its issuance of $8,000,000,
a net of $112,000,000.
(b) To reflect the $440,000,000 of gross proceeds from the Note
Offering.
(c) Represents financing costs related to the New Credit Agreement
and the Note Offering, including $2,000,000 payable to SCMC. See
"Certain Relationships and Related Transactions."
(d) To repurchase the Notes for an aggregate price of $107,803,000
which includes their carrying cost of $80,000,000, accrued
interest of $2,303,000 and estimated costs related to the Tender
Offer of $7,000,000. Also reflects the redemption of $18,500,000
of long-term debt associated with the Charlotte Acquisition. An
extraordinary loss aggregating approximately $15,391,000 will be
recognized at the time these transactions are consummated
consisting of $7,000,000 in costs associated with the Tender
Offer and $8,391,000 related to the write-off of deferred
financing costs.
(7) 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 and Mr. Armstrong pursuant to the
Armstrong Agreement 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 to
purchase 410,000 shares of Class A Common Stock, (iii) $500,000
in connection with the non-competition and non-solicitation
agreement from Mr. Hicks 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
to purchase 200,000 shares of 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 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.
44
<PAGE>
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 $91,160,000 and deferred taxes of
$31,906,000 and the adjustments to remove the long-term debt of
$79,945,000 which is not being assumed, and the stockholders'
equity of $39,895,000 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 $54,304,000 and the adjustments to remove the
current liabilities of $6,174,000, long-term debt of $14,110,000
and stockholders' equity of $11,162,000 of Prism.
(d) To reflect the $63,000,000 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 $20,162,000 and the
adjustments to remove current liabilities of $3,793,000, other
liabilities of $2,450,000, long-term debt of $9,510,000, deferred
taxes of $690,000 and stockholders' equity of $26,395,000 of the
Additional Acquisitions.
(e) To reflect acquisition costs related to the Liberty, the Prism
Acquisition and the Additional Acquisitions.
(f) To reflect the SCMC Termination Agreement under which a warrant
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. The total
value of the warrant and loan foregiveness of $11,171,000 offset
by the fair value of the recurring fees to be received from
Triathlon of $6,200,000 will be charged to earnings in the second
quarter. The net effect of these transactions on stockholders'
equity is an increase of $4,029,000.
(g) In connection with the Dallas Disposition, the Company will
redeem its Series C Redeemable 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.
45
<PAGE>
(8) 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 ........... $ 5,920 $ 9,732 $ 1,030 $ (13,600)(b) $(51,468)
(51,882)(c)
(2,668)(d)
Property & equipment, net 4,761 (1,402) 359 3,718
Intangible assets, net .. 55,746 (9,654) 4,148 61,530 (e) 132,901
12,463 6,000 (c)
2,668 (d)
Other assets ............. 38 38
---------- --------------- -------------- -------------- -----------
Total assets ............ $66,465 $(1,324) $18,000 $ 2,048 $ 85,189
========== =============== ============== ============== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ..... $ 2,765 $ (79) $ 2,686
Other liabilities ........ 100 100
Long-term debt ........... 41,482 $ 4,400 $ (51,882)(c) 0
6,000 (c)
Deferred taxes ........... 7,303 3,100 (e) 10,403
Stockholders' equity .... 14,815 (1,245) 13,600 (13,600)(b) 72,000
58,430 (e)
---------- --------------- -------------- -------------- -----------
Total liabilities and
stockholders' equity .. $66,465 $(1,324) $18,000 $ 2,048 $ 85,189
========== =============== ============== ============== ===========
</TABLE>
(a) Represents the sale of WRSF-FM which occurred on April 10, 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 $1,245,000 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 $41,482,000 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
$1,668,000 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 $61,530,000.
46
<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 $48,032 $26,959 $18,463
Station operating expenses ........... 51,039 30,660 22,411 15,570
Depreciation & amortization .......... 9,137 9,052 2,232 2,947
Corporate expenses ................... 3,797 4,653 1,827 265
Other ................................ 5,000
------------- ------------- ------------ -------------
Operating income ..................... 7,857 3,667 489 (319)
Interest expense ..................... 12,903 7,275 1,565 948
Other expense (income) ............... (650) (201)
Income tax expense ................... (2,725) 562
------------- ------------- ------------ -------------
Net income (loss) .................... (4,396) (883) (1,076) (1,628)
Preferred stock dividend requirement 291
------------- ------------- ------------ -------------
Net loss applicable to common shares $(4,687) $ (883) $(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 ......................... $(10,021) $ 3,155 (a) $163,418 $22,966 $186,384
Station operating expenses ........... (9,918) (4,938)(b) 106,790 12,892 119,682
1,966 (a)
Depreciation & amortization .......... (2,105) 2,279 (c) 26,862 4,035 30,897
(1,643)(c)
1,358 (c)
504 (c)
798 (d)
208 (e)
620 (f)
1,475 (a)
Corporate expenses ................... 2,196 (g) 6,060 240 6,300
(6,745)(g)
67 (a)
Other ................................ (5,000) 281 281
------------- ------------ -------------- ------- --------------------
Operating income ..................... 7,002 5,010 23,706 5,518 29,224
Interest expense ..................... (1,841) 45,100 (h) 46,900 46,900
(20,850)(h)
1,800 (h)
Other expense (income) ............... (323) (1,174) (1,174)
Income tax expense ................... 2,163 (i) 0 0
------------- ------------ -------------- ------- --------------------
Net income (loss) .................... 9,166 (23,203) (22,020) 5,518 (16,502)
Preferred stock dividend requirement 7,800 (j) 8,091 8,091
------------- ------------ -------------- ------- --------------------
Net loss applicable to common shares $ 9,166 $(31,003) $(30,111) $ 5,518 $(24,593)
============= ============ ============== ======= ====================
Net loss per common share ............ $ (4.04) $ (2.60)
============== ====================
Average common shares outstanding ... 7,458 9,459
</TABLE>
47
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(1) Liberty Acquisition
Reflects the net effect of the historical operations of the Liberty Stations
adjusted for the Washington Dispositions.
LIBERTY AS WASHINGTON LIBERTY AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
Net revenues ............... $51,407 $(3,375) $48,032
Station operating expenses 34,725 (4,065) 30,660
Depreciation & amortization 10,429 (1,377) 9,052
Corporate expenses ......... 4,653 4,653
---------- -------------- ----------
Operating income (loss) ... 1,600 2,067 3,667
Interest expense, net ..... 7,373 (98) 7,275
Income tax expense ......... (2,725) (2,725)
---------- -------------- ----------
Net income (loss) .......... $(3,048) $ 2,165 $ (883)
========== ============== ==========
(2) Prism Acquisition
Reflects the net effect of the historical operations of the Prism Acquisition
adjusted for the Louisville Dispositions.
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
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 ........... 1,827 1,827
---------- -------------- ----------
Operating income/(loss) ..... 820 (331) 489
Interest expense ............. 1,565 1,565
---------- -------------- ----------
Net loss ..................... $ (745) $ (331) $(1,076)
========== ============== ==========
(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>
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>
48
<PAGE>
(4) Other Acquisitions/Dispositions
To reflect the exchange of the Company's Dallas properties (KRLD-AM and Texas
State Networks) for KKRW-FM in the Houston Exchange, and the sale of KTCK-AM
in the Dallas Disposition.
<TABLE>
<CAPTION>
DISPOSITIONS ACQUISITION NET
---------------------------------- ------------- -----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues .................. $(9,792) $(3,196) $(4,096) $7,063 $(10,021)
Station operating expenses ... (8,881) (2,261) (3,714) 4,938 (9,918)
Depreciation and amortization (1,350) (725) (124) 94 (2,105)
Write-down of broadcast rights (5,000) (5,000)
---------- ---------- ---------- ------------- -----------
Operating income (loss) ...... 5,439 (210) (258) 2,031 7,002
Interest expense .............. (1,433) (403) (5) (1,841)
Other income .................. (323) (323)
---------- ---------- ---------- ------------- -----------
Net loss ...................... $ 6,872 $ 193 $ 70 $2,031 $ 9,166
========== ========== ========== ============= ===========
</TABLE>
(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 and the
recurring fees of $1,000,000 to be received from Triathlon.
(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
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."
(c) Reflects increased amortization of intangible assets resulting
from the purchase price allocation: Liberty ($2,279,000); Prism
($1,358,000); Additional Acquisitions ($504,000) and an adjustment to
decrease the amortization of intangible assets resulting from changes in
the amortization period at Liberty ($1,643,000).
(d) Reflects $798,000 in amortization of goodwill arising from the
deferred tax recorded in connection with the Liberty Acquisition.
(e) Amortization of $208,000 for acquisition costs associated with the
Acquisitions.
(f) To reflect $620,000 in amortization relating to the present value
of the Triathlon consulting fees assigned to the Company under its
agreement with SCMC.
(g) To record incremental corporate overhead charges of $2,196,000,
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 $6,745,000 of the corporate overhead
of the sellers.
(h) To reflect interest expense of $45,100,000 related to the
$440,000,000 Note Offering at 10.25%, amortization of deferred financing
costs of $1,800,000, and the elimination of existing interest expense of
$20,850,000 related to the Company and the sellers.
(i) Elimination of $2,163,000 in tax benefits associated with the
sellers.
(j) To record the Series D Preferred Stock dividend at a rate of 6.5%.
49
<PAGE>
(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.
----------------------------------------------------------------------------------------
(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 1,538 (c) 4,035
186 (d)
Corporate expenses ......... 1,666 240 (e) 240
(1,666)(e)
Non-cash compensation charge 281 281
---------- -------------- -------------- ---------- ------------- -------------
Operating income (loss) .... 3,565 129 594 502 728 5,518
Interest expense, net ...... 4,966 (4,966)(f) 0
Other expense (income) ..... (11) 11 (f) 0
Income tax expense ......... (59) 59 (f) 0
---------- -------------- -------------- ---------- ------------- -------------
Income (loss) before
extraordinary item ........ $(1,331) $ 129 $ 594 $ 502 $ 5,624 $ 5,518
========== ============== ============== ========== ============= =============
</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 $1,026,000 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 cost savings see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(c) Reflects $1,538,000 in amortization of intangible assets recorded
in connection with the MMR Merger.
(d) Amortization of $186,000 for acquisition costs associated with the
MMR Merger.
(e) To record incremental corporate overhead charges of $240,000
associated with the MMR Merger and to eliminate MMR's existing corporate
overhead of $1,666,000.
(f) Elimination of nonrecurring income of $11,000, interest of
$4,966,000 and tax benefits of $59,000.
50
<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 in this
Offer to Purchase. This Offer to Purchase 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 "Risk Factors," "Business" and elsewhere in this Offer to
Purchase, 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 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. The Company
intends to finance the Acquisitions from the proceeds of the Financing and
the Dispositions.
Certain Cost Savings. Management believes that such transactions 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. 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 $0.2 million 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 $0.6 million, (iv) reductions in national representative
commissions of $0.2 million, (v) the elimination of $0.2 million of
non-recurring start-up costs related to duopolies created by the Prism
Acquisition, and (vi) the elimination of $0.3 million 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
$0.9 million, and the elimination of redundant facilities aggregating, upon
consummation of the MMR Merger, $0.1 million.
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 five regions, each to be under the
direction of a regional manager. The Company expects that such managers will
be selected from persons
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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.
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 $5.0 million during the
three-month period ended June 30, 1996, based upon the value of the warrant
($9.0 million) and the foregiveness of debt ($2.2 million) offset by the fair
value of recurring consulting fees ($6.2 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 "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 and Armstrong Agreements. 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. The Company will
recognize an extraordinary loss if all of the Notes are tendered in the
Tender Offer, of approximately $15.4 million relating to the write-off of
deferred financing costs of the Old Credit Agreement and the costs of the
Tender Offer 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 in
this Offer to Purchase.
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 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. 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.
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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 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.
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.
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
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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.
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.
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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 acquisitions described above under "-- Year Ended December 31, 1995
Compared to Year Ended December 31, 1994."
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 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.
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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.
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 flows from 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 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 Notes accounted
for a majority of the cash used in investing activities.
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 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 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.
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During fiscal 1995, the Company acquired radio stations KMKX-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
Redeemable Preferred Stock. The acquisition agreement with respect to KTCK-AM
provides for a contingent payment not to exceed $7.5 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) pursuant to which it
has agreed to acquire the Liberty Stations 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 April 1996, the Company entered into an
agreement 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 the MMR 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. The Company has agreed to repay
approximately $66.5 million of indebtedness of MMR, which includes
indebtedness used to acquire WKSS-FM, 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 1,840,000 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. The
Company expects that such notice will be issued and the warrants will be
exercised within ninety days. Such exercise would result in net proceeds 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 repaid by the Company with
additional borrowings under the New Credit Agreement at the time of the MMR
Merger. See "Agreements Related to the Acquisitions and the Dispositions --
MMR Stations."
The Company has also entered into agreements to acquire WROQ-FM,
Greenville, South Carolina, WSTZ-FM, WZRX-AM and WJDX-FM, each operating in
Jackson, Mississippi, WTRG-FM and WRDU-FM, both operating in Raleigh, North
Carolina and WMFR-AM, WMAG-FM and WTCK-AM,
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each operating in Greensboro, North Carolina. The aggregate purchase price
for these Additional Acquisitions is approximately $63.0 million. The Company
has also entered into an agreement 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.
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 intends to finance the Acquisitions, including the repayment
of indebtedness of MMR, from the proceeds of the Financing, the Dispositions
and the proceeds from the exercise of the MMR Class A Warrants.
The Company anticipates that it will consummate all of the pending
Acquisitions and Dispositions within 60 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 in default under the New Credit Agreement. See "Risk
Factors--Risks Related to the Acquisitions and the Dispositions" and
"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."
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 $21.5 million was
outstanding under the Old Credit Agreement. Upon completion of the Financing,
the Company will repay all amounts owing under the Old Credit Agreement.
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
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). The Company intends to repurchase all
of the Notes that are tendered pursuant to the Tender Offer from the proceeds
of the Financing. If less than all of the Notes are tendered in the Tender
Offer, the Company currently intends to use funds available under the New
Credit Agreement to repurchase or retire all such remaining Notes on or prior
to their maturity.
The Company intends to enter into the New Credit Agreement concurrently
with the closing of the Financing to establish a $150.0 million senior credit
facility, of which at least $80.0 million will be committed upon consummation
of the Financing. The proceeds of the New Credit Agreement will be available
to the Company to refinance, to finance acquisitions and to provide
availability for working capital and general corporate purposes. 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
58
<PAGE>
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 Notes, to the extent
not tendered in the Tender Offer, and the New Notes) and to make dividend
payments on the Series D 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 and the Dispositions and available borrowings under
the New Credit Agreement, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures, scheduled
payments of interest on its debt and to make dividend payments on the Series
D Preferred Stock. There can be no assurance 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 Notes, to the extent not tendered in the
Tender Offer, and the New Notes), to make dividend payments on the Series D
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
Notes, to the extent not tendered in the Tender Offer, and the New Notes
prior to their maturity. 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
"Risk Factors."
59
<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 number of stations in the United
States exclusively devoted to radio broadcasting. The Company will be highly
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 $186.4
million, $66.7 million and $60.4 million, respectively, for the year ended
December 31, 1995. 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
STATIONS CURRENTLY
MARKET CURRENTLY UNDER LMA OR
MARKET RANK OWNED(1) JSA
- ---------------------------- -------- ----------- ------------
<S> <C> <C> <C>
Northeast Region
Washington, DC/Baltimore,
MD 8 - -
Nassau-Suffolk, NY ........ 14 - -
Providence, RI ............ 31 - -
Hartford, CT .............. 41 - -
Albany, NY ................ 57 - -
Springfield/Northampton, MA 76 - -
New Haven, CT ............. 95 - -
South-Atlantic Region
Charlotte, NC ............. 37 2 -
Greensboro, NC ............ 42 - 4
Nashville, TN ............. 44 2 -
Raleigh-Durham, NC ........ 50 -
Richmond, VA .............. 56 - -
Greenville-Spartanburg, SC 59 3 1
Southern Region
Jacksonville, FL .......... 53 - -
Daytona Beach, FL ......... 93 - -
Augusta, GA (3) ........... 116 - -
Jackson, MS ............... 118 3 2
Biloxi, MS ................ 134 - -
Myrtle Beach, SC .......... 185 - -
Southwest Region
Houston, TX ............... 9 1 -
San Diego, CA ............. 15 2 -
Tucson, AZ ................ 62 - -
Wichita, KS ............... 91 - -
----------- ------------
Total .................... 13 7
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF STATIONS
NUMBER OF STATIONS TO BE FOLLOWING COMBINED COMBINED COMBINED
STATIONS TO UNDER LMA OR ACQUISITIONS MARKET MARKET MARKET
BE JSA AFTER AND AUDIENCE REVENUE REVENUE
MARKET ACQUIRED(2) ACQUISITIONS(2) DISPOSITIONS SHARE SHARE RANK
- ---------------------------- ----------- --------------- ---------- ---------- ---------- ----------
AM FM
---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Northeast Region
Washington, DC/Baltimore,
MD 1 - - 1 3.8% 3.6% 8
Nassau-Suffolk, NY ........ 4 - 1 3 7.2% 32.4% 1
Providence, RI ............ 3 - 1 2 17.6% 28.3% 2
Hartford, CT .............. 4 - 1 3 16.2% 26.8% 2
Albany, NY ................ 4 1 2 3 21.5% 32.4% 1
Springfield/Northampton, MA 3 - 1 2 12.7% 31.4% 1
New Haven, CT ............. 1 1 - 2 12.1% 49.7% 1
South-Atlantic Region
Charlotte, NC ............. - - - 2 11.9% 13.6% 3
Greensboro, NC ............ 3 1 2 2 9.2% 13.7% 3
Nashville, TN ............. - - - 2 21.8% 27.3% 1
Raleigh-Durham, NC ........ 4 - 4 23.4% 35.8% 1
Richmond, VA .............. 1 - - 1 5.5% 11.1% 5
Greenville-Spartanburg, SC 1 - 1 3 32.0% 43.4% 1
Southern Region
Jacksonville, FL .......... 4 - 2 2 15.3% 19.2% 3
Daytona Beach, FL ......... 1 - - 1 8.2% 33.3% 1
Augusta, GA (3) ........... - 3 - 3 8.2% 9.9% 6
Jackson, MS ............... 3 - 2 4 31.3% 56.0% 1
Biloxi, MS ................ 2 - - 2 19.5% 34.6% 1
Myrtle Beach, SC .......... 2 1 - 3 6.8% 13.1% 3
Southwest Region
Houston, TX ............... 1 - - 2 9.5% 13.4% 2
San Diego, CA ............. - - - 2 9.2% 10.1% 5
Tucson, AZ ................ 4 - 2 2 22.8% 26.2% 1
Wichita, KS ............... 3 - 1 2 17.8% 21.0% 3
----------- --------------- ---- ----
Total .................... 49 7 16 53
</TABLE>
- ------------
(1) Does not include radio stations to be sold in the Dispositions.
(2) Includes radio stations to which the Company currently provides
programming pursuant to an LMA or sells advertising on behalf of
pursuant to a JSA.
(3) 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.
Does not include WRXR-FM and WKBG-FM, both operating in Augusta,
Georgia, which MMR has agreed to sell.
60
<PAGE>
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 an efficient means of targeting advertising dollars at
well-defined audiences. Such stations can better capitalize on the operating
leverage 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
sellout.
Target 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 allows it the flexibility to develop either protective
programming formats for its market leading stations or to develop a
spectrum of 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 integrating and operating 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 has 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 initially be managed under the
direction of five regional managers, each of whom will
61
<PAGE>
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
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 based upon
their station's 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.
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 April 1996, the Company entered into a letter
of intent 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 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.
Pursuant to four separate agreements, the Company has agreed to acquire
substantially all of the assets of radio stations WROQ-FM, operating in
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 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, operating in Houston, Texas, and has entered into
an agreement to sell radio station KTCK-AM, operating in 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 Dispositions within 60 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
62
<PAGE>
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 approved by the FCC or completed during such periods, on
the terms described herein, or at all. See "Risk Factors -- Risks Relating to
the Acquisitions and the Dispositions" and "Agreements Related to the
Acquisitions and the Dispositions."
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>
TOTAL
STATION RANK NUMBER OF
MARKET TARGET AMONG TARGET AUDIENCE 1995 STATION STATIONS IN
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE REVENUE RANK MARKET
- ------------------------ ------ --------------------------- ---------------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Washington, DC/ 8
Baltimore, MD (9)
WHFS-FM (3) ........... Alternative Rock Adults 18-34 4 3.8% 14 45
Nassau-Suffolk, NY 14
WBAB-FM (3) ............ Album Oriented Rock Adults 25-54 8 3.1% 2 27
WHFM-FM (3) ........... Hot Album Adults 25-54 37* 0.1% 16 27
WBLI-FM (3) ........... Contemporary Adults 25-54 5 4.0% 3 27
WGBB-AM (3) ........... News/Talk Adults 35 & over NR NR NR 27
Providence, RI 31
WSNE-FM (3) ........... Adult Contemporary ("AC") Adults 25-54 5 4.6% 5 30
WHJY-FM (3) ........... Adult Oriented Rock Adults 18-34 1 8.7% 1 30
WHJJ-AM (3) ........... News/Talk Adults 35-64 10 4.3% 9 30
Hartford, CT 41
WHCN-FM (3) ........... Album Oriented Rock Men 25-54 1 4.0% 7 21
WMRQ-FM (3) ........... Modern Rock Adults 18-34 1 4.8% 8 21
WPOP-AM (3) ........... News/Talk Adults 35-64 15 1.6% 11 21
WKSS-FM (4) ........... Contemporary Hit Radio Adults 18-34 3 6.8% 5 21
Albany, NY 57
WGNA-FM (3) ........... Country Adults 25-54 1 11.4% 1 41
WGNA-AM (3) ........... Country Adults 25-54 25 0.1% 24 41
WPYX-FM (3) ........... Album Rock Adults 18-34 3 6.8% 2 41
WTRY-AM (3) ........... Oldies Adults 35-64 11* 1.5% 16 41
WYSR-FM (3)(5) ........ Oldies Adults 25-54 12* 1.7% 10 41
Springfield/Northampton, 76
MA (6)
WHMP-FM (7) ........... Modern Rock Adults 18-34 8 2.0% 6 16
WHMP-AM (7) ........... Information Adults 35-64 11 1.3% 10 16
WPKX-FM (7) ........... Hot Country Adults 25-54 3 9.4% 2 16
New Haven, CT 95
WPLR-FM (7) ........... Album Oriented Rock Adults 18-34 1 7.4% 1 8
WYBC-FM (7)(8) ........ 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 (11)(14)(15) .. News/Talk Adults 25-54 NR NR 19 34
WMFR-AM (11)(14) ...... News/Talk Adults 25-54 24 1.1% 12 34
WHSL-FM (16) .......... Country Adults 25-54 13 2.0% 13 34
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 (3) ........... AC Adults 25-54 4 5.5% 3 26
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
TOTAL
STATION RANK NUMBER OF
MARKET TARGET AMONG TARGET AUDIENCE 1995 STATION STATIONS IN
STATION(1) RANK STATION FORMAT(2) DEMOGRAPHICS(2) DEMOGRAPHICS SHARE REVENUE RANK MARKET
- ------------------------ ------ --------------------------- ---------------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Greenville-Spartanburg, 59
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
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 (7) ........... Country Adults 25-54 1 8.2% 1 13
Augusta, Georgia (19) 116
WAEG-FM (7)(20) ...... Urban/AC Adults 25-54 17 1.7% 7 25
WAEJ-FM (7)(20) ...... Urban/AC Adults 25-54 13 3.3% 16 25
WCHZ-FM (7)(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 (7) ............ Country AC Adults 25-54 1 15.6% 1 20
WMJY-FM (7) ........... Women 25-54 5 3.9% 6 20
Myrtle Beach, SC 185
WYAK-FM ................ Hot Country Adults 25-54 9 6.0% 1 23
WVCO-FM (25) ........... Hot Country Adults 25-54 18 0.8% 13 23
WMYB-FM (26) .......... 70's Rock Adults 25-54 NR 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 25-54 13 3.1% 11 48
San Diego, CA 15
KYXY-FM ................ AC Adults 25-54 2 6.8% 5 36
KMKX-FM (29) .... .... Rock Adult 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 18-54 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) To be acquired pursuant to the Liberty Purchase Agreement. See
"Agreements Related to the Acquisitions and the Dispositions -- Liberty
Stations."
(4) In April 1996, MMR entered into an agreement to acquire WKSS-FM.
(5) WYSR-FM changed its call letters from WTRY-FM. Liberty sells
advertising on WYSR-FM pursuant to a JSA.
(6) 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.
(7) To be acquired pursuant to the MMR Acquisition Agreement. See
"Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations."
(8) MMR sells advertising on WYBC-FM pursuant to a JSA.
64
<PAGE>
(9) Does not include WXVR-FM, WXTR-FM and WQSI-AM, each operating in the
Washington, D.C. 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."
(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.
(12) Does not include WVEZ-FM, WTFX-FM and WWKY-AM, each operating in the
Louisville, Kentucky market, which are to be acquired pursuant to the
Prism Purchase Agreement (as defined) and thereafter sold to a third
party. 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. See
"Agreements Related to the Acquisitions and the
Dispositions--Agreements for 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.
(20) MMR provides programming to WAEG-FM and WAEJ-FM pursuant to LMAs.
(21) MMR sells advertising on WCHZ-FM pursuant to a JSA.
(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.
(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.
(25) WVCO-FM commenced broadcasting in December 1993 and simulcasts
WYAK-FM's format pursuant to an LMA; MMR is currently in negotiations
with respect to the acquisition of WVCO-FM.
(26) In April 1996, MMR entered into an agreement to acquire WMYB-FM.
(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.
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
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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.
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.
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EMPLOYEES
At 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 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. 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.
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>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTERS CITY OF LICENSE POWER IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ------------------------ ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
NORTHEAST REGION
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(1) ................ 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
</TABLE>
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<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTERS CITY OF LICENSE POWER IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ------------------------ ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
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 (2) ............... Albany, NY Troy, NY 15.5 106.5 MHz 6/1/98
WTRY-AM ................... Rotterdam, NY 5 980 kHz 6/1/98
WYSR-FM ................... 6 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
Washington, DC/Baltimore, MD
WHFS-FM (3) ............... Annapolis, MD 50 99.1 MHz 10/1/95*
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 12/1/95*
SOUTHERN REGION
Jacksonville, FL
WKQL-FM ................... Jacksonville, FL 98 96.9 MHz 2/1/03
WIVY-FM ................... Jacksonville, FL 98 102.9 MHz 2/1/96*
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 4/1/96*
</TABLE>
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<TABLE>
<CAPTION>
METROPOLITAN MARKET SERVED EXPIRATION DATE OF
AND STATION CALL LETTERS CITY OF LICENSE POWER IN KW'S FREQUENCY FCC AUTHORIZATION
- -------------------------- ------------------------ ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
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
WYAK-FM ................... Surfside Beach, SC 12.5 103.1 MHz 12/1/02
WVCO-FM ................... Loris, SC 2.65 94.9 MHz 12/1/02
WMYB-FM ................... Socastee, SC 13.5 99.5 MHz 12/1/02
SOUTHWEST REGION
Houston, TX
KODA-FM ................... Houston, TX 95 99.1 MHz 8/1/97
KKRW-FM ................... Houston, T 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, 0.5 Night 790 kHz 10/1/97
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) A petition to deny the transfer of control of the station 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.
Such denial awaits finality, which is expected to occur in May 1996.
(2) FCC records indicate that a complaint is pending at the FCC against
WPYX-FM regarding the broadcast of allegedly indecent material.
(3) 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 Agreement between
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. These actions await finality, which is expected to
occur in June 1996.
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
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<PAGE>
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, 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 that
market; 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 that market.
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 the FCC should modify its attribution rules by (i) restricting the
availability of the single majority shareholder 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.
R. Steven Hicks, the Company's President and Chief Executive Officer, is
the sole voting shareholder of Gulfstar, 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 program-
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ming to KAGG-FM, Madisonville, Texas 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 has submitted an application to divest himself of his attributable
interest in Gulfstar. This application was granted by the FCC on February 14,
1996, and the proposed divestiture awaits consummation. Mr. Hicks also has
interests in other broadcasting companies that are not attributable interests
under FCC rules and regulations.
Robert F.X. Sillerman, the Executive Chairman of the Company has
non-voting common and preferred stock interests in 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.
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. Prior to consummation of the Prism Acquisition,
the FCC will need to determine that its cross-interest policy does not
prohibit the Company's acquisition of KNSS-AM, KKRD-FM and KRZZ-FM, each
operating in the Wichita, Kansas market, a market in which Triathlon already
owns stations. In accordance with the cross-interest policy, the Company will
need to demonstrate that competition for the sale of spot advertising in the
Wichita, Kansas market will not be impaired as a result of Robert F.X.
Sillerman's passive interest in Triathlon and his active interest in the
Company. The Company believes that because Mr. Sillerman is not active in
Triathlon's daily operations and is not an officer or director of Triathlon,
the FCC is not likely to invoke its cross-interest policy in this case.
However, there can be no assurance that the FCC will not invoke its
cross-interest policy and prohibit the acquisition of such stations by the
Company.
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 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.
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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. 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 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.
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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, KJQY-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 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
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<PAGE>
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.
LEGAL PROCEEDINGS
In the opinion of management, there are no material threatened or pending
legal proceedings against the Company or any entity affiliated with Messrs.
Sillerman or Hicks, which, if adversely decided, would have a material effect
on the financial condition or prospects of the Company.
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<PAGE>
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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<PAGE>
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
"-- Executive Compensation -- 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 sole voting stockholder of Gulfstar
Communications, Inc., which along with its affiliates owns 15 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 properties may be located in markets similar to 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 "-- Executive Compensation --
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 to foreign investors. Mr. Kramer was a partner in the New York
office of Ernst & Young from 1968 to 1992, and from 1987 to 1992 was Ernst &
Young's designated Broadcasting Industry Specialist.
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
76
<PAGE>
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 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 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."
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<PAGE>
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 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 has received a one-time fee of $50,000 as
remuneration for attending the independent committee meetings.
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 is the amount of 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 $100,000 for 1995 for services rendered in all
capacities to the Company, its subsidiaries and its predecessor, Capstar, for
the last three fiscal years. The Executive Chairman and such executive
officers are collectively referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NAME AND FISCAL ANNUAL
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS
- ------------------------- -------- ------------ ------------
<S> <C> <C> <C>
Robert F.X. Sillerman 1995 300,000 0
Executive Chairman 1994 250,000 0
1993 250,000 0
R. Steven Hicks 1995 300,000 200,000
President and Chief 1994 250,000 0
Executive Officer 1993 189,377(4) 0
D. Geoffrey Armstrong 1995 200,000 0
Executive Vice 1994 150,000 0
President, Chief 1993 105,000(6) 303,000(7)
Financial Officer and
Treasurer
Richard A. Liese 1995 52,083(8) 0
Vice President and 1994 0 0
Assistant General 1993 0 0
Counsel
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
--------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION COMPENSATION($)(2) AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- ------------------------- -------------- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 0 0 60,000 0 0
Executive Chairman 0 0 30,000 0 0
0 0 130,000 0 0
R. Steven Hicks 0 0 50,000 0 250,000(3)(9)
President and Chief 0 0 30,000 0 0
Executive Officer 0 0 130,000 0 0
D. Geoffrey Armstrong 0 0 50,000 0 150,000(5)(9)
Executive Vice 0 0 20,000 0 0
President, Chief 0 0 65,000 0 0
Financial Officer and
Treasurer
Richard A. Liese 0 0 2,000 0 0
Vice President and 0 0 0 0 0
Assistant General 0 0 0 0 0
Counsel
</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.
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(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."
(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 Note Offering.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Sillerman,
Hicks and Armstrong, and has entered 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 commenc-
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<PAGE>
ing 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
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. 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. 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 an assumed exercise
price of $34.00 per share and an assumed 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
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<PAGE>
agreements) each is to receive his base salary through the date of such
termination and his respective bonus and deferred compensation, if
applicable, for the year in which he was terminated pro rated over the time
in which he was employed by 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 in 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
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<PAGE>
the exercise of options granted under the Stock Option Plans, (ii) withdraw
the administration of the Stock Option Plans from the Committee, (iii) change
the eligibility requirements for participation in the Stock Option Plans,
(iv) extend the maximum term of options granted under the Stock Option Plans
or the period during which options may be granted under the Stock Option
Plans, (v) decrease the minimum option exercise price for incentive stock
options or (vii) otherwise materially increase the benefits accruing to
participants under the Stock Option Plans.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
The following table provides information with respect to stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION 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.
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<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 OF 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 OF ------------------------ ------------------- PERCENTAGE OF
NAME AND ADDRESS OF TOTAL VOTING NUMBER OF PERCENT NUMBER OF PERCENT TOTAL 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 Redeemable Preferred Stock and 2,000 shares of non-voting
Series C Redeemable 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.
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<PAGE>
(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 is converted into Class B
Common Stock and all other classes of MMR 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 -- 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 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.
(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.
(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
Securities and Exchange Commission (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
84
<PAGE>
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.
85
<PAGE>
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. The Company will provide without charge to
each person to whom this Offer to Purchase is delivered, upon written or oral
request of any such person, a copy of any or all documents incorporated
herein by reference (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Requests for
such documents should be directed to the Company, 150 East 58th Street, 19th
Floor, New York, New York 10155, Attention: Corporate Secretary, telephone
(212) 407-9191.
RELATIONSHIP OF THE COMPANY WITH SCMC
SCMC 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 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. Pursuant to the SCMC Termination Agreement, SCMC has agreed
to continue to provide consulting and marketing services to each of MMR and
Triathlon during the term of the respective agreements between such parties
and SCMC, 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 a warrant 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. 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.
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)
86
<PAGE>
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. 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 an agreement and plan of merger 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 MMR Merger is fair to the Company from a financial point of
view. See "Agreements Related to the Acquisitions and the Dispositions -- MMR
Stations."
87
<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. The Company will provide without charge to
each person to whom this Offer to Purchase is delivered, upon written or oral
request of any such person, a copy of any or all documents incorporated
herein by reference (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Requests for
such documents should be directed to the Company, 150 East 58th Street, 19th
Floor, New York, New York 10155, Attention: Corporate Secretary, telephone
(212) 407-9191.
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 FCC approval of the
acquisition of WHFS-FM by Liberty of Maryland, shall have become "final" and
(vi)
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the FCC shall have granted the pending license renewal applications of
WHFS-FM, WXTR-FM, WMXB-FM, WQSI-AM and WXVR-FM. See "-- Regulatory Issues
Related to the Liberty Acquisition." 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 this Note Offering 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.
Certain Regulatory Issues Related to the Liberty Stations.
WHFS-FM (Annapolis, MD)--On December 21, 1993, the FCC approved the
assignment of the license for radio station WHFS-FM from Duchossois to
Liberty of Maryland. 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 Agreement between Liberty
of Maryland, WHFS, Inc., 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. These actions
await finality, which is expected to occur in June 1996.
WBLI-FM (Patchogue, NY) -- A Petition to Deny the transfer of control of
radio station 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. Such denial awaits finality, which is expected to occur in
May 1996.
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
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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 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.
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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 April 1996, the Company entered into a letter
of intent to sell three of the Prism Stations (WVEZ-FM, WWKY-AM and WTFX-FM,
each operating in Louisville, Kentucky) for approximately $14.0 million.
There can be no assurance that the Company will enter into a definitive
agreement with respect to the Louisville Dispositions. The consummation of
the Louisville 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.
Certain Regulatory Issues Relating to the Prism Stations. Prior to the
consummation of the Prism Acquisition, the FCC will need to determine that
its cross-interest policy does not prohibit the Company's acquisitions of
KNSS-AM, KKRD-FM and KRZZ-FM, each operating in the Wichita, Kansas market, a
market in which Triathlon already owns and operates stations. In accordance
therewith, the Company will need to demonstrate that competition for the sale
of spot advertising in the Wichita, Kansas market will not be impaired as a
result of Mr. Sillerman's passive interests in Triathlon in conjunction with
his active interest in the Company. The Company believes that because Mr.
Sillerman is not active in Triathlon's daily operations and is not an officer
or director of Triathlon, the FCC is likely not to invoke its cross-interest
policy in this case. There can, however, be no assurance that the FCC will
not invoke such policy and prohibit the acquisition of such stations by the
Company.
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 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 MMR Merger is fair
to the respective companies from a financial point of view. 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").
Upon consummation of the MMR Merger (the "Effective Time"), and subject to
certain conditions, the outstanding securities of MMR will, subject to
applicable dissenters' rights, 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 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 National Association of Securities Dealers, 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. 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
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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 (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
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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% 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
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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 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 to
the Company from a financial point of view, 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.
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 and (viii) 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
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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 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. 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 Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM
(formerly, WWWB-AM), each operating in Greensboro, North Carolina, for a
purchase price of approximately $32.0 million, subject to adjustment based on
the broadcast cash flow of WTRG-FM and WRDU-FM. The 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.
In addition, the Company and MMR have agreed that following the Liberty
Acquisition, the Company and MMR will enter into an LMA pursuant to which MMR
will provide programming to and sell advertising on behalf of the following
stations to be acquired by the Company from Liberty: WHCH-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,
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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 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 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. MMR has 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. In March 1996,
the Company entered into an agreement to sell WRXR-FM and WKBG-FM, both
operating in Augusta, Georgia, for a purchase price of $5.0 million. The
closings of such transactions are subject to customary closing conditions,
including the receipt of FCC approval.
