FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22486
SFX BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3649750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 58th Street, 19th Floor
New York, New York 10155
(Address of principal executive offices)
(212)-407-9191
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 14, 1996, the
number of shares outstanding of the Registrant's Class A Common Stock, $.01 par
value, and Class B Common Stock, $.01 par value, was 6,431,897 and 856,126,
respectively.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1996
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995.................3
Consolidated Statements of Operations for Three Months Ended
September 30, 1996 and 1995 (unaudited).............................................................5
Consolidated Statements of Operations for Nine Months Ended
September 30, 1996 and 1995 (unaudited).............................................................6
Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 1996 and 1995 (unaudited).............................................................7
Notes to Consolidated Financial Statements..........................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............13
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................19
Item 6. Exhibits and Reports on Form 8-K...................................................................20
SIGNATURES.......................................................................................................22
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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September 30, December 31,
1996 1995
---- ----
(Unaudited) (Note)
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ASSETS
Current Assets:
Cash and cash equivalents ...................................... $ 40,139 $ 11,893
Accounts receivable, net ....................................... 42,264 18,034
Assets held for sale ........................................... 18,523 --
Prepaid broadcast rights and other current assets .............. 2,958 2,578
-------- --------
Total current assets .................................. 103,884 32,505
Property and equipment, at cost, less accumulated depreciation . 65,308 16,767
Broadcast licenses and other intangible assets, less accumulated
amortization ................................................ 516,402 129,543
Loan to Multi-Market Radio, Inc. ............................... 20,345 --
Receivables on station acquisitions ............................ -- 4,439
Deposits and other payments for pending acquisitions ........... 16,101 3,000
Other assets ................................................... 3,889 1,083
-------- --------
Total assets .......................................... $725,929 $187,337
======== ========
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Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to consolidated financial statements
3
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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September 30, December 31,
1996 1995
---- ----
(Unaudited) (Notes)
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .................................... $ 22,049 $ 8,741
Accrued interest and dividends ........................................... 16,962 2,303
Current portion of capital lease obligations ............................. 157 311
Current portion of debt .................................................. 407 260
--------- ---------
Total current liabilities ....................................... 39,575 11,615
Deferred income taxes payable ............................................ 56,084 7,415
Capital lease obligations, less current portion .......................... 673 1,352
Debt, less current portion ............................................... 949 609
Subordinated notes ....................................................... 450,566 80,000
--------- ---------
Total liabilities ............................................... 547,847 100,991
Redeemable preferred stock ............................................... 153,003 3,285
Shareholders' Equity:
Class A voting common stock, $.01 par value; 10,000,000 shares authorized;
6,458,215 issued; 6,431,897 outstanding at September 30,
1996 and 6,458,215 outstanding at December 31, 1995 ................... 64 64
Class B voting convertible common stock, $.01 par value; 1,000,000 shares
authorized; 1,000,000 issued; 856,126 outstanding at September 30,
1996, and 1,000,000 outstanding at December 31, 1995 .................. 10 10
Additional paid-in-capital ............................................... 108,898 115,184
Treasury stock; 170,192 shares at September 30, 1996 ..................... (6,393) --
Accumulated deficit ...................................................... (77,500) (32,197)
--------- ---------
Total shareholders' equity ...................................... 25,079 83,061
--------- ---------
Total liabilities and shareholders' equity ...................... $ 725,929 $ 187,337
========= =========
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Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to consolidated financial statements
4
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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Three Months Ended September 30,
--------------------------------
1996 1995
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Revenue ............................................................. $ 51,174 $ 23,646
Less: agency commissions ............................................ 5,888 2,759
----------- -----------
Net revenue ......................................................... 45,286 20,887
Station operating expenses .......................................... 28,271 13,175
Depreciation, amortization, duopoly integration costs and acquisition
related costs .............................................. 6,015 1,988
Corporate expenses .................................................. 1,685 1,059
----------- -----------
Total operating expenses ............................................ 35,971 16,222
Operating income .................................................... 9,315 4,665
Interest income ..................................................... (1,022) (351)
Interest expense .................................................... 12,581 3,447
----------- -----------
Income (loss) before income taxes ................................... (2,244) 1,569
Income tax expense .................................................. -- 2,300
Net loss ............................................................ (2,244) (731)
Redeemable preferred stock dividends and accretion .................. 2,584 75
----------- -----------
Net loss applicable to common stock ................................. $ (4,828) $ (806)
=========== ===========
Net loss per common share ........................................... $ (0.66) $ (0.10)
=========== ===========
Weighted average common shares outstanding .......................... 7,288,023 7,684,556
</TABLE>
See accompanying notes to consolidated financial statements
5
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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Nine Months Ended September 30,
-------------------------------
1996 1995
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Revenue ............................................................. $ 105,153 $ 62,801
Less: agency commissions ............................................ 12,313 7,473
----------- -----------
Net revenue ......................................................... 92,840 55,328
Station operating expenses .......................................... 61,448 36,556
Depreciation, amortization, duopoly integration costs and acquisition
related costs .............................................. 10,663 5,672
Corporate expenses .................................................. 4,475 2,838
Non-recurring charges including adjustments to broadcast rights .....