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. MMR has deposited $3.0 million in escrow to
secure its 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 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
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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 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 immediately thereafter 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. MMR and the seller have
deposited $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 the right, at its option,
to acquire all of the assets used in the operation of WHSL-FM. The purchase
price for WHSL-FM shall be $4.5 million in cash or, at the seller's option,
150,000 shares of Class A Common Stock. The seller has agreed that, until the
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
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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.
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 60 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 $50,000 and $100,000. 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 available commercial
advertising time on WSTZ-FM to third parties. During the term of the JSA, the
Company shall pay to MMR a fee which shall equal the fee payable by MMR under
the LMA with respect to such station. 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
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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. 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 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, 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. Based
upon an audit conducted by an environmental consultant of one of the sites
used in connection with the stations' business, MMR has the right to
terminate such purchase agreement. 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.
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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, the Company's shareholders 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 Redeemable Preferred Stock and shares of Series D
Preferred Stock. Upon completion of the Transactions and assuming the
Company's shareholders approve the increase of the authorized capital stock
and the MMR Merger is consummated on the assumptions contained in the
"Capitalization" table, the Company will have outstanding 8,372,718 shares of
Class A Common Stock, 1,086,146 shares of Class B Common Stock, 2,000 shares
of Series B Redeemable Preferred Stock and shares of Series D Preferred
Stock. 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 Notes and the New 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 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 Offer to Purchase 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 arc 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.
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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 arc 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
Redeemable Preferred Stock, Series C Redeemable Convertible Preferred Stock
and Series D Preferred Stock.
SERIES B REDEEMABLE PREFERRED STOCK
Dividends. No dividends are payable on the Series B Redeemable Preferred
Stock.
Voting Rights. The holders of record of the Series B Redeemable 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 Redeemable 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 Redeemable Preferred Stock
and any other class or series of a class of capital stock of the Company, the
terms of 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
Redeemable 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 Redeemable
Preferred Stock are entitled if paid in full.
Redemption. The Company redeemed all of the shares of Series A Redeemable
Preferred Stock in October, 1994 at the liquidation value of $1,000 per
share. The Company was obligated to redeem the Series B Redeemable 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 Redeemable 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 Redeemable Preferred Stock does not have
any conversion rights.
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SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
Dividends. The holders of the Series C Redeemable Convertible Preferred
Stock (the "Series C Redeemable 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 Redeemable 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 Redeemable Preferred Stock so redeemed (collectively, the
"Redemption Price"). The holders of the Series C Redeemable Preferred Stock
are entitled, at their option, to cause the Company to purchase the Series C
Redeemable 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 Redeemable
Preferred Stock), which is not cured within 90 days after receipt of notice
of such default, the holder of the Series C Redeemable 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 Redeemable 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 Redeemable 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
Redeemable Preferred Stock equal to One Thousand Dollars ($1,000) (the
"Liquidation Preference").
SERIES D CUMULATIVE CONVERTIBLE EXCHANGEABLE 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 members to the Company's Board of Directors.
Mandatory Redemption. The Series D Preferred Stock will be subject to
mandatory redemption on , 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.
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Exchange Rights. At the Company's option, the Series D Preferred Stock
will be exchangeable into % 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, covenants 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. 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 make restricted payments, incur indebtedness or issue
preferred stock, engage in transactions with their affiliates and engage in
mergers or consolidations.
TRANSFER AGENT
Chemical Bank is the Transfer Agent and Registrar for the Class A Common
Stock and the Class B Common Stock and the Series D Preferred Stock.
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
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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 arc 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 Holdings America, Inc. ("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, acquisitions by Aliens of additional shares of the
Company's Common Stock, will, in light of the provisions of the
Communications Act, the rules of the FCC and the Certificate of
Incorporation, be prohibited. 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. Pursuant to such authority, the Board of Directors adopted
resolutions that prohibit any transfer of any of the Company's capital stock
to any Alien. The Company established certain procedures and controls
designed to implement the aforesaid prohibition. Specifically, at the time
shares of Common 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 is not
permitted. See "Business -- Federal Regulation of Radio Broadcasting --
Ownership Matters."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NOTES
In October 1993, the Company issued $80.0 million aggregate principal
amount of Notes, which have a maturity date of October 1, 2000. Interest on
the Notes accrues from October 7, 1993 and is payable semi-annually on each
April 1 and October 1 commencing on April 1, 1994. The Notes are senior
subordinated obligations of the Company and are subordinated in right of
payment to all existing and future permitted Senior Debt (as defined) of the
Company. The Notes will rank pari passu in right of payment with the New
Notes. The Notes are also subordinated to all indebtedness and trade payables
of the Company's subsidiaries. The 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%.
The holders of Notes may require the Company to repurchase the Notes in
certain circumstances involving a Change in Control (as defined in the
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 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
Indenture).
NEW CREDIT AGREEMENT
In connection with the Financing, the Company is currently negotiating
with respect to the New Credit Agreement which will provide availability of
up to $150.0 million for additional acquisitions and for working capital. The
following is a summary of the anticipated material terms and conditions of
the Senior Credit Facility. This summary does not purport to be a complete
description of the Senior Credit Facility and is subject to the detailed
provisions of the loan agreement and related documents (the "New Credit
Agreement") to be entered into in connection with the Senior Credit Facility.
General. Pursuant to the New Credit Agreement, the Company will have
available a $150.0 million revolving line of credit. The proceeds of the
Senior Credit Facility will be available to refinance existing bank
indebtedness, to finance Permitted Acquisitions (as defined) and to provide
availability for working capital and general corporate purposes.
Interest. Interest on the funds borrowed under the Senior 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 1.000% in the case of either rate under subsection (i) (an "ABR
borrowing"), or 2.500% in the case of LIBOR borrowings. Interest on ABR
borrowings will be payable quarterly; interest on LIBOR borrowings will be
payable in arrears at the end of each applicable interest period or quarterly
in the case of an interest period longer than three months.
Security. The Company's obligations under the Senior Credit Facility will
be secured by substantially all of its assets, including property, stock of
subsidiaries and accounts receivable and will be guaranteed by the
subsidiaries of the Company.
Covenants. The New Credit Agreement will 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 will
affiliates, and (xi) sale-leaseback transactions.
Events of Default. The New Credit Agreement will provide for customary
events of default. The occurrence any of such event of default could result
in the acceleration of the Company's obligations under the New Credit
Agreement.
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THE NEW NOTES
The following is a description of the indenture pursuant to which the New
Notes will be issued (the "New Note Indenture"). The terms of the New Notes
will include those stated in the New Note Indenture and those made part of
the New Note Indenture by reference to the Trust Indenture Act.
General. The New 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 New Note Indenture).
Principal, Maturity and Interest. The aggregate principal amount of the
New Notes will be $440.0 million and the New Notes will mature in 2006.
Interest on the New Notes will accrue annually and be payable semi-annually
in arrears.
Redemption. The New Notes will not be redeemable at the Company's option
before 2001. Thereafter, the New 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 New Note 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 New Note Indenture.
Events of Default. The New Note 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.
POSSIBLE CHANGES TO FINANCING
The Company reserves the right to structure the Financing in a manner
different than that described in this Offer to Purchase. In the event that
the Tender Offer and Consent Solicitation are not successful, the Company
will consider alternative financing arrangements to enable it to complete the
Acquisitions while the Notes remain outstanding under the Indenture, which
may include obtaining additional bank financing, the sale of additional fixed
rate or variable rate debt securities, the issuance of additional capital
stock or a combination of the foregoing. The Company believes that such
alternative financing arrangements will be available on acceptable terms;
however, there can be no assurance that such financing will be obtained.
MARKET AND TRADING INFORMATION
The Notes trade in the over-the-counter market. In general, trading of the
Notes has been limited. Prices and trading volumes of the Notes in the
over-the-counter market are not reported and can be difficult to monitor.
Quotations for securities that are not widely traded, such as the Notes, may
differ from actual trading prices and should be viewed as approximations.
Holders are urged to obtain current information with respect to market prices
for the Notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of the principal federal
income tax consequences resulting from the sale of the Notes pursuant to the
Tender Offer and the adoption of the Proposed Amendments. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, Internal Revenue Service ("IRS")
rulings, and judicial decisions, all as in effect on the date hereof, and all
of which are subject to change, possibly with retroactive effect. This
summary does not address all of the federal income tax consequences that may
be relevant to a Holder of Notes in light of such Holder's particular tax
situation or to certain classes
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of Holders subject to special treatment under the federal income tax laws
(for example, dealers in securities, banks, insurance companies, nonresident
aliens, foreign corporations, tax-exempt entities, employee stock ownership
plans, individual retirement and other tax-deferred accounts, and persons who
hold the Notes as a hedge, who have otherwise hedged the risk of holding
Notes, who held the Notes as part of a straddle with other investments, or
who hold the Notes in connection with a conversion transaction), nor does it
address any aspect of gift, estate, state, local or foreign taxation. This
discussion assumes that the Notes are held as "capital assets" within the
meaning of section 1221 of the Code.
This summary is based in part upon certain proposed Treasury Regulations
addressing the treatment of modifications of debt instruments (the "Proposed
Regulations"). The Proposed Regulations by their terms would become effective
for modifications of debt instruments made 30 days or more after the Proposed
Regulations are published in final form; accordingly, by their terms they
will not apply to the Proposed Amendments. The Proposed Regulations are,
however, indicative of the position of the IRS with regard to their subject
matter. In any event, prior to their issuance in temporary or final form, the
Proposed Regulations have no binding effect and may be withdrawn or revised
at any time on a retroactive basis.
HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES OF TENDERING OR FAILING TO TENDER NOTES, INCLUDING THE
APPLICATION AND EFFECT OF ANY GIFT, ESTATE, APPLICABLE STATE, LOCAL OR
FOREIGN INCOME OR OTHER TAX LAWS.
SALE OF NOTES PURSUANT TO THE TENDER OFFER
The receipt of cash by a Holder in a sale pursuant to the Tender Offer
will be a taxable transaction to such Holder for federal income tax purposes.
A Holder will generally recognize capital gain (subject to the market
discount rules discussed below) or loss on the sale of a Note in an amount
equal to the difference between (a) the amount of cash received for such
Note, other than the portion of such amount that is properly allocable to
accrued interest, which will be taxed as ordinary income, and (b) the
Holder's "adjusted tax basis" for such Note at the time of the sale. Such
capital gain or loss will be long-term if the Holder held the Note for more
than one year at the time of such sale. Generally, a Holder's adjusted tax
basis for a Note will be equal to the cost of the Note to such Holder, less
payments (other than interest payments) made on the Note. If applicable, a
Holder's tax basis in a Note also would be increased by any market discount
previously included in income by such Holder pursuant to an election to
include market discount in gross income currently as it accrues, and would be
reduced by the accrual of amortizable bond premium which the Holder has
previously elected to deduct from gross income on an annual basis. If the IRS
were to successfully argue that a portion of the cash received by a Holder in
a sale pursuant to the Tender Offer should be treated as a separate fee for
consenting to the Proposed Amendments, it is possible that such amount would
be taxable as ordinary income to such Holder (rather than as sale proceeds,
discussed above). Tendering Holders should consult their own tax advisors
with respect to the tax consequences to them of the receipt of cash in a sale
pursuant to the Tender Offer.
An exception to the capital gain treatment described above may apply to a
Holder who purchased a Note at a "market discount." Subject to a statutory de
minimis exception, market discount is the excess of the face amount of a Note
over the Holder's tax basis in such Note immediately after its acquisition by
such Holder. In general, unless the Holder has elected to include market
discount in income currently as it accrues, any gain realized by a Holder on
the sale of a Note having market discount in excess of a de minimis amount
will be treated as ordinary income to the extent of the market discount that
has accrued (on a straight line basis or, at the election of the Holder, on a
constant interest basis), while such Note was held by the Holder.
PROPOSED AMENDMENTS
The federal income tax consequences of adoption of the Proposed Amendments
to non-tendering Holders will depend upon whether a constructive exchange of
Notes is deemed to have occurred. Although the issue is not free from doubt,
the adoption of the Proposed Amendments should not cause
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Holders of Notes to recognize gain or loss for federal income tax purposes.
This is based upon the conclusion that under present law, as well as under
the Proposed Regulations, the adoption of the Proposed Amendments should not
be treated as a constructive exchange of the Notes for new debt instruments.
Because the issue is not free from doubt, however, it is possible that the
adoption of the Proposed Amendments will be treated, for federal income tax
purposes, as giving rise to a constructive exchange of the Notes for new debt
instruments. In the event that the adoption of the Proposed Amendments gives
rise to a constructive exchange of Notes for new debt instruments, the
constructive exchange may qualify as a recapitalization for federal income
tax purposes, and no gain or loss realized by Holders in such constructive
exchange would be recognized. If the adoption of the Proposed Amendments is
treated as giving rise to a constructive exchange of the Notes for new debt
instruments and such constructive exchange fails to qualify as a
recapitalization for federal income tax purposes, then Holders would
generally be required to recognize all gain or loss realized as a consequence
of such constructive exchange.
Gain or loss recognized upon any constructive exchange of Notes for new
debt instruments generally should be capital gain or loss and will be
long-term capital gain or loss if the Holder's holding period with respect to
the Notes is in excess of one year, subject to certain exceptions, including
an exception for Notes acquired by a Holder with "market discount" in certain
circumstances. A Holder's realized gain or loss generally should be
determined based upon the difference between the Holder's adjusted basis in
the Notes and the "issue price" of the new debt instruments deemed issued in
the exchange other than amounts allocable to unpaid interest. The "issue
price" of the new debt instruments will be the stated principal amount of the
Notes and there would be no original issue discount with respect to the
Notes.
No ruling on the constructive exchange issue has been or will be sought
from the IRS.
INFORMATION REPORTING
Information statements will be provided to the IRS and to Holders whose
Notes are sold pursuant to the Tender Offer reporting the payment of the
Tender Offer Consideration (except with respect to Holders that are exempt
from the information reporting rules, such as corporations).
BACKUP WITHHOLDING AND SUBSTITUTE FORM W-9
Under federal income tax law, certain Holders whose Notes are accepted for
payment are required to provide the Depositary (as payer) with their correct
taxpayer identification numbers ("TIN") on the Substitute Form W-9 (included
as part of the Letter of Transmittal and Consent). If the Holder is an
individual, the TIN is his or her social security number. If the Depositary
is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the IRS. In addition, payments that are made to such
Holder may be subject to backup withholding. Certain Holders (including,
among others, corporations) are not subject to these backup withholding and
reporting requirements. If backup withholding applies, the Depositary is
required to withhold 31% of any payment made to the Holder. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be offset
by the amount of tax withheld. If backup withholding results in an
overpayment of federal income taxes, a refund may be obtained from the IRS
provided the required information is furnished. To prevent backup
withholding, the Holder or other payee is required to complete the Substitute
Form W-9 on the Letter of Transmittal and Consent certifying that the TIN
provided on such form is correct and that such Holder or other payee is not
subject to backup withholding.
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, and the consolidated financial
statements of Multi-Market Radio, Inc. at December 31, 1995 and 1994, and for
the years then ended, all appearing in this Offer to Purchase, have been
audited by Ernst & Young LLP, independent auditors, as stated in their
reports appearing herein.
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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 Offer to Purchase, have been audited by
Coopers & Lybrand LLP, 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 Offer to Purchase, 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 Offer to Purchase, have
been audited by Cheely Burcham Eddins Rokenbrod & Carroll, independent
auditors, as stated in their report appearing herein.
MISCELLANEOUS
THE TENDER OFFER AND THE CONSENT SOLICITATION ARE NOT BEING MADE TO (NOR
WILL TENDERS OF NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF NOTES IN
ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE TENDER OFFER AND
THE CONSENT SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. HOWEVER, THE COMPANY, IN ITS SOLE DISCRETION, MAY TAKE SUCH
ACTION AS IT MAY DEEM NECESSARY TO MAKE THE TENDER OFFER AND THE CONSENT
SOLICITATION IN ANY SUCH JURISDICTION, AND MAY EXTEND THE TENDER OFFER AND
THE CONSENT SOLICITATION TO HOLDERS OF NOTES IN ANY SUCH JURISDICTION.
No person has been authorized to give any information or make any
representation on behalf of the Company which is not contained in this Offer
to Purchase or in the Letter of Transmittal and Consent, and, if given or
made, such information or representation should not be relied upon.
SFX Broadcasting, Inc.
May 2, 1996
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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<S> <C>
SFX Broadcasting, Inc. and Subsidiaries:
Report of Independent Auditors ................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994 ..................... F-4
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1995 ......................................................... F-6
Consolidated Statements of Shareholders Equity (Deficiency) for each of the three
years in the period ended December 31, 1995 ..................................... F-7
Consolidated Statements of Cash Flows 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 December 31, 1995 and 1994 ..................... F-28
Consolidated Statements of Operations for 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 years ended December 31,
1995 and 1994 and the nine months ended December 31, 1993 ....................... F-30
Consolidated Statements of Cash Flows for 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 December 31, 1995 and 1994 .................................. F-42
Statements of Operations for each of the years in the three-year period ended
December 31, 1995 ............................................................... F-43
Statements of Partners' Capital for each of the years in the three-year period
ended December 31, 1995 ......................................................... F-44
Statements of Cash Flows for each of the years in the three-year period ended
December 31, 1995 ............................................................... F-45
Notes to Financial Statements .................................................... F-46
HMW Communications, Inc. -- Selected Operations:
Report of Independent Auditors ................................................... F-54
Combined Balance Sheets as of December 31, 1995 and 1994 ......................... F-55
Combined Statements of Operations for 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 year ended December 31, 1995
and various periods from January 6, 1994 to December 31, 1994 ................... F-57
Combined Statements of Cash Flows for 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 December 31, 1995 ............................................ F-65
Statement of Operations and Partners' Deficit for the year ended December 31, 1995 F-66
Statement of Cash Flows for the year ended December 31, 1995 ..................... F-67
Notes to Financial Statements .................................................... F-68
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Multi-Market Radio, Inc. and Subsidaries:
Report of Independent Auditors ................................................... F-72
Consolidated Balance Sheets as of December 31, 1995 and 1994 ..................... F-73
Consolidated Statements of Operations for the years ended December 31, 1995
and 1994 ........................................................................ F-74
Consolidated Statements of Cash Flows for the years ended December 31, 1995
and 1994 ........................................................................ F-75
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995 and 1994 ................................................................... F-76
Notes to Consolidated Financial Statements ....................................... F-77
</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>
DECEMBER 31,
---------------------
1995 1994
---------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................................... $ 11,893 $ 3,194
Short term investments available for sale (Note 4) ................ -- 7,817
Accounts receivable less allowance for doubtful accounts of $922
in 1995 and $661 in 1994 ......................................... 18,034 11,975
Prepaid broadcast rights and other current assets ................. 2,578 5,381
---------- ---------
Total current assets ............................................ 32,505 28,367
---------- ---------
Property and Equipment:
Land .............................................................. 3,179 2,155
Buildings and improvements ........................................ 6,265 3,648
Equipment and furniture ........................................... 12,597 10,374
Equipment recorded under capital leases ........................... 1,496 747
---------- ---------
23,537 16,924
Less accumulated depreciation and amortization .................... (6,770) (4,312)
---------- ---------
Net property and equipment ...................................... 16,767 12,612
Intangible Assets:
Broadcast licenses ................................................ 118,724 89,338
Goodwill .......................................................... 11,209 11,209
Deferred financing costs .......................................... 8,391 6,489
Other ............................................................. 4,719 3,722
---------- ---------
143,043 110,758
Less accumulated amortization ..................................... (13,500) (8,606)
---------- ---------
Net intangible assets ........................................... 129,543 102,152
Deposit on station acquisition .................................... 3,000 --
Notes receivable from related parties (Note 10) ................... 4,439 2,148
Other assets ...................................................... 1,083 529
---------- ---------
TOTAL ASSETS ...................................................... $187,337 $145,808
========== =========
</TABLE>
See accompanying notes
F-4
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable ..................................................... $ 4,005 $ 3,138
Accrued expenses ..................................................... 4,736 2,664
Accrued interest ..................................................... 2,303 2,297
Accrued stock acquisition cost (Note 7) .............................. -- 1,150
Current portion of capital lease obligations (Note 11) ............... 311 171
Current portion of debt (Note 5) ..................................... 260 249
---------- ----------
Total current liabilities .......................................... 11,615 9,669
Deferred income taxes payable (Note 8) ............................... 7,415 2,506
Capital lease obligations, less current portion (Note 11) ........... 670 291
Debt, less current portion (Note 5) .................................. 609 805
Subordinated notes (Note 5) .......................................... 80,000 80,000
Other liabilities .................................................... 682 1,215
---------- ----------
Total liabilities .................................................. 100,991 94,486
Redeemable preferred stock (Note 6) .................................. 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 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 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 ........................................... 115,184 76,785
Unrealized holding losses on short term investments .................. -- (185)
Accumulated deficit .................................................. (32,197) (27,801)
---------- ----------
Total shareholders' equity ......................................... 83,061 48,856
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................... $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>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Gross revenues .......................................................... $ 87,140 $ 63,116 $ 38,701
Less agency commissions ................................................. (10,310) (7,560) (4,468)
----------- ----------- -----------
Net revenues .......................................................... 76,830 55,556 34,233
Station operating expenses .............................................. 51,039 33,956 21,555
Depreciation, amortization and duopoly integration costs (Notes 2 and 3) 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) ................................ 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 .............................................. 68,973 42,793 41,818
----------- ----------- -----------
Operating income (loss) ................................................. 7,857 12,763 (7,585)
Investment (income) loss ................................................ (650) 121 (17)
Interest expense ........................................................ 12,903 9,332 7,351
----------- ----------- -----------
(Loss) income before income taxes, extraordinary item and cumulative
effect of change in accounting principle ............................... (4,396) 3,310 (14,919)
Income tax expense (Note 8) ............................................. -- 1,474 1,015
----------- ----------- -----------
(Loss) income before extraordinary item and cumulative effect of change
in accounting principle ................................................ (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 ..................................................... (4,396) 1,836 (17,781)
Redeemable preferred stock dividends and accretion ...................... 291 348 557
----------- ----------- -----------
Net (loss) income applicable to common stock .......................... $ (4,687) $ 1,488 $ (18,338)
=========== =========== ===========
Net (loss) income per common share before extraordinary item and
cumulative effect of a change in accounting principle .................. $ (0.71) $ 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 .................................... (0.71) 0.26 (7.08)
=========== =========== ===========
Weighted average common shares outstanding .............................. 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
(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 $ --
========= ========= =========
</TABLE>
(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
========= ============== =========== ========
</TABLE>
See accompanying notes
F-7
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- --------- -----------
<S> <C> <C> <C>
Operating Activities:
Net (loss) income ................................................ $ (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 ................................... 7,757 5,873 4,475
Interest on note receivable from related parties ................ (291) (148) --
Loss on sale of investments ..................................... 84 974 --
Deferred tax expense ............................................ -- 1,309 1,015
Founders stock charge ........................................... -- -- 13,480
Changes in assets and liabilities:
Increase in accounts receivable ................................. (5,164) (1,362) (662)
Decrease (increase) in prepaid broadcast rights and other assets 2,052 (4,476) 5
Increase (decrease) in accrued interest payable ................. 6 (47) 1,177
Increase (decrease) in accounts payable, accrued expenses and
other liabilities .............................................. 451 (2,785) (3,480)
---------- --------- -----------
Net cash provided by operating activities ....................... 499 1,174 76
Investing activities:
Purchase of stations, net of cash acquired ...................... (26,057) (4,604) (46,181)
Issuance of related party note receivable ....................... (2,000) -- (2,000)
Deposit on station acquisition .................................. (3,000) -- --
Purchase of property and equipment .............................. (3,261) (1,951) (569)
Purchase of short term investments .............................. -- (3,019) (9,347)
Proceeds from sale of short term investments .................... 7,918 3,390 --
Proceeds from sale of assets .................................... 703 -- 1,529
---------- --------- -----------
Net cash used in investing activities ........................... (25,697) (6,184) (56,568)
Financing activities:
Payments on senior loans and capital lease obligations ......... (22,521) (333) (52,972)
Additions to debt issuance costs ................................ (2,139) -- (6,489)
Proceeds from senior loans and subordinated debt ................ 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) -- --
---------- --------- -----------
Net cash provided by (used in) financing activities ............ 33,897 (2,083) 66,122
Net (decrease) increase in cash and cash equivalents ............ 8,699 (7,093) 9,630
Cash and cash equivalents at beginning of period ................. 3,194 10,287 657
---------- --------- -----------
Cash and cash equivalents at end of period ....................... $ 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.
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
F-9
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2--ACQUISITIONS (Continued)
$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 due to the
resolution of certain preacquisition contingencies, primarily related to the
adjustment to the
F-10
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2--ACQUISITIONS (Continued)
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 TRANSACTIONS (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 TRANSACTIONS (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, net of certain payments to the previous owner. 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.
F-25
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 14--SUBSEQUENT EVENTS (Continued)
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.
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 $5.0 million
during the second quarter of 1996, based upon the value of the warrant ($9.0
million) and the forgiveness of debt ($2.2 million) offset by the fair value
of recurring consulting fees that will become payable by Triathlon to the
Company ($6.2 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 (the "Hicks Agreement"), pursuant to which it 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. The Hicks
Agreement provides that Mr. Hicks will serve as a consultant to the Company
during the five-year period commencing on the completion of the MMR Merger
for compensation at the rate of $150,000 per year. In addition, the Hicks
Agreement requires the Company to 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, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 15, 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>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 2,651,000 $ 2,920,000
Accounts receivable, net of allowance for doubtful accounts of
$967,000 in 1995 and $378,000 in 1994 ......................... 12,203,000 7,992,000
Other current assets ........................................... 754,000 923,000
-------------- --------------
Total current assets .......................................... 15,608,000 11,835,000
Property and equipment, net of accumulated depreciation of
$2,552,000 in 1995 and $677,000 in 1994 ........................ 16,128,000 12,726,000
Deferred acquisition costs ...................................... -- 76,000
Intangible assets, net of accumulated amortization of
$14,064,000 in 1995 and $5,510,000 in 1994 ..................... 133,085,000 89,993,000
-------------- --------------
Total assets .................................................. $164,821,000 $114,630,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .............................. 12,854,000 5,276,000
Accounts payable and other accrued liabilities ................. 8,817,000 5,601,000
-------------- --------------
Total current liabilities ..................................... 21,671,000 10,877,000
Long-term debt, less current portion ............................ 68,092,000 56,107,000
Deferred taxes .................................................. 11,613,000 --
Other noncurrent liabilities .................................... 1,063,000 --
-------------- --------------
Total liabilities ............................................. 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 in 1995 and
41,907 shares in 1994 (aggregate liquidation preference of
$66,954,000 in 1995 and $45,816,000 in 1994) ................... --
Common stock, Series A, $.01 par value; 1,500,000 shares
authorized; issued and outstanding 1,006,335 shares in 1995
and 739,564 shares in 1994 .................................... 10,000 7,000
Capital in excess of par value ................................. 67,076,000 49,295,000
Loans to stockholders .......................................... (166,000) (166,000)
Accumulated deficit ............................................ (4,538,000) (1,490,000)
-------------- --------------
Total stockholders' equity .................................... 62,382,000 47,646,000
-------------- --------------
Total liabilities and stockholders' equity .................... $164,821,000 $114,630,000
============== ==============
</TABLE>
F-28
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------
1995 1994 1993
-------------- -------------- ------------------
<S> <C> <C> <C>
Gross broadcasting revenue ... $57,860,000 $28,368,000 $5,892,000
Less: agency commissions ..... (6,453,000) (3,114,000) (549,000)
-------------- -------------- ------------------
Net broadcasting revenue ... 51,407,000 25,254,000 5,343,000
-------------- -------------- ------------------
Station operating expenses ... 34,725,000 17,393,000 3,421,000
Corporate expenses ............ 2,453,000 1,183,000 183,000
Litigation settlements ........ 2,200,000 -- --
Depreciation and amortization 10,429,000 5,021,000 1,188,000
-------------- -------------- ------------------
Operating income ............ 1,600,000 1,657,000 551,000
Interest expense, net ......... (7,373,000) (3,042,000) (596,000)
-------------- -------------- ------------------
Loss before income taxes ... (5,773,000) (1,385,000) (45,000)
Income (benefit) tax expense . (2,725,000) 60,000 --
-------------- -------------- ------------------
Net loss .................... $(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 COMMON STOCK
------------------ ----------------------
CAPITAL IN LOAN TO ACCUMULATED
SHARES AMOUNT SHARES AMOUNT EXCESS OF PAR STOCKHOLDERS DEFICIT TOTAL
-------- -------- ----------- --------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issue of
capital stock ..... 8,594 -- 151,683 $ 2,000 $10,109,000 $10,111,000
Loans to
stockholders ...... $(166,000) (166,000)
Net loss ........... $ (45,000) (45,000)
-------- -------- ----------- --------- ------------- -------------- -------------- -------------
Balances at
December 31, 1993 8,594 -- 151,683 2,000 10,109,000 (166,000) (45,000) 9,900,000
Issuance of capital
stock ............. 33,313 -- 587,881 5,000 39,186,000 39,191,000
Net loss ........... (1,445,000) (1,445,000)
-------- -------- ----------- --------- ------------- -------------- -------------- -------------
Balances at
December 31, 1994 41,907 -- 739,564 7,000 49,295,000 (166,000) (1,490,000) 47,646,000
Net loss ........... (3,048,000) (3,048,000)
Issuance of capital
stock ............. 15,117 -- 266,771 3,000 17,781,000 17,784,000
-------- -------- ----------- --------- ------------- -------------- -------------- -------------
Balances at
December 31, 1995 57,024 -- 1,006,335 $10,000 $67,076,000 $(166,000) $(4,538,000) $62,382,000
======== ======== =========== ========= ============= ============== ============== =============
</TABLE>
F-30
<PAGE>
LIBERTY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED DECEMBER
DECEMBER 31, 31,
------------------------------ --------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (3,048,000) $ (1,445,000) $ (45,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ....................... 10,429,000 5,021,000 1,188,000
Provision for losses on accounts receivable ........ 589,000 305,000 110,000
Deferred taxes ...................................... (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 ................................ (1,954,000) (7,207,000) (1,200,000)
Other current assets ............................... 224,000 (851,000) (72,000)
Accounts payable and other accrued liabilities .... (3,304,0000) 4,957,000 528,000
Other assets ....................................... 92,000 -- --
-------------- -------------- --------------
Net cash provided (used) by operating
activities ...................................... 3,197,000 1,755,000 (466,000)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of furniture and equipment .................. (1,284,000) (532,000) (63,000)
Acquisitions, net of cash acquired ................... (35,512,000) (76,733,000) (17,177,000)
Other ................................................ (1,639,000) 517,000 (593,000)
-------------- -------------- --------------
Net cash used in investing activities ............ (38,435,000) (76,748,000) (17,833,000)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from long-term borrowings ................... 28,000,000 57,352,000 10,000,000
Payments on debt and long-term borrowings ............ (8,437,000) (10,700,000) (200,000)
Issuance of stock .................................... 15,406,000 29,815,000 10,111,000
Loans to stockholders ................................ -- -- (166,000)
-------------- -------------- --------------
Net cash provided by financing activities ....... 34,969,000 76,467,000 19,745,000
-------------- -------------- --------------
Net (decrease) increase in cash and cash
equivalents ..................................... (269,000) 1,474,000 1,446,000
Cash and cash equivalents at beginning of year ....... 2,920,000 1,446,000 --
-------------- -------------- --------------
Cash and cash equivalents at end of year .............. $ 2,651,000 $ 2,920,000 $ 1,446,000
============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest ............................... $ 6,717,312 $ 2,071,000 $ 541,000
============== ============== ==============
Cash paid for taxes .................................. $ 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.
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.
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
F-32
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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.
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.
F-33
<PAGE>
LIBERTY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS: (Continued)
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>
<S> <C> <C>
FCC broadcast licenses ......... $111,976,000 $80,471,000
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.
KPMG Peat Marwick LLP
March 29, 1996
F-41
<PAGE>
PRISM RADIO PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 1,368,546 $ 2,340,906
Accounts receivable, less allowance for doubtful accounts
of $385,959 and $301,793 as of December 31, 1995 and 1994,
respectively .............................................. 6,804,683 5,114,036
Prepaid expenses ........................................... 317,923 205,446
Other current assets ....................................... 187,969 110,782
------------- -------------
Total current assets ..................................... 8,679,121 7,771,170
Property and equipment, net (note 3) ........................ 9,380,998 9,490,819
Intangible assets, net (note 4) ............................. 32,886,073 34,942,970
------------- -------------
$50,946,192 $52,204,959
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ........................................... $ 1,337,883 $ 735,355
Accrued expenses (note 5) .................................. 2,023,721 2,049,676
Current portion of long-term debt (note 6) ................. 2,812,000 711,917
------------- -------------
Total current liabilities ................................ 6,173,604 3,496,948
Long-term debt, excluding current portion (note 6) ......... 14,110,813 17,357,001
------------- -------------
Total liabilities ........................................ 20,284,417 20,853,949
Partners' capital (note 7) .................................. 38,315,596 37,647,092
Partner receivables (note 7) ................................ (913,000) (300,000)
Accumulated deficit ......................................... (6,740,821) (5,996,082)
------------- -------------
Total partners' capital .................................. 30,661,775 31,351,010
Commitments and contingencies (notes 8 and 10)
Subsequent event (note 12)
------------- -------------
$50,946,192 $52,204,959
============= =============
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
PRISM RADIO PARTNERS, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
Revenue ............................................ $36,455,730 $30,422,189 $14,895,284
Less agency commissions ............................ 3,884,064 3,409,781 1,579,669
------------- -------------- -------------
Net revenue ..................................... 32,571,666 27,012,408 13,315,615
------------- -------------- -------------
Operating expenses:
Station operating expenses, excluding depreciation
and amortization ................................. 26,979,258 24,271,541 13,172,716
Depreciation and amortization ..................... 2,945,990 2,901,624 1,871,521
Corporate general and administrative .............. 2,026,611 1,133,308 896,978
------------- -------------- -------------
Total operating expenses ........................ 31,951,859 28,306,473 15,941,215
------------- -------------- -------------
Operating income (loss) ......................... 619,807 (1,294,065) (2,625,600)
------------- -------------- -------------
Nonoperating expenses (income):
Gain on sale of property .......................... (200,000) -- --
Interest expense .................................. 1,659,591 1,142,751 299,074
Interest income ................................... (95,045) (63,321) (61,757)
------------- -------------- -------------
Net nonoperating expenses ....................... 1,364,546 1,079,430 237,317
------------- -------------- -------------
Net loss ........................................ $ (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
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<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
=========== ============= ============= ============== =============
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
PRISM RADIO PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
------------- -------------- --------------
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.
Cooper & 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,
----------------------------
ASSETS 1995 1994
------------- -------------
<S> <C> <C>
Current assets:
Cash ....................................................... $ 929,102 $ 201,091
Accounts receivable (less allowance for doubtful accounts
of $94,326 and $99,052, respectively) ..................... 2,388,188 2,466,333
Due from affiliate companies ............................... 1,653,743 874,458
Prepaid expenses and other ................................. 346,550 271,863
------------- -------------
Total current assets .................................... 5,317,583 3,813,745
------------- -------------
Property and equipment, net ................................. 8,086,590 9,073,420
------------- -------------
Intangible assets, net:
Goodwill and FCC license agreements ........................ 21,569,479 22,129,780
Non-compete agreements ..................................... 271,875 659,375
Organization costs ......................................... 100,989 130,203
------------- -------------
Total intangible assets ................................. 21,942,343 22,919,358
------------- -------------
Total assets ............................................ $35,346,516 $35,806,523
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ..................................... $ 489,314 $ 513,372
Other accrued liabilities .................................. 904,462 552,636
Current maturities of notes payable ........................ 849,695 1,819,643
Current maturities of capital lease obligations ........... 7,119 6,180
Current maturities of non-compete obligations .............. 387,500 387,500
Income taxes payable ....................................... 288,000 247,000
------------- -------------
Total current liabilities ............................... 2,926,090 3,526,331
------------- -------------
Long-term liabilities:
Deferred income taxes ...................................... 690,000 169,000
Notes payable, less current maturities ..................... 6,019 638,458
Capital lease obligations, less current maturities ........ 1,486 18,160
Non-compete obligations, less current maturities .......... 162,500 475,000
------------- -------------
Total long-term liabilities ............................. 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
Additional contributed capital ............................. 33,692,627 31,977,627
Accumulated deficit ........................................ (2,132,246) (998,093)
------------- -------------
Total shareholders' equity .............................. 31,560,421 30,979,574
------------- -------------
Total liabilities and shareholders' equity .............. $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
FOR THE YEAR ENDED DECEMBER 31, 1995 AND VARIOUS PERIODS FROM
JANUARY 6, 1994 TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Broadcasting revenues .................. $12,904,566 $ 11,634,409
Barter revenues ........................ 1,106,512 798,521
Less agency commissions ................ (1,322,927) (1,138,788)
-------------- --------------
Net revenues ........................ 12,688,151 11,294,142
-------------- --------------
Operating expenses:
Programming, technical and news ...... 3,049,084 2,660,721
Sales and promotion ................... 4,515,197 3,807,122
Barter expenses ....................... 1,024,113 689,236
General and administrative ............ 2,349,062 2,294,815
Depreciation and amortization ......... 2,324,662 1,872,157
Other expenses ........................ 44,977 547,940
-------------- --------------
Total operating expenses ............ 13,307,095 11,871,991
-------------- --------------
Interest expense ....................... (156,001) (123,485)
Other income, net ...................... 202,792 119,241
-------------- --------------
Loss before provision for income taxes (572,153) (582,093)
Provision for income taxes ............. (562,000) (416,000)
-------------- --------------
Net loss ............................ $(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
FOR THE YEAR ENDED DECEMBER 31, 1995, AND VARIOUS PERIODS FROM
JANUARY 6, 1994 TO DECEMBER 31, 1994
<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
======== ============== ============== =============
</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
FOR THE YEAR ENDED DECEMBER 31, 1995 AND VARIOUS PERIODS FROM
JANUARY 6, 1994 TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $(1,134,153) $ (998,093)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization ................................... 2,324,662 1,863,903
Provision for doubtful accounts ................................. 115,626 121,811
Provision for deferred income taxes ............................. 521,000 169,000
Gain on sale of assets .......................................... (8,766) --
Changes in operating assets and liabilities:
Accounts receivable ............................................ (37,481) (2,588,144)
Due from affiliate companies ................................... (779,285) (874,458)
Prepaid expenses and other ..................................... (74,687) (271,863)
Accounts payable ............................................... (24,058) 513,372
Other accrued liabilities ...................................... 351,826 552,636
Income taxes payable ........................................... 41,000 247,000
-------------- -------------
Net cash provided (used) by operating activities ............. 1,295,684 (1,264,836)
-------------- -------------
Cash flows used in investing activities:
Purchases of property and equipment .............................. (364,086) (964,569)
Proceeds from sales of property and equipment .................... 12,035 --
-------------- -------------
Net cash used by investing activities ......................... (352,051) (964,569)
-------------- -------------
Cash flows from financing activities:
Borrowings on notes payable and capital lease obligations ....... 46,330 21,856
Contributions of capital by HMW .................................. -- 2,427,924
Principal payments on notes payable and capital lease obligations (261,952) (19,284)
-------------- -------------
Net cash (used) provided by financing activities ............. (215,622) 2,430,496
-------------- -------------
Net increase in cash .............................................. 728,011 201,091
Cash at beginning of the period ................................... 201,091 --
-------------- -------------
Cash at end of the period ......................................... $ 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.
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.
F-59
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
F-60
<PAGE>
HMW COMMUNICATIONS, INC.--SELECTED OPERATIONS
(COMBINATION OF SIX HMW COMMUNICATIONS, INC. RADIO STATIONS TO BE SOLD)
NOTES TO COMBINED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash ................................................................. $ 4,778
Accounts receivable, net of allowance for doubtful accounts of $7,291 842,112
-------------
TOTAL CURRENT ASSETS .............................................. 846,890
Property and equipment, net ........................................... 370,917
Intangible assets, net ................................................ 1,709,185
-------------
TOTAL ASSETS ...................................................... $ 2,926,992
=============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ..................................................... $ 188,328
Accrued expenses ..................................................... 132,016
Current portion, long-term debt ...................................... 478,080
-------------
TOTAL CURRENT LIABILITIES ......................................... 798,424
Long-term debt, less current portion .................................. 9,340,469
Accrued interest ...................................................... 1,950,000
Due to related entities ............................................... 500,000
-------------
TOTAL LIABILITIES ................................................. 12,588,893
Partners' deficit ..................................................... (9,661,901)
-------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT ........................... $ 2,926,992
=============
</TABLE>
See notes to financial statements.
F-65
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Sales ...................................... $ 4,674,227
Less commissions .......................... 600,161
-------------
NET SALES .............................. 4,074,066
Broadcast expenses:
Sales and promotion ....................... 1,394,407
Programming and production ................ 828,083
General and administrative ................ 757,988
Engineering ............................... 87,192
-------------
3,067,670
-------------
BROADCAST PROFIT ....................... 1,006,396
Interest ................................... 792,149
Corporate expenses ......................... 194,820
Depreciation and amortization .............. 513,752
Barter, net ................................ 170,631
Loss on disposal of assets ................. 2,099
-------------
1,673,451
-------------
NET LOSS ............................... (667,055)
Partners' deficit, beginning of year ...... (6,381,598)
Liabilities transferred from related entity (2,613,248)
-------------
PARTNERS' DEFICIT, END OF YEAR ........ $(9,661,901)
=============
</TABLE>
See notes to financial statements.
F-66
<PAGE>
ABS GREENVILLE PARTNERS, L.P.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss ...................................................................... $(667,055)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ................................................ 513,752
Barter, net .................................................................. 170,631
Loss on disposal of assets ................................................... 2,099
Increase in:
Accounts receivable ......................................................... (145,897)
Accounts payable ............................................................ 2,391
Accrued expenses ............................................................ 56,836
Accrued interest ............................................................ 125,310
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 58,067
------------
INVESTING ACTIVITIES
Purchases of property and equipment ........................................... (76,466)
Proceeds from sale of assets .................................................. 800
------------
NET CASH USED IN INVESTING ACTIVITIES .................................... (75,666)
------------
FINANCING ACTIVITIES
Payments of long-term debt .................................................... (4,480)
Proceeds from long-term debt .................................................. 23,029
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 18,549
------------
Net increase in cash ........................................................... 950
Cash, beginning of year ........................................................ 3,828
------------
CASH, END OF YEAR ........................................................ $ 4,778
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year ................................................. $ 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.
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,
F-72
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash & cash equivalents ........................................... $ 712,502 $ 1,258,212
Accounts receivable, net of allowance of $88,957 in 1994 and
$304,162 in 1995 ................................................. 1,460,791 4,232,995
Receivable from affiliate (Note 4) ................................ 504,730 0
Other current assets .............................................. 331,889 429,060
------------- -------------
3,009,912 5,920,267
Property, plant and equipment, at cost:
Land ............................................................. 375,760 723,070
Building and improvements ........................................ 112,358 762,822
Technical and equipment .......................................... 1,239,571 3,077,350
Furniture and equipment .......................................... 226,525 524,718
Vehicles ......................................................... 73,653 123,066
------------- -------------
2,027,867 5,211,026
Less-accumulated depreciation .................................... (163,876) (450,174)
------------- -------------
1,863,991 4,760,852
Other assets:
Deferred costs--pending acquisitions and financings ............. 307,177 0
Intangible assets, net (Note 3) .................................. 18,094,295 55,745,735
Other assets ..................................................... 52,900 37,884
------------- -------------
Total Assets ...................................................... $23,328,275 $66,464,738
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities to affiliate (Notes 7) ................................ $ 130,000 $ 175,070
Accounts payable and accrued expenses ............................. 784,829 1,678,754
Accrued interest .................................................. 182,290 910,596
Current portion of long-term debt (Note 5) ........................ 538,982 1,804,000
------------- -------------
Total current liabilities ......................................... 1,636,101 4,568,420
------------- -------------
Deferred taxes (Note 8) ........................................... 105,000 7,303,483
Long term debt (Note 5) ........................................... 6,070,117 39,677,937
Other ............................................................. 0 100,045
------------- -------------
Total liabilities ................................................. 7,811,218 51,649,885
Stockholders' Equity (Note 6):
Preferred Stock, par value $.01; 1,200,000 shares authorized;
201,250 shares issued and outstanding ........................... 2,000 2,012
Class A Common Stock, par value $.01; 15,000,000 shares
authorized; 2,990,000 shares issued and outstanding ............ 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
Class C Common Stock, par value $.01; 700,000 shares authorized;
360,000 shares issued and outstanding ........................... 3,600 3,600
Warrants and options ............................................. 260 551,739
Paid-in-capital .................................................. 17,100,274 17,506,509
Accumulated Deficit .............................................. (1,620,377) (3,280,307)
------------- -------------
Total Stockholders' Equity ........................................ 15,517,057 14,814,853
------------- -------------
Total Liabilities and Stockholders' Equity ........................ $23,328,275 $66,464,738
============= =============
</TABLE>
See notes to consolidated financial statements.
F-73
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- ---------------
<S> <C> <C>
Gross revenues ......................................... $7,750,514 $20,324,494
Agency commissions ..................................... (633,476) (2,036,749)
-------------- ---------------
Net revenues ........................................... 7,117,038 18,287,745
Station operating expenses ............................. 4,806,722 11,026,222
Depreciation and amortization expense .................. 1,146,640 1,750,310
Non-cash compensation .................................. 364,933 281,247
Corporate expenses ..................................... 774,856 1,665,227
-------------- ---------------
Total operating expenses ............................... 7,093,151 14,723,006
-------------- ---------------
OPERATING INCOME ....................................... 23,887 3,564,739
Interest expense, net .................................. (765,829) (4,965,527)
Other income (loss) .................................... (8,840) 10,429
-------------- ---------------
Loss before income taxes and extraordinary item ....... (750,782) (1,390,359)
Provision for (benefit from) income taxes .............. 15,000 (59,000)
-------------- ---------------
Loss before extraordinary item ......................... (765,782) (1,331,359)
Extraordinary item-loss on early extinguishment of debt 0 (328,571)
-------------- ---------------
NET LOSS ............................................... $ (765,782) $ (1,659,930)
============== ===============
PER COMMON SHARE .......................................
Loss before extraordinary item ......................... $(.25) $(.38)
Extraordinary item ..................................... $(.00) $(.10)
-------------- ---------------
Net loss ............................................... $(.25) $(.48)
============== ===============
Weighted average common shares outstanding ............. 3,036,301 3,490,000
</TABLE>
See notes to consolidated financial statements.
F-74
<PAGE>
MULTI-MARKET RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................... $ (765,782) $ (1,659,930)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ..................................... 1,146,640 1,750,310
Non-cash compensation ............................................. 364,933 281,247
Extraordinary item-debt extinguishment ............................ 0 328,571
Deferred taxes .................................................... 0 (202,000)
Non-cash interest expense ......................................... 50,000 362,569
CHANGES IN ASSETS AND LIABILITIES, NET OF AMOUNTS ACQUIRED:
Accounts receivable ............................................... (587,796) (696,296)
Other current assets .............................................. (221,719) 165
Other assets ...................................................... (47,698) (13,122)
Liabilities to affiliate .......................................... 90,000 45,070
Accrued interest .................................................. 26,290 728,306
Other ............................................................. 0 7,380
Accounts payable and accrued expenses ............................. 533,427 (108,465)
-------------- --------------
Total adjustments ............................................. 1,354,077 2,483,735
-------------- --------------
Net cash provided by operating activities .......................... 588,295 823,805
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred acquisition costs ......................................... (307,177) (239,814)
Receivable from affiliates ......................................... (20,929) 0
Proceeds from disposition of net assets of radio station .......... 0 31,831
Acquisition of net assets of radio stations ........................ (6,732,599) (31,574,156)
Capital expenditures ............................................... (162,016) (511,097)
-------------- --------------
Net cash used in investing activities ............................. (7,222,721) (32,293,236)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt ....................................... (593,623) (7,053,315)
Proceeds from issuance of long-term debt, net of issuance costs ... 0 38,391,977
Proceeds from sale of common and preferred stock, net of equity
issuance costs .................................................... 7,306,823 125,000
Proceeds from sale of warrants and options ......................... 160 551,479
-------------- --------------
Net cash provided by financing activities ......................... 6,713,360 32,015,141
-------------- --------------
NET INCREASE IN CASH ............................................... 78,934 545,710
Cash and cash equivalents at beginning of period ................... 633,568 712,502
-------------- --------------
Cash and cash equivalents at end of period ......................... $ 712,502 $ 1,258,212
============== ==============
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 .................... $ 507,265 $ 3,193,345
-------------- --------------
Cash payments made during the year for income taxes ................ $ 10,000 $ 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
<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
========= ========= ========= ===========
</TABLE>
(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
=========== ============= ============== ===============
</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.
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 $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.
F-79
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-80
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT (Continued)
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.
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.
F-81
<PAGE>
MULTI-MARKET RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY (Continued)
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 (UNAUDITED)
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 (UNAUDITED) (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 (UNAUDITED) (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>
ANNEX A
THE PROPOSED AMENDMENTS -- COMPARISON OF INDENTURE PROVISIONS
The following summarizes (i) in the left column, certain provisions of the
Indenture as currently in effect and (ii) in the right column, certain
provisions of the Indenture substantially as it would read if the Proposed
Amendments are adopted and became effective. The Proposed Amendments, if
adopted, will be set forth in a Supplemental Indenture to be executed by the
Company and the Trustee.
The following descriptions are qualified in their entirety by reference to
the Notes, the Indenture and the Supplemental Indenture. Copies of the form
of Supplemental Indenture setting forth the Proposed Amendments are available
upon request to the Information Agent. In addition, this Annex A does not
reflect, with certain exceptions, changes in or deletions of certain defined
terms or other provisions in the Supplemental Indenture necessitated by the
Proposed Amendments. Capitalized terms used below without definition have the
same meanings as set forth in the Indenture. In the descriptions set forth
below, the Notes are referred to as the "Securities" to conform to the
terminology of the Indenture.
IF THE PROPOSED AMENDMENTS TO THE INDENTURE ARE ADOPTED, THE FOLLOWING
SECTIONS WILL BE AMENDED AS DESCRIBED FROM AND AFTER THE ACCEPTANCE DATE:
Indenture Provisions as
Currently in Effect
Section 4.08. Limitation on Restricted Payments
Neither the Company nor any if its Subsidiaries shall, directly or
indirectly, (i) declare or pay any distribution or dividend on or in respect
of any class of its Capital Stock or to the direct or indirect holders of its
Capital Stock (except dividends or distributions payable by wholly owned
Subsidiaries of the Company, and dividends or distributions payable in
Qualified Stock or in options, warrants or other rights to purchase Qualified
Stock); (ii) purchase, repurchase, prepay, redeem, defease or otherwise
acquire or retire for value (other than in Qualified Stock or in options,
warrants or other rights to purchase Qualified Stock) any Capital Stock in
the Company or any of its Subsidiaries (other than a wholly owned Subsidiary
of the Company); (iii) make or, in the case of the Company, permit any
Subsidiary to make any Investment (other than Permitted Investments) in, or
payment on a Guarantee of any Obligation of, any Affiliate, or any Related
Person; or (iv) repay, prepay, redeem, defease, retire or refinance, prior to
scheduled maturity or scheduled sinking fund payment, any other Debt which
ranks pari passu with, or subordinate to, the Securities (other than by the
payment of Qualified Stock or of options, warrants or other rights to
purchase Qualified Stock or in connection with an Asset Disposition, payments
made on any Debt which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other
A-1
<PAGE>
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such
Asset Disposition) except, in the case of this clause (iv), the proceeds used
for such repayment, prepayment, redemption, defeasance, retirement or
refinancing are generated from the issuance of Refinancing Debt (any such
declaration, payment, distribution, purchase, repurchase, prepayment,
redemption, defeasance or other acquisition or retirement or Investment
referred to in clauses (i) through (iv) above being hereinafter referred to
as a "Restricted Payment"); unless at the time of and after giving effect to
the proposed Restricted Payment (the value of any such payment, if other than
cash, as determined by the Board of Directors, including the affirmative vote
of the Independent Directors, whose determination shall be conclusive and
evidenced by a board resolution) (a) no Event of Default (and no event that,
after notice or lapse of time, or both, would become an Event of Default)
shall have occurred and be continuing, (b) the Company could incur an
additional $1.00 of Debt pursuant to the first sentence under Section 4.10
hereof and (c) the aggregate amount of all Restricted Payments declared or
made after June 30, 1993 shall not exceed the sum of (A) an amount equal to
Operating Cash Flow earned from June 30, 1993 to the end of the fiscal
quarter preceding such Restricted Payment less 1.5 times the sum of Total
Interest Expense and Preferred Stock dividends paid or accrued from June 30,
1993 to the end of the fiscal quarter preceding such Restricted Payment plus
(B) an amount equal to the aggregate proceeds received by the Company as
capital contributions to the Company after June 30, 1993, or from the
issuance and sale (other than to any of the Company's wholly owned
Subsidiaries) after June 30, 1993 of Capital Stock (excluding Disqualified
Stock and including Capital Stock issued upon conversions of convertible debt
and from the exercise of options or warrants).
The foregoing provisions will not be violated by reason of (i) the payment
of any dividend within 60 days after the date of its declaration if at the
date of declaration such payment would be permitted by such provisions, (ii)
the redemption of the Company's Series A Redeemable Preferred Stock or Series
B Redeemable Preferred Stock in accordance with its terms, in each case
limited to such Preferred Stock as is then outstanding as of
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the date of this Indenture, and (iii) the making of the Hicks Loan by the
Company or the repurchase or redemption of the Capital Stock of the Company
pledged to secure the Hicks Loan; provided that at any one time the aggregate
outstanding principal amount of the Hicks Loan plus the aggregate amount
theretofore paid in respect of any such purchase or redemption does not
exceed $2,000,000. Any payment, loan, purchase or redemption made pursuant to
clauses (i) and (iii) of this paragraph shall be a Restricted Payment for
purposes of calculating aggregate Restricted Payments under this Section
4.08.
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Section 4.09. Limitation on Dividend Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries to,
create or otherwise cause or suffer to exist or become effective, or enter
into any agreement with any Person that would cause, any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of
the Company to (a) pay dividends or make any other distribution on its
Capital Stock, (b) pay any Debt owed to the Company or any of its
Subsidiaries, (c) make loans or advances to the Company or any of the
Company's Subsidiaries or (d) transfer any of its Property or assets to the
Company or any of its Subsidiaries, other than such encumbrances or
restrictions existing or created under or by reason of (i) applicable law,
(ii) this Indenture, (iii) covenants or restrictions contained in the Credit
Agreement on the close of this Indenture or other Debt of the Company or any
of its Subsidiaries existing on the date of the Indenture, (iv) customary
non-assignment provisions of any lease governing a leasehold interest of the
Company or any of its Subsidiaries, (v) any agreement governing Debt of a
person acquired by the Company or any of its Subsidiaries in existence at the
time of such acquisition (but not created in contemplation thereof), which
encumbrances or restrictions are not applicable to any person, or the
property or assets of any person, other than the person, or the property or
assets of
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the person so acquired, or (vi) created in connection with any Refinancing
Debt; provided, however, that the encumbrances or restrictions contained in
the agreements governing any such Refinancing Debt shall be no more
restrictive than theencumbrances or restrictions set forth in the agreements
governing the Debt being refinanced as in effect on the date of this
Indenture.
Section 4.10. Limitation on Incurrence of Additional Debt and Preferred
Stock.
The Company shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or directly or indirectly Guarantee or in any other
manner become directly or indirectly liable for (as used in this Section
4.10, "incur") any Debt (including Acquired Debt) or issue any Preferred
Stock, except that the Company may (i) issue Preferred Stock that is not
Disqualified Stock at any time and (ii) incur Debt or issue Disqualified
Stock if the Debt to Operating Cash Flow Ratio of the Company and its
Subsidiaries at the time of incurrence of such Debt or issuance of such
Disqualified Stock, after giving pro forma effect thereto, is 6.25:1 or less;
provided that any such Debt or Preferred Stock incurred or issued by the
Company that is not Senior Debt shall have a Weighted Average Life to
Maturity no shorter than the Weighted Average Life to Maturity of the
Securities.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, the "Permitted Debt"): (i) Debt evidenced
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by the Securities in an aggregate principal amount not to exceed
$80,000,000; (ii) Debt incurred pursuant to the Credit Agreement and any
Refinancing Debt with respect thereto in an aggregate principal amount not to
exceed $10,000,000 at any time outstanding less any permanent reductions
thereof; (iii) Debt owed by the Company to any wholly owned Subsidiary of the
Company; provided that any such Debt is subordinated to the Securities; (iv)
other Debt existing at the date of this Indenture (other than Debt, the
repayment of which is a Permitted Transaction); (v) Debt in respect of
Currency Agreements and Interest Rate Protection Agreements entered into by
the Company to fix the floating interest rate or float the fixed interest
rate of any Debt permitted under the Indenture; (vi) Refinancing Debt; and
(vii) Debt, the incurrence of which is a Permitted Transaction.
A calculation of the Debt to Operating Cash Flow Ratio as required by this
covenant shall be made, in each case, for the period of four full consecutive
fiscal quarters next preceding the date on which Debt is proposed to be
incurred ("Reference Period"). In addition, for purposes of the pro forma
calculations required to be made above, (i) (x) the amount of Debt to be
incurred (plus all other Debt previously incurred during such Reference
Period) and the amount (valued at its liquidation value and excluding any
accrued dividends) of Subsidiary Preferred Stock to be issued (plus all other
Subsidiary Preferred Stock previously issued during such Reference Period)
and the amount of Disqualified Stock to be issued (plus all other
Disqualified Stock previously issued during such Reference Period) will be
presumed to have been incurred or issued on the first day of such Reference
Period, and (y) the amount of any Debt redeemed, refinanced or repurchased
with the proceeds of the Debt referred to in clause (x), will be presumed to
have been redeemed, refinanced or repurchased on the first day of such
Reference Period, (ii) if any Asset Disposition occurred during such
Reference Period, the calculations included in the computation of the Debt to
Operating Cash Flow Ratio shall be adjusted to give effect to such Asset
Disposition on a pro forma basis as if such Asset Disposition had occurred on
the first day of such Reference Period, and (iii) if an acquisition of
another business or entity occurred during such Reference Period or if such
Debt or Subsidiary Preferred Stock or Disqualified Stock is being used to
finance an
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acquisition, the calculations included in the computation of the Debt to
Operating Cash Flow Ratio will be adjusted to give effect to such acquisition
on a pro forma basis as if such acquisition had occurred on the first day of
such Reference Period.
Section 4.12. Limitation on Transactions with Related Persons.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Related Person unless (i)
such transaction or series of transactions is on
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terms that are no less favorable to the Company or any such Subsidiary, as
the case may be, than would be available in a comparable transaction with an
unrelated third party and (ii) (a) the Company delivers an Officers'
Certificate to the Trustee certifying that such transaction complies with
clause (i) above and such transaction or series of transactions is approved
by a majority of the Board of Directors including the approval of each of the
Independent Directors and (b) with respect to any transaction or series of
transactions involving aggregate payments in excess of $500,000, the Company
obtains an opinion as to the fairness thereof to the Company or such
Subsidiary from a financial point of view issued by an independent investment
banking firm, appraisal firm or accounting firm, in each case of national
standing. Notwithstanding the foregoing, this provision will not apply to (A)
any transaction between the Company and an Officer or director of the Company
entered into in the ordinary course of business in his capacity as such
(including compensation or employee benefit arrangements with any Officer or
director of the Company), (B) any transaction entered into in the ordinary
course of business between the Company and a wholly owned Subsidiary of the
Company, (C) any permitted Restricted Payment pursuant to Section 4.08 hereof
and (D) any of the Permitted Transactions.
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<PAGE>
Section 4.14. Limitation on Disposition of Assets and Subsidiary Stock.
Neither the Company nor any of its Subsidiaries shall make any Asset
Disposition having a fair market value or resulting in gross proceeds to the
Company or any such Subsidiary, in excess of $1,000,000 in any single
transaction or series of related transactions, or $5,000,000 in the aggregate
over the life of the Securities, unless (i) the Company or any such
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value (as determined by the Board of Directors
and evidenced by a Board resolution) of the interests and assets subject to
such Asset Disposition, (ii) at least 75% of the consideration thereof
received by the Company or such Subsidiary consists of cash or readily
marketable cash equivalents or the assumption of Debt of the Company or any
of its Subsidiaries or other obligations relating to such assets and a
release from all liability on such Debt or other obligations assumed, and
(iii) all Net Available Proceeds of such disposition and from the sale of any
marketable cash equivalents received thereby, less any amounts invested as
described in the following paragraph, are applied (a) first, within 180 days
of such disposition, to the permanent reduction of any Obligations then
outstanding under the Credit Agreement to the extent the terms of the Credit
Agreement require (unless otherwise waived) such application or prohibit
prepayment of the Securities, and (b) second, after the application of Net
Available Proceeds as required pursuant to clause (a) above, and provided
that Net Available Proceeds are at least equal to $5.0 million, to purchases
of outstanding Securities pursuant to an Offer to Purchase commenced within
180 days of such disposition, at a purchase price equal to 100% of their
principal amount plus accrued and unpaid interest, if any, to the date of
purchase.
Notwithstanding clause (iii) above, the Company shall not be required to
repurchase or redeem any Debt to the extent that the Net Available Proceeds
from any Asset Disposition are invested within 180 days of such disposition
in radio broadcasting assets or the Capital Stock (other than Preferred
Stock) of a radio broadcasting entity or the Company shall have entered into
a definitive agreement within such 180 day period to acquire such assets or
such stock subject only to customary conditions, including, without
limitation, the approval of the Federal Communications
A-9
<PAGE>
Commission (but excluding any conditions with respect to the financing of
such acquisition or due diligence) and such acquisition shall have been
consummated within 300 days of such Asset Disposition. If the Company shall
have entered into such definitive agreement to acquire assets or stock as
described above, the Company will mail the Offer to Purchase, if any such
Offer to Purchase is required, not later than the earlier of (A) 300 days
after such disposition and (B) 30 days after the termination of any such
definitive acquisition agreement. The Company shall not be entitled to any
credit against its obligation to purchase outstanding Securities pursuant to
this covenant for Securities previously acquired by reason of a redemption,
tender offer or other repurchase.
This covenant shall not apply to transactions covered by Section 5.01
hereof, entitled "When Company May Merge, etc."
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Section 4.16. Limitation on Line of Business.
For so long as any Securities are outstanding, the Company and its
Subsidiaries will engage solely in the ownership and operation of radio
broadcasting stations and the ownership and operation of the regional and
national radio networks known as the Texas State Networks.
Section 4.18. Limitation on Subsidiary Debt and Preferred Stock.
No Subsidiary of the Company shall issue, assume, guarantee, incur or
otherwise become liable for, directly or indirectly, any Debt or Preferred
Stock except: (i) Debt or Preferred Stock issued to and held by the Company
or a wholly owned Subsidiary of the Company, provided that (a) any
transaction which results in any such wholly owned Subsidiary ceasing to be a
wholly owned Subsidiary of the Company or (b) any transfer of such Debt or
Preferred Stock to any Person who is not a wholly owned Subsidiary of the
Company shall be deemed to constitute the issuance of such Debt or Preferred
Stock by the issuer thereof, (ii) Acquired Debt or Preferred Stock of a
Subsidiary of the Company issued and outstanding prior to the date on which
such Subsidiary was acquired by the Company (other than Acquired Debt or
Preferred Stock issued in connection with or in anticipation of such
acquisition and less than one year prior to such acquisition), and (iii)
Guarantees made by the Subsidiaries of the Company to secure the Company's
obligations under the Credit Agreement.
Section 5.01. When Company May Merge, etc.
The Company shall not consolidate with or merge with or into, nor shall
the Company directly or indirectly transfer or lease all or substantially all
of the assets of the Company and its Subsidiaries, taken as a whole, to, any
Person unless: (a) (i) the surviving or successor entity in the event of a
merger or consolidation, or the Person to which such a sale or conveyance is
A-11
<PAGE>
made, is the Company or an entity organized and existing under the laws of
the United States, any state thereof or the District of Columbia; and (ii) if
such entity or Person is not the Company, such entity or Person (1) expressly
assumes by supplemental indenture in a form satisfactory to the Trustee all
the Obligations of the Company under the Securities and this Indenture and
(2) expressly agrees in such supplemental indenture to submit to the
jurisdiction of the State of New York or a United States federal court
sitting in the State of New York, in any action or proceeding arising out of
or relating to this Indenture or the Securities; (b) immediately prior to
such transaction and immediately after giving effect to such transaction, no
Default or Event of Default exists; (c) immediately after giving effect to
such transaction on a pro forma basis, the Company would be able to incur
$1.00 of additional Debt under Section 4.10 hereof; and (d) the Consolidated
Net Worth of such surviving or successor entity immediately after such
transaction is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such
supplemental indenture will, upon consummation of the proposed transaction,
comply with this Indenture. Notwithstanding the foregoing, the consummation
of the Permitted Transactions shall not violate Section 5.01.
Section 6.01. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article 10 or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(1) a default in the payment of the principal of, or premium on, any
Security, whether or not
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such payment is prohibited by the subordination provisions of Section 10.02
hereof, when the same becomes due and payable at Maturity, upon re demption,
pursuant to an Offer to Purchase in connection with an Asset Disposition or a
Change of Control Offer or otherwise;
(2) a default in the payment of interest on any Security when the same
becomes due and payable and such default continues for a period of 30 days,
whether or not such payment is prohibited by the subordination provisions of
Section 10.02 hereof;
(3) a default in the performance of, or breach of, any other provision of
the Securities or this Indenture and such default continues for a period of
30 days after written notice to the Company from the Trustee or to the
Company and to the Trustee from the Holders of not less than 25% of the
aggregate principal amount of the Securities then outstanding under this
Indenture specifying such default and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder;
(4) an event of default as defined in any mortgage, indenture or other
instrument or agreement, under which there may be issued, or by which there
may be secured or evidenced, any Debt of the Company or its Subsidiaries for
borrowed money whether such Debt now exists or shall hereafter be created,
shall happen and shall result in such Debt becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable,
provided, however, that it shall not be an event of default hereunder if (i)
the aggregate principal amount and interest of Debt the maturity of which is
so accelerated is less than $1,000,000 or (ii) if such default results from
the failure to pay at final maturity less than $1,000,000 in aggregate
principal and interest of Debt;
(5) if the Company shall file a petition commencing a voluntary case under
any Bankruptcy Law; or the Company shall file a petition or answer or consent
seeking reorganization, arrangement, adjustment, or composition under any
other similar applicable law, or shall consent to the filing of any such
petition, answer, or consent; or the Company shall appoint, or consent to the
appointment of, a custodian, receiver, liquidator, trustee, assignee,
sequestrator or other similar official in bankruptcy or insolvency of it or
of any substan-
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<PAGE>
tial part of its Property; or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally
as they become due;
(6) if any order for relief against the Company or a Subsidiary of the
Company that has a radio broadcasting license or that has assets aggregating
5% or more of the consolidated assets of the Company and its Subsidiaries,
taken as a whole, as reflected on the Company's consolidated balance sheet
prepared in accordance with GAAP as of the Company's most recently ended
fiscal quarter (a "Significant Subsidiary") shall have been entered by a
court having jurisdiction in the premises under any Bankruptcy Law, and such
order shall have continued undischarged or unstayed for a period of 60 days;
or a decree or order by a court having jurisdiction in the premises shall
have been entered approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of the Company or a
Significant Subsidiary under any other similar applicable law, and such
decree or order shall have continued undischarged or unstayed for a period of
60 days; or a decree or order of a court having jurisdiction in the premises
for the appointment of a custodian, receiver, liquidator, trustee, assignee,
sequestrator, or other similar official in bankruptcy or insolvency of the
Company or a Significant Subsidiary or of any substantial part of the
Company's Property, or for the winding-up or liquidation of the affairs of
the Company or a Significant Subsidiary, shall have been entered, and such
decree or order shall have remained in force undischarged or unstayed for a
period of 60 days; or
(7) a court of competent jurisdiction shall enter a final judgment or
judgments (from which no further appeal may be taken) for the payment of
money against the Company or any of its Subsidiaries in the aggregate in
excess of $1,000,000 (to the extent not covered by insurance), and any such
judgments are not vacated, discharged or stayed or bonded pending appeal
within 60 days from the entry thereof.
A-14
<PAGE>
Indenture Provisions as
Proposed to be Amended
Section 4.08. Limitation on Restricted Payments
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Com pany's Equity Interests
(including, without limita tion, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of
the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Capital Stock (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Com pany
or any Wholly Owned Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent of the Company; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Securities, except at
final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after
giving effect to such Re stricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such
<PAGE>
Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Debt) pursuant to the Debt to
Cash Flow Ratio test set forth in the first para graph of Section 4.10
hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of the Indenture
(other than Restricted Investments per mitted by clauses (2), (4), (6) or
(11) of the following paragraph) shall not exceed, at the date of
determination, the sum of (1) an amount equal to the Company's Consolidated
Cash Flow from the date of the Indenture to the end of the Company's most
recently ended full fiscal quarter for which internal financial statements
are avail able, taken as a single accounting period, less the product of 1.4
times the Company's Consolidated Interest Expense from the date of the
Indenture to the end of the Company's most recently ended full fiscal quarter
for which internal financial statements are available, taken as a single
account ing period, plus (2) an amount equal to the net cash proceeds
received by the Company from the sale of Equity Interests after the date of
the Indenture (other than (i) in the Preferred Stock Offering, (ii) sales of
Disqualified Stock, and (iii) Equity Interests sold to any of the Company's
Subsidiaries) plus (3) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (A) the cash return of capital with respect
to such Re stricted Investment (less the cost of disposition, if any) and (B)
the initial amount of such Restricted Investment.
If no Default or Event of Default shall have occurred and be continuing
immediately as a result thereof, the foregoing provisions will not prohibit;
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of the Indenture; (2) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of the Com-
<PAGE>
pany in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Dis qualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(2) of the preceding paragraph; (3) cash payments made in
respect of fractional shares of Capital Stock not to exceed $100,000 in the
aggregate in any fiscal year; (4) the issuance of the Exchange Notes in
exchange for the Series D Preferred Stock; pro vided that such issuance is
permitted by Section 4.10 hereof; (5) in the event that the Company elects to
issue the Exchange Notes in exchange for the Series D Preferred Stock, any
cash payments made in lieu of the issuance of Exchange Notes having a face
amount of less than $50 and any cash payments representing accrued and unpaid
liquidated damages and dividends in respect thereof not to exceed $100,000 in
the aggregate in any fiscal year; (6) the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permit ted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(2) of the preceding paragraph; (7) the payment of dividends
on the Series D Preferred Stock in accordance with the terms thereof as in
effect on the date of the indenture governing the New Notes; (8) the
redemption by the Company of its Series B Prefered Stock in accordance with
the terms thereof as in effect on the date of the indenture governing the New
Notes; provided that payments made by the Com pany to redeem the Series B
Preferred Stock shall not exceed $1.0 million in any fiscal year or $2.0
million in the aggregate since the date of the indenture governing the New
Notes; (9) the re demption by the Company of its Series C Pre ferred Stock in
accordance with the terms thereof as in effect on the date of the indenture
governing the New Notes in connection with the Dallas Disposition; (10)
payments made by the Company to SCMC for facilities maintenance and other
services and reimbursements pursuant to the Shared Facilities Agreement in
accordance with the terms thereof as in effect on the date of the
<PAGE>
indenture governing the New Notes; and (11) payments by the Company pursuant
to the Man agement Termination Agreements in accordance with the terms
thereof as in effect on the date of the indenture governing the New Notes.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (evi denced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Pay ment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
Section 4.09. Limitation on Dividend Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(x) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (y) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company
or any of its Subsidiar ies, except for such encumbrances or restrictions
existing under or by reason of (a) Existing Indebt edness, (b) the New Credit
Agreement as in effect as of the date of the Supplemental Indenture, and any
amendments, modifications, restatements, re newals, increases, supplements,
refundings, re placements or refinancings thereof, and any other agreement
governing or relating to Senior Debt of the Company, provided that all such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinanc ings and other agreements are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the New Credit Agreement as in effect on the date of the
<PAGE>
Supplemental Indenture, (c) the Indenture (as supplemented by the
Supplemental Indenture) and the Securities (d) the New Notes and the
indenture governing the issuance of the New Notes, (e) applicable law, (f)
any instrument gov erning Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiar ies as in effect at the time of such
acquisition (except to the extent such Indebtedness was in curred in
connection with or in contemplation of such acquisition), which encumbrance
or restric tion is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebted ness, such
Indebtedness was permitted by the terms of the Indenture, as amended from
time to time by supplemental indentures in form accept able to the Trustee,
(g) by reason of customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices, or (h)
Permitted Refinanc ingDebt, provided that the restrictions contained in the
agreements governing such Permitted Re financing Debt are no more restrictive
than those contained in the agreements governing the Indebt edness being
refinanced.
Section 4.10. Limitation on Incurrence of Addi tional Debt and Preferred
Stock.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or other wise
become directly or indirectly liable, contin gently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and the Company will not issue any Dis qualified Stock and will not permit
any of its Subsidiaries to issue any shares of Preferred Stock; provided,
however, that (A) the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and (B) a Subsidiary may issue
shares of Preferred Stock (other than shares of Preferred Stock that are
convertible into or exchangeable for any other class of Capital Stock) if, in
either case, the Company's Debt to Cash Flow Ratio at the time of incurrence
of such Indebtedness or the issuance of such Disqualified Stock or Preferred
Stock, as the case may be, after giving pro forma effect to such incurrence
or issuance as of such date and to the use of proceeds therefrom as if the
same had occurred at the beginning of the most recently
<PAGE>
ended four full fiscal quarter period of the Com pany for which internal
financial statements are available, would have been no greater than 7.0 to 1.