agreement .................................................. 27,489 5,000
----------- -----------
Total operating expenses ............................................ 104,075 50,066
Operating (loss) income ............................................. (11,235) 5,262
Interest income ..................................................... (3,320) (451)
Interest expense .................................................... 22,169 9,515
----------- -----------
Loss before income taxes and extraordinary item ..................... (30,084) (3,802)
Income tax benefit .................................................. -- --
----------- -----------
Loss before extraordinary item ...................................... (30,084) (3,802)
Extraordinary loss on debt retirement ............................... 15,219 --
----------- -----------
Net loss ............................................................ (45,303) (3,802)
Redeemable preferred stock dividends and accretion .................. 3,551 219
----------- -----------
Net loss ............................................................ $ (48,854) $ (4,021)
=========== ===========
Net loss per common share before extraordinary item ................. $ (4.55) $ (0.62)
Extraordinary loss on debt retirement per common share .............. (2.06) --
----------- -----------
Net loss per common share ........................................... $ (6.61) $ (0.62)
=========== ===========
Weighted average common shares outstanding .......................... 7,394,238 6,531,661
</TABLE>
See accompanying notes to consolidated financial statements
6
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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Nine Months Ended September 30,
-------------------------------
1996 1995
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OPERATING ACTIVITIES:
Net loss .......................................................................... $ (45,303) $ (3,802)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................................................. 10,386 5,672
Interest on receivables from related parties ................................... (232) (213)
Non-cash portion of non-recurring charge ....................................... 8,578 --
Loss on sale of investments .................................................... -- 84
Provision for loss on broadcast rights agreement ............................... -- 5,000
Write off of debt costs ........................................................ 5,593 --
Changes in assets and liabilities, net of amounts acquired:
Increase in accounts receivable ............................................... (11,015) (4,026)
(Increase) decrease in prepaid broadcast rights and other assets .............. (2,137) 950
Increase (decrease) in accrued interest and dividends ......................... 14,659 (2,286)
Increase (decrease) in accounts payable, accrued expenses and other liabilities 1,650 (3,485)
Decrease in deferred income tax payable ........................................ (952) --
--------- ---------
Net cash used in operating activities ............................................. (18,773) (2,106)
INVESTING ACTIVITIES:
Deposits and other payments for pending acquisitions .............................. (13,101) (3,000)
Purchase of stations and related business, net of cash acquired ................... (430,457) (22,642)
Proceeds from sale of stations .................................................... 25,000 --
Sale of short term investments .................................................... -- 7,918
Loans and advances to related parties ............................................. (20,415) (2,000)
Sale of property and equipment .................................................... -- 300
Purchase of property and equipment ................................................ (1,769) (6,056)
Increase in other intangibles ..................................................... (2,055) --
--------- ---------
Net cash used in investing activities ............................................. (442,797) (25,480)
FINANCING ACTIVITIES:
Additions to debt issuance costs .................................................. (14,910) (1,884)
Proceeds from senior and subordinated debt ........................................ 471,500 22,000
Payments on subordinated debt ..................................................... (79,434) (189)
Payments on senior loans and capital lease obligations ............................ (21,868) (22,252)
Decrease in accrued stock acquisition cost ........................................ -- (1,150)
Net proceeds from sale of preferred stock ......................................... 143,445 --
Purchase of treasury stock ........................................................ (6,393) --
Proceeds from sale of common stock ................................................ -- 39,167
Dividends paid on preferred stock ................................................. (2,524) --
--------- ---------
Net cash provided by financing activities ......................................... 489,816 35,692
Net increase in cash and cash equivalents ......................................... 28,246 8,106
Cash and cash equivalents at beginning of period .................................. 11,893 3,194
--------- ---------
Cash and cash equivalents at end of period ........................................ $ 40,139 $ 11,300
========= =========
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See accompanying notes to consolidated financial statements
7
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SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Information with respect to the three and nine months ended September
30, 1996 and 1995 is unaudited. The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of SFX Broadcasting, Inc. (the "Company" or
"SFX"), for the periods presented.