The foregoing provision will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
pursuant to one or more Bank Facilities, so long as the aggregate principal
amount of all Indebtedness outstanding under all Bank Facilities does not, at
the time of incurrence, exceed an amount equal to the sum of (A) $72.0
million less all payments of principal under any Bank Facility, whether
optional or mandatory, made since the date of the Supplemen tal Indenture
(other than repayments of Disposi tion Debt) plus (B) the Permitted
Disposition Amount;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of the Existing
MMR Indebtedness; provided that, substantially concurrently with such
incurrence, the Existing MMR Indebtedness is repaid by the Company with the
proceeds of Indebtedness incurred under Bank Facilities;
(iv) the issuance of the Series D Preferred Stock;
(v) the issuance of Disqualified Stock by the Company that by its terms
would not require or permit any payment of dividends or other distri butions
that would violate Section 4.08 hereof;
(vi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by the Securities, the New Notes and any Subsidiary
guarantees thereof;
(vii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior owner
of such assets or such Subsidiary prior to such acquisition by the Company or
one of its Subsidiaries and was not incurred in connec tion with, or in
contemplation of, such acquisition by the Company or one of its Subsidiaries
and provided further that, after giving pro forma effect to such incurrence
of Indebtedness as of such date and to the use of proceeds therefrom as if
the same had occurred at the beginning of the most
<PAGE>
recently ended four full fiscal quarter period for which internal financial
statements are available, the Company's Debt to Cash Flow Ratio would have
been no greater than 7.0 to 1;
(viii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness
that was permitted by the Indenture and the Supplemental Indenture to be
incurred;
(ix) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness be tween or among the Company and any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinate to the payment
in full of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Subsidiary
and (B) any sale or other transfer of any such Indebtedness to a Person that
is not either the Company or a Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(x) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted by
the terms of the Indenture or the Supplemental Indenture to be outstanding;
and
(xi) the incurrence by the Company and any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million.
Section 4.12. Limitation on Transactions with Re lated Persons.
The Company will not, and will not permit any of its Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any prop erty or assets from, or enter
into or make or amend any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit
<PAGE>
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Trans action is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
members of the Board of Directors that are disinterested as to such Affiliate
Transaction and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Company and the Holders of
such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing;
provided that (1) transactions between or among the Company and/or its Wholly
Owned Subsidiaries, (2) the MMR Acquisition and trans actions and agreements
specifically contemplated by the Agreement and Plan of Merger among the
Company, SFX Merger Company and MMR as in effect on the date of the indenture
governing the New Notes that are disclosed in the Offering Memorandum
relating to the New Notes, (3) the redemption or repurchase of Existing MMR
In debtedness, (4) transactions and agreements spe cifically contemplated by
the Termination and Assignment Agreement between the Company and SCMC as in
effect on the date of the inden ture governing the New Notes; (5) payments
required by the terms of the joint lease among the Company, SCMC and the
landlord thereunder for the Company's corporate headquarters located at 150
East 58th Street, New York, New York and any agreements directly related
thereto, in each case, as the same are in effect on the date of the indenture
governing the New Notes; and (6) Restricted Payments and Permitted
Investments that are permitted by the provisions of Section 4.08 hereof, in
each case, shall not be deemed to be Affiliate Transactions.
<PAGE>
Section 4.14. Limitation on Disposition of Assets and Subsidiary Stock.
The Company will not, and will not permit any of its Subsidiaries to,
engage in any Asset Sale unless (i) the Company (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of
the assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 75% of the consideration therefor received by the Company or
such Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent
balance sheet) of the Company or any Subsidiary (other than contin gent
liabilities and liabilities that are by their terms subordinated to the Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash
for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce Senior Debt of the Company (and to correspondingly reduce commitments
with respect thereto, in the case of Senior Debt of the Company that is
revolving debt), or (b) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, in the Broadcast Business. Pending the
final application of any such Net Proceeds, the Com pany may temporarily
reduce Senior Debt of the Company or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture, as supplemented by the
Supplemental Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggre gate amount of
Excess Proceeds exceeds $10.0 million, the Company will be required to make
an offer to all Holders of Securities and the holders of Pari Passu Debt, to
the extent required by the
<PAGE>
terms thereof (an "Asset Sale Offer"), to purchase the maximum principal
amount of Securities and any such Pari Passu Debt that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon to
the date of purchase, in accordance with the procedures set forth in the
Indenture, as supplemented by the Supplemental Indenture or the agreements
governing Pari Passu Debt, as applicable; provided, however, that the Company
may only purchase Pari Passu Debt in an Asset Sale Offer that was issued
pursuant to an indenture having a provision substantially similar to the
Asset Sale Offer provision contained in the Indenture, as supplemented by the
Supplemental Indenture. To the extent that the aggregate amount of Securities
and Pari Passu Debt tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Securities
and Pari Passu Debt surrendered exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and Pari Passu Debt to be purchased on a pro
rata basis, based upon the principal amount thereof surrendered in such Asset
Sale Offer. Upon completion of such offer purchase, the amount of Excess
Proceeds shall be reset at zero. Notwithstanding the foregoing, in the event
that a Disposition occurs at a time when any Disposition Debt is outstanding,
then all of the Net Proceeds of such Disposition shall be applied to redeem,
substantially concurrently with such Disposition, such Disposition Debt.
Notwithstanding the immediately preceding paragraph, the Company and its
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraph if (i) the Company or the applicable Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or other property sold, issued
or otherwise disposed of (as evidenced by a resolution of the Company's
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) and (ii) at least 75% of the consideration for such Asset Sale
constitutes assets or other property of a kind usable by the Company and its
Subsidiaries in the business of the Company and its Subsidiaries as conducted
by the Company and its Subsidiaries on the date of the Supplemental
Indenture; provided that any consideration not constituting assets or
property of a kind usable by
<PAGE>
the Company and its Subsidiaries in the business conducted by them on the
date of such Asset Sale received by the Company or any of its Subsidiaries
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Proceeds subject to the provisions of the two
succeeding paragraphs.
Section 4.16. Limitation on Line of Business.
The Company will not, and will not permit any Subsidiary to, engage in any
business other than (i) the Broadcast Business and such business activities
as are incidental or related thereto, (ii) such other businesses as the
Company or its Subsidiaries are engaged in on the date of the Supplemental
Indenture.
Section 4.18. Limitation on Subsidiary Debt and Preferred Stock.
Deleted in its entirety. See Section 4.10 Limitation on Incurrence of
Additional Debt and Preferred Stock for incorporation of certain of these
provisions.
Section 5.01. When Company May Merge, etc.
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or
the Person
<PAGE>
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) such transaction will
not result in the loss or suspension or material impairment of any Material
Broadcast License; and (v) except in the case of a merger of the Company with
or into a Wholly Owned Subsidiary of the Company, the Company or the entity
or Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Con solidated Net Worth of the Company immediately preceding the
transaction and (B) will at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set
forth in the first paragraph of Section 4.10 hereof. Notwithstanding the
foregoing, the consummation of any of the Permitted Transactions shall not
violate this Section 5.01.
Section 6.01. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article 10 or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(1) a default in the payment when due of the principal of, or premium, if
any, on, any Security,
<PAGE>
(whether or not prohibited by the subordination provisions of this
Indenture);
(2) a default for 30 days in the payment when due of interest on any
Security (whether or not prohibited by the subordination provisions of this
Indenture);
(3) failure by the Company (i) to comply with the provisions of Sections
4.08, 4.10, 4.14, 4.15 or 5.01 hereof, and (ii) for 60 days after notice, to
comply with any of its other agreements in the Securities or this Indenture:
(4) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Subsidiaries (or the payment
of which is guaranteed by the Company or any of its Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date of
this Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expira tion
of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or more;
(5) if the Company shall file a petition com mencing a voluntary case
under any Bankruptcy Law; or the Company shall file a petition or answer or
consent seeking reorganization, arrangement, adjustment, or composition
under any other similar applicable law, or shall consent to the filing of any
such petition, answer, or consent; or the Company shall appoint, or consent
to the appointment of, a custodian, receiver, liquidator, trustee, assignee,
sequestrator or other similar official in bankruptcy or insolvency of it or
of any substantial part of its Property; or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due;
(6) if any order for relief against the Company or a Significant
Subsidiary shall have been entered by a court having jurisdiction in the
premises under any Bankruptcy Law, and such order shall have continued
undischarged or un-
<PAGE>
stayed for a period of 60 days; or a decree or order by a court having
jurisdiction in the premises shall have been entered approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of the Company or a Significant Subsidiary under any other
similar applicable law, and such decree or order shall have continued
undischarged or unstayed for a period of 60 days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a
custodian, receiver, liquidator, trustee, assignee, sequestrator, or other
similar official in bankruptcy or insolvency of the Company or a Significant
Subsidiary or of any substantial part of the Company's Property, or for the
winding-up or liquidation of the affairs of the Company or a Significant
Subsidiary, shall have been entered, and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; or
(7) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days.
<PAGE>
SET FORTH BELOW ARE CERTAIN DEFINED TERMS WHICH WILL BE USED IN THE
SUPPLEMENTAL INDENTURE WITH RESPECT TO THE PROPOSED AMENDMENTS. REFERENCE IS
MADE TO THE INDENTURE AND THE SUPPLEMENTAL INDENTURE, AS THE CASE MAY BE, FOR
A FULL DISCLOSURE OF ALL SUCH TERMS, AS WELL AS ANY OTHER CAPITALIZED TERMS
USED HEREIN FOR WHICH NO DEFINITION IS PROVIDED.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Advertising Business" means any business deriving substantially all of
its revenues from the (i) sale of advertisements and (ii) sale of products or
provision of services to any business described in clause (i) above.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback or
pursuant to an LMA or similar arrangement); provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole will be governed by the
provisions of Section 4.15 hereof and/or the provisions of Section 5.01
hereof and not by the provisions of the Asset Sale covenant, and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests
of any of the Company's Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a Fair Market Value in excess of $5.0 million or (b) for aggregate
net proceeds in excess of $5.0 million. Notwithstanding the foregoing: (i) to
the extent that no Disposition Debt is outstanding, the Washington
Disposition, the Louisville Disposition and the Dallas Disposition, (ii) the
Houston Exchange, (iii) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another
Wholly Owned Subsidiary, (iv) an issuance of Equity Interests by a Wholly
Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, (v) a
Restricted Payment that is permitted by Section 4.08 hereof, and (vi) sales
of obsolete equipment in the ordinary course of business, will not be deemed
to be Asset Sales.
"Bank Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Agreement) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Bank Facilities outstanding on the date on which the New
Notes are first issued and authenticated under the indenture governing the
New Notes shall be deemed to have been incurred on such date in reliance on
the exception provided by clause (i) of Section 4.10 hereof.
"Broadcast Business" means any business, the majority of whose revenues
are derived from the broadcast of radio programming.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents
A-15
<PAGE>
(however designated) of corporate stock, (iii) in the case of a partnership,
partnership interests (whether general or limited) and (iv) any other
interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government
or any agency or instrumentality thereof having maturities of not more than
six months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the New
Credit Agreement or with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale by such Person or any of its Subsidiaries during such period
(to the extent such losses were deducted in computing such Consolidated Net
Income), plus (ii) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income,
plus (iii) Consolidated Interest Expense of such Person for such period to
the extent any such Consolidated Interest Expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, less (v) all non-cash items
increasing Consolidated Net Income for such period (excluding any such
non-cash income to the extent it represents an accrual of cash income in any
future period), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
on the income or profits of, and the depreciation and amortization and other
non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness" of any Person as of any date of determination
means the sum (without duplication) of (i) the total amount of Indebtedness
of such Person and its Subsidiaries, plus (ii) the total amount of other
Indebtedness shown on the balance sheet of the primary obligor on such
Indebtedness, to the extent that such Indebtedness has been Guaranteed by
such Person or one of its Subsidiaries, plus (iii) the aggregate liquidation
value or redemption amount (if larger) of all Disqualified Stock of such
Person and all preferred stock of Subsidiaries of such Person, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Value, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) determined on a consolidated basis and in accordance with GAAP.
A-16
<PAGE>
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referenced Person or a Wholly Owned Subsidiary thereof ,
(ii) the Net Income of any Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.
"Dallas Disposition" means the sale by the Company of KTCK-FM (Dallas, TX)
on substantially the terms set forth in the sale agreement as the same is in
effect on the date of the indenture governing the New Notes.
"Debt to Cash Flow Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Indebtedness as of such date to (b) the
Consolidated Cash Flow of the Company and its Subsidiaries on a consolidated
basis for the four most recent full fiscal quarters ending immediately prior
to such date for which internal financial statements are available. For
purposes of calculating Consolidated Cash Flow for the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which such
Ratio is being calculated (the "Calculation Date") shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded.
"Disposition" means the sale of any of (i) WVEZ-FM, WTFX-FM and WWKY-AM
operating in Louisville, Kentucky, (ii) KTCK-FM operating in Dallas, Texas or
(iii) WXVR-FM, WXTR-FM and WQSI-AM operating in Washington, DC and, in each
case, all assets related thereto.
"Disposition Debt" means Indebtedness incurred pursuant to clause (i)(B)
of the second paragraph of Section 4.10 hereof.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date
on which the Securities mature.
A-17
<PAGE>
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Notes" means the Company's % Convertible Subordinated Exchange
Notes due 2007 issuable in exhange for the Company's Series D Preferred
Stock.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the date of the Indenture, until such amounts are repaid.
"Existing MMR Indebtedness" means all Indebtedness of MMR and its
Subsidiaries in existence at the closing of the MMR Acquisition, until such
amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the date of the
Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States of
America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Houston Exchange" means the exchange by the Company of KRLD-AM (Dallas,
Texas) and the Texas State Networks for KKRW-FM (Houston, Texas) on
substantially the terms set forth in the exchange agreement as the same is in
effect on the date of the indenture governing the New Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or payment obligations under an LMA or
representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP; provided that an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. If the
Company
A-18
<PAGE>
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no longer
a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair
Market Value of the Equity Interests of such Subsidiary not sold or disposed
of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Local Marketing Agreement" or "LMA" means a local marketing arrangement,
sale agreement, time brokerage agreement, management agreement or similar
arrangement pursuant to which a Person, subject to customary preemption
rights and other limitations (i) obtains the right to sell at least a
majority of the advertising inventory of a radio station of which a third
party is the licensee, (ii) obtains the right to broadcast programming and
sell advertising time during a majority of the air time of a radio station or
(iii) manages the selling operations of a radio station with respect to at
least a majority of the advertising inventory of such station.
"Louisville Disposition" means the sale by the Company of each of WVEZ-FM,
WTFX-FM and WWXY-AM (Louisville, Kentucky) on substantially the terms set
forth in the sale agreement as the same is in effect on the date of the
indenture governing the New Notes.
"Management Termination Agreements" means each of (i) the termination
agreement between the Company and R. Steven Hicks, dated April 16, 1996 and
(ii) the amendment to the employment agreement between the Company and D.
Geoffrey Armstrong, effective as of April 15, 1996, in each case, as in
effect on the date of the indenture governing the New Notes.
"Material Broadcast License" means one or more authorizations issued by
the Federal Communications Commission for the operation of AM or FM radio
stations that individually or collectively are material to the financial
condition, results of operations or prospects of the Company and its
Subsidiaries taken as a whole.
"MMR" means Multi-Market Radio, Inc., a Delaware corporation.
"MMR Acquisition" or "MMR Merger" means the merger of SFX Merger Company,
a Wholly Owned Subsidiary of the Company, with and into MMR, pursuant to
which MMR will become a Wholly Owned Subsidiary of the Company.
"MMR Stations" means the following radio stations: WPLR-FM and WYBC-FM
(New Haven, Connecticut); WHMP-FM, WPKX-FM and WHMP-AM
(Springfield/Northampton, Massachusetts); WGNE-FM (Daytona Beach, Florida);
WRXR-FM, WKBG-FM and WCHZ-FM (Augusta, Georgia); WKNN-FM and WMJY-FM (Biloxi,
Mississippi); and WYAK-FM and WVCO-FM (Myrtle Beach, South Carolina).
"MMR Warrants" means MMR's outstanding Class A Warrants to purchase
1,840,000 shares of MMR's Class A Common Stock.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
A-19
<PAGE>
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions
and any tax sharing arrangements), amounts required to be applied to the
repayment of Indebtedness (other than Senior Debt of the Company) secured by
a Lien on the asset or assets that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
"New Credit Agreement" means that certain Credit Agreement, currently
being negotiated, by the Company to provide for up to $150.0 million of
revolving credit borrowings, including any related notes, guarantees,
collateral documents, and other agreements to be executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
or refinanced from time to time.
"New Notes" means the $440 million aggregate principal amount of the
Company's % Senior Subordinated Notes due 2006.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Debt" means Indebtedness that ranks pari passu in right of
payment with the Securities.
"Permitted Disposition Amount" means the sum of (i) until the consummation
of the sale by the Company of WVEZ-FM, WTFX-FM and WWKY-AM operating in
Louisville, Kentucky, $19.5 million, plus (ii) until the consummation of the
sale by the Company of WXVR-FM, WXTR-FM and WQSI-AM operating in Washington,
DC, $25.0 million, plus (iii) until the consummation of the sale by the
Company of KTCK-FM operating in Dallas, Texas, $9.5 million, plus (iv) prior
to the exercise of the MMR Warrants, $13.6 million.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if
after such Investment (i) such Person becomes a Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Subsidiary of the Company; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.14
hereof (e) any obligations or shares of Capital Stock received in connection
with or as a result of a bankruptcy, workout or reorganization of the issuer
of such obligations or shares of Capital Stock; (f) any Investment received
involuntarily; (g) Investments in any Person (other than an Affiliate of the
Company that is not also a Subsidiary of the Company) engaged in a Broadcast
Business or an Advertising Business which Investments have an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (g) that are at the time
outstanding, not to exceed $20.0 million; and (h) other Investments in any
Person (other than an Affiliate of the Company that is not also a Subsidiary
of the Company) having an aggregate fair market value measured on the date
each such Investment was made and without giving effect to subsequent changes
in value, when taken together with all other Investments made pursuant to
this clause (h) that are at the time outstanding, not to exceed $15.0
million.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company or
Indebtedness of a Subsidiary that was permitted by the terms of the Indenture
or the Supplemental Indenture to be incurred; (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company
A-20
<PAGE>
provided that such Liens were in existence prior to the contemplation of
such acquisition and do not extend to any assets other than such assets so
acquired; (v) Liens existing on the date of the Indenture; (vi) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor; and (vii) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company
with respect to obligations that do not exceed $10.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof
in the operation of business by the Company or such Subsidiary.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, decease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i)
the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, deceased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, deceased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, deceased or
refunded is subordinated in right of payment to the Securities, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Securities, on terms at least as favorable to the Holders of Securities as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, deceased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Subsidiary who was
the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, deceased or refunded.
"Preferred Stock Offering" means the offering of the Company's Series D
Preferred Stock.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SCMC" means Sillerman Communications Management Company, a Delaware
corporation.
"Series B Preferred Stock" means the Company's Series B Redeemable
Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's Series C Redeemable
Convertible Preferred Stock, par value $0.1 per share.
"Series D Preferred Stock" means the Company's % Series D Cumulative
Convertible Exchangeable Preferred Stock.
"Shared Facilities Agreement" means the Shared Facilities Agreement
between the Company and SCMC, as in effect on the date of the indenture
governing the New Notes.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as amended, as such Regulation is in
effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Voting Stock thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Voting Stock" means with respect to any specified Person, Capital Stock
with voting power, under ordinary circumstances and without regard to the
occurrence of any contingency, to elect the directors or other managers or
trustees of such Person.
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<PAGE>
"Washington Disposition" means the sale by the Company of each of
WXVR-FM, WXTR-FM and WQSI-AM (Washington, DC) on substantially the terms set
forth in the sale agreement as the same is in effect on the date of the
indenture governing the New Notes.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
A-22
<PAGE>
Facsimile copies of the Letter of Transmittal and Consent, properly
completed and validly executed, will be accepted. Letters of Transmittal and
Consents, certificates for Notes and any other required documents should be
sent or delivered by each Holder of Notes or such Holder's broker, dealer,
commercial bank or trust company to the Depositary at one of its addresses
set forth below.
The Depositary for the Tender Offer and Consent Solicitation is:
CHEMICAL BANK
<TABLE>
<CAPTION>
<S> <C> <C>
By Facsimile: By Mail, By Hand and Overnight Courier: Confirm by Telephone:
(212) 638-7380 Chemical Bank Carlos Esteves
(212) 344-9387 Corporate Trust-Securities Window (212) 638-0828
Room 234-North Building 55 Water Sharon Lewis
Street New York, NY 10041 (212) 638-0454
</TABLE>
REQUESTS FOR ASSISTANCE SHOULD BE DIRECTED TO THE INFORMATION AGENT OR THE
DEALER MANAGER. REQUESTS FOR ADDITIONAL COPIES OF THE OFFER TO PURCHASE, THE
LETTER OF TRANSMITTAL AND CONSENT AND THE NOTICE OF GUARANTEED DELIVERY
SHOULD BE DIRECTED TO THE INFORMATION AGENT. YOU MAY ALSO CONTACT YOUR
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR NOMINEE FOR ASSISTANCE
CONCERNING THE TENDER OFFER AND CONSENT SOLICITATION.
The Information Agent for the Tender Offer and Consent Solicitation is:
D.F. KING & CO., INC.
Call toll free: (800) 769-7666
77 Water Street
New York, New York 10005
(212) 269-5550 (collect)
The Dealer Manager for the Tender Offer and Consent Solicitation is:
BT SECURITIES CORPORATION
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
High Yield Capital Markets
Attn: Tim Collins
(212) 775-4635
<PAGE>
AMENDMENT NO. 1
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment No. 1 to Amended and Restated Employment Agreement
(the "Amendment") is entered into effective as of April 15, 1996, by and
between SFX Broadcasting Company, Inc., a Delaware corporation, its successors
and assigns (the "Company"), and D. Geoffrey Armstrong, an individual residing
at 104 Phlox Drive, Austin, Texas 78734 (the "Executive").
WHEREAS, the Company and the Executive entered into a certain
employment agreement dated as of October 7, 1993 (the "Initial Employment
Agreement") which was subsequently replaced by the Amended and Restated
Employment Agreement dated as of April 1, 1995 (the "Amended and Restated
Employment Agreement");
WHEREAS, the Company has entered into a merger agreement with
Multi-Market Radio, Inc. ("MMR") dated April 15, 1996, as it may be amended or
modified from time to time (the "Merger Agreement");
WHEREAS, the Merger Agreement is scheduled to be consummated
following the satisfaction or waiver of the conditions set forth in the Merger
Agreement (the date of such consummation being referred to in this Agreement
as the "Closing");
WHEREAS, the Company desires to modify the terms of employment of the
Executive subsequent to the Closing and the Executive desires that such terms
be modified;
WHEREAS, the Compensation Committee of the Board of Directors of the
Company and the Board of Directors (with the Executive not participating in
the discussions and abstaining from voting thereon) approved the terms and
conditions of this Amendment to the Amended and Restated Employment Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
covenants and agreements contained herein, and other valuable consideration,
the adequacy of which is hereby acknowledged, the parties hereby agree as
follows:
1. Section 2(a) of the Amended and Restated Employment Agreement is
hereby replaced by the following:
"From the Closing of the Merger (as such term is defined in the
Merger Agreement between SFX Broadcasting, Inc, SFX Merger Company
and Multi-Market Radio, Inc. dated April 15, 1996, and hereinafter
referred to in this Amendment as the "Closing") and during the
remainder of the term of this Agreement, the Executive shall be
employed as the Chief Operating Officer and interim Chief Financial
Officer. Upon the hiring of a full-time Chief Financial Officer, the
Executive will cease to be the Company's Chief Financial Officer. The
executive will submit his resignation as Chief Financial Officer upon
the execution of this Agreement, such resignation to be effective
upon the hiring of a full-time Chief Financial Officer. The Executive
shall perform such duties and responsibilities as
<PAGE>
shall be reasonably assigned to the Executive by the Chief Executive
Officer of the Company, or which are from time to time assigned to or
vested in him by the Company's Board of Directors and which are
customarily incident to the position of the Chief Operating Officer
and (until a full-time Chief Financial Officer is hired) Chief
Financial Officer of a large multi-station broadcasting company and
are consistent with The Company's By-Laws. The Company agrees to hire
a full-time Chief Financial Officer to assume such duties not later
than 90 days after the Closing. Additionally, the Executive shall
serve as a member of the Board."
2. A new Section 10.4.2 is added to Section 10.4 of the Amended and
Restated Employment Agreement as follows:
"10.4.2. (a) Notwithstanding anything to the contrary in this
Agreement, the Company shall pay to the Executive on the earlier of
(i) the Closing and (ii) the latest of the closing of the offering of
SFX's Senior Subordinated Notes, the closing of the offering of SFX's
Preferred Stock and the closing of the initial funding of the new
credit agreement to be entered into with The Bank of New York,
presently being prepared by the underwriters, the sum of $4,575,000
(the "Payment Amount"). The Executive will receive the Payment Amount
in consideration for (i) the deferral until termination pursuant to
Section 10.4.2(b) by the Executive of the payments and benefits
provided for in Section 10.3(A), (B) and (D) and Section 10.4 of this
Agreement (except as provided in this Section 10.4.2), and (ii) the
Company's purchase from the Executive of the Executive's right to be
granted options pursuant to Section 3(c)(excluding, however, options
previously granted to the Executive to purchase 65,000, 20,000 and
50,000 shares of Class A Common Stock of the Company under the 1993,
1994 and 1995 Stock Option Plan, respectively, (the "Granted Stock
Options")) and Section 10.3(C). The Company agrees that any right of
the Company to reduce or offset against the Executive's salary, other
compensation or payments due to him by reason of $120,000 in deferred
compensation having previously been paid to him, is hereby waived.
(b) The Company and the Executive further agree that during the
period (the "Termination Option Period") which starts on the first
anniversary of the Closing and ends on midnight of the thirtieth day
after the first anniversary of the Closing, the Executive and the
Company shall each have the option to terminate this Agreement upon
thirty (30) days written notice. Upon such termination, the Company
agrees to (i) pay to the Executive $1,200,000 in lieu of and in full
satisfaction of the amounts provided for in Section 10.3(A), (B) and
(D) and deferred pursuant to Section 10.4.2 (a) (which provisions are
otherwise specifically waived hereunder) and (ii) repurchase all of
the Executive's Granted Options which shall become 100% vested on the
date of such termination, and any other stock options which may be
granted subsequent to this date, all of which will become 100% vested
on the date of such termination, for an amount equal to the
difference between (x) the number of 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 of the Company on the
exchange or market on which such shares trade during the twenty days
prior to five days before the effective date of the termination of
this Agreement. The obligations to
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<PAGE>
purchase stock options provided for herein shall not be reduced,
limited or otherwise affected by reason of the lack of any approval
by the Company's stockholders of any of such options, the invalidity
of any such options, or otherwise. In the event that the Company
fails to pay the amounts due to the Executive within ten (10) days
following the Closing or the date of such termination, as the case
may be, then Executive shall be entitled to interest on such unpaid
amount due at a rate per annum equal to the base rate of Chemical
Bank plus 5% from the date such amount is due until paid, and
Executive shall be entitled to recover from the Company reasonable
attorneys' fees and costs incurred in collecting such amount.
(c) The Company and the Executive further agree that in the event of
the Executive's death, Total Disability, Termination following a
Change of Control or Constructive Termination during the period
between April 15, 1996 and the last day of the Termination Option
Period, the Company will make the payments provided for in Section
10.4.2 (a) and (b) to the Executive or to the Executive's estate, as
the case may be. The Company may, at its option and at its cost,
obtain insurance policies for the benefit of the Company in the
amount of the payment provided for in this Section 10.4.2. The
Executive hereby agrees to undertake cooperate fully with the Company
in obtaining such policies and to take all reasonable actions to
allow the Company to maintain such insurance policies."
3. Section 10.5 is hereby deleted from the Amended and Restated
Employment Agreement.
4. Executive hereby agrees that for the period during which he serves on the
Board of Directors of SFX, and for a period of one year thereafter, unless and
until he shall have been specifically invited or authorized in writing by SFX,
he will not singly or as part of a "partnership, limited partnership,
syndicate or other group" (as those terms are used within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), directly or indirectly, solicit, seek or offer to effect,
negotiate with or provide any information to any person with respect to,
become engaged by any third party, or make any statement, proposal or inquiry,
whether written or oral, either alone or in concert with others, to the Board
of Directors of SFX or MMR, or otherwise make any public announcement or
proposal or offer whatsoever with respect to, (I) any form of business
combination or business transaction involving SFX or MMR including, without
limitation, a merger, consolidation, tender or exchange offer, sale or
purchase of assets or securities, or dissolution or liquidation of SFX or MMR,
or (ii) any form of restructuring, recapitalization or similar transaction
with respect to SFX or MMR.
5. The Executive and the Company hereby affirm that except as amended by this
Amendment, the Amended and Restated Employment Agreement is in full force and
effect and that neither party hereto has any rights, obligations or claims
with respect of the relationship between the Company and the Executive, in his
capacity as an officer, employee, shareholder or otherwise, except as set
forth in the Amended and Restated Employment Agreement, the Option Agreement
effective December 1, 1993 between the Company and the Executive and the
Option Agreement effective June 27, 1994 between the Company and the
Executive.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by a duly authorized officer
as of the day and year first above written.
SFX BROADCASTING COMPANY, INC.
By: /s/ Robert F. X. Sillerman
-------------------------------------
Name: Robert F. X. Sillerman
Title: Executive Chairman
/s/ D. Geoffrey Armstrong
-------------------------------------
D. GEOFFREY ARMSTRONG
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ASSET PURCHASE AGREEMENT
AMONG
SFX BROADCASTING, INC.
KIRO, INC.
AND
BONNEVILLE HOLDING COMPANY
DATED: MAY 1, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is dated as of May 1,
1996, and is among SFX Broadcasting, Inc., a Delaware corporation having its
principal office in New York, New York ("Seller"), KIRO, Inc., a Washington
corporation having its principal office in Seattle, Washington ("KIRO"), and
Bonneville Holding Company, a Utah corporation having its principal office in
Salt Lake City, Utah ("BHC"; KIRO and BHC are collectively referred to herein
as "Buyers").
1. On November 15, 1995, Seller entered into an agreement
(the "Liberty Stock Purchase Agreement") pursuant to which Seller has agreed
to purchase all of the issued and outstanding stock of Liberty Broadcasting,
Incorporated ("LBI").
2. Liberty Broadcasting of Maryland II Incorporated ("Liberty-
MD II") is an indirect, wholly-owned subsidiary of LBI.
3. WXTR, Inc. is a wholly-owned subsidiary of Liberty-MD II
and the licensee of radio station WXTR-FM ("WXTR") in Waldorf, Maryland. The
licenses, permits and other authorizations issued by the Federal Communications
Commission (the "FCC") relating to WXTR are set forth on Schedule 3.6 hereto and
hereinafter shall be referred to as the "WXTR FCC Authorizations."
4. Liberty-MD II owns substantially all of the assets of WXTR
other than the WXTR FCC Authorizations and operates WXTR.
5. Musical Heights, Inc. ("MHI") is also a wholly-owned
subsidiary of Liberty-MD II. MHI is the licensee of and owns and operates radio
stations WXVR(FM) ("WXVR") in Frederick, Maryland and WQSI(AM) ("WQSI") in
Braddock Heights, Maryland (WXTR, WXVR and WQSI are collectively referred to
herein as the "Stations"). The licenses, permits and other authorizations issued
by the FCC relating to WXVR are set forth on Schedule 3.6 hereto and hereinafter
shall be referred to as the
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"WXVR FCC Authorizations," and the licenses, permits and other
authorizations issued by the FCC relating to WQSI are set forth on Schedule
3.6 hereto and hereinafter shall be referred to as the "WQSI FCC
Authorizations" (the WXTR FCC Authorizations, the WXVR FCC Authorizations and
the WQSI FCC Authorizations are collectively referred to herein as the
"Stations' FCC Authorizations"). MHI owns substantially all of the assets of
WXVR and WQSI, including the WXVR FCC Authorizations and the WQSI FCC
Authorizations.
6. Upon closing of the Liberty Stock Purchase Agreement,
Seller desires to cause Liberty-MD II, WXTR, Inc. and MHI (Liberty-MD II, WXTR,
Inc. and MHI are collectively referred to herein as the "Subsidiaries") to sell
and Buyers desire to purchase all of the assets used in the operations of the
Stations or associated with the businesses of the Stations.
7. As soon as practicable, Seller and KIRO shall negotiate a
mutually acceptable local marketing agreement (the "LMA") pursuant to which
KIRO will (i) purchase airtime on the Stations for the broadcast of programs
produced, owned or acquired by KIRO and (ii) sell advertising time related to
such programs, and the Stations will air such programs and advertising,
subject to the terms of the LMA.
8. Based upon the representations and warranties made by
each party to this Agreement, the parties have agreed to consummate the sale
of the assets relating to the Stations in accordance with the terms contained
herein.
ARTICLE I. TRANSFER OF ASSETS AND TERMS OF PAYMENT
1.1 TRANSFER OF ASSETS. Upon the terms and subject to the conditions
of this Agreement, on the Closing Date (as defined in Section 2.1 below) Seller
will cause the Subsidiaries to grant, sell,
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assign, transfer, convey or cause to be conveyed, and deliver to Buyers, and
Buyers will purchase and accept from Subsidiaries, all of their right, title and
interest in and to all of the assets and properties of the Subsidiaries,
tangible and intangible, real, personal and mixed, of every kind and description
used by the Subsidiaries in connection with the business and operations of the
Stations as a going concern (all such assets being referred to herein as the
"Assets"), but excluding the Excluded Assets described in Section 1.2 below. The
Stations' FCC Authorizations and related items described in Section 1.1(a) below
shall be assigned and transferred to BHC. All other items comprising the Assets
shall be assigned and transferred to KIRO. The Assets include, but are not
limited to, the following:
(A) LICENSES AND AUTHORIZATIONS. The Stations' FCC
Authorizations, all applications therefor, any renewals, extensions or
modifications thereof made between the date of this Agreement and the Closing
Date, and the call signs for "WXTR-FM", "WXVR(FM)" and
"WQSI(AM)."
(B) TANGIBLE PERSONAL PROPERTY. All equipment, vehicles,
furniture, fixtures, office materials and supplies, inventories, spare parts,
programs, programming material, record, tape and disc libraries and other
tangible personal property of every kind and description used in connection
with the business and operations of the Stations, and any additions,
improvements, replacements and alterations thereto made between the date of
this Agreement and the Closing Date; provided, however, that the Assets shall
not include such items of tangible personal property as are disposed of or
consumed in the ordinary course of business of the Stations or with the consent
of Buyers between the date of this Agreement
and the Closing Date.
(C) REAL PROPERTY. All land, leaseholds and other interests
of every kind and description in real property, buildings, towers and
antennae, and improvements thereon used in the
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business and operations of the Stations, including without limitation those
shown on Schedule 3.8 to this Agreement, and those acquired between the date
hereof and the Closing Date.
(D) CONTRACTS. To the extent assignable, all contracts
(other than employment agreements) relating to the business and operations of
the Stations including (i) the contracts shown on Schedule 1.1(d) to this
Agreement, (ii) contracts for the sale of broadcast time on the Stations that
provide for payment by the customer solely on a cash basis and that are to be
in effect on the Closing Date, (iii) contracts to provide airtime arising from
trade deals that are currently in effect, not in breach and which in the
aggregate do not exceed $20,000 in airtime to be provided thereunder and
contracts to provide airtime arising from trade deals that are approved by
Buyers and that are to be in effect and not in breach as of the Closing Date;
and (iv) contracts with respect to the Stations entered into between the date
of this Agreement and the Closing Date in the ordinary course of business and
not in violation of the prohibitions contained in Section 5.1 hereof ((i),
(ii), (iii)and (iv) together, the "Contracts").
(E) INTANGIBLE PROPERTY. All rights in and to the
trademarks, trade names, service marks, patents, franchises, copyrights,
including registrations and applications for registration of any of them,
jingles, logos, slogans, approvals, licenses, permits, orders, certificates,
variances, privileges, trade secrets and other similar intangible property and
interests used in the business or operations of the Stations, including without
limitation those shown on Schedule 3.9 to this Agreement and those acquired
between the date hereof and the Closing Date.
(F) FILES AND RECORDS. Originals or, if unavailable,
photocopies of all files, records, studies, data, lists, filings, general
accounting records, books of account, computer
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programs and software and logs, of every kind, relating to the business or
operations of the Stations, other than those specified in Section 1.2 below (the
"Records").
(G) MANUFACTURERS' AND VENDORS' WARRANTIES. All rights under
manufacturers' and vendors' warranties relating to items included in the Assets
as of the date hereof, and those acquired between the date hereof and the
Closing Date.
1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary in this
Agreement, the following assets relating to the business of the Stations prior
to the Closing Date shall be retained by the Subsidiaries (or as otherwise
indicated) and shall not be sold, assigned, transferred or conveyed to Buyers
(the "Excluded Assets"):
(A) CORPORATE, TAX AND ACCOUNTING RECORDS. Seller's and the
Subsidiaries' corporate records and originals of Seller's and the Subsidiaries'
tax and accounting records.
(B) CASH. All cash, cash equivalents or similar type
investments of Seller and the Subsidiaries.
(C) ACCOUNTS RECEIVABLE. All accounts receivable and trade
deals receivable relating to or arising out of the operation of the Stations
prior to the Closing Date.
(D) INSURANCE. All contracts of insurance, insurance
proceeds and insurance claims made by Seller or the Subsidiaries relating to
property or equipment repaired, replaced or restored by Seller or the
Subsidiaries prior to the Closing.
(E) EMPLOYEE BENEFIT PLANS. Any employee benefit plans of
Seller or the Subsidiaries.
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(F) CONTRACTS. Any contract for the sale of time entered
into prior to the date of this Agreement pursuant to which payment is to be
received in whole or in part in services, merchandise or other non-cash
considerations, except as agreed to by Buyers in Section 1.1(d).
1.3 LIABILITIES. The Assets shall be transferred and conveyed to
Buyers free and clear of all liabilities, obligations, claims, liens, security
interests and encumbrances, except for (i) liens for property taxes not yet
due and payable, (ii) easements and rights of way of record that are
acceptable to Buyers in their reasonable discretion, (iii) liabilities and
obligations arising after the Closing Date under the Contracts, and (iv)
certain severance obligations owed to employees of the Subsidiaries as
described in Section 10.6 (the "Assumed Liabilities"). Buyers shall assume and
pay each of the Assumed Liabilities. Seller shall pay, discharge and satisfy
or shall cause the Subsidiaries to pay, discharge and satisfy all liabilities
and obligations arising in connection with the operation of the Stations prior
to or as of the Closing Date and which are not specifically assumed by Buyers
hereunder as and when such liabilities and obligations become due; provided,
however, nothing in this Agreement shall prevent Seller from contesting any
liability in good faith or seeking a discount thereof.
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1.4 CONSIDERATION.
(a) Subject to the conditions contained in this Agreement
and in consideration of the sale of the Assets, Buyers will pay to Seller or
as Seller directs on the Closing Date the sum of Twenty-Five Million Dollars
($25,000,000.00) (the "Purchase Price") in the manner described in Section 1.5
below.
(b) Seller and Buyers will agree upon the allocation of the
Purchase Price. Seller and Buyers agree (i) that such allocation will be
arrived at by arm's length negotiation and will be consistent with the
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, (ii) to jointly complete and separately file
or cause the Subsidiaries to jointly complete and separately file Forms 8594
with their respective federal income tax returns for the tax year in which the
Closing Date occurs, and (iii) that Seller, the Subsidiaries or Buyers will
not take a position on any income, transfer or gains tax return before any
governmental agency charged with the collection of any such tax or in any
judicial proceeding that is in any manner inconsistent with the terms of such
allocation without the written consent of the other.
1.5 MANNER OF PAYMENT. The Purchase Price, as adjusted pursuant to
Section 1.6 below, shall be paid by Buyers in immediately available funds by
wire transfer on the Closing Date.
1.6 ADJUSTMENTS.
(A) CLOSING DATE AND PRIOR ISSUES. Buyers shall be entitled
to all income earned and be responsible for all expenses incurred in connection
with the operations and business of the Stations on and after the Closing Date.
The Subsidiaries shall be entitled to all income earned and be responsible for
all expenses incurred in connection with the business and operations of the
Stations
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prior to the Closing Date. Pro rata allocations of income and expense, to the
extent practicable, shall be calculated as of the close of business on the day
preceding the Closing Date.
(B) TIME FOR PAYMENT. The proration and adjustments provided
for in this Section 1.6, to the extent practicable, shall be made on the
Closing Date. As to those prorations and adjustments not capable of being
ascertained on the Closing Date, an adjustment and proration shall be made
within 90 days of the Closing Date.
(C) DISPUTE RESOLUTIONS. In the event of any disputes
between the parties as to such adjustments, the amounts not in dispute shall
nonetheless be paid at the times provided in subsection (b) above, and such
disputes shall be determined by an independent certified public accountant
mutually acceptable to the parties whose determination shall be final, and the
fees and expenses of such accountant shall be borne one-half by Seller and
one-half by Buyers.
ARTICLE II. THE CLOSING
2.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
sale and purchase of the Assets shall be held in the offices of Wilkinson,
Barker, Knauer & Quinn, 1735 New York Avenue, N.W., Suite 600, Washington,
D.C. 20006 at 10:00 a.m. on a mutually agreed upon day within fifteen (15)
days after the FCC consent to the assignment of the Stations' FCC
Authorizations shall have become final as defined in Section 7.3 of this
Agreement, or such other time and place as shall be mutually agreed upon by
the parties (the "Closing Date"). At the Closing, each party shall execute and
deliver or shall cause to be executed and delivered to the other party such
instruments of conveyance or assumption as shall in form and substance be
satisfactory to the other party and its counsel.
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2.2 DELIVERIES BY SELLER. At the Closing, Seller will deliver or
cause the Subsidiaries to deliver to Buyers the following, each of which shall
be in form and substance reasonably satisfactory to Buyers:
(a) Bills of Sale and Assignments in form substantially
similar to the forms attached hereto as Exhibit 2.2(a);
(b) Warranty Deeds in form to be mutually agreed upon by
the parties;
(c) Consents to assignments from third parties relating
to the Contracts and real property leases;
(d) Receipt in form substantially similar to the form
attached hereto as Exhibit 2.2(d);
(e) Certificates of the Secretary of each of Seller and
the Subsidiaries in form substantially similar to the forms attached hereto as
Exhibit 2.2(e);
(f) Bring Down Certificate of Seller in form
substantially similar to the form attached hereto as Exhibit 2.2(f);
(g) Evidence satisfactory to Buyers that no financing
statements are outstanding relating to the Assets in such jurisdictions as are
reasonably identified by Buyers ;
(h) Certificates of Seller's good standing in the State
of Delaware and of each of the Subsidiaries' good standing in such jurisdictions
as are reasonably identified by Buyers ; and
(i) Such other instruments of conveyance and transfer,
in form and substance reasonably satisfactory to Buyers and their counsel, as
shall be reasonably necessary or appropriate to comply with the purpose and
intent of this Agreement.
2.3 DELIVERIES BY BUYERS. At the Closing, Buyers will deliver to
Seller the following, each of which shall be in form and substance reasonably
satisfactory to Seller:
(a) Purchase Price in immediately available funds,
adjusted pursuant to Section 1.6;
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(b) Assumption Agreement in form substantially similar to
the form attached hereto as Exhibit 2.3(b);
(c) Certificates of the Secretary of each of Buyers in
form substantially similar to the forms attached hereto as Exhibit 2.3(c);
(d) Bring Down Certificate of Buyers in form
substantially similar to the form attached hereto as Exhibit 2.3(d);
(e) Certificates of KIRO's good standing in such
jurisdictions as are reasonably identified by Seller and BHC's good standing in
the State of Utah; and
(f) Such other instruments of conveyance and transfer,
in form and substance reasonably satisfactory to Seller and its counsel, as
shall be reasonably necessary or appropriate to comply with the purpose and
intent of this Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyers as follows:
3.1 ORGANIZATION; QUALIFICATIONS. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Each of the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland . The
Subsidiaries have the full corporate power and authority to own and operate
the Assets and to carry on the business of the Stations as such operations are
now being conducted.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has the full power,
authority and legal right to execute and deliver this Agreement and to
consummate, and to cause the Subsidiaries to consummate, the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Seller and will be
duly and validly authorized by all necessary corporate action on the part of the
Subsidiaries upon consummation of the Liberty Stock
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Purchase Agreement. This Agreement has been duly and validly executed and
delivered by Seller and constitutes a legal, valid and binding obligation of
Seller enforceable against Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency
or similar law affecting the rights of creditors generally, and equitable
principles.
3.3 FINANCIAL STATEMENTS. Seller has furnished to Buyers the
Stations' income statements for the fiscal years ending December 31, 1993,
December 31, 1994 and December 31, 1995, along with the related balance sheets
for these same periods (the "Financial Schedules"). December 31, 1995 is the
"Balance Sheet Date." The Financial Schedules have been prepared from and are
in accordance with the books and records regularly maintained by Subsidiaries
with respect to the Stations. No material adjustments to the Financial
Schedules are required for a fair and accurate presentation of the results of
the Stations' operations.
3.4 BUSINESS SINCE THE BALANCE SHEET DATE. Since the Balance Sheet
Date, the business of the Stations has been conducted in the ordinary course
of business and in substantially the same manner as it was before the Balance
Sheet Date. Since the Balance Sheet Date, there have been no material adverse
changes in the business, condition (financial or otherwise) or results of the
Stations' operations.
3.5 NO DEFAULTS. The execution, delivery and performance of this
Agreement by Seller will not (a) conflict with any provision of the Articles of
Incorporation or bylaws of Seller or the Subsidiaries (b) result in a default
(or give rise to any right of termination, cancellation or acceleration) under
or conflict with any of the terms, conditions or provisions, other than
assignability, of any material contract, note, bond, mortgage or other material
instrument or obligation to which Seller or any of the Subsidiaries is a party,
(c) in any material respect violate
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any law, statute, rule, regulation, order, injunction or decree of any federal,
state or local governmental authority or agency applicable to Seller or the
Subsidiaries, or (d) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever on any of the Assets.
3.6 LICENSES. As of the date of this Agreement, WXTR, Inc. is the
holder of the WXTR FCC Authorizations and MHI is the holder of the WXVR FCC
Authorizations and the WQSI FCC Authorizations. Seller has delivered to Buyers
true and complete copies of the Stations' FCC Authorizations. All of the
Stations' FCC Authorizations are set forth on Schedule 3.6 and, except as
disclosed on Schedule 3.6, the Stations' FCC Authorizations are in full force
and effect and are unimpaired by any act or omission of Seller or the
Subsidiaries, or their officers, directors, employees or agents. There is not
now pending or, to the best of Seller's knowledge, threatened any action by or
before the FCC to revoke, cancel, rescind, modify or refuse to renew any of
the Stations' FCC Authorizations, and there is not now pending or, to the best
of Seller's knowledge, threatened, issued or outstanding by or before the FCC,
any investigation, Order to Show Cause, Notice of Violation, Notice of
Apparent Liability or Notice of Forfeiture or complaint against Seller or the
Subsidiaries or any of their affiliates with respect to the Stations' FCC
Authorizations. In the event Seller becomes aware of any such action, or the
filing or issuance of any such order, notice or complaint against Seller or
any of the Subsidiaries, or Seller's learning of the threat thereof, Seller
shall promptly notify Buyer of the same in writing and shall take or cause
others to take all reasonable measures, at its expense, to contest in good faith
or seek removal or rescission of such action, order, notice or complaint. To the
best of Seller's knowledge, the Stations are operating in compliance with the
Stations' FCC Authorizations, the Communications Act of 1934, as amended, and
the current rules, regulations and
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policies of the FCC. To the best of Seller's knowledge, all material reports,
forms and statements required to be filed by Seller or the Subsidiaries with the
FCC with respect to the Stations' FCC Authorizations since the grant of the last
renewal of the Stations' FCC Authorizations have been filed and are complete and
accurate. Seller has no reason to believe that the Stations' FCC Authorizations
will not be renewed in the ordinary course.
3.7 CONTRACTS AND ARRANGEMENTS. Except (i) for the Contracts set
forth on Schedule 1.1(d), (ii) for Contracts for the purchase or sale of goods
or services entered into in the ordinary course of business of the Stations
and (iii) for Contracts which are terminable on ninety (90) or fewer days'
notice without penalty, neither Seller nor any of the Subsidiaries is a party
to any contract which (i) is over six months in length of obligation by Seller
or the Subsidiaries or (ii) involves an obligation of more than $15,000. To
the best of Seller's knowledge, all of the Contracts are valid, binding and
enforceable by Seller or the Subsidiaries in accordance with their respective
terms. To the best of Seller's knowledge, there is no existing default, event
of default or other event under such Contracts which, with or without notice
or lapse of time or both, would constitute a default or any event of default
under any such Contracts, except such defaults, events of default and other
events which would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of the
Stations. Seller has provided Buyers with complete copies of all of the
Contracts. Except as set forth on Schedule 1.1(d), Seller or the Subsidiaries
have full legal power and authority to assign their rights under the Contracts
to Buyers in accordance with this Agreement, and such assignment will not
materially affect the validity, enforceability and continuity of the Contracts.
3.8 TITLE.
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(A) Schedule 3.8 to this Agreement sets forth a correct and
complete list of all land, leaseholds and other interests of every kind and
description in real property used in the business and operations of the
Stations. The Subsidiaries own and have good and valid marketable fee simple
title to the owned real estate as described in Schedule 3.8, and on the
Closing Date such real estate will be free and clear of all security
interests, mortgages, pledges, conditional sales agreements, charges, liens
and encumbrances, except for easements and rights of way of record that are
acceptable to Buyers in their reasonable discretion and liens for taxes not
yet due and payable. Those encumbrances described above do not and will not
prevent the proper transmission of the broadcast signal of any transmitting
and antennae facilities located thereon.
(B) The leases of real property listed in Schedule 3.8
constitute valid, binding and enforceable obligations of the Subsidiaries and,
to the best of Sellers' knowledge, of all other persons purported to be
parties thereto and are in full force and effect. To the best of Seller's
knowledge, there is no existing default, event of default or other event under
such leases which, with or without notice or lapse of time or both, would
constitute a default or any event of default under such leases. Seller has
provided Buyers with complete copies of all such leases. Except as set forth
on Schedule 3.8, Seller or the Subsidiaries have full legal power and
authority to assign their rights under the leases to Buyers in accordance with
this Agreement, and such assignment will not affect the validity, enforceability
and continuity of the leases.
(C) The Subsidiaries own and have good and valid title to
the tangible personal property used in the business and operations of the
Stations, and on the Closing Date such personal property will be free and
clear of all security interests, mortgages, pledges, conditional sales
agreements, charges, liens and encumbrances.
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3.9 INTANGIBLE PERSONAL PROPERTY. Schedule 3.9 to this Agreement sets
forth a correct and complete list of all trademarks, trade names, service
marks, patents, franchises and copyrights, including registrations and
applications for registration of any of them, used in the business or
operations of the Stations, other than the Stations' FCC Authorizations and
the call signs for the Stations and other than such intellectual property the
absence of which is not reasonably likely to have a material adverse effect on
the business, operations or financial conditions of the Stations. Seller has
not received and is not aware of any notice with respect to any alleged
infringement or unlawful or improper use of any such property in connection
with the operation of the Stations, other than claims which are not reasonably
likely to have a material adverse effect on the business, operations or
financial condition of the Stations. Seller has provided Buyers with complete
copies of the registrations relating to all intellectual property set forth on
Schedule 3.9.
3.10 LITIGATION AND COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 3.10: (i) To the
best of Seller's knowledge, neither Seller nor the Subsidiaries, with respect to
the Stations, have been operating under or subject to, or in default with
respect to, any order, writ, injunction or decree of any court or federal,
state, municipal or other governmental department, commission, board, agency or
instrumentality, foreign or domestic; (ii) neither Seller nor, to the best of
its knowledge, any of its officers or agents, has received of become aware of
any inquiry, written or oral, from any federal, state or local agency concerning
any of the business or operations of the Stations during the 12-month period
prior to the date of this Agreement which could be expected to have a material
adverse effect on the operations of the Stations; and (iii) there is no
litigation pending by or against or, to the best
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of Seller's knowledge, threatened against Seller or the Subsidiaries
which materially affects any of the Assets or Seller's ability to perform in
accordance with the terms of this Agreement.
(b) The Subsidiaries have all licenses, franchises, permits
and other governmental authorizations that are legally required to enable them
to operate the Stations in all material respects as conducted on the date
hereof. Between the date hereof and the Closing, Seller will use all
reasonable efforts to cause the Subsidiaries to maintain all such licenses,
franchises, permits and other governmental authorizations as are in effect as
of the date hereof. The Subsidiaries are in compliance in all material
respects with all applicable federal, state and local laws, rules and
regulations, including without limitation those imposing taxes.
3.11 TAXES. Seller, and to the best of Seller's knowledge, LBI and
the Subsidiaries have filed, or caused to be filed, all federal, state and
local tax returns required to be filed with respect to the Stations, except
where the failure to file would not have a materially adverse effect on the
business of the Stations. Seller, and to the best of Seller's knowledge, LBI
or the Subsidiaries have paid, or made provisions for the payment of, all
taxes due for periods covered by such returns.
3.12 ENVIRONMENT.
(a) To the best of Seller's knowledge, Seller and the
Subsidiaries have complied in all material respects with all Environmental,
Health and Safety Laws (as defined below) relating to the real property
described in Schedule 3.8 hereto and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced against Seller or the Subsidiaries alleging any failure so to
comply. Without limiting the generality of the preceding sentence, Seller and
the Subsidiaries have obtained and have been in material compliance with all
of the terms and conditions of all permits, licenses and other authorizations
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which are required under, and have complied in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables which are contained in all
Environmental, Health and Safety Laws applicable to the real property
described in Schedule 3.8.
(b) To the best of Seller's knowledge, Seller and the
Subsidiaries have no liability (whether absolute or contingent) (and Seller
and the Subsidiaries have not handled or disposed of any substance or
condition, or owned or operated any property or facility pertaining to the
real property described in Schedule 3.8 hereto in any manner that could form
the basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against Seller or the
Subsidiaries giving rise to any liability) for damage to the real property
described in Schedule 3.8, for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health and Safety Law applicable to the real property described in Schedule
3.8.
(c) To the best of Seller's knowledge, all properties and
equipment used in the business of the Stations at or on the real property
described in Schedule 3.8 hereto have been free of asbestos, PCBs, methylene
chloride, trichloroethylene, 1,2,-transdichloroethylene, dioxins,
dibenzofurons and Extremely Hazardous Substances (as defined in Sec. 302 of
the Emergency and Planning and Community Right-to-Know Act of 1986, as
amended).
(d) "Environmental, Health and Safety Laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other laws
(including rules, regulations, codes, plans, injunctions,
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judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local and foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface, water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
(e) If Seller learns between the date of this Agreement and
the Closing Date that Seller is in breach of the representation and warranty
set forth in this Section 3.12, Seller shall begin remedial action promptly
and use reasonable efforts to complete such remedial action before the Closing
Date. If such remedial action is likely to cost Seller in excess of $100,000,
Seller may elect not to take such remedial action. However, in such event
Buyers may require Seller to proceed to Closing and Buyers shall receive a
credit of $100,000 towards the Purchase Price. If Buyers do not require Seller
to close, this Agreement shall be terminated and Seller shall not have any
liability to Buyers as a result of such termination.
3.13 COMPLIANCE WITH FCC REGULATIONS. To the best of Seller's
knowledge, the operation of the Stations and all of the Assets are in
compliance in all material respects with (i) all applicable engineering
standards required to be met under applicable FCC rules and (ii) all other
applicable rules, regulations, requirements and policies of the FCC,
including, but not limited to, ANSI Radiation Standards to the extent required
to be met under applicable FCC rules and regulations; and there are no
existing claims known to Seller to the contrary.
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3.14 BROKERS. Seller has not engaged any brokers involved in the
transactions contemplated by this Agreement. There is no broker or finder or
other person who would have any valid claim against Buyers for a commission or
brokerage fee in connection with this Agreement or the transactions
contemplated hereby as a result of any agreement, understanding or action by
Seller.
3.15 CONSENTS. Except for FCC consent to the assignment of the
Stations' FCC Authorizations and the filing of premerger notification and
report forms ("HSR Filing") with the Federal Trade Commission (the "FTC") and
the Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1967, as amended, no third party or governmental
consents or filings are necessary or required for Seller's performance under
this Agreement.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers represent and warrant to Seller as follows:
4.1 ORGANIZATION. KIRO is a corporation duly organized and validly
existing under the laws of the State of Washington and is in good standing
under the laws of the States of Washington and Maryland. BHC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Utah.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyers have the full power,
authority and legal right to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Buyers. This Agreement has been duly and validly executed and
delivered by Buyers and constitutes a legal, valid and binding obligation of
Buyers enforceable against Buyers in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or similar
law affecting the rights of creditors generally, and equitable principles.
4.3 NO DEFAULTS. The execution, delivery and performance of this
Agreement by Buyers will not (a) conflict with any provision of the Articles
of Incorporation or bylaws of Buyers, (b) result in a default (or give rise to
any right of termination, cancellation or acceleration) under or conflict with
any of the terms, conditions or provisions, other than assignability, of any
material contract, note, bond, mortgage or other material instrument or
obligation to which either of Buyers is a party, or (c) in any material
respect violate any law, statute, rule, regulation, order, injunction or decree
of any federal, state or local governmental authority or agency applicable to
Buyers.
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4.4 BROKERS. Except for Star Media, Buyers have not engaged any
brokers involved in the transactions contemplated by this Agreement. KIRO
shall pay all fees due to Star Media as a result of these transactions. There
is no other broker or finder or other person who would have any valid claim
against Seller for a commission or brokerage fee in connection with this
Agreement or the transactions contemplated hereby as a result of any
agreement, understanding or action by Buyers.
4.5 QUALIFICATIONS AS A BROADCAST LICENSEE. Buyers know of no fact
that would, under existing law and the existing rules, regulations and
practices of the FCC, disqualify KIRO as the owner and operator of the
Stations' assets, or BHC as an assignee of the Stations' FCC Authorizations.
Buyers will take no action which they know or have reason to know would cause
such disqualification.
4.6 CONSENTS. Except for FCC consent to the assignment of the
Stations' FCC Authorizations and the HSR Filing with the FTC and DOJ, no third
party or governmental consents or filings are necessary or required for
Buyers' performance under this Agreement.
ARTICLE V. COVENANTS OF SELLER PENDING THE CLOSING DATE
Seller covenants and agrees that from the date hereof to and including
the Closing Date:
5.1 MAINTENANCE OF BUSINESS. Seller and the Subsidiaries shall, with
respect to the Stations, continue to carry on their business in substantially
the same manner as heretofore. Seller shall cause the Subsidiaries to continue
to operate the Stations in accordance with the terms of the Stations' FCC
Authorizations and in compliance with all applicable laws and FCC rules and
regulations. Seller shall deliver to Buyers, promptly after filing by any of the
Subsidiaries, copies of any reports, applications or communications with the FCC
related to the Stations which are filed between the date of this Agreement and
the Closing Date.
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Seller shall cause the Subsidiaries, at the Subsidiaries' expense, to
maintain all machinery and equipment used in the business of the Stations in a
normal state of repair and efficiency. Seller will fully perform and will
cause the Subsidiaries to fully perform their obligations under all Contracts
to be assigned to and assumed by Buyers.
Seller will maintain and will cause the Subsidiaries to maintain in
full force and effect through the Closing Date adequate property damage,
liability and other insurance with respect to the Assets.
Prior to the Closing Date, Seller will not and will assure that the
Subsidiaries will not, without the prior written consent of Buyers:
5.1.1 Sell, lease or transfer or agree to sell, lease or
transfer any of the Assets which have a book value in the aggregate in excess
of $10,000, without replacement thereof with an asset of substantially
equivalent kind, condition and value;
5.1.2 Adopt or modify any pension, profit-sharing or other
compensation plan (except as required by law or which would not affect the
level of benefits) or enter into any contract of employment or collective
bargaining agreement, or permit any increase or changes in the compensation
(including bonus) of any of the Stations' employees, except for regularly
scheduled increases in accordance with historical practices; or
5.1.3 Enter into, renew, renegotiate, modify, amend or
terminate any contract or commitment with respect to the Stations involving
annual consideration of more than $10,000, except for time sales contracts in
the ordinary course of business.
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5.2 GOOD WILL. Seller shall use and shall cause the Subsidiaries to
use reasonable best efforts to preserve the goodwill of the Stations' suppliers,
customers and others having business relations with it.
5.3 ACCESS TO THE ASSETS. At the reasonable request of and upon
reasonable notice from Buyers, Seller shall from time to time cause to be
given to the officers, employees, accountants, counsel and accredited
representatives of Buyers (i) full access during normal business hours to all
of the Assets and (ii) all such other information concerning the Assets as
Buyers may reasonably request.
5.4 REPRESENTATIONS AND WARRANTIES. Seller shall render accurate at
and as of the Closing Date the representations and warranties made by it in
this Agreement. Seller shall give detailed written notice to Buyers promptly
upon the occurrence of or becoming aware of the impending or threatened
occurrence of any event which would cause or constitute a breach, or would
have caused a breach had such event occurred or been known to Seller prior to
the date hereof, of any of Seller's representations or warranties contained in
this Agreement or in any Schedule hereto.
5.5 CORPORATE ACTION. Subject to the provisions of this Agreement,
Seller will take or cause to be taken all necessary corporate and other action
required of it and the Subsidiaries to carry out the transactions contemplated
by this Agreement.
5.6 APPLICATION FOR COMMISSION CONSENT. As promptly as practicable
after the date of this Agreement, and in no event later than fifteen (15) days
after the execution of this Agreement, Seller and/or the Subsidiaries will
join with Buyers to file an application or applications with the FCC
requesting its written consent to the assignment of the Stations' FCC
Authorizations (and any extensions or renewals thereof) to BHC. Seller will
diligently take, or cooperate in the taking of,
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all steps that are necessary, proper or desirable to expedite the preparation of
such application(s) and the prosecution of it or them to a favorable conclusion.
5.7 CONSENTS. Seller will use its reasonable best efforts to obtain
or cause to be obtained prior to the Closing Date consents to the assignment
to or assumption by Buyers of all Contracts which require the consent of any
third party by reason of the transactions provided for in this Agreement;
provided, however, that neither Seller nor the Subsidiaries shall be required
to make any payments or to incur any obligations to third parties in
connection with obtaining of any such consent.
5.8 CONFIDENTIAL INFORMATION. If for any reason the transactions
contemplated in this Agreement are not consummated, Seller shall not disclose
to third parties any information designated as confidential and received from
Buyers or their agents in the course of investigating, negotiating and
completing the transactions contemplated by this Agreement.
Nothing shall be deemed to be confidential information which:
5.8.1 is known to Seller at the time of its disclosure to it;
5.8.2 becomes publicly known or available other than through
disclosure by Seller;
5.8.3 is rightfully received by Seller from a third party; or
5.8.4 is independently developed by Seller.
5.9 CONSUMMATION OF AGREEMENT. Subject to the provisions of Section
10.3 of this Agreement, Seller shall use its reasonable best efforts to
fulfill and perform all conditions and obligations on its part to be fulfilled
and performed under this Agreement and to cause the transactions contemplated
by this Agreement to be fully carried out.
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5.10 NOTICE OF PROCEEDINGS. As promptly as is practicable, Seller
will notify Buyers in writing upon becoming aware of any order or decree or
any complaint praying for an order or decree restraining or enjoining the
consummation of this Agreement or the transactions contemplated hereunder, or
upon receiving any notice from any governmental department, court, agency or
commission of its intention to institute an investigation into, or institute a
suit or proceeding to restrain or enjoin the consummation of this Agreement or
such transactions, or to nullify or render ineffective this Agreement or such
transactions if consummated.
5.11 HSR FILING. As promptly as practicable after the date of this
Agreement, and in no even later than twenty (20) days after the execution of
this Agreement, Seller will file an HSR Filing with the FTC and the DOJ.
Seller will diligently take, or cooperate in the taking of, all steps that are
necessary, proper or desirable to expedite the preparation of such HSR Filing
and its prosecution to a favorable conclusion.
ARTICLE VI. COVENANTS OF BUYERS PENDING THE CLOSING DATE
Buyers covenant and agree that from the date hereof to and including
the Closing Date:
6.1 REPRESENTATIONS AND WARRANTIES. Buyers shall render accurate at
and as of the Closing Date the representations and warranties made by them in
this Agreement. Buyers shall give detailed written notice to Seller promptly
upon the occurrence of or becoming aware of the impending or threatened
occurrence of any event which would cause or constitute a breach, or would have
caused a breach had such event occurred or been known to Buyers prior to the
date hereof, of any of the representations and warranties of Buyers contained in
this Agreement or in any Schedule hereto.
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6.2 CORPORATE ACTION. Subject to the provisions of this Agreement,
Buyers will take all necessary corporate and other action required of them to
carry out the transactions contemplated by this Agreement.
6.3 APPLICATION FOR COMMISSION CONSENT. As promptly as practicable
after the date of this Agreement, and in no event later than fifteen (15) days
after the execution of this Agreement, Buyers will join with Seller to file an
application or applications with the FCC requesting its written consent to the
assignment of the Stations' FCC Authorizations (and any extensions or renewals
thereof) to BHC. Buyers will diligently take, or cooperate in the taking of,
all steps that are necessary, proper or desirable to expedite the preparation
of such application(s) and the prosecution of it or them to a favorable
conclusion.
6.4 CONFIDENTIAL INFORMATION. If for any reason the transactions
contemplated in this Agreement are not consummated, Buyers shall not disclose
to third parties any information designated as confidential and received from
Seller or its agents in the course of investigating, negotiating and
completing the transactions contemplated by this Agreement. Nothing shall be
deemed to be confidential information which:
6.4.1 is known to Buyers at the time of its disclosure to it;
6.4.2 becomes publicly known or available other than through
disclosure by Buyers;
6.4.3 is rightfully received by Buyers from a third party; or
6.4.4 is independently developed by Buyers.
6.5 CONSUMMATION OF AGREEMENT. Subject to the provisions of Section
10.3 of this Agreement, Buyers shall use their reasonable best efforts to
fulfill and perform all conditions and
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obligations on their part to be fulfilled and performed under this Agreement and
to cause the transactions contemplated by this Agreement to be fully carried
out.
6.6 NOTICE OF PROCEEDINGS. As promptly as is practicable, Buyers will
notify Seller in writing upon becoming aware of any order or decree or any
complaint praying for an order or decree restraining or enjoining the
consummation of this Agreement or the transactions contemplated hereunder, or
upon receiving any notice from any governmental department, court, agency or
commission of its intention to institute an investigation into, or institute a
suit or proceeding to restrain or enjoin the consummation of this Agreement or
such transactions, or to nullify or render ineffective this Agreement or such
transactions if consummated.
6.7 HSR FILING. As promptly as practicable after the date of this
Agreement, and in no even later than twenty (20) days after the execution of
this Agreement, Buyers will file an HSR Filing with the FTC and the DOJ.
Buyers will diligently take, or cooperate in the taking of, all steps that are
necessary, proper or desirable to expedite the preparation of such HSR Filing
and its prosecution to a favorable conclusion; provided, however, that Buyers
shall not be required to disclose financial information regarding the
Corporation of the President of the Church of Jesus Christ of Latter-Day
Saints in the preparation and prosecution of the HSR Filing.
ARTICLE VII. CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or at the
Closing Date:
7.1 REPRESENTATIONS, WARRANTIES, COVENANTS, RELATED AGREEMENT.
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7.1.1 Each of the representations and warranties of Buyers
contained in this Agreement and in any statement, certificate, schedule or other
document delivered by Buyers pursuant hereto or in connection with the
transactions contemplated hereby, shall have been true and accurate as of the
date when made and shall be deemed to be made again on and as of the Closing
Date and shall then be true and accurate;
7.1.2 Buyers shall have performed and complied with each and
every covenant and agreement required by this Agreement to be performed or
complied with by them prior to or at the Closing Date, other than the delivery
by Buyers of the Purchase Price; and
7.1.3 Buyers shall have delivered to Seller a certificate of
officers of Buyers, dated the Closing Date, certifying to the fulfillment of
the conditions set forth in Sections 7.1.1 and 7.1.2 above.
7.2 PROCEEDINGS.
(a) No action or proceeding shall have been instituted
before any court or governmental body to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of this Agreement which,
in the reasonable opinion of Seller, may reasonably be expected to result in a
preliminary or permanent injunction against such consummation or an award of
such substantial damages; and
(b) None of the parties to this Agreement shall have
received written notice from any governmental body of (i) its intention to
institute any action or proceeding to restrain or enjoin or nullify this
Agreement or the transactions contemplated hereby, or to commence any
investigation (other than a routine letter of inquiry, including a routine
Civil Investigative Demand) into the consummation of this Agreement or (ii)
the actual commencement of such an investigation.
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In the event such a notice of intention is received or such an
investigation is commenced, this Agreement may not be abandoned by Seller for
a period of ninety (90) days from the date of such notice of intention or
notice of commencement, but Closing shall be delayed during such period. This
Agreement may be abandoned after this ninety (90)-day period if, in the
reasonable opinion of Seller, there is a likely probability that an
investigation will result in an action or proceeding of the type described in
clause (a) of this Section 7.2.
7.3 FCC CONSENT. The FCC shall have given its written consent to the
assignment of the Stations' FCC Authorizations to BHC, without any conditions
materially adverse to Seller, and such consent shall have become a Final
Order. For purposes of this Agreement, FCC consents shall be deemed to have
become a Final Order after they are granted and published and when the time
for administrative or judicial review has expired and when the time for the
filing of any protest, request for stay, petition for rehearing or appeal of
such order has expired and no protest, request for stay, petition for
rehearing or appeal of such order has expired and no protest, request for
stay, petition for rehearing or appeal is pending. The parties may mutually
agree to waive the requirement that said consent shall have become a Final
Order.
7.4 HSR APPROVAL. The waiting period relating to the HSR Filing shall
have expired or shall have been terminated.
7.5 LIBERTY STOCK PURCHASE. Seller shall have acquired all of
the outstanding shares of stock of LBI pursuant to the consummation of the
transactions contemplated by the Liberty Stock Purchase Agreement.
ARTICLE VIII. CONDITIONS TO THE OBLIGATIONS OF BUYERS
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The obligations of Buyers under this Agreement are, at their option,
subject to the fulfillment of the following conditions prior to or at the
Closing Date.
8.1 REPRESENTATIONS, WARRANTIES, COVENANTS, RELATED AGREEMENT.
8.1.1 Each of the representations and warranties of Seller
contained in this Agreement and of Seller and the Subsidiaries in any statement,
deed, certificate, schedule or other document delivered pursuant to this
Agreement or in connection with the transactions contemplated hereby, shall have
been true and accurate as of the date when made and shall be deemed to be made
again on and as of the Closing Date and shall then be true and accurate;
8.1.2 Seller shall have performed and complied with each and
every covenant and agreement required by this Agreement to be performed or
complied with by it prior to or at the Closing Date, other than the delivery
to Buyers of the instruments conveying the Assets to Buyers; and
8.1.3 Seller shall have delivered to Buyers a certificate of
an officer of Seller, dated the Closing Date, certifying to the fulfillment of
the conditions set forth in Sections 8.1.1 and 8.1.2 above.
8.2 PROCEEDINGS.
(a) No action or proceeding shall have been instituted
before any court or governmental body to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of this Agreement which,
in the reasonable opinion of Buyers, may reasonably be expected to result in a
preliminary or permanent injunction against such consummation or an award of
such substantial damages; and
(b) Neither of the parties to this Agreement shall have
received written notice from any governmental body of (i) its intention to
institute any action or proceeding to restrain or enjoin
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or nullify this Agreement or the transactions contemplated hereby, or to
commence any investigation (other than a routine letter of inquiry, including a
routine Civil Investigative Demand) into the consummation of this Agreement, or
(ii) the actual commencement of such an investigation.
In the event such a notice of intention is received or such an
investigation is commenced, this Agreement may not be abandoned by Buyers for
a period of ninety (90) days from the date of such notice of intention or
notice of commencement, but the Closing shall be delayed during such period.
This Agreement may be abandoned after the ninety (90)-day period if, in the
reasonable opinion of Buyers, there is a likely probability that an
investigation will result in an action or proceeding of the type described in
clause (a) of this Section 8.2.
8.3 FCC CONSENT. The FCC shall have given its written consent to the
assignment of the Stations' FCC Authorizations to BHC, without any conditions
materially adverse to Buyers, and such consents shall have become a Final
Order as defined in Section 7.3 above.
8.4 HSR APPROVAL. The waiting period relating to the HSR Filing shall
have expired or shall have been terminated.
8.5 SELLER'S LIBERTY STOCK PURCHASE. Seller shall have acquired all of
the outstanding shares of stock of LBI pursuant to the consummation of the
transactions contemplated by the Liberty Stock Purchase Agreement.
8.6 DAMAGE TO THE ASSETS. The Stations shall not have on the Closing
Date, or any time between the date of this Agreement and the Closing Date,
suspended broadcasting at authorized power by reason of any cause or event. In
such event, Buyers shall have the right to postpone the Closing Date until all
of the Stations are broadcasting at authorized power. Seller shall use all
reasonable efforts to effect the resumption of such broadcasting. In any
event, if any of the Stations has
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suspended broadcasting and does not resume broadcasting at authorized power
within 168 hours, Buyers at any time thereafter shall have the right, in its
complete discretion, to terminate this Agreement, as its sole remedy, upon
written notice to Seller. For purposes of this Section 8.6, suspending
broadcasting at authorized power shall mean failure to broadcast regularly with
the presently authorized power in accordance with established past practice and
schedules, except for ordinary maintenance and other temporary suspension.
8.7 THIRD PARTY CONSENTS. Seller shall have obtained any required
consents to assignments from third parties relating to the real property leases.
8.8 CONDITION OF TANGIBLE ASSETS. Buyers shall determine in their
reasonable judgment that the tangible assets included in the Assets are in good
operating condition and repair, ordinary wear and tear accepted.
8.9 TITLE INSURANCE POLICY. Buyers shall obtain commitments from
reputable title insurers binding such insurers to issue extended coverage ALTA
title insurance policies insuring fee simple title in the owned real estate in
KIRO. Such policies shall be in the amounts allocated to the owned real estate
pursuant to Section 1.4(b) of this Agreement. Such policies shall contain as
special exceptions only those exceptions to title contemplated by this
Agreement and shall be supplemented by such endorsements as Buyers may
reasonably require, including an endorsement insuring compliance of the owned
real estate with all applicable zoning ordinances.
8.10 COMPLIANCE WITH USE PERMITS. Buyers shall determine in their
reasonable judgment that the real property comprising part of the Assets is
being used in conformance with all applicable use permits and other government
regulations relating to such real property.