The results of operations for the three and nine month period are not
necessarily indicative of the results of operations for the full year. For
further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
NOTE 2 - RECENTLY COMPLETED ACQUISITIONS AND DISPOSITIONS
In June 1996, SFX acquired substantially all of the assets of WROQ-FM,
Greenville, South Carolina, for approximately $14.0 million (the "Greenville
Acquisition") and WTRG-FM and WRDU-FM, both operating in Raleigh, North
Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating
in Greensboro, North Carolina for approximately $36.8 million (the "HMW
Acquisition"). Multi-Market Radio, Inc. ("MMR"), a publicly held radio
broadcasting Company in which the Company's Chief Executive Officer is a
significant shareholder and votes a controlling interest, initially entered
into the acquisition agreements relating to these stations. SFX and MMR agreed
that SFX would finance the purchase of such stations and that MMR would
transfer the purchased assets to SFX simultaneously with the acquisition by
MMR.
In July 1996, SFX acquired substantially all of the assets of WJDX-FM,
Jackson, Mississippi for a purchase price of approximately $3.0 million. In
addition, in August 1996, SFX acquired substantially all of the assets of
WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi, for approximately
$3.5 million (collectively, the " Jackson Acquisitions").
In July 1996, SFX acquired from Prism Radio Partners L.P. ("Prism"),
substantially all of the assets used in the operation of eight FM and five AM
radio stations located in four markets: Jacksonville, Florida; Raleigh, North
Carolina; Tucson, Arizona and Wichita, Kansas. In September 1996, SFX also
acquired from Prism substantially all of the assets of three radio stations
operating in Louisville, Kentucky (the "Louisville Stations"), upon renewal of
the Federal Communications Commission ("FCC") licenses of such stations (the
"Louisville Acquisition") (collectively the "Prism Acquisition"). The total
purchase price for the Prism Acquisition was approximately $105.3 million. In
October 1996, SFX sold the Louisville stations (the "Louisville Dispositions")
for $18.5 million. SFX recognized no gain or loss on the Louisville
Dispositions. The Louisville Stations are classified as assets held for sale on
the accompanying September 30, 1996 balance sheet.
In July 1996, SFX acquired Liberty Broadcasting Inc. ("Liberty
Broadcasting") for a purchase price of approximately $229.2 million, plus
approximately $8.3 million for working capital (the "Liberty Acquisition").
Liberty Broadcasting was a privately-held radio broadcasting company which
owned and operated or provided programming to or sold advertising on behalf of
14 FM and six AM radio stations (the "Liberty Stations") located in six
markets; Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York;
Providence, Rhode Island; Hartford, Connecticut; Albany, New York and Richmond,
Virginia.
In July 1996, SFX sold three of the Liberty Stations operating in the
Washington, DC/Baltimore, Maryland market (the "Washington Dispositions"), for
$25.0 million. No gain or loss was recognized on the Washington Dispositions.
In October 1996, SFX sold radio station KTCK-AM, Dallas, Texas for
approximately $13.5 million, net of certain sale expenses (the "Dallas
Disposition"). SFX had a contractual obligation to make certain payments to
Cardinal Communications Partners LP ("Cardinal"), the prior owner of KTCK-AM.
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Cardinal has commenced litigation against SFX due to the parties' inability to
agree on the amount of the contingent payment. In the event that the contingent
payment exceeds approximately $2.5 million, SFX will record a loss on the
transaction. See Part II. Item 1. Legal Proceedings.
The Greenville Acquisition, the HMW Acquisition, the Jackson
Acquisitions, the Prism Acquisition, the Louisville Acquisition, the Louisville
Dispositions, the Liberty Acquisition, the Washington Dispositions, and the
Dallas Disposition are collectively herein referred to as the "Completed
Acquisitions. " The Company has recorded the HMW Acquisition, the Greenville
Acquisition, Jackson Acquisitions, the Prism Acquisition and the Liberty
Acquisition using the purchase method of accounting based on preliminary
allocations of the purchase prices paid. The amounts recorded are subject to
change based on the final allocations of the purchase prices paid.