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8.11 EMPLOYEES. Neither Seller nor any of the Subsidiaries is a party
to any collective bargaining agreement or any other labor agreement covering
or relating to any of the employees of the Stations, and neither Seller nor
any of the Subsidiaries has recognized or has received a demand for
recognition of any collective bargaining representative.
ARTICLE IX. INDEMNIFICATION
9.1 SURVIVAL; LIMITATIONS.
(a) The several representations, warranties, covenants and
agreements of Seller and Buyers contained in or made pursuant to this
Agreement shall expire with, and be terminated by, the Closing; provided,
however, that those contained in Sections 3.2, 3.5, 3.14, 4.2, 4.3, 4.4, 5.8,
6.4 and 10.12 shall survive the Closing Date without limitation as to time.
Notwithstanding anything to the contrary herein, (i) Seller agrees that it
shall indemnify and hold Buyers and their successors and assigns harmless from
and against any and all damages, claims, losses, expenses, costs, obligations
and liabilities, including without limitation liabilities for reasonable
attorneys' fees and expenses, suffered directly or indirectly by Buyers by
reason of, or arising out of any litigation, proceeding or claim by any third
party relating to the business of the Stations prior to or on the Closing Date
and (ii) Buyers agree that they shall indemnify and hold Seller and its
successors and assigns harmless from and against any and all damages, claims,
losses, expenses, costs, obligations and liabilities, including without
limitation liabilities for reasonable attorneys' fees and expenses, suffered
directly or indirectly by Seller by reason of, or arising out of any litigation,
proceeding or claim by any third party relating to the business of the Stations
after the Closing Date.
ARTICLE X. MISCELLANEOUS PROVISIONS
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10.1 RISK OF LOSS. The risk of any loss, damage or destruction to any
of the Assets to be transferred to Buyers hereunder from fire or other force
majeure shall be borne by Seller at all times prior to the Closing Date
hereunder. Upon the occurrence of any loss or damage to any of the Assets to
be transferred hereunder as a result of fire or other force majeure prior to
the Closing Date, Seller shall notify Buyers of the same in writing
immediately stating with particularity the extent of the loss or damage
incurred, the cause thereof, if known, and the extent to which restoration,
replacement and repair of the Assets lost or destroyed will be reimbursed
under any insurance policy with respect thereto. In the event the loss exceeds
$50,000 and the Assets cannot be substantially repaired or restored within 15
days after such loss, Buyers shall have the option to:
(i) Terminate this Agreement;
(ii) Postpone the Closing until such time as the Assets
have been completely repaired, replaced or restored;
or
(iii) Elect to consummate the Closing and accept the
Assets in their "then" condition, in which event
Seller shall assign to Buyers all rights under any
insurance claim covering the loss and pay over to
Buyers any proceeds under any such insurance policy
received by Seller with respect thereto (and Seller
shall otherwise not have any responsibility to
Buyers with respect to the lost or destroyed
Assets).
10.2 ENVIRONMENTAL REPORTS. Buyers may, at their election and cost,
conduct audits of the real property used in or relating to the operation of
the Stations. If the audits indicate that any representation or warranty made
by Seller in Section 3.12 is untrue, Buyers shall disclose the results of such
audits to Seller and Seller shall be required to take remedial actions only to
the extent
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required under Section 3.12. Seller and Buyers agree that the
results of any audits carried out pursuant to this Section 10.2 shall not be
disclosed to any third parties, unless such disclosure is required to be made
by law.
10.3 ABANDONMENT OF AGREEMENT. This Agreement may be terminated by
Seller or Buyers at any time prior to the Closing Date by the mutual consent
of both parties hereto or upon the occurrence of one of the following events:
10.3.1 by Seller if any of the conditions provided in
Article VII hereof have not been met by the time required and have not been
waived; or
10.3.2 by Buyers if any of the conditions provided in
Article VIII hereof have not been met by the time required and have not been
waived; or
10.3.3 by any non-defaulting party hereto if the Closing of
the transactions contemplated by this Agreement have not been fully completed
by April 30, 1997.
No termination pursuant to this Section 10.3 shall relieve
any party of liability it would otherwise have for breach of this Agreement.
10.4 LIABILITIES UPON TERMINATION. In the event this Agreement is
terminated pursuant to Section 10.3 above, no party hereto shall have any
liability to any other for costs, expenses, damages, loss of anticipated
profits or otherwise, unless the termination occurs because of any
misrepresentation or breach of warranty by a party hereto or the failure of
performance of, or compliance with, any covenant or agreement contained in
this Agreement.
10.5 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses. Buyers, on the one hand, and Seller, on the other hand, will share
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equally the costs and expenses (other than taxes), if any, associated with the
transfer of the Assets, including any FCC filing or grant fees and any filing
fees related to the HSR Filing. Seller will pay all taxes associated with the
transfer of the personal property comprising part of the Assets as well as all
transfer taxes or fees associated with the transfer of real property
comprising part of the Assets. Buyers shall bear the cost of any environmental
audit of the Assets, the cost of title insurance for the real property
included in the Assets and the cost of any engineering assessment of the
Assets.
10.6 EMPLOYEES AND EMPLOYEE BENEFITS. Buyers are under no obligation
to hire any employees of the Stations on the Closing Date. The parties agree,
however, that KIRO shall have the right to elect which of the Stations'
employees it will hire, if any. Seller and the Subsidiaries shall be
responsible for the payment of all compensation (including accrued vacation and
commissions) and employee benefits (excluding severance obligations) for
employees of the Stations not hired by KIRO. Regarding severance obligations
for such employees, Seller shall be liable for the first One Hundred Thousand
Dollars ($100,000) of such severance obligations, Buyers shall be liable for
the next One Hundred Thousand Dollars ($100,000) of such severance obligations
and Seller shall be liable for all remaining severance obligations. Seller and
the Subsidiaries shall be responsible for the compensation and employee
benefits due to be paid for work for the Subsidiaries before the Closing Date
for employees of the Stations who become employees of KIRO, and KIRO shall be
responsible for the compensation and employee benefits due to be paid for work
for KIRO on or after the Closing Date for such employees.
10.7 FURTHER ASSURANCES. From time to time after the Closing Date,
Seller will execute and will cause the Subsidiaries to execute all such
instruments and take all such actions as Buyers shall
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reasonably request in connection with carrying out and effectuating the intent
and purpose hereof and all transactions and things contemplated by this
Agreement, including, without limitation, the execution and delivery of any and
all confirmatory and other instruments in addition to those to be delivered on
the Closing Date and any and all actions which may reasonably be necessary or
desirable to complete the transactions contemplated hereby.
10.8 WAIVER OF COMPLIANCE. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement or condition herein may be
waived by the other party only by a written instrument signed by the party
granting the waiver. Any such waiver or failure to insist upon strict
compliance with a term of this Agreement shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure to comply.
10.9 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered by hand or by facsimile
transmission or mailed by registered or certified mail (return receipt
requested), postage prepaid, or by a reputable overnight delivery service to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to Seller, to:
SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Attn: Howard J. Tytel
Fax No.: (212) 753-3188
(b) If to Buyers, to:
KIRO, Inc.
Broadcast House
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55 North 300 West
Salt Lake City, Utah 84180
Attention: Bruce T. Reese
Fax No.: (801) 575-5652
Bonneville Holding Company
Broadcast House
55 North 300 West
Salt Lake City, Utah 84180
Attention: Robert A. Johnson, Esq.
Fax No.: (801) 575-7548
10.10 ASSIGNMENT. This Agreement and all of its terms shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. This Agreement shall not be assigned by any
party hereto without the written consent of the other party.
10.11 GOVERNING LAW. This Agreement shall be governed by, construed
and enforced in accordance with the internal laws of the State of Maryland
(and not the laws pertaining to conflicts or choice of law).
10.12 BULK SALES LAW. As an inducement to Buyers to waive compliance
with the provisions of any applicable bulk transfer laws, which compliance
Buyers hereby waive, Seller covenants that all debts, obligations and
liabilities relating to the Stations which are not expressly assumed by Buyers
under this Agreement will be promptly paid and discharged by Seller as and
when they become due and payable and that Seller shall satisfy all claims made
by creditors with respect to noncompliance with any bulk transfer law.
10.13 PUBLIC ANNOUNCEMENTS. No public announcement (including an
announcement to employees) or press release concerning the transactions
provided for herein shall be made by any party without the prior written
approval of the other party, except as required by law.
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10.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one agreement,
binding on the parties hereto, notwithstanding that all parties are not
signatory to the original or same counterpart.
10.15 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the
Exhibits and Schedules hereto and the documents delivered by Seller, the
Subsidiaries and Buyers pursuant to Article II above, embody the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings between the
parties. This Agreement may not be amended except in writing signed by all
parties.
10.16 SPECIFIC PERFORMANCE. Each of Buyers and Seller acknowledges
and agrees that the other party would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of Buyers and
Seller agrees that the other party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof
having jurisdiction over the parties and the matter, in addition to any other
remedy to which it may be entitled at law or in equity.
Seller and Buyers have caused this Agreement to be signed by their
respective duly authorized officers as of the date first above written.
SFX BROADCASTING, INC.
BY: /s/ Howard Tytel
-------------------------
TITLE: Executive Vice President
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KIRO, INC.
BY: /s/ Bruce T. Reese
--------------------------
TITLE: President
BONNEVILLE HOLDING COMPANY
BY: /s/ Bruce T. Reese
--------------------------
TITLE: President
40
ASSET EXCHANGE AGREEMENT
THIS ASSET EXCHANGE AGREEMENT (the "Agreement") is made and entered
into this 1st day of May, 1996, by and between SFX BROADCASTING OF TEXAS
(KRLD), INC.; SFX BROADCASTING OF TEXAS (KRLD) LICENSEE, INC.; SFX
BROADCASTING OF TEXAS (TSN), INC.; SFX BROADCASTING OF TEXAS (TSN) LICENSEE,
INC. (the four foregoing entities are collectively referred to as "SFX"); and
SFX BROADCASTING OF THE SOUTHWEST, INC. and SFX BROADCASTING, INC. (the two
foregoing entities are collectively referred to as "SFX Broadcasting"), all of
the foregoing entities are Delaware corporations with their principal place of
business at 600 Congress Avenue, Suite 1270, Austin, Texas 78701-3234, and CBS
INC., a New York corporation with its principal place of business at 51 W.
52nd Street, New York, New York 10019-6188 ("CBS").
W I T N E S S E T H:
WHEREAS, SFX owns and operates radio station KRLD-AM in Dallas, Texas
and The Texas State Network ("TSN") (collectively the "SFX Station") pursuant
to licenses issued by the Federal Communications Commission ("FCC"); and
WHEREAS, CBS owns and operates radio station KKRW-FM in Houston,
Texas (the "CBS Station") pursuant to a license issued by the FCC; and
WHEREAS, SFX and CBS desire to exchange certain assets of the SFX
Station for certain assets of the CBS Station, on the terms and subject to the
conditions set forth herein; and
WHEREAS, the transaction contemplated by this Agreement is intended
to be a like-kind exchange of assets between SFX and CBS in accordance with
the provisions of Section 1031 of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
EXCHANGE OF ASSETS
1.1 Transfer of SFX Station Assets. On the Closing Date, SFX shall
exchange, assign, transfer and convey to CBS, and CBS shall acquire and assume
from SFX, substantially all of the assets, properties, interests and rights of
SFX of whatsoever kind and nature, real and personal, tangible and intangible,
owned or leased by SFX, which are used or held for use primarily in the
operation of the SFX Station, and which, in the case of physical or tangible
assets and properties, are located at the SFX Station's broadcasting studios,
offices and transmitter site
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in Dallas, Texas, as the same shall exist on the Closing Date, including but
not limited to the following (but excluding the assets specified in Section
1.2 hereof) (the "SFX Station Assets"):
1.1.1 all of SFX's rights in and to the licenses, permits
and other authorizations issued to SFX by any governmental authority and
included in the SFX Station Assets, including those issued by the FCC (the
latter hereafter referred to as the "SFX Station Licenses") described in
Schedule 6.4 along with renewals or modifications of such items between the
date hereof and the Closing Date as well as all of SFX's rights in and to the
call letters "KRLD-AM";
1.1.2 all of SFX's owned real estate used or held for use
in the operation of the SFX Station, including the land, building and
fixtures, more fully described in Section 6.8 hereto, together with any
additions thereto between the date hereof and the Closing Date (the "SFX Real
Estate");
1.1.3 all equipment, office furniture and fixtures, office
materials and supplies, inventory, spare parts and other tangible personal
property of every kind and description, and SFX's rights therein, owned,
leased or held by SFX with respect to the SFX Station, together with any
replacements of equal quality thereof and additions thereto, made between the
date hereof and the Closing Date, and less any retirements or dispositions
thereof made between the date hereof and the Closing Date in the ordinary
course of business and consistent with past practices of SFX and in accordance
with this Agreement;
1.1.4 all of SFX's rights in and under certain contracts,
agreements or leases, written or oral, included in the SFX Station Assets,
described in Schedules 6.8 and 6.9 (the "SFX Contracts");
1.1.5 all of SFX's rights in and to the trademarks, trade
names, service marks, franchises, copyrights, including registrations and
applications for registration of any of them, jingles, logos and slogans or
licenses to use the same described in Schedule 6.12 (the "SFX Intellectual
Property") and any additions thereto between the date hereof and the Closing
Date;
1.1.6 all of SFX's rights in and to the files, records,
and books of account, which are located at the premises of the SFX Station or
are used or held for use primarily in the operation of the SFX Station,
including, without limitation, programming information and studies, technical
information and engineering data, news and advertising studies or consulting
reports, marketing and demographic data, sales correspondence, lists of
advertisers, promotional materials, credit and sales reports and filings with
the FCC, copies of all written SFX Contracts to be assigned hereunder,
employee records, logs and all software programs used in connection with the
operation of the SFX Station; and
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1.1.7 all of SFX's rights under manufacturers' and
vendors' warranties relating to items included in the SFX Station Assets and
all similar rights against third parties relating to items included in the SFX
Station Assets.
The SFX Station Assets shall be transferred to CBS
free and clear of all debts, security interests, mortgages, trusts, claims,
pledges, conditional sales agreements or other liens, liabilities and
encumbrances whatsoever.
1.2 SFX Excluded Assets. Notwithstanding anything to the contrary
contained herein, it is expressly understood and agreed that the SFX Station
Assets shall not include the following assets along with all rights, title and
interest therein which shall be referred to as the "SFX Excluded Assets":
1.2.1 all cash, cash equivalents or similar type
investments of SFX, such as certificates of deposit, Treasury bills and other
marketable securities on hand and/or in banks;
1.2.2 all of SFX's accounts receivable for services
performed by SFX in connection with its operation of the SFX Station prior to
the Closing Date;
1.2.3 the contract of the SFX Station with the Texas
Rangers Baseball Club (the "Rangers Contract") and any and all personnel
agreements or arrangements and operating agreements, including reciprocal
trade arrangements, that are related to the performance of the Rangers
Contract (the "Ancillary Agreements");
1.2.4 SFX's corporate seal, minute books, charter
documents, corporate stock record books and such other books and records as
pertain to the organization, existence or share capitalization of SFX and
duplicate copies of such records as are necessary to enable SFX to file its
tax returns and reports as well as any other records or materials relating to
SFX generally and not involving specific aspects of the SFX Station's
operations;
1.2.5 the use of the name and mark SFX Broadcasting
and any derivation therefrom;
1.2.6 all other rights, interests or intangible assets of
SFX which are not used in or held for use primarily in the operation of the
SFX Station or which are listed in Schedule 1.2.6 hereto; and
1.2.7 all profit sharing or cash or deferred (Section
401(k)) plans and trusts and the assets thereof and any other employee benefit
plan or arrangement and the assets thereof, if any, maintained by SFX for the
SFX Station.
1.3 Transfer of CBS Assets. On the Closing Date, CBS
shall exchange, transfer, assign and convey to SFX, and SFX shall
acquire and assume from CBS, substantially all of the assets,
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properties, interests and rights of CBS of whatsoever kind and nature, real
and personal, tangible and intangible, owned or leased by CBS, which are used
or held for use primarily in the operation of the CBS Station, and which, in
the case of physical or tangible assets and properties, are located at the CBS
Station's broadcasting studios, offices and transmitter sites in Houston,
Texas, as the same shall exist on the Closing Date, including but not limited
to the following (but excluding the assets specified in Section 1.4 hereof)
(the "CBS Station Assets"):
1.3.1 all of CBS's rights in and to the licenses, permits
and other authorizations issued to CBS by any governmental authority and
included in the CBS Station Assets, including those issued by the FCC (the
latter hereafter referred to as the "CBS Station License") described in
Schedule 7.4 along with renewals or modifications of such items between the
date hereof and the Closing Date as well as all of CBS's rights in and to the
call letters "KKRW-FM";
1.3.2 all of CBS's rights to use the real estate used or
held for use in the operation of the CBS Station, including the land, building
and fixtures, more fully described in Section 7.8 hereto, together with any
additions thereto between the date hereof and the Closing Date (the "CBS Real
Estate");
1.3.3 all equipment, office furniture and fixtures, office
materials and supplies, inventory, spare parts and other tangible personal
property of every kind and description, and CBS's rights therein, owned,
leased or held by CBS with respect to the CBS Station, together with any
replacements of equal quality thereof and additions thereto, made between the
date hereof and the Closing Date, and less any retirements or dispositions
thereof made between the date hereof and the Closing Date in the ordinary
course of business and consistent with past practices of CBS and in accordance
with this Agreement;
1.3.4 all of CBS's rights in and under certain contracts,
agreements or leases, written or oral, included in the CBS Station Assets,
described in Schedules 7.8 and 7.9 (the "CBS Contracts");
1.3.5 all of CBS's rights in and to the trademarks, trade
names, service marks, franchises, copyrights, including registrations and
applications for registration of any of them, jingles, logos and slogans or
licenses to use the same described in Schedule 7.12 (the "CBS Intellectual
Property") and any additions thereto between the date hereof and the Closing
Date;
1.3.6 all of CBS's rights in and to the files, records,
and books of account, which are located at the premises of the CBS Station or
are used or held for use primarily in the operation of the CBS Station,
including, without limitation, programming information and studies, technical
information and
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engineering data, news and advertising studies or consulting reports,
marketing and demographic data, sales correspondence, lists of advertisers,
promotional materials, credit and sales reports and filings with the FCC,
copies of all written CBS Contracts to be assigned hereunder, employee
records, logs and all software programs used in connection with the operation
of the CBS Station; and
1.3.7 all of CBS's rights under manufacturers' and
vendors' warranties relating to items included in the CBS Station Assets and
all similar rights against third parties relating to items included in the CBS
Station Assets.
The CBS Station Assets shall be transferred to SFX
free and clear of all debts, security interests, mortgages, trusts, claims,
pledges, conditional sales agreements or other liens, liabilities and
encumbrances whatsoever.
1.4 CBS Excluded Assets. Notwithstanding anything to the contrary
contained herein, it is expressly understood and agreed that the CBS Station
Assets shall not include the following assets along with all rights, title and
interest therein which shall be referred to as the "CBS Excluded Assets":
1.4.1 all cash, cash equivalents or similar type
investments of CBS, such as certificates of deposit, Treasury bills and other
marketable securities on hand and/or in banks;
1.4.2 all of CBS's accounts receivable for services
performed by CBS in connection with its operation of the CBS Station prior to
the Closing Date;
1.4.3 CBS's corporate seal, minute books, charter
documents, corporate stock record books and such other books and records as
pertain to the organization, existence or share capitalization of CBS and
duplicate copies of such records as are necessary to enable CBS to file its
tax returns and reports as well as any other records or materials relating to
CBS generally and not involving specific aspects of the CBS Station's
operations;
1.4.4 the use of the name and mark CBS Broadcasting
and any derivation therefrom;
1.4.5 all other rights, interests or intangible assets of
CBS which are not used in or held for use primarily in the operation of the
CBS Station or which are listed in Schedule 1.4.5 hereto; and
1.4.6 all profit sharing or cash or deferred (Section
401(k)) plans and trusts and the assets thereof and any other employee benefit
plan or arrangement and the assets thereof, if any, maintained by CBS for the
CBS Station.
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ARTICLE 2
ASSUMPTION OF OBLIGATIONS
2.1 Assumption of Obligations by CBS. Subject to the provisions of
this Section 2.1 and Section 2.2, on the Closing Date, CBS shall assume and
undertake to pay, satisfy or discharge the liabilities, obligations and
commitments of SFX arising or to be performed on or after the Closing Date
under (i) the SFX Contracts listed in Schedules 6.8 and 6.9 and (ii) any other
contracts entered into between the date hereof and the Closing Date which CBS
may in its sole discretion expressly agree in writing to assume. All of the
foregoing liabilities and obligations shall be referred to herein collectively
as the "CBS Assumed Liabilities."
2.2 SFX Retained Liabilities. Except as set forth in Section 2.1
hereof, CBS shall not assume or be deemed to assume, under this Agreement or
otherwise by reason of the transactions contemplated hereby, any liabilities,
obligations or commitments of SFX of any nature whatsoever, including the
Rangers Contract and the Ancillary Agreements. All of such liabilities and
obligations shall be referred to herein collectively as the "SFX Retained
Liabilities."
2.3 Assumption of Obligations by SFX. Subject to the provisions of
this Section 2.3 and Section 2.4, on the Closing Date, SFX shall assume and
undertake to pay, satisfy or discharge the liabilities, obligations and
commitments of CBS arising or to be performed on or after the Closing Date
under (i) the CBS Contracts listed in Schedules 7.8 and 7.9 and (ii) any other
contracts entered into between the date hereof and the Closing Date which SFX
may in its sole discretion expressly agree in writing to assume. All of the
foregoing liabilities and obligations shall be referred to herein collectively
as the "SFX Assumed Liabilities."
2.4 CBS Retained Liabilities. Except as set forth in Section 2.3
hereof, SFX expressly does not, and shall not, assume or be deemed to assume,
under this Agreement or otherwise by reason of the transactions contemplated
hereby, any liabilities, obligations or commitments of CBS of any nature
whatsoever. All of such liabilities and obligations shall be referred to
herein collectively as the "CBS Retained Liabilities."
ARTICLE 3
PRORATION AND VALUATION
3.1 Proration of Income and Expenses.
3.1.1 Except as otherwise provided herein, all income and
expenses arising from the conduct of the business and operations of the SFX
Station and CBS Station shall be prorated between CBS and SFX in accordance
with generally accepted accounting principles as of the Closing Date. Such
prorations
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shall include, without limitation, all real estate and other property taxes
(but excluding taxes arising by reason of the transfer of the SFX Station
Assets and CBS Station Assets (collectively referred to as the "Station
Assets") as contemplated hereby, which, shall be paid as set forth in Article
13 of this Agreement), business and license fees, music and other license
fees, wages and salaries of employees, including accruals up to the Closing
Date for bonuses, commissions, sick pay and similar prepaid and deferred items
(but excluding vacation which shall be governed by Sections 8.2.3 and 9.2.3)
attributable to the ownership and operation of the SFX Station and the CBS
Station (collectively referred to as the "Stations").
3.1.2 The prorations and adjustments contemplated by this
Section, to the extent practicable, shall be made on the Closing Date and the
party owing any net amount hereunder shall pay such amount to the other party
on such date. As to those prorations and adjustments not capable of being
ascertained on the Closing Date, an adjustment and proration shall be made
within ninety (90) calendar days of the Closing Date.
3.1.3 In the event of any disputes between the parties as
to such adjustments, the amounts not in dispute shall nonetheless be paid at
the time provided in Section 3.1.2 and such disputes shall be determined by an
independent certified public accountant mutually acceptable to the parties,
and the fees and expenses of such accountant shall be paid one-half by SFX and
one-half by CBS.
3.2 Value of Exchanged Assets. As set forth on Schedule 3.2 which
shall be agreed upon and delivered at the Closing, (a) the SFX Station Assets
consisting of tangible personal property are being exchanged for the CBS
Station Assets consisting of tangible personal property; (b) the SFX Assets
consisting of real property are being exchanged for the CBS Assets consisting
of real property; and (c) the SFX Station Assets consisting of intangible
property are being exchanged for the CBS Station Assets consisting of
intangible property. The parties further agree that the values on the Closing
Date of the respective SFX Station Assets and the respective CBS Station
Assets will be based on an appraisal of such assets by an independent
valuation firm selected by CBS and approved by SFX. The appraised values will
be reflected on Schedule 3.2 and the parties will not take any position
inconsistent with such values and will prepare and file all returns and
reports relating to the exchange contemplated by this Agreement, including all
federal, state and local income tax returns, in a manner which is consistent
with Schedule 3.2.
ARTICLE 4
CLOSING
4.1 Closing. Except as otherwise mutually agreed upon by
SFX and CBS, the consummation of the transactions contemplated
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herein (the "Closing") shall occur within ten (10) business days after the FCC
Consent as defined in Section 5.1 has been obtained and the expiration of the
applicable waiting period under the HSRA as defined in Section 5.3, or such
other date as may be mutually agreed to by the parties but in no event later
than December 31, 1996 ("Closing Date"); provided, however, that neither party
shall be required to close before the FCC Consent has become a Final Order if
any petition to deny is filed against the FCC assignment application for the
proposed transaction. The Closing shall be deemed effective as of 11:59 p.m.
on the Closing Date. For purposes of this Agreement, "Final Order" means
action by the FCC consenting to the assignments contemplated by this Agreement
which is not reversed, stayed, enjoined, set aside, annulled or suspended, and
with respect to which action no timely request for stay, petition for
rehearing, or appeal is pending, and as to which the time for filing any such
request, petition or appeal or reconsideration by the FCC on its own motion
has expired. The Closing shall be held at the offices of SFX in New York or at
such other place as the parties hereto may agree.
ARTICLE 5
GOVERNMENTAL CONSENTS
5.1 FCC Consent. It is specifically understood and agreed by CBS and
SFX that the Closing and the assignment of the SFX Station License and the CBS
Station License (collectively referred to as the "Station Licenses") and the
transfer of the Station Assets is expressly conditioned on and is subject to
the prior consent and approval of the FCC ("FCC Consent") without the
imposition of any conditions on the transfer of the Station Licenses which are
materially adverse to either party.
5.2 FCC Applications. Promptly upon the execution of this Agreement,
the parties shall proceed to prepare for filing the necessary FCC applications
for assignment of the Station Licenses (the "FCC Applications"), which shall
be filed no later than ten (10) business days after the date hereof. SFX and
CBS shall thereafter prosecute the FCC Applications with all reasonable
diligence and otherwise use their best efforts to obtain the grant of the FCC
Applications as expeditiously as practicable (but neither SFX nor CBS shall
have any obligation to satisfy complainants or the FCC by taking any steps
which would have a Material Adverse Effect on it or any of its Affiliates). If
the FCC Consent imposes any condition on either party hereto, such party shall
use its best efforts to comply with such condition; provided, however, that
neither party shall be required hereunder to comply with any condition which
would have a Material Adverse Effect on it or any of its Affiliates. If
reconsideration or judicial review is sought with respect to the FCC Consent,
the party affected shall vigorously oppose such efforts for reconsideration or
judicial review; provided, however, that nothing herein shall be construed to
limit either party's right to terminate this Agreement pursuant to Article 16
hereof.
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5.3 Compliance with HSRA. SFX and CBS shall make or cause to be made
in a timely fashion, and in any event within fifteen (15) business days after
the date hereof, all filings which are required in connection with the
transactions contemplated hereby under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended ("HSRA"), and shall furnish to the other
party all information that the other reasonably requests in connection with
such filings. The parties shall promptly comply with all requests for further
documents and information made by any governmental department or agency in
connection with such filings and shall use their best efforts to obtain early
termination of all waiting periods under the HSRA. The transfer of the Station
Assets hereunder is conditioned upon the expiration of the applicable waiting
period under the HSRA without the institution of any action with respect to
the consummation of the transactions contemplated hereunder.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SFX AND SFX BROADCASTING
SFX and SFX Broadcasting hereby make the following representations
and warranties to CBS, each of which is true and correct on the date hereof,
shall remain true and correct for the period specified in Section 15.3, shall
be unaffected by any investigation heretofore or hereafter made by CBS, or any
notice to CBS other than in the Schedules to this Agreement and shall survive
the Closing.
6.1 Organization and Standing. Each of the entities included within
SFX and SFX Broadcasting is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to do business in the State of Texas. SFX has the corporate power and
authority to own, lease and operate the SFX Station Assets and to carry on the
business of the SFX Station as now being conducted and as proposed to be
conducted by SFX between the date hereof and the Closing Date.
6.2 Authorization and Binding Obligation. SFX and SFX Broadcasting
have the corporate power and authority to enter into and perform this
Agreement and the transactions contemplated hereby, and SFX's and SFX
Broadcasting's execution, delivery and performance of this Agreement, and the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on their part. This Agreement has been duly
executed and delivered by SFX and SFX Broadcasting and this Agreement
constitutes, and the agreements to be executed in connection herewith will
constitute the valid and binding obligation of SFX and SFX Broadcasting
enforceable in accordance with their terms.
6.3 Absence of Conflicting Agreements or Required
Consents. Except as set forth in Article 5 with respect to
governmental consents, Schedules 6.8 and 6.9 with respect to
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consents required in connection with the assignment of certain SFX Contracts
and as set forth in Schedule 6.3 with respect to any other consents, the
execution, delivery and performance of this Agreement by SFX and SFX
Broadcasting: (a) do not require the consent of any third party; (b) will not
conflict with, result in a breach of, or constitute a violation of or default
under, the provisions of SFX's or SFX Broadcasting's articles of incorporation
or By-laws or any applicable law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority to which any of SFX or SFX
Broadcasting is a party or by which they or the SFX Station Assets are bound;
(c) will not, either alone or with the giving of notice or the passage of
time, or both, conflict with, constitute grounds for termination of or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any SFX Contract, agreement, instrument, license or permit to which
SFX, SFX Broadcasting or the SFX Station Assets are now subject; and (d) will
not result in the creation of any lien, charge or encumbrance on any of the
SFX Station Assets.
6.4 Government Authorizations. Schedule 6.4 hereto contains a true
and complete list of the SFX Station Licenses and other material licenses,
permits or other authorizations from governmental and regulatory authorities
which are required for the lawful conduct of the business and operations of
the SFX Station in the manner and to the full extent it is presently
conducted. SFX is the authorized legal holder of the SFX Station Licenses and
other licenses, permits and authorizations listed in Schedule 6.4, none of
which is subject to any restrictions or conditions which would limit in any
respect the full operation of the SFX Station as now operated. Except as set
forth in Schedule 6.4, there are no applications, complaints or proceedings
pending or, to the best of SFX's knowledge, threatened as of the date hereof
before the FCC relating to the business or operations of the SFX Station other
than applications, complaints or proceedings which affect the broadcasting
industry generally. SFX has delivered to CBS true and complete copies of the
SFX Station Licenses, including any and all amendments and other modifications
thereto. The SFX Station Licenses and the other licenses, permits or other
authorizations from governmental and regulatory authorities listed in Schedule
6.4 are in good standing, are in full force and effect and are unimpaired by
any act or omission of SFX or its officers, directors or employees; and the
operation of the SFX Station is in accordance with the SFX Station Licenses
and the underlying construction permits. No proceedings are pending or, to the
knowledge of SFX, are threatened which may result in the revocation,
modification, non-renewal or suspension of the SFX Station Licenses, the
denial of any pending applications, the issuance of any cease and desist
order, the imposition of any administrative actions by the FCC with respect to
the SFX Station Licenses or which may affect SFX's ability to continue to
operate the SFX Station as it is currently operated. The SFX Station is
licensed by the FCC to operate, and is operating with maximum facilities for
its class. The SFX Station is not short-spaced, on a grandfathered basis or
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otherwise, to any existing station, outstanding construction permit or pending
application therefor, or to any existing or proposed broadcast radio
allotment. SFX has not received any complaint that the SFX Station is causing
objectionable interference to the transmissions of any other broadcast station
or communications facility. To the best of SFX's knowledge, no other broadcast
station or communications facility is causing objectionable interference to
the Station's transmissions or the public's reception of such transmissions.
SFX has no reason to believe that the SFX Station Licenses will not be renewed
in the ordinary course. All material reports, forms and statements required to
be filed by SFX with the FCC with respect to the SFX Station since the grant
of the last renewal of the SFX Station Licenses have been filed and are
substantially complete and accurate. To the best of SFX's knowledge, there are
no facts which, under the Communications Act of 1934, as amended, or the
existing Rules and Regulations of the FCC, would disqualify SFX as an assignor
of the SFX Station License.
6.5 Compliance with Regulations. The operation of the SFX Station and
all of the SFX Station Assets are in compliance with (i) all applicable
engineering standards required to be met under applicable FCC rules, and (ii)
all other applicable federal, state and local rules, regulations, requirements
and policies, including, but not limited to, all applicable painting and
lighting requirements of the FCC and the Federal Aviation Administration and
ANSI Radiation Standards C95.1 - 1982 to the extent required to be met under
applicable FCC Rules and Regulations, and there are no existing claims known
to SFX to the contrary.
6.6 Taxes. All federal, state and local income, franchise, sales,
use, property, excise, payroll and other tax returns and reports required to
be filed by law where the failure to file such returns on a duly and timely
basis could result in a lien on the SFX Station Assets or the imposition on
CBS of any liability for taxes or assessments have been duly and timely filed
in the proper form with the appropriate governmental authority. All taxes,
fees and assessments of whatever nature due or payable pursuant to such
returns or otherwise have been paid, except for such amounts as are being
contested diligently, in the appropriate forum and in good faith, where the
failure to pay or contest such amounts could result in a lien on the SFX
Station Assets or the imposition on CBS of any liability for any taxes or
assessments. There are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any
federal, state or local income tax return for any period, the result of which
could result in a lien on the SFX Station Assets or the imposition on CBS of
any liability for any taxes or assessments. There are no governmental
investigations or other legal, administrative or tax proceedings pursuant to
which SFX is or could be made liable for any taxes, penalties, interest or
other charges, the liability for which could extend to CBS as transferee of
the SFX Station Assets, or which could result in a lien on the SFX Station
Assets
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and, to the best of SFX's knowledge, no event has occurred that could impose
on CBS any liability for any taxes, penalties or interest due or to become due
from SFX.
6.7 Personal Property. Schedule 6.7 hereto contains a list of all
tangible personal property and assets owned or held by SFX and used primarily
in the conduct of the business and operations of the SFX Station. Except as
disclosed in Schedule 6.7, and except as may be subject to lease agreements of
SFX listed on Schedule 6.9, SFX owns and has, and will have on the Closing
Date, good and marketable title to all such property (and to all other
tangible personal property and assets to be transferred to CBS hereunder), and
none of such property is, or at the Closing will be, subject to any security
interest, mortgage, pledge, conditional sales agreement or other lien or
encumbrance. All of the items of the tangible personal property and assets
included in the SFX Station Assets are in good operating condition (ordinary
wear and tear excepted) and are available for immediate use in the conduct of
the business and operations of the SFX Station. The technical equipment,
constituting a part of the tangible personal property transferred hereunder,
has been maintained in accordance with industry practice and is in good
operating condition and complies with all applicable rules and regulations of
the FCC and the terms of the SFX Station License.
6.8 Real Property.
6.8.1 Schedule 6.8 hereto contains a complete and accurate
list of all real property owned and leased by SFX which is used by the SFX
Station and all agreements, leases and contracts of SFX relating to the
towers, transmitter, booster, studio site and offices of the SFX Station
(collectively the "SFX Real Estate Contracts") and a list of the applicable
leases.
6.8.2 The Real Estate Contracts listed on Schedule 6.8
constitute valid and binding obligations of SFX and, to the best of SFX's
knowledge, of all other persons purported to be parties thereto and are in
full force and effect as of the date hereof and will on the Closing Date
constitute valid and binding obligations of SFX and, to the best of SFX's
knowledge, of all other persons purported to be parties thereto and shall be
in full force and effect. SFX is not in default under any of such SFX Real
Estate Contracts and has not received or given written notice of any default
thereunder from or to any of the other parties thereto and will not have
received any such notice at or prior to the Closing. To the best of SFX's
knowledge, there are no present disputes or claims with respect to offsets or
defenses by either landlord or tenant against the other under any such lease.
SFX has delivered to CBS true and complete copies of all SFX Real Estate
Contracts.
6.8.3 SFX has and shall convey to CBS good and
insurable fee simple title to the owned SFX Real Estate free and
clear of any mortgages, liens, charges and encumbrances. Each
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parcel of SFX Real Estate has all appropriate easements and access required to
ensure uninterrupted use thereof. All buildings, structures, improvements and
fixtures comprising part of the real properties owned or leased by SFX in the
operation of the SFX Station are in good operating condition.
6.9 Contracts. Schedule 6.9 lists the SFX Contracts as of the date of
this Agreement which are to be assumed by CBS as of the Closing Date;
provided, however, in no event shall CBS assume the Rangers Contract or any of
the Ancillary Agreements. Those SFX Contracts requiring the consent of a third
party to assignment which SFX and CBS agree are critical to the consummation
of the transactions contemplated hereby are identified as "SFX Material
Contracts" and are so marked on Schedule 6.9. Except as noted in Schedule 6.9,
SFX has delivered to CBS true and complete copies of all written SFX
Contracts, including any and all amendments and other modifications to such
SFX Contracts, and written summaries of all oral SFX Contracts. All such SFX
Contracts are valid, binding and enforceable by SFX in accordance with their
respective terms. SFX has complied with all such SFX Contracts and is not in
default under any of such SFX Contracts, and to the best of SFX's knowledge,
no other contracting party is in default under any of such SFX Contracts. No
other party to any such SFX Contract has made or asserted, or, to the best of
SFX's knowledge has, any defense, setoff or counterclaim under any such SFX
Contract, no such other party has exercised any option granted to it to cancel
or terminate its agreement, to shorten the term of its agreement, or to renew
or extend the term of its agreement and SFX has not received any notice to
that effect. Schedule 6.9 also contains a true and complete current trade
barter summary with respect to the SFX Station, including applicable asset and
liability balances with respect thereto (which Schedule shall be updated as of
the Closing).
6.10 Sufficiency of Assets. The SFX Station Assets and all other
rights to be conveyed to CBS hereunder are sufficient to carry on the conduct
of the operation of the SFX Station as presently conducted.
6.11 Environmental; Industrial Hygiene and Safety. SFX
has complied and is in compliance with the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C.ss.ss.9601 et seq. ("CERCLA"), Toxic
Substances Control Act, 15 U.S.C.ss.ss.2601 et seq. ("TSCA"), the
Resource Conservation and Recovery Act of 1976, 42 U.S.C.ss.ss.6901
et seq. as amended ("RCRA"), the Occupational Safety and Health
Act of 1970, 19 U.S.C.ss.651 et seq, as amended ("OSHA"), and all
other federal, state and local environmental, industrial hygiene
and safety laws, rules and regulations applicable to the SFX
Station and its operations, including but not limited to the
FCC's guidelines regarding RF radiation. SFX has not unlawfully
disposed of any hazardous waste or hazardous substance including
Polychlorinated Byphenyls ("PCBs") in connection with the
operation of the SFX Station. Except as set forth on Schedule
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6.11, the technical equipment included in the SFX Station Assets does not
contain any PCBs. No hazardous waste has been disposed of by SFX, and to the
best of SFX's knowledge, no hazardous waste has been disposed of by any other
person, on the SFX Real Estate. As used herein, the term "hazardous waste"
shall mean as defined in RCRA and in the equivalent state statute under Texas
law. Except as set forth on Schedule 6.11, there are no underground tanks at
the SFX Station. Except as set forth on Schedule 6.11, there is no asbestos
insulation or other asbestos-containing materials at the SFX Station.
6.12 SFX Intellectual Property. Schedule 6.12 is a true and complete
list, of all SFX Intellectual Property applied for, issued to or owned by SFX
or under which SFX is a licensee, and used in the conduct of the business and
operations of the SFX Station referred to in Section 1.1.5 (but excluding
those included in the SFX Excluded Assets and referred to in Section 1.2).
Except as set forth on Schedule 6.12, there are no agreements with third
parties which limit or restrict the right of the SFX Station to use or
register any of the SFX Intellectual Property. The SFX Station is not being
operated in a manner that infringes any trademark, copyright or other
intellectual property right of any third party or otherwise violates the
rights of any third party, and no claim has been made or, to the best of SFX's
knowledge, threatened, alleging any such violation. To the best of SFX's
knowledge, there has been no violation by others of any right of SFX in any of
the SFX Intellectual Property. Except as set forth on Schedule 6.12, all
registrations for the SFX Intellectual Property are valid and in good
standing. True and complete copies of all documents relating to the SFX
Intellectual Property have been delivered or made available to CBS.
6.13 Financial Statements. Set forth in Schedule 6.13 are complete
copies of the unaudited statements of operating income for the SFX Station for
the period from January 1, 1995 to December 31, 1995, and the unaudited
Balance Sheet for the SFX Station dated as of December 31, 1995 ("Financial
Statements"). SFX shall also provide unaudited statements of operating income
for the SFX Station for the period from January 1, 1996 to March 31, 1996, and
an unaudited Balance Sheet for the SFX Station dated as of March 31, 1996 (the
"1996 Financial Statements"). The Financial Statements and the 1996 Financial
Statements are subject to certain year-end adjustments. The Financial
Statements are, and the 1996 Financial Statements will be, true and correct in
all material respects and have been and in the case of the 1996 Financial
Statements, will be, prepared in accordance with the books and records of SFX
and in accordance with the policies and procedures of SFX applicable thereto,
consistently applied, which differ from generally accepted accounting
principles in the respects set forth in Schedule 6.13. The Financial
Statements present, and the 1996 Financial Statements will present, fairly the
financial condition and results of operations of the SFX Station for the
periods indicated.
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6.14 Personnel.
6.14.1 Schedule 6.14 contains a true and complete list of
all persons employed at the SFX Station, including a description of material
compensation arrangements (other than employee benefit plans set forth in
Schedule 6.15 ) and a list of other terms of any and all agreements affecting
such persons. SFX has not received notification that any of the current key
employees of SFX at the SFX Station presently plan to terminate their
employment, whether by reason of the transactions contemplated hereby or
otherwise.
6.14.2 SFX is not a party to any contract with any labor
organization, nor has SFX agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining unit been
certified as representing any of SFX's employees at the SFX Station. SFX has
no knowledge of any organizational effort currently being made or threatened
by or on behalf of any labor union with respect to any of SFX's employees at
the SFX Station.
6.14.3 Except as disclosed in Schedule 6.14, SFX has
complied with all laws relating to the employment of labor, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and those laws relating to wages, hours, collective bargaining,
unemployment insurance, workers' compensation, equal employment opportunity
and payment and withholding of taxes in connection with the operation of the
SFX Station.
6.15 SFX Employee Benefit Plans. Schedule 6.15 hereto contains a true
and complete list of each written and unwritten pension, retirement,
profit-sharing, deferred compensation bonus, incentive, performance, stock
option, medical, hospitalization, vision, dental or other health, life,
disability, severance, termination or other employee benefit plan, program,
arrangement, agreement, policy or understanding applicable to the employees of
the SFX Station (each, a "SFX Employee Benefit Plan"). Each SFX Employee
Benefit Plan complies in all material respects, and has been operated and
administered in all material respects in accordance with, all applicable
requirements of all laws and regulations of any public body or authority,
including the Consolidated Omnibus Budget Reconciliation Act ("COBRA") and the
regulations thereunder, and no "reportable event", "prohibited transaction"
(as such terms are defined in the Employment Retirement Income Security Act of
1974, as amended ("ERISA") and the Code, as applicable) or termination has
occurred with respect to any SFX Employee Benefit Plan. All contributions
required under applicable law or the terms of the SFX Employee Benefit Plans
have been made within the time prescribed. CBS shall have no obligations or
liabilities under such SFX Employee Benefit Plans on or after the Closing Date
and any benefits due to any employee of the SFX Station under such SFX
Employee Benefit Plans shall be the sole responsibility of SFX.
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6.16 Litigation. Except as set forth in Schedule 6.16, SFX is subject
to no judgment, award, order, writ, injunction, arbitration decision or decree
affecting the conduct of the business of the SFX Station or the SFX Station
Assets, and there is no litigation, investigation or proceeding pending or, to
the best of SFX's knowledge, threatened, against SFX with respect to the SFX
Station in any federal, state or local court, or before any administrative
agency or arbitrator (including, without limitation, any proceeding which
seeks the forfeiture of, or opposes the renewal of, the SFX Station Licenses),
or before any other tribunal duly authorized to resolve disputes, or which
seeks to enjoin or prohibit, or otherwise questions the validity of, any
action taken or to be taken pursuant to or in connection with this Agreement.
In particular, but without limiting the generality of the foregoing, there are
no applications, complaints or proceedings pending or, to the best of SFX's
knowledge, threatened before the FCC or any other governmental organization
with respect to the business or operations of the SFX Station other than
applications, complaints or proceedings which affect the broadcasting industry
generally.
6.17 Compliance With Laws. Except as set forth in Schedule 6.17, SFX
has not received any notice asserting any non-compliance by it in connection
with the business or operation of the SFX Station with any applicable statute,
rule or regulation, whether federal, state or local. SFX is not in default
with respect to any judgment, order, injunction or decree of any court,
administrative agency or other governmental authority or any other tribunal
duly authorized to resolve disputes in connection with the business or
operation of the SFX Station. SFX is in compliance with all laws, regulations
and governmental orders applicable to the conduct of the business or operation
of the SFX Station, and its present use of the SFX Station Assets does not
violate any of such laws, regulations or orders.
6.18 Commissions or Finder's Fees. Except for the brokerage fee
payable to Star Media Group, Inc., neither SFX nor any person or entity acting
on its behalf has agreed to pay a commission, finder's fee or similar payment
in connection with this Agreement or any matter related hereto to any person
or entity.
6.19 Insurance. SFX currently maintains in full force and effect the
property damage, liability and other insurance coverages with respect to the
SFX Station Assets which are listed on Schedule 6.19.
6.20 Undisclosed Obligations. Except as disclosed on Schedule 6.20
hereto or on any other Schedule to this Agreement, SFX does not have any
liability or obligation of any kind with respect to the SFX Station or the SFX
Station Assets, whether accrued, absolute, fixed or contingent, known or
unknown, other than liabilities and obligations not being assumed by CBS.
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6.21 No Material Adverse Change. Except as set forth on Schedule
6.21, since December 31, 1995, there has been no change in circumstances which
has had a Material Adverse Effect as defined in Section 17.14 on the SFX
Station, nor to the best knowledge of SFX is any such change threatened, nor
has there been any damage, destruction or loss which could have a Material
Adverse Effect on the SFX Station whether or not covered by insurance.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF CBS
CBS hereby makes the following representations and warranties to SFX
and SFX Broadcasting, each of which is true and correct on the date hereof,
shall remain true and correct for the period specified in Section 15.3, shall
be unaffected by any investigation heretofore or hereafter made by SFX or SFX
Broadcasting, or any notice to SFX or SFX Broadcasting other than in the
Schedules to this Agreement and shall survive the Closing.
7.1 Organization and Standing. CBS is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
is duly qualified to do business in the State of Texas, and has the corporate
power and authority to own, lease and operate the CBS Station Assets and to
carry on the business of the CBS Station as now being conducted and as
proposed to be conducted by CBS between the date hereof and the Closing Date.
7.2 Authorization and Binding Obligation. Subject to the approval of
the WELCO and CBS Boards, CBS has the corporate power and authority to enter
into and perform this Agreement and the transactions contemplated hereby, and
CBS's execution, delivery and performance of this Agreement, and the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on its part. This Agreement has been duly executed
and delivered by CBS and this Agreement constitutes, and the agreements to be
executed in connection herewith will constitute the valid and binding
obligation of CBS enforceable in accordance with their terms.
7.3 Absence of Conflicting Agreements or Required Consents. Except
for the approval of the WELCO and CBS Boards and as set forth in Article 5
with respect to governmental consents, Schedules 7.8 and 7.9 with respect to
consents required in connection with the assignment of certain CBS Contracts
and as set forth in Schedule 7.3 with respect to any other consents, the
execution, delivery and performance of this Agreement by CBS: (a) do not
require the consent of any third party; (b) will not conflict with, result in
a breach of, or constitute a violation of or default under, the provisions of
CBS's articles of incorporation or By-laws or any applicable law, judgment,
order, injunction, decree, rule, regulation or ruling of any
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governmental authority to which CBS is a party or by which it or the CBS
Station Assets are bound; (c) will not, either alone or with the giving of
notice or the passage of time, or both, conflict with, constitute grounds for
termination of or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any CBS Contract, agreement, instrument,
license or permit to which CBS or the CBS Station Assets are now subject; and
(d) will not result in the creation of any lien, charge or encumbrance on any
of the CBS Station Assets.
7.4 Government Authorizations. Schedule 7.4 hereto contains a true
and complete list of the CBS Station License and other material licenses,
permits or other authorizations from governmental and regulatory authorities
which are required for the lawful conduct of the business and operations of
the CBS Station in the manner and to the full extent it is presently
conducted. CBS is the authorized legal holder of the CBS Station License and
other licenses, permits and authorizations listed in Schedule 7.4, none of
which is subject to any restrictions or conditions which would limit in any
respect the full operation of the Station as now operated. Except as set forth
in Schedule 7.4, there are no applications, complaints or proceedings pending
or, to the best of CBS's knowledge, threatened as of the date hereof before
the FCC relating to the business or operations of the CBS Station other than
applications, complaints or proceedings which affect the broadcasting industry
generally. CBS has delivered to SFX a true and complete copy of the CBS
Station License, including any and all amendments and other modifications
thereto. The CBS Station License and the other licenses, permits or other
authorizations from governmental and regulatory authorities listed in Schedule
7.4 are in good standing, are in full force and effect and are unimpaired by
any act or omission of CBS or its officers, directors or employees; and the
operation of the CBS Station is in accordance with the CBS Station License and
the underlying construction permits. No proceedings are pending or, to the
knowledge of CBS, are threatened which may result in the revocation,
modification, non-renewal or suspension of the CBS Station License, the denial
of any pending applications, the issuance of any cease and desist order, the
imposition of any administrative actions by the FCC with respect to the CBS
Station License or which may affect CBS's ability to continue to operate the
CBS Station as it is currently operated. The CBS Station is licensed by the
FCC to operate, and is operating with maximum facilities for its class. The
CBS Station is not short-spaced, on a grandfathered basis or otherwise, to any
existing station, outstanding construction permit or pending application
therefor, or to any existing or proposed broadcast radio allotment. CBS has
not received any complaint that the CBS Station is causing objectionable
interference to the transmissions of any other broadcast station or
communications facility. To the best of CBS's knowledge, no other broadcast
station or communications facility is causing objectionable interference to
the CBS Station's transmissions or the public's reception of such
transmissions. CBS has no reason to believe that the CBS Station License will
not be renewed in
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the ordinary course. All material reports, forms and statements required to be
filed by CBS with the FCC with respect to the CBS Station since the grant of
the last renewal of the CBS Station License have been filed and are
substantially complete and accurate. To the best of CBS's knowledge, there are
no facts which, under the Communications Act of 1934, as amended, or the
existing Rules and Regulations of the FCC, would disqualify CBS as an assignor
of the CBS Station License.
7.5 Compliance with Regulations. The operation of the CBS Station and
all of the CBS Station Assets are in compliance with (i) all applicable
engineering standards required to be met under applicable FCC rules, and (ii)
all other applicable federal, state and local rules, regulations, requirements
and policies, including, but not limited to, all applicable painting and
lighting requirements of the FCC and the Federal Aviation Administration and
ANSI Radiation Standards C95.1 - 1982 to the extent required to be met under
applicable FCC Rules and Regulations, and there are no existing claims known
to CBS to the contrary.
7.6 Taxes. All federal, state and local income, franchise, sales,
use, property, excise, payroll and other tax returns and reports required to
be filed by law where the failure to file such returns on a duly and timely
basis could result in a lien on the CBS Station Assets or the imposition on
SFX of any liability for taxes or assessments have been duly and timely filed
in the proper form with the appropriate governmental authority. All taxes,
fees and assessments of whatever nature due or payable pursuant to such
returns or otherwise have been paid, except for such amounts as are being
contested diligently, in the appropriate forum and in good faith, where the
failure to pay or contest such amounts could result in a lien on the CBS
Station Assets or the imposition on SFX of any liability for any taxes or
assessments. There are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any
federal, state or local income tax return for any period, the result of which
could result in a lien on the CBS Station Assets or the imposition on SFX of
any liability for any taxes or assessments. There are no governmental
investigations or other legal, administrative or tax proceedings pursuant to
which CBS is or could be made liable for any taxes, penalties, interest or
other charges, the liability for which could extend to SFX as transferee of
the CBS Station Assets, or which could result in a lien on the CBS Station
Assets and, to the best of CBS's knowledge, no event has occurred that could
impose on SFX any liability for any taxes, penalties or interest due or to
become due from CBS.
7.7 Personal Property. Schedule 7.7 hereto contains a list of all
tangible personal property and assets owned or held by CBS and used primarily
in the conduct of the business and operations of the CBS Station. Except as
disclosed in Schedule 7.7, and except as may be subject to lease agreements of
CBS listed on Schedule 7.9, CBS owns and has, and will have on the
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Closing Date, good and marketable title to all such property (and to all other
tangible personal property and assets to be transferred to CBS hereunder), and
none of such property is, or at the Closing will be, subject to any security
interest, mortgage, pledge, conditional sales agreement or other lien or
encumbrance. All of the items of the tangible personal property and assets
included in the CBS Station Assets are in good operating condition (ordinary
wear and tear excepted) and are available for immediate use in the conduct of
the business and operations of the CBS Station. The technical equipment,
constituting a part of the tangible personal property transferred hereunder,
has been maintained in accordance with industry practice and is in good
operating condition and complies with all applicable rules and regulations of
the FCC and the terms of the CBS Station License.
7.8 Real Property.
7.8.1 Schedule 7.8 hereto contains a complete and accurate
list of all real property leased by CBS which is used by the CBS Station and
all agreements, leases and contracts of CBS relating to the towers,
transmitter, booster, studio site and offices of the CBS Station (collectively
the "CBS Real Estate Contracts") and a list of the applicable leases.
7.8.2 The CBS Real Estate Contracts listed on Schedule 7.8
constitute valid and binding obligations of CBS and, to the best of CBS's
knowledge, of all other persons purported to be parties thereto and are in
full force and effect as of the date hereof and will on the Closing Date
constitute valid and binding obligations of CBS and, to the best of CBS's
knowledge, of all other persons purported to be parties thereto and shall be
in full force and effect. CBS is not in default under any of the CBS Real
Estate Contracts and has not received or given written notice of any default
thereunder from or to any of the other parties thereto and will not have
received any such notice at or prior to the Closing. To the best of CBS's
knowledge, there are no present disputes or claims with respect to offsets or
defenses by either landlord or tenant against the other under any such lease.
CBS has delivered to SFX true and complete copies of all CBS Real Estate
Contracts.
7.8.3 Each parcel of CBS Real Estate has all appropriate
easements and access required to ensure uninterrupted use thereof. All
buildings, structures, improvements and fixtures comprising part of the real
properties owned or leased by CBS in the operation of the CBS Station are in
good operating condition.
7.9 Contracts. Schedule 7.9 lists the CBS Contracts as of the date of
this Agreement which are to be assumed by SFX as of the Closing Date. Those
Contracts requiring the consent of a third party to assignment which CBS and
SFX agree are critical to the consummation of the transactions contemplated
hereby are identified as "CBS Material Contracts" and are so marked on
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Schedule 7.9. Except as noted in Schedule 7.9, CBS has delivered to SFX true
and complete copies of all written CBS Contracts, including any and all
amendments and other modifications to such CBS Contracts, and written
summaries of all oral CBS Contracts. All such CBS Contracts are valid, binding
and enforceable by CBS in accordance with their respective terms. CBS has
complied with all such CBS Contracts and is not in default under any of such
CBS Contracts, and to the best of CBS's knowledge, no other contracting party
is in default under any of such CBS Contracts. No other party to any such CBS
Contract has made or asserted, or, to the best of CBS's knowledge has, any
defense, setoff or counterclaim under any such CBS Contract, no such other
party has exercised any option granted to it to cancel or terminate its
agreement, to shorten the term of its agreement, or to renew or extend the
term of its agreement and CBS has not received any notice to that effect.
Schedule 7.9 also contains a true and complete current trade barter summary
with respect to the CBS Station, including applicable asset and liability
balances with respect thereto (which Schedule shall be updated as of the
Closing).
7.10 Sufficiency of Assets. The CBS Station Assets and all other
rights to be conveyed to SFX hereunder are sufficient to carry on the conduct
of the operation of the CBS Station as presently conducted.
7.11 Environmental; Industrial Hygiene and Safety. CBS
has complied and is in compliance with CERCLA, TSCA, RCRA, OSHA
and all other federal, state and local environmental, industrial
hygiene and safety laws, rules and regulations applicable to the
CBS Station and its operation, including but not limited to the
FCC's guidelines regarding RF radiation. CBS has not unlawfully
disposed of any hazardous waste or hazardous substance including
PCBs in connection with the operation of the CBS Station. Except
as set forth on Schedule 7.11, the technical equipment included
in the CBS Station Assets does not contain any PCBs. No
hazardous waste has been disposed of by CBS, and to the best of
CBS's knowledge, no hazardous waste has been disposed of by any
other person, on the CBS Real Estate. As used herein, the term
"hazardous waste" shall mean as defined in RCRA and in the
equivalent state statute under Texas law. Except as set forth on
Schedule 7.11, there are no underground tanks at the CBS Station.
Except as set forth on Schedule 7.11, there is no asbestos
insulation or other asbestos-containing materials at the CBS
Station.
7.12 CBS Intellectual Property. Schedule 7.12 is a true and complete
list, of all CBS Intellectual Property applied for, issued to or owned by CBS
or under which CBS is a licensee, and used in the conduct of the business and
operations of the CBS Station referred to in Section 1.3.5 (but excluding
those included in the Excluded Assets and referred to in Section 1.4). Except
as set forth on Schedule 7.12, there are no agreements with third parties
which limit or restrict the right of the CBS Station to use or register any of
the CBS Intellectual Property.
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The CBS Station is not being operated in a manner that infringes any
trademark, copyright or other intellectual property right of any third party
or otherwise violates the rights of any third party, and no claim has been
made or, to the best of CBS's knowledge, threatened alleging any such
violation. To the best of CBS's knowledge, there has been no violation by
others of any right of CBS in any of the CBS Intellectual Property. Except as
set forth on Schedule 7.12, all registrations for the CBS Intellectual
Property are valid and in good standing. True and complete copies of all
documents relating to the CBS Intellectual Property have been delivered or
made available to SFX.
7.13 Financial Statements. Set forth in Schedule 7.13 are complete
copies of the unaudited statements of operating income for the CBS Station for
the period from January 1, 1995 to December 31, 1995, and the unaudited
Balance Sheet for the CBS Station dated as of December 31, 1995 ("Financial
Statements"). CBS shall also provide unaudited statements of operating income
for the CBS Station for the period from January 1, 1996 to March 31, 1996, and
an unaudited Balance Sheet for the CBS Station dated as of March 31, 1996 (the
"1996 Financial Statements"). The Financial Statements and the 1996 Financial
Statements have been prepared on a historic basis and do not include the
effect of the Westinghouse/CBS acquisition. The 1996 Financial Statements are
subject to certain year-end adjustments. The Financial Statements are, and the
1996 Financial Statements will be, true and correct in all material respects
and have been and in the case of the 1996 Financial Statements, will be,
prepared in accordance with the books and records of CBS and in accordance
with the policies and procedures of CBS applicable thereto, which differ from
generally accepted accounting principles in the respects set forth in Schedule
7.13. The Financial Statements present, and the 1996 Financial Statements will
present, fairly the financial condition and results of operations of the CBS
Station for the periods indicated.
7.14 Personnel.
7.14.1 Schedule 7.14 contains a true and complete list of
all persons employed at the CBS Station, including a description of material
compensation arrangements (other than employee benefit plans set forth in
Schedule 7.15) and a list of other terms of any and all agreements affecting
such persons. CBS has not received notification that any of the current key
employees of CBS at the CBS Station presently plan to terminate their
employment, whether by reason of the transactions contemplated hereby or
otherwise.
7.14.2 CBS is not a party to any contract with any labor
organization, nor has CBS agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining unit been
certified as representing any of CBS's employees at the CBS Station. CBS has
no knowledge of any organizational effort currently being made or threatened
by or on
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behalf of any labor union with respect to any of CBS's employees
at the CBS Station.
7.14.3 Except as disclosed in Schedule 7.14.3, CBS has
complied with all laws relating to the employment of labor, including, without
limitation, ERISA, and those laws relating to wages, hours, collective
bargaining, unemployment insurance, workers' compensation, equal employment
opportunity and payment and withholding of taxes in connection with the
operation of the CBS Station.
7.15 Employee Benefit Plans. Schedule 7.15 hereto contains a true and
complete list of each written and unwritten pension, retirement,
profit-sharing, deferred compensation bonus, incentive, performance, stock
option, medical, hospitalization, vision, dental or other health, life,
disability, severance, termination or other employee benefit plan, program,
arrangement, agreement, policy or understanding applicable to the employees of
the CBS Station (each, a "CBS Employee Benefit Plan"). Each CBS Employee
Benefit Plan complies in all material respects, and has been operated and
administered in all material respects in accordance with, all applicable
requirements of all laws and regulations of any public body or authority,
including COBRA and the regulations thereunder, and no "reportable event",
"prohibited transaction" (as such terms are defined in ERISA and the Code, as
applicable) or termination has occurred with respect to any CBS Employee
Benefit Plan. All contributions required under applicable law or the terms of
the CBS Employee Benefit Plans have been made within the time prescribed. SFX
shall have no obligations or liabilities under such CBS Employee Benefit Plans
on or after the Closing Date and any benefits due to any employee of the CBS
Station under such CBS Employee Benefit Plans shall be the sole responsibility
of CBS.
7.16 Litigation. Except as set forth in Schedule 7.16, CBS is subject
to no judgment, award, order, writ, injunction, arbitration decision or decree
affecting the conduct of the business of the CBS Station or the CBS Station
Assets, and there is no litigation, investigation or proceeding pending or, to
the best of CBS's knowledge, threatened, against CBS with respect to the CBS
Station in any federal, state or local court, or before any administrative
agency or arbitrator (including, without limitation, any proceeding which
seeks the forfeiture of, or opposes the renewal of, the CBS Station License),
or before any other tribunal duly authorized to resolve disputes, or which
seeks to enjoin or prohibit, or otherwise questions the validity of, any
action taken or to be taken pursuant to or in connection with this Agreement.
In particular, but without limiting the generality of the foregoing, there are
no applications, complaints or proceedings pending or, to the best of CBS's
knowledge, threatened before the FCC or any other governmental organization
with respect to the business or operations of the CBS Station other than
applications, complaints or proceedings which affect the broadcasting industry
generally.
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7.17 Compliance With Laws. Except as set forth in Schedule 7.17, CBS
has not received any notice asserting any non-compliance by it in connection
with the business or operation of the CBS Station with any applicable statute,
rule or regulation, whether federal, state or local. CBS is not in default
with respect to any judgment, order, injunction or decree of any court,
administrative agency or other governmental authority or any other tribunal
duly authorized to resolve disputes in connection with the business or
operation of the CBS Station. CBS is in compliance with all laws, regulations
and governmental orders applicable to the conduct of the business or operation
of the CBS Station, and its present use of the CBS Station Assets does not
violate any of such laws, regulations or orders.
7.18 Commissions or Finder's Fees. Except for the brokerage fees
payable to Star Media Group, Inc., neither CBS nor any person or entity acting
on its behalf has agreed to pay a commission, finder's fee or similar payment
in connection with this Agreement or any matter related hereto to any person
or entity.
7.19 Insurance. CBS currently maintains in full force and effect the
property damage, liability and other insurance coverages with respect to the
CBS Station Assets which are listed on Schedule 7.19.
7.20 Undisclosed Obligations. Except as disclosed on Schedule 7.20
hereto or on any other Schedule to this Agreement, CBS does not have any
liability or obligation of any kind with respect to the CBS Station or the CBS
Station Assets, whether accrued, absolute, fixed or contingent, known or
unknown, other than liabilities and obligations not being assumed by SFX.
7.21 No Material Adverse Change. Except as set forth on Schedule
7.21, since December 31, 1995, there has been no change in circumstances which
has had a Material Adverse Effect on the CBS Station, nor to the best
knowledge of CBS is any such change threatened, nor has there been any damage,
destruction or loss which could have a Material Adverse Effect on the CBS
Station whether or not covered by insurance.
ARTICLE 8
COVENANTS OF SFX
8.1 Records. SFX, for a period of seven (7) years following the
Closing Date, shall make available during normal business hours for audit and
inspection by CBS and its representatives for any reasonable purpose all
records, files, documents and correspondence transferred to it hereunder in
connection with the CBS Station with respect to taxes, regulation and
litigation; provided, however, that SFX may dispose of or destroy any such
records, files, documents and correspondence during such period after giving
CBS sixty (60) days' written
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notice to permit CBS, at its expense, to examine, duplicate or take possession
of such records, files, documents and correspondence. During such period, SFX
shall make available to CBS at CBS's expense upon reasonable written request,
and consistent with the business requirements of SFX, personnel of SFX to
assist CBS in locating and obtaining records and files with respect to the CBS
Station for periods prior to the Closing Date.
8.2 Employee Matters.
8.2.1 On the Closing Date, SFX shall offer employment at
will to all but up to five (5) of the employees of the CBS Station employed on
that date by CBS, including but not limited to each employee on an approved
leave of absence ("CBS Leave of Absence Employee") (collectively, "New
Employees of SFX"). The employment for employees of the CBS Station actively
employed on the Closing Date who receive offers of employment will commence on
the Closing Date and the employment for CBS Leave of Absence Employees who
receive offers of employment will commence on the dates that such leaves
terminate. SFX shall notify CBS of those employees to whom it will so offer
employment at least thirty (30) days prior to the Closing Date. CBS shall be
responsible for severance payments which may be applicable under its employee
benefit plans to any employees not so offered employment by SFX.
8.2.2 CBS shall be responsible for all salary and benefits
of the employees of the CBS Station for the period prior to the Closing Date
and all salary and benefits of each CBS Leave of Absence Employee until such
CBS Leave of Absence Employee returns to work after the Closing Date and is
offered employment pursuant to Section 8.2.1 with SFX. All employees of the
CBS Station except CBS Leave of Absence Employees shall cease active
participation in all of CBS's employee benefit plans on the Closing Date, in
accordance with the terms of such plans.
8.2.3 All New Employees of SFX shall receive credit for
eligibility and vesting purposes (but not for the purpose of benefit accrual)
for years of service with CBS under all employee benefit plans and programs
maintained for employees of SFX (excluding severance). CBS shall cause its
employee benefit plans to grant each New Employee of SFX credit for service
with SFX for the purposes of eligibility and vesting (but not for the purpose
of benefit accrual). During the remainder of the calendar year in which the
Closing occurs, all New Employees of SFX shall be eligible to take whatever
remaining vacation they had with CBS as of the Closing Date. CBS shall pay the
amount of such vacation liability to SFX on the Closing Date.
8.3 Sales Representation Agreement. SFX agrees to
terminate its national sales representation agreement with Torbet
Radio effective as of the Closing Date.
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ARTICLE 9
COVENANTS OF CBS
9.1 Records. CBS, for a period of seven (7) years following the
Closing Date, shall make available during normal business hours for audit and
inspection by SFX and its representatives for any reasonable purpose all
records, files, documents and correspondence transferred to it hereunder in
connection with the SFX Station with respect to taxes, regulation and
litigation; provided, however, that CBS may dispose of or destroy any such
records, files, documents and correspondence during such period after giving
SFX sixty (60) days' written notice to permit SFX, at its expense, to examine,
duplicate or take possession of such records, files, documents and
correspondence. During such period, CBS shall make available to SFX at SFX's
expense upon reasonable written request, and consistent with the business
requirements of CBS, personnel of CBS to assist SFX in locating and obtaining
records and files with respect to the SFX Station for periods prior to the
Closing Date.
9.2 Employee Matters.
9.2.1 On the Closing Date, CBS shall offer employment at
will to all but up to five (5) of the employees of the SFX Station employed on
that date by SFX (other than any employees whose duties are primarily devoted
to the performance of the Rangers Contract or the Ancillary Agreements, which
employees shall remain the responsibility of SFX), including but not limited
to each employee on an approved leave of absence ("SFX Leave of Absence
Employee") (collectively, "New Employees of CBS"). The employment for
employees of the SFX Station actively employed on the Closing Date who receive
offers of employment will commence on the Closing Date and the employment for
SFX Leave of Absence Employees who receive offers of employment will commence
on the dates that such leaves terminate. CBS shall notify SFX of those
employees to whom it will so offer employment at least thirty (30) days prior
to the Closing Date. SFX shall be responsible for severance payments which may
be applicable under its employee benefit plans to any employees not so offered
employment by CBS.
9.2.2 SFX shall be responsible for all salary and benefits
of the employees of the SFX Station for the period prior to the Closing Date
and all salary and benefits of each SFX Leave of Absence Employee until such
SFX Leave of Absence Employee returns to work after the Closing Date and is
offered employment pursuant to Section 9.2.1 with CBS. All employees of the
SFX Station except SFX Leave of Absence Employees shall cease active
participation in all of SFX's employee benefit plans on the Closing Date, in
accordance with the terms of such plans.
9.2.3 All New Employees of CBS shall receive credit for
eligibility and vesting purposes (but not for the purpose of benefit accrual)
for years of service with SFX under all employee benefit plans and programs
maintained for employees of CBS
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(excluding severance). SFX shall cause its employee benefit plans to grant
each New Employee of CBS credit for service with CBS for the purposes of
eligibility and vesting (but not for the purpose of benefit accrual). During
the remainder of the calendar year in which the Closing occurs, all New
Employees of CBS shall be eligible to take whatever remaining vacation they
had with SFX as of the Closing Date. SFX shall pay the amount of such vacation
liability to CBS on the Closing Date.
9.3 Sales Representative Agreement. CBS agrees to
terminate its national sales representation agreement with CBS
Radio Representatives effective as of the Closing Date.
ARTICLE 10
MUTUAL COVENANTS
10.1 Pre-Closing Covenants. SFX and CBS covenant and agree with
respect to the SFX Station and CBS Station, respectively, that between the
date hereof and the Closing Date, except as expressly permitted by this
Agreement or with the prior written consent of the other party, they shall act
in accordance with the following:
10.1.1 Each party shall conduct the business and
operations of its Station in the ordinary and prudent course of business, and
shall use all reasonable efforts, consistent with its past practices, (i) to
preserve the ongoing operations and assets of its Station, (ii) to preserve
the goodwill and business of the advertisers, suppliers and others having
business relations with its Station, (iii) to retain the services of the
employees of its Station, and (iv) to maintain the independent identity of its
Station.
Neither party shall:
(i) sell or dispose of or commit to sell or
dispose of any of its Station Assets;
(ii) enter into any commitment for capital
expenditures for which the other party would be liable after the
Closing Date;
(iii) sell broadcast time on a prepaid basis (other than
in the course of existing Station credit practices) or introduce any deeply
discounted promotions for the sale of advertising time at its Station;
(iv) enter into any collective bargaining or, through
negotiation (the status of which will be regularly communicated to the other
party) or otherwise, make any commitment or incur any liability to any labor
organization relating to any Station employee (to the extent the foregoing
does not violate applicable law);
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(v) grant or agree to grant any general increases in the
rates of salaries or compensation payable to employees of its Station (except
for increases substantially in accordance with existing employment practice);
(vi) grant or agree to grant any specific bonus or
increase to any executive or management employee of its Station (except for
increases substantially in accordance with existing employment practice);
(vii) provide for any new pension, retirement or other
employment benefits for employees of its Station or any increases in any
existing benefits (except for increases substantially in accordance with
existing employment practice);
(viii) modify, change or terminate any of its
Contracts;
(ix) introduce any material changes in the
broadcast hours or in the format of its Station or any other
material change in its Station's programming policies; or
(x) enter into any transaction or make or enter into any
contract or commitment which by reason of its size or otherwise is not in the
ordinary course of business.
10.1.2 Each party shall operate its Station in accordance
with FCC Rules and Regulations and its Station License and with all other
laws, regulations, rules and orders, and shall not cause or permit by any act,
or failure to act, its Station License to expire, be surrendered, adversely
modified, or otherwise terminated, or the FCC to institute any proceedings for
the suspension, revocation or adverse modification of its Station License, or
fail to prosecute with due diligence any pending applications to the FCC.
10.1.3 Should any fact relating to either party which
would cause the FCC to deny its consent to the transactions contemplated by
this Agreement come to either party's attention, such party will promptly
notify the other party thereof and will use all reasonable efforts to take
such steps as may be necessary to remove any such impediment to the
transactions contemplated by this Agreement.
10.1.4 Each party will provide the other party prompt
written notice of any change in any of the information contained in the
representations and warranties made in Article 6 or 7 hereof or any Exhibits
or Schedules referred to herein or attached hereto.
10.1.5 Each party shall give or cause its Station to give
the other party's counsel, accountants, engineers and other representatives,
at the other party's reasonable request, full and reasonable access during
normal business hours to all of such party's personnel, properties, books,
Contracts, reports and
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records including financial information and tax returns relating to its
Station, to all real estate, buildings and equipment relating to its Station,
and to its Station's employees in order that the other party may have full
opportunity to make such investigation as it desires of the affairs of the
Station and to furnish the other party with information, and copies of all
documents and agreements including but not limited to financial and operating
data and other information concerning the financial condition, results of
operations and business of the Station, that the other party may reasonably
request in connection with the preparation of audited and unaudited
station-level financial statements. Both parties agree that any audits shall
be at the sole expense and staffing of the party requesting such audits. Each
party shall have the right to perform a Phase 1 environmental audit with
respect to the real estate and operations of the other party's Station, and
the industrial hygiene and safety condition thereof. In the event that the
party performing the audit believes that any further environmental
investigation is required as a result of the conclusions of any Phase 1
environmental audit report, the parties will consult with each other and
mutually agree on the scope of any additional environmental investigation. The
rights of each party under this Section shall not be exercised in such a
manner as to interfere unreasonably with the business of the other party's
Station.
10.1.6 Within fifteen (15) days of the end of each month,
each party shall deliver to the other party an unaudited statement of revenue
and expenses of its Station and a balance sheet for the month then ended
(collectively, the "Interim Financial Statements"). The Interim Financial
Statements shall be prepared in accordance with practices consistent with
those followed in the preparation of the Financial Statements delivered
pursuant to Sections 6.13 and 7.13 hereof. Such Interim Financial Statements
shall be true and complete in all material respects and fairly present the
results of operation of each party's Station for the periods covered by such
statements. Each party shall furnish to the other party any and all
information customarily prepared by such party concerning the financial
condition of its Station that the other party may request.
10.1.7 Each party shall use all reasonable efforts (but
shall not be required to make any payment) to obtain any third party consents
necessary for the assignment of its Contracts to the other party, provided
that no payment shall be made by the Station of the party seeking such
consent, and no Contract shall be modified to increase the amount payable
thereunder or to otherwise modify the terms thereof in a manner adverse to
such Station, in order to obtain any such consent without first obtaining the
written consent of the other party.
10.1.8 Each party shall also use its best efforts to cause
advertisers on its Station to use the air time available under trade and
barter contracts and agreements prior to the Closing Date and will not enter
into any new barter agreements at
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its Station unless it discharges or satisfies over 90% of the liability
contained in the existing agreements for such advertisers prior to the Closing
Date or receives the permission of the other party. Each party will also
confirm in writing with the existing clients of its Station prior to the
Closing Date their trade balances contained on the trade report for its
Station in order to verify the accuracy of the balances. Trade agreements that
have expired or will expire prior to the Closing Date shall not be extended
without the approval of the other party. Each party will also use its best
efforts to bring its Station's overall trade position to zero prior to the
Closing Date.
10.2 Notification.
10.2.1 Each party shall notify the other party of any
material litigation, arbitration or administrative proceeding pending or, to
its knowledge, threatened against the other party which challenges the
transactions contemplated hereby.
10.2.2 Each party shall promptly notify the other party if
its Station's normal broadcast transmissions are interrupted, interfered with
or in any way impaired, and shall provide the other party with prompt written
notice of the problem and the measures being taken to correct such problem. If
such Station is not restored so that operation is resumed to full licensed
power and antenna height within five (5) days of such event, or if more than
three (3) such events occur within any thirty (30) day period, or if the
Station shall be off the air for more than seventy-two (72) consecutive hours,
then the other party shall have the right to terminate this Agreement.
10.3 No Inconsistent Action. Neither party shall take any
action which is materially inconsistent with its obligations
under this Agreement.
10.4 Closing Covenant. On the Closing Date, each party shall
transfer, convey, assign and deliver to the other party its Station Assets and
each party shall assume its Assumed Liabilities as provided in Articles 1 and
2 of this Agreement.
10.5 Other Items. Except as otherwise specifically contemplated by
this Agreement, until the Closing Date, each party shall (i) maintain in full
force and effect such property damages, liability and other insurance
coverages with respect to its Station Assets as it currently has in effect,
and (ii) maintain its inventory levels (including office supplies, spare
parts, tubes, equipment and the like) at levels consistent with the normal and
ordinary course of operation of its Station.
10.6 Conditions. If any event should occur, either within or without
the control of any party hereto, which would prevent fulfillment of the
conditions upon the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, the parties hereto shall use
their best efforts to cure the event as expeditiously as possible.
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10.7 Confidentiality. CBS and SFX shall each keep confidential all
information obtained by it with respect to the other party in connection with
this Agreement and the transactions contemplated hereby and will use such
information solely in connection with the transactions contemplated hereby,
pursuant to the terms and conditions of the Confidentiality Agreement between
them dated February 16, 1996. If the transactions contemplated hereby are not
consummated for any reason, the parties shall continue to be bound by such
Confidentiality Agreement, and each party shall return to the other party,
without retaining a copy thereof, any schedules, documents or other written
information obtained from the other party in connection with this Agreement
and the transactions contemplated hereby.
10.8 Cooperation. CBS and SFX shall cooperate fully with each other
in taking any actions, including actions to obtain the required consent of any
governmental instrumentality or any third party necessary or helpful to
accomplish the transactions contemplated by this Agreement; provided, however,
that no party shall be required to take any action which would have a Material
Adverse Effect upon it or any of its Affiliates. Each party shall also make
available to the other party after the Closing Date, upon reasonable request,
such of its personnel who were employees of the other party's Station prior to
the Closing Date whose assistance or participation is reasonably requested by
the other party in anticipation of, preparation for or the prosecution or
defense of existing or future litigation, tax returns or other matters
relating to the period prior to the Closing Date.
10.9 Control of Stations. Neither party shall, directly or
indirectly, control, supervise or direct the operations of the other party's
Station. Such operations, including complete control and supervision of all
station programs, employees and policies, shall be the sole responsibility of
the party owning such Station.
10.10 Consents to Assignment. To the extent that any Contract (other
than a Material Contract) identified in the Schedules is not capable of being
sold, assigned, transferred, delivered or subleased without the waiver or
consent of any third person (including a government or governmental unit), or
if such sale, assignment, transfer, delivery or sublease or attempted sale,
assignment, transfer, delivery or sublease would constitute a breach thereof
or a violation of any law or regulation, this Agreement and any assignment
executed pursuant hereto shall not constitute a sale, assignment, transfer,
delivery or sublease or an attempted sale, assignment, transfer, delivery or
sublease thereof. In those cases where consents, assignments, releases and/or
waivers have not been obtained at or prior to the Closing Date to the transfer
and assignment to the other party of the Contracts, this Agreement and any
assignment executed pursuant hereto, to the extent permitted by law, shall
constitute an equitable assignment by the assigning party to the other party
of
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all of the assigning party's rights, benefits, title and interest in and to
the Contracts, and where necessary or appropriate, the other party shall be
deemed to be the assigning party's agent for the purpose of completing,
fulfilling and discharging all of the assigning party's rights and liabilities
arising after the Closing Date under such Contracts. The assigning party shall
use all reasonable efforts to provide the other party with the benefits of
such Contracts (including, without limitation, permitting the other party to
enforce any rights of the assigning party arising under such Contracts), and
the other party shall, to the extent the assigning party is provided with the
benefits of such Contracts, assume, perform and in due course pay and
discharge all debts, obligations and liabilities of the assigning party under
such Contracts.
10.11 Waiver of Compliance with Bulk Sales Law. Each party waives
compliance by the other party with the provisions of any "bulk sales" law
applicable to the transactions contemplated hereby; provided, that each party
agrees to indemnify the other party pursuant to Section 15 for such
noncompliance.
10.12 Accounts Receivable.
10.12.1 Both parties acknowledge that all accounts
receivable of the other party for services performed by such other party in
connection with the operation of its Station prior to the Closing Date
("Closing Accounts Receivable"), shall remain the property of the other party.
10.12.2 After the Closing Date and until such time as an
account receivable has aged for 120 days, SFX and CBS shall each use
reasonable efforts to collect, in the manner regularly pursued by SFX and CBS
in the ordinary course of their business, such of the other party's Closing
Accounts Receivable as are collectible. SFX and CBS will each furnish to the
other party a complete list of the other party's Closing Accounts Receivable
within twenty (20) days after the Closing Date. Any funds received after the
Closing Date by either party with respect to the other party's Closing
Accounts Receivables shall be forwarded directly to SFX or CBS as applicable,
for deposit and processing. If any Closing Accounts Receivable are received by
SFX or CBS in combination with accounts receivable arising after the Closing
Date, SFX or CBS will deposit such funds into its own account and remit such
portions of the funds received applicable to the other party's Closing
Accounts Receivable along with backup documentation by the 15th day of the
following month. Each party will supply the other party with a Closing
Accounts Receivable aging report for such other party's Closing Accounts
Receivable on a monthly basis to track the remaining outstanding Closing
Accounts Receivable of such other party until both parties mutually agree to
discontinue such reports. Neither SFX nor CBS shall be required or authorized
to institute any litigation or employ counsel or to utilize any means of
collection outside of the ordinary course of business with respect to any of
the other party's Closing Accounts Receivable, respectively, unless
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authorized in writing by the other party. All payments received from account
debtors on account of Closing Accounts Receivable shall be applied to the
account debtor's oldest accounts receivable first, except to the extent that
an account debtor shall specify that its payments relate to a specific
invoice. Both parties will make reasonable efforts to handle ongoing customers
in a manner that helps to insure the continuity of such customer's business
with the other party's Station.
ARTICLE 11
CONDITIONS OF CLOSING BY CBS
The obligations of CBS hereunder are, at its option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
11.1 Representations, Warranties and Covenants.
11.1.1 All representations and warranties of SFX and SFX
Broadcasting made in this Agreement or in any Exhibit, Schedule or document
delivered pursuant hereto, shall be true and complete in all material respects
as of the date hereof and on and as of the Closing Date as if made on and as
of that date, except for changes expressly permitted or contemplated by the
terms of this Agreement.
11.1.2 All of the terms, covenants and conditions to be
complied with and performed by SFX and SFX Broadcasting on or prior to Closing
Date shall have been complied with or performed in all material respects.
11.1.3 CBS shall have received a certificate, dated as of
the Closing Date, executed by an officer of SFX and SFX Broadcasting, to the
effect that the representations and warranties of SFX and SFX Broadcasting
contained in this Agreement are true and complete in all material respects on
and as of the Closing Date as if made on and as of that date, and that SFX and
SFX Broadcasting have complied with or performed all terms, covenants and
conditions to be complied with or performed by them in all material respects
on or prior to the Closing Date.
11.2 Governmental Consents. The conditions specified in
Sections 5.1, 5.2 and 5.3 of this Agreement shall have been
satisfied.
11.3 Governmental Authorizations. SFX shall be the holder of the SFX
Station Licenses and all other material licenses, permits and other
authorizations listed in Schedule 6.4, and there shall not have been any
modification of any of such licenses, permits and other authorizations which
has a Material Adverse Effect on the SFX Station or the conduct of its
business and operations. No proceeding shall be pending which seeks or the
effect of which reasonably could be to revoke, cancel, fail to renew, suspend
or modify materially and adversely the SFX
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Station Licenses or any other material licenses, permits or other
authorizations of the SFX Station.
11.4 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered
against, any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms.
11.5 Legal Opinion. SFX shall have delivered to CBS a written opinion
of its in-house corporate counsel, dated as of the Closing Date, with respect
to the matters set forth in Schedule 11.5 attached hereto, in a form
satisfactory to CBS and SFX.
11.6 Board Approval. The WELCO and CBS Boards shall have
authorized the transactions to be consummated by CBS at the
Closing.
11.7 Third-Party Consents. SFX shall have obtained and
shall have delivered to CBS all third-party consents to the SFX
Material Contracts.
11.8 Closing Documents. SFX shall have delivered or caused to be
delivered to CBS, on the Closing Date, all deeds, bills of sale, endorsements,
assignment and other instruments of conveyance and transfer reasonably
satisfactory in form and substance to CBS, effecting the sale, transfer,
assignment and conveyance of the SFX Station Assets to CBS, including, without
limitation, each of the documents required to be delivered pursuant to Article
14.
11.9 Financing Statements. SFX shall have delivered to CBS releases
under the Uniform Commercial Code of any financing statements filed against
any of the SFX Station Assets in the jurisdictions in which the SFX Station
Assets are and have been located since such SFX Station Assets were acquired
by SFX.
11.10 Environmental Condition. CBS shall have been satisfied in its
sole discretion that any environmental conditions identified in the Phase 1
environmental audit report with respect to the SFX Real Estate and operations
of the SFX Station, and the environmental and industrial hygiene and safety
condition of the SFX Real Estate and operations of the SFX Station, shall have
been or is scheduled to be satisfactorily remediated.
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ARTICLE 12
CONDITIONS OF CLOSING BY SFX AND SFX BROADCASTING
The obligations of SFX and SFX Broadcasting hereunder are, at its
option, subject to satisfaction, at or prior to the Closing Date, of each of
the following conditions:
12.1 Representations, Warranties and Covenants.
12.1.1 All representations and warranties of CBS made in
this Agreement or in any Exhibit, Schedule or document delivered pursuant
hereto, shall be true and complete in all material respects as of the date
hereof and on and as of the Closing Date as if made on and as of that date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
12.1.2 All of the terms, covenants and conditions to be
complied with and performed by CBS on or prior to the Closing Date shall have
been complied with or performed in all material respects.
12.1.3 SFX shall have received a certificate, dated as of
the Closing Date, executed by an officer of CBS, to the effect that the
representations and warranties of CBS contained in this Agreement are true and
complete in all material respects on and as of the Closing Date as if made on
and as of that date, and that CBS has complied with or performed all terms,
covenants and conditions to be complied with or performed by it in all
material respects on or prior to the Closing Date.
12.2 Governmental Consents. The conditions specified in
Sections 5.1, 5.2 and 5.3 of this Agreement shall have been
satisfied.
12.3 Government Authorizations. CBS shall be the holder of the CBS
Station License and all other material licenses, permits and other
authorizations listed in Schedule 7.4, and there shall not have been any
modification of any of such licenses, permits and other authorizations which
has a Material Adverse Effect on the CBS Station or the conduct of its
business and operations. No proceeding shall be pending which seeks or the
effect of which reasonably could be to revoke, cancel, fail to renew, suspend
or modify materially and adversely the CBS Station License or any other
material licenses, permits or other authorizations of the CBS Station.
12.4 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no other, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
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12.5 Legal Opinion. CBS shall have delivered to SFX an opinion of its
counsel, an employee of CBS, dated as of the Closing Date, with respect to the
matters set forth in Schedule 12.5 attached hereto in a form satisfactory to
CBS and SFX.
12.6 Third-Party Consents. CBS shall have obtained and
shall have delivered to SFX all third-party consents to the CBS
Material Contracts.
12.7 Closing Documents. CBS shall have delivered or caused to be
delivered to SFX, on the Closing Date, all deeds, bills of sale, endorsements,
assignment and other instruments of conveyance and transfer reasonably
satisfactory in form and substance to SFX, effecting the sale, transfer,
assignment and conveyance of the CBS Station Assets to SFX, including, without
limitation, each of the documents required to be delivered pursuant to Article
14.
12.8 Financing Statements. CBS shall have delivered to SFX releases
under the Uniform Commercial Code of any financing statements filed against
any of the CBS Station Assets in the jurisdictions in which the CBS Station
Assets are and have been located since such CBS Station Assets were acquired
by CBS.
12.9 Environmental Condition. SFX shall have been satisfied in its
sole discretion that any environmental conditions identified in the Phase 1
environmental audit report with respect to the CBS Real Estate and operations
of the CBS Station, and the environmental and industrial hygiene and safety
condition of the CBS Real Estate and operations of the CBS Station, shall have
been or is scheduled to be satisfactorily remediated.
ARTICLE 13
EXPENSES; TRANSFER TAXES; AND FEES
13.1 Expenses; Transfer Taxes. Except as set forth in Sections 13.2
and 13.3 hereof, each party hereto shall be solely responsible for all costs
and expense incurred by it in connection with the negotiation, preparation and
performance of and compliance with the terms of this Agreement,including all
recordation, transfer and documentary taxes and fees, and any excise, sales or
use taxes, associated with transferring its Station Assets in accordance with
this Agreement, and any filing or grant fees imposed by any governmental
authority, the consent of which is required to the transactions contemplated
hereby.
13.2 Brokerage Fee. The brokerage fee of Star Media
Group, Inc. shall be borne equally by CBS and SFX.
13.3 Appraisal Fee. The appraisal fee of the independent
valuation firm selected in accordance with Section 3.2 shall be
borne equally by CBS and SFX.
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ARTICLE 14
DOCUMENTS TO BE DELIVERED AT CLOSING
14.1 SFX's Documents. At the Closing, SFX and SFX
Broadcasting shall deliver or cause to be delivered to CBS the
following:
14.1.1 Bill of Sale, general warranty deed, assignments
and other good and sufficient instruments of conveyance, transfer and
assignment, all in form and substance reasonably satisfactory to counsel for
CBS, as shall be effective to vest in CBS or its permitted assignees, good and
marketable title in and to the SFX Station Assets transferred pursuant to this
Agreement in accordance with the terms of this Agreement;
14.1.2 Certified resolutions of the Boards of Directors of
SFX and SFX Broadcasting approving the execution and delivery of this
Agreement and each of the other documents and authorizing the consummation of
the transactions contemplated hereby and thereby;
14.1.3 A certificate, dated the Closing Date, by SFX and
SFX Broadcasting in the form described in Section 11.1.3 hereof;
14.1.4 At the time and place of Closing, originals or
copies of all program, operations, transmissions, or maintenance logs and all
other records required to be maintained by the FCC with respect to the SFX
Station, including the SFX's Station's public file, shall be left at the SFX
Station and thereby delivered to CBS;
14.1.5 An assignment and assumption agreement or
agreements reasonably satisfactory in form and substance to counsel to CBS
effecting the assumption of the SFX Assumed Liabilities;
14.1.6 Certificates of Good Standing for SFX and SFX
Broadcasting from the States of Delaware and Texas certified as of a date not
more than thirty (30) days before the Closing Date;
14.1.7 The opinion of SFX's counsel referenced in
Section 11.5 hereof; and
14.1.8 Such additional information and materials as CBS
shall have reasonably requested.
14.2 CBS's Documents. At the Closing, CBS shall deliver
or cause to be delivered to SFX and SFX Broadcasting the
following:
14.2.1 Bill of Sale, assignments and other good and
sufficient instruments of conveyance, transfer and assignment, all in form and
substance reasonably satisfactory to counsel for SFX, as shall be effective to
vest in SFX or its permitted
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assignees, good and marketable title in and to the CBS Station Assets
transferred pursuant to this Agreement in accordance with the terms of this
Agreement;
14.2.2 Certified resolutions of the Board of Directors of
CBS and WELCO approving the execution and delivery of this Agreement and each
of the other documents and agreements referred to herein and authorizing the
consummation of the transactions contemplated hereby and thereby; and
14.2.3 A certificate, dated the Closing Date, by CBS
in the form described in Section 12.1.3 hereof;
14.2.4 At the time and place of Closing, CBS's originals
or copies of all program, operations, transmissions, or maintenance logs and
all other records required to be maintained by the FCC with respect to the CBS
Station, including the CBS Station's public file, shall be left at the CBS
Station and thereby delivered to SFX;
14.2.5 An assignment and assumption agreement or
agreements reasonably satisfactory in form and substance to counsel to SFX
effecting the assumption of the CBS Assumed Liabilities;
14.2.6 Certificates of Good Standing for CBS from the
States of New York and Texas dated not more than thirty (30) days before the
Closing Date;
14.2.7 The opinion of CBS's counsel referenced in
Section 12.5 hereof; and
14.2.8 Such additional information and materials as SFX
shall have reasonably requested.
ARTICLE 15
INDEMNIFICATION
15.1 SFX's Indemnities. SFX and SFX Broadcasting hereby agree to
indemnify, defend and hold harmless CBS, its Affiliates and their respective
officers and directors (the "CBS Indemnitees") with respect to any and all
demands, claims, actions, suits, proceedings, assessments, judgments, costs,
losses, damages, liabilities and expenses (including, without limitation,
interest, penalties, court costs and reasonable attorneys' fees) (
collectively "Damages") asserted against, resulting from, imposed upon or
incurred by the CBS Indemnitees directly or indirectly relating to or arising
out of:
15.1.1 The breach by SFX or SFX Broadcasting of any of
their representations or warranties, or failure by SFX or SFX Broadcasting to
perform any covenants, conditions or agreements of SFX or SFX Broadcasting set
forth in this Agreement;
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15.1.2 The SFX Assumed Liabilities;
15.1.3 The SFX Retained Liabilities, including the
Rangers Contract and the Ancillary Agreements;
15.1.4 Any employee benefit plan maintained by SFX;
15.1.5 Any failure by SFX to comply with any "bulk
sales" law applicable to the transactions contemplated hereby;
and
15.1.6 Any and all claims, liabilities or obligations of
any nature, absolute or contingent, relating to the business and operation of
the SFX Station prior to the Closing Date.
15.2 CBS's Indemnities. CBS hereby agrees to indemnify, defend and
hold harmless SFX, SFX Broadcasting, their Affiliates and their respective
officers and directors (the "SFX Indemnitees") with respect to any and all
Damages asserted against, resulting from, imposed upon or incurred by the SFX
Indemnitees directly or indirectly relating to or arising out of:
15.2.1 The breach by CBS of any of its
representations, warranties, or failure by CBS to perform any
covenants, conditions or agreements of CBS set forth in this
Agreement;
15.2.2 The CBS Assumed Liabilities;
15.2.3 The CBS Retained Liabilities;
15.2.4 Any employee benefit plan maintained by CBS;
15.2.5 Any failure by CBS to comply with any "bulk
sales" law applicable to the transactions contemplated hereby;
and
15.2.6 Any and all claims, liabilities or obligations of
any nature, absolute or contingent, relating to the business and operation of
the CBS Station prior to the Closing Date.
15.3 Survival of Representations and Warranties. The representations
and warranties contained herein shall survive the Closing for a period of two
(2) years following the Closing Date, except for the representation and
warranty with respect to taxes set forth in Sections 6.6 and 7.6, which shall
survive until the expiration of any statutes of limitations applicable with
respect to such taxes, and the representations and warranties with respect to
title set forth in Sections 6.7, 6.8.3, 7.7 and 7.8.3 and the environmental
representations in Sections 6.11 and 7.11 which shall survive the Closing for
five years, and upon the expiration of such periods shall lapse and be of no
further
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effect unless a specific claim shall have been made or an action shall have
been commenced before such date.
15.4 Procedures.
15.4.1 Promptly after the receipt by either party (the
"Indemnified Party") of notice of (a) any claim or (b) the commencement of any
action or proceeding which may entitle such party to indemnification under
this Section, such party shall give the other party (the "Indemnifying Party")
written notice of such claim or the commencement of such action or proceeding
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting from such claim.
15.4.2 If the Indemnifying Party assumes the defense of
any such claim or litigation resulting therefrom, the obligations of the
Indemnifying Party as to such claim shall be limited to taking all steps
necessary in the defense or settlement of such claim or litigation resulting
therefrom and to holding the Indemnified Party harmless from and against any
Damages caused by or arising out of any settlement approved by the
Indemnifying Party or any judgment in connection with such claim or litigation
resulting therefrom; however, the Indemnified Party may participate, at its
expense, in the defense of such claim or litigation provided that the
Indemnifying Party shall direct and control the defense of such claim or
litigation. The Indemnified Party shall cooperate and make available all books
and records reasonably necessary and useful in connection with the defense.
The Indemnifying Party shall not, in the defense of such claim or any
litigation resulting therefrom, consent to entry of any judgment, except with
the written consent of the Indemnified Party, or enter into any settlement,
except with the written consent of the Indemnified Party, which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect
of such claim or litigation.
15.4.3 If the Indemnifying Party shall not assume the
defense of any such claim or litigation resulting therefrom within 45 days
after notice thereof from the Indemnified Party, the Indemnified Party may,
but shall have no obligation to, defend against such claim or litigation in
such manner as it may deem appropriate, and the Indemnified Party may
compromise or settle such claim or litigation without the Indemnifying Party's
consent. The Indemnifying Party shall promptly reimburse the Indemnified Party
for the amount of all expenses, legal or otherwise, incurred by the
Indemnified Party in connection with the defense against or settlement of such
claim or litigation. If no settlement of the claim or litigation is made, the
Indemnifying Party shall promptly reimburse the Indemnified Party for the
amount of any judgment rendered with respect to such claim or in such
litigation and of all expenses, legal or otherwise, incurred by the
Indemnified Party in the defense against such claim or litigation.
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15.5 Limits on and Conditions of Indemnification.
15.5.1 Threshold Amount. Neither party shall be
liable to the other party for any Damages under this Agreement
resulting from the falsity or breach of any of the representations or
warranties set forth in Articles 6 or 7, except to the extent that the
aggregate amount of such Damages exceeds the amount of $50,000 (the "Threshold
Amount"); provided, however, that once such aggregate has been exceeded, such
party shall be liable for the amount of all Damages, including the Threshold
Amount.
15.5.2 Consequential Damages. Neither party shall be
liable to or indemnify the other party for Damages arising out of any loss or
interruption of business, profits, business opportunities or goodwill, loss of
use of facilities, cost of capital, claims of customers, or any other
indirect, special or consequential damages or any cost or expense related to
such Damages. The limitation against liability contained herein shall apply
whether the action in which recovery of Damages is sought is based on
contract, tort (including sole, concurrent or other negligence and strict
liability), statute or otherwise. To the extent permitted by law, any
statutory remedies which are inconsistent with the provisions of these terms
are waived.
15.5.3 Other Limitations. Neither party shall be
liable to or indemnify the other party for Damages to the extent
that the same are: (a) caused, contributed to or exacerbated by
the other party; or (b) recovered from any third party (including
any insurance proceeds).
15.5.4 Exclusive Remedy. The remedies provided for under
this Article 15 and Section 17.1 shall be the exclusive remedies of the
parties with respect to the matters covered by this Agreement. Neither party
shall be entitled to a rescission of this Agreement.
15.5.5 Assignment of Claims. In the event that any of the
Damages for which an Indemnifying Party is responsible or allegedly
responsible hereunder are recoverable or potentially recoverable against any
third party at the time when payment is due under this Article 15, then, the
Indemnified Party shall assign any and all rights that it may have that are
related in any fashion to the Damages or the facts or circumstances giving
rise thereto to the Indemnifying Party as a condition to any payment due under
this Article 15, or, if such rights are not assignable under applicable law or
otherwise, the Indemnified Party hereunder shall attempt in good faith to
collect any and all damages and losses on account thereof from such third
party for the benefit of, and at the expense and direction of, the
Indemnifying Party.
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ARTICLE 16
TERMINATION RIGHTS
16.1 Termination.
16.1.1 This Agreement may be terminated by either CBS or
SFX, if the party seeking to terminate is not in material default or breach of
this Agreement, upon written notice to the other upon the occurrence of any of
the following:
(a) if any condition set forth herein to the
obligations of the party seeking to terminate has not been
satisfied or waived on or prior to the Closing Date; or
(b) if the FCC denies the FCC Application of
such party or designates it for a trial-type hearing; or
(c) if the Grant of FCC Consent has not been
obtained within Two Hundred Forty (240) days after the date on which the
parties' FCC Applications are accepted for filing by the FCC; or
(d) if any of the conditions described in
Section 10.2.2 which permit termination shall occur; or
(e) if there shall be in effect any judgment,
final decree or order that would prevent or make unlawful the Closing of the
transactions contemplated by this Agreement.
16.1.2 This Agreement may be terminated by mutual
agreement of the parties hereto.
16.2 Liability. The termination of this Agreement under Section 16.1
shall not relieve any party of any liability for breach of this Agreement
prior to the date of termination.
16.3 Unwind. In the event that the FCC requires the parties to unwind
the transactions contemplated hereby after the Closing has occurred, the
parties will mutually agree on the arrangements necessary to put the parties
in the positions they were in prior to the Closing.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 Specific Performance. SFX and CBS each recognize and acknowledge
that, in the event that either party shall fail to perform its obligations to
consummate the transactions contemplated hereby, money damages alone will not
be adequate to compensate such party for its injury. SFX and CBS, therefore,
each agree and acknowledge that, in the event of their failure to perform
their obligation to consummate the transactions contemplated hereby, the other
party shall be entitled, in addition to any action for monetary damages, and
in addition to
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any other rights and remedies on account of such failure, to specific
performance of the terms of this Agreement and of the other party's obligation
to consummate the transactions contemplated hereby. If any action is brought
by either party to enforce this Agreement, the other party shall waive the
defense that there is an adequate remedy at law.
17.2 Risk of Loss. The risk of loss or damage to any of the SFX
Station Assets prior to the Closing Date shall be upon SFX. In consultation
with CBS, SFX shall repair, replace and restore any such damaged or lost SFX
Station Asset to its prior condition as soon as possible and in no event later
than the Closing Date. The risk of loss or damage to any of the CBS Station
Assets prior to the Closing Date shall be upon CBS. In consultation with SFX,
CBS shall repair, replace and restore any such damaged or lost CBS Station
Asset to its prior condition as soon as possible and in no event later than
the Closing Date.
17.3 Further Assurances. After the Closing, each party shall from
time to time, at the request of and without further cost or expense to the
other party, execute and deliver such other instruments of conveyance and
transfer and take such other actions as may reasonably be requested in order
to more effectively consummate the transactions contemplated hereby to vest in
such party good and marketable title to the assets being transferred
hereunder, and each party shall from time to time, at the request of and
without further cost or expense to the other party, execute and deliver such
other instruments and take such other actions as may reasonably be requested
in order to more effectively relieve such party of any obligations being
assumed by the other party hereunder.
17.4 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party, except for any assignment to an Affiliate of either party in
which case SFX or CBS, as the case may be, shall remain fully obligated under
this Agreement as an assignor.
17.5 Headings. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
17.6 Governing Law. The construction and performance of
this Agreement shall be governed by the laws of the State of
New York without giving effect to the choice of law provisions
thereof.
17.7 Notices. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and shall
be deemed to have been duly delivered and received on the date of personal
delivery or on the third day after deposit in the U.S. mail, if mailed by
registered
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or certified mail, postage prepaid and return receipt requested, or on the day
after delivery to a nationally recognized overnight courier service for next
morning delivery, or by fax transmission with confirmed receipt by the other
party, and shall be addressed to the following addresses, or to such other
address as any party may request, pursuant to this Section:
To SFX: SFX Broadcasting, Inc.
600 Congress Avenue, Suite 1270
Austin, Texas 78701-3234
Attention: R. Steven Hicks
Copy to: Richard A. Liese, Esq.
SFX Broadcasting, Inc.
150 East 58th Street - 19th Floor
New York, New York 10155
To CBS: CBS Inc.
51 W. 52nd Street
New York, New York 10019-6188
Attention: Dan Mason
Copy to: CBS Inc.
51 W. 52nd Street
New York, New York 10019-6188
Attention: Law Department, M. P. Messinger
17.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
17.9 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any person
or entity other than the parties hereto and their successors or permitted
assigns, any rights or remedies under or by reason of this Agreement.
17.10 Public Announcements. SFX, SFX Broadcasting and CBS shall
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement and the transactions
contemplated hereby and shall not issue any such press release or make any
public statement without the consent of the other, except as may be required
by law.
17.11 Exclusive Jurisdiction and Consent to Service of
Process. The parties agree that any legal action, suit or
proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, shall be instituted in a
Federal or state court sitting in New York, New York, which shall
be the exclusive jurisdiction and venue of said legal proceedings
and each party hereto waives any objection which such party may
now or hereafter have to the laying of venue of any such action,
suit or proceeding, and irrevocably submits to the jurisdiction
of any such court in any such action, suit or proceeding. Any
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and all service of process and any other notice in any such action, suit or
proceeding shall be effective against such party (or the subsidiary of such
party) when transmitted in accordance with Section 17.7. Nothing contained
herein shall be deemed to affect the right of any party hereto to serve
process in any manner permitted by law.
17.12 Severability. The parties agree that if one or more provisions
contained in this Agreement shall be deemed or held to be invalid, illegal or
unenforceable in any respect under any applicable law, this Agreement shall be
construed with the invalid, illegal or unenforceable provision deleted, and
the validity, legality and enforceability of the remaining provisions
contained herein shall not be affected or impaired thereby.
17.13 Amendments and Waivers. No amendment, waiver of compliance with
any provision or condition hereof or consent pursuant to this Agreement shall
be effective unless evidenced by an instrument in writing signed by the party
against whom enforcement of any waiver, amendment, change, extension or
discharge is sought.
17.14 Certain Definitions. For all purposes of this
Agreement, except as otherwise expressly provided:
"Affiliate" shall mean an entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, any party.
"Material Adverse Effect" shall mean a material adverse effect on, or
material adverse change in, (i) the SFX Station Assets or CBS Station Assets,
taken as a whole, (ii) the business, results of operations or financial or
other condition of the SFX Station or the CBS Station, or (ii) the ability of
SFX or CBS to perform their respective obligations under this Agreement.
"person" means any individual, corporation, partnership, firm, joint
venture, association, unincorporated organization, or other entity.
17.15 Entire Agreement. This Agreement and the Schedules hereto and
the ancillary documents provided for herein embody the entire agreement and
understanding of the parties hereto relating to the matters provided for
herein and supersede any and all prior agreements, arrangements and
understandings relating to the matters provided for herein.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
ATTEST: SFX BROADCASTING OF TEXAS (KRLD),
INC.
By: /s/ Howard Tytel
Title: Executive Vice President
ATTEST: SFX BROADCASTING OF TEXAS (KRLD)
LICENSEE, INC.
By: /s/ Howard Tytel
Title: Executive Vice President
ATTEST: SFX BROADCASTING OF TEXAS (TSN),
INC.
By: /s/ Howard Tytel
Title: Executive Vice President
ATTEST: SFX BROADCASTING OF TEXAS (TSN)
LICENSEE, INC.
By: /s/ Howard Tytel
Title: Executive Vice President
ATTEST: SFX BROADCASTING OF THE SOUTHWEST,
INC.
By: /s/ Howard Tytel
Title: Executive Vice President
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ATTEST: SFX BROADCASTING, INC.
By: /s/ Howard Tytel
Title: Executive Vice President :
ATTEST: CBS INC.
By: /s/ Frederick Reynolds
Title: Executive Vice President and CFO
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FOR IMMEDIATE RELEASE
For further information:
Cynthia A. Bond
Director, Investor Relations
(212) 407-9126
SFX BROADCASTING ANNOUNCES COMMENCEMENT OF TENDER OFFER AND
CONSENT SOLICITATION FOR ITS 11 3/8% SENIOR SUBORDINATED NOTES
NEW YORK, May 6, 1996 -- SFX Broadcasting, Inc. (NASDAQ: SFXBA) announced
today that it had commenced a tender offer to purchase for cash all of its
outstanding 11 3/8% Senior Subordinated Notes due 2000 (the "Notes"), subject
to the terms and conditions set forth in SFX's Offer to Purchase and Consent
Solicitation Statement dated May 2, 1996. In connection with the tender offer,
SFX is also soliciting consents to certain proposed amendments to the
indenture pursuant to which the Notes were issued (the "Indenture"). There are
$80.0 million in principal amount of the Notes outstanding.
SFX is offering to purchase the Notes for a cash purchase price of $1,080 per
$1,000 principal amount plus accrued interest up to, but not including, the
date of acceptance by SFX of Notes which have been validly tendered for
purchase (the "Acceptance Date"). Holders of the Notes who tender their Notes
will be required to consent to the proposed amendments to the Indenture. There
will be no separate payment for the consents.
The tender offer and consent solicitation will expire at 12:00 midnight, New
York City time, on Thursday, May 30, 1996, unless extended (the "Expiration
Date"). Tendered Notes may be withdrawn and consents may be revoked at any
time prior to the execution by the Company and the trustee under the Indenture
of a supplemental indenture embodying the proposed amendments, which is
expected to occur as soon as holders of at least 50% of the outstanding Notes,
excluding Notes held by SFX and its affiliates, have been received, but in no
event sooner than May 15, 1996. On the Acceptance Date, SFX will pay for all
notes which have been validly tendered prior to the Expiration Date. The
Acceptance Date is expected to be May 31, 1996.
The tender offer and the consent solicitation are conditioned upon, among
other things, (i) the tender of not less than a majority in principal amount
of the Notes, and (ii) the consummation of private placements by SFX of
preferred stock and debt.
BT Securities Corporation is serving as exclusive dealer manager for the
tender offer and consent solicitation. D.F. King & Co., Inc. is serving as the
information agent for the tender offer and consent solicitation. Interested
persons may contact the information agent for copies of the Offer
- more -
<PAGE>
to Purchase and Consent Solicitation, the related Letter of Transmittal and
Consent and other ancillary documents.
SFX is a leading radio broadcasting company which owns, operates, provides
services to or has agreed to acquire over seventy radio stations in large and
middle markets across the country.
# # #
FOR IMMEDIATE RELEASE For further information:
Cynthia A. Bond
Director, Investor Relations
(212) 407-9126
SFX BROADCASTING, INC. ANNOUNCES PROPOSED OFFERING OF
SENIOR SUBORDINATED NOTES DUE 2006 AND SERIES D CUMULATIVE
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK DUE 2007
NEW YORK, May 9, 1996 -- SFX Broadcasting, Inc. (NASDAQ: SFXBA) today
announced that it proposes to offer $440,000,000 in aggregate principal amount
of its Senior Subordinated Notes due 2006 and $120,000,000 in aggregate
liquidation preference of its Series D Cumulative Convertible Exchangeable
Preferred Stock due 2007 (and has granted to the initial purchasers an
over-allotment option of $18,000,000) to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 and to certain other
institutional investors. The Senior Subordinated Notes due 2006 will be
guaranteed by all of the subsidiaries of SFX Broadcasting, Inc.
SFX Broadcasting, Inc. expects to use substantially all of the proceeds of the
offering to make radio station acquisitions, to purchase all or a portion of
its outstanding 11 3/8% Senior Subordinated Notes due 2000, to make payments
related to management changes and to repay outstanding balances under its
credit facility.
SFX Broadcasting, Inc. is a radio broadcasting company which owns, operates or
provides services to radio stations in large and medium sized markets across
the country.
The Senior Subordinated Notes due 2006 and the Series D Cumulative Convertible
Exchangeable Preferred Stock due 2007 will not be registered under the
Securities Act and may not be offered or sold in the United States absent
registration under the Securities Act or an exemption from such registration.
This release shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of the Senior Subordinated Notes due
2006 and the Series D Cumulative Convertible Exchangeable Preferred Stock due
2007 in any state in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
state.
# # #