NOTE 3 - OTHER RECENT TRANSACTIONS
Agreement with SCMC. On April 15, 1996, SFX and Sillerman
Communications Management Corporation ("SCMC"), a corporation controlled by
Robert F. X. Sillerman, the Chief Executive Officer of the Company, entered
into the SCMC Termination Agreement pursuant to which SCMC assigned to SFX its
rights to receive fees for consulting and marketing services payable by each of
MMR and Triathlon Broadcasting Company ("Triathlon"), a publicly-traded radio
company operating in small and medium-sized markets in the Midwest and Western
United States, except for fees relating to certain transactions pending at the
date of such agreement, and SFX and SCMC terminated the arrangement pursuant to
which SCMC performed financial consulting services for SFX. In consideration
therefore, SFX agreed to cancel $2.0 million of indebtedness plus accrued
interest thereon owing from SCMC to the Company upon completion of the MMR
Merger (as hereinafter defined) and SCMC received warrants to purchase up to
600,000 shares of Class A Common Stock of SFX at an exercise price, subject to
adjustment, of $33.75 per share (the market price at the time the financial
consulting arrangement was terminated) of which a warrant to purchase up to
300,000 shares is immediately exercisable. The exercise of the remaining
warrants is subject to stockholder approval (In connection with such agreement,
the Company recognized a non-recurring, non-cash charge to earnings of
approximately $5.6 million during the three-month period ended June 30, 1996,
which is one half of the value of the warrants (fair value of approximately $9
million) and loan forgiveness). The remainder will be allocated to the
Triathlon agreement and amortized over the life of the agreement. SFX intends
to perform internally the functions performed by SCMC.
Repayment of Old Credit Agreement. On May 31, 1996, SFX repaid all
amounts outstanding under its $50.0 million senior credit facility (the "Old
Credit Agreement").
Preferred Stock Offering, Note Offering, and New Credit Agreement. In
May 1996, SFX completed a private placements of $450.0 million in aggregate
principal amount of its 10.75% Senior Subordinated Notes due 2006 (the "Note
Offering") and $149.5 million in aggregate liquidation preference of its Series
D Preferred Stock (the "Preferred Stock Offering"). In addition, SFX has
received an underwritten commitment from its lender for a senior credit
facility of $225.0 million and expects to enter into a definitive credit
agreement (the "New Credit Agreement") with respect to such facility. There can
be no assurance, however, that SFX will be able to enter into the New Credit
Agreement on a timely basis or at all.
Tender Offer. Concurrently with the closings of the Preferred Stock
Offering and the Note Offering (collectively, the "Financing"), SFX completed
the tender offer (the "Tender Offer") and a related consent solicitation (the
"Consent Solicitation") with respect to its 11.375% Senior Subordinated Notes
due 2000 (the "Old Notes"). SFX purchased approximately $79.4 million in
principal amount of the $80.0 million in principal amount of the Old Notes
outstanding in the Tender Offer. The Company recorded an extraordinary loss of
$15.2 million in connection with the repurchase of the Old Notes. SFX also
entered into a supplemental indenture amending the terms of the indenture
pursuant to which the Old Notes were issued.
Agreements with Messrs. Armstrong, Benson and Hicks. In April 1996,
SFX entered into an agreement (the "Armstrong Agreement") with D. Geoffrey
Armstrong, Chief Financial Officer of SFX, pursuant to which Mr. Armstrong
agreed to become the Chief Operating Officer of SFX concurrently with the
completion of the MMR Merger (as hereinafter defined) and defer certain
payments due to him under his employment agreement. SFX also agreed in the
Armstrong Agreement to repurchase certain securities owned by Mr. Armstrong. In
September 1996, Mr. Armstrong was designated by the Board of Directors to begin
serving as the Chief Operating Officer of SFX and to resign as Chief Financial
Officer of SFX upon the consummation of the MMR Merger. The $4.6 million paid
pursuant to the Armstrong Agreement was expensed as a non-recurring charge.
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Concurrently with such agreement, SFX entered into an employment agreement with
Thomas P. Benson pursuant to which he agreed to serve as Vice President of
Financial Affairs of SFX and to serve as Chief Financial Officer of SFX upon the
consummation of the MMR Merger. In June 1996, SFX entered into an Agreement (the
"Hicks Agreement") with R. Steven Hicks, the former President, Chief Executive
Officer, Chief Operating Officer and a Director of SFX, pursuant to which Mr.
Hicks resigned from all positions held by him with SFX, sold to SFX all of the
securities of SFX then owned by him or which he had the right to obtain and
agreed to refrain from owning or operating for a period of one year from
completion of the MMR Merger any direct or indirect interest in radio stations
in certain markets in the United States in which SFX currently owns and
operates, or subsequent to the MMR Merger, will own and operate radio stations
in return for payments aggregating $18.6 million. The Company recorded a non-
recurring charge in the quarter ended June 30, 1996 of $19.8 million in
connection with the Armstrong Agreement and Hicks Agreement.
Agreement with Mr. Ferrel. SFX has granted Michael G. Ferrel five-year
options to purchase up to 50,000 shares of Class A Common Stock at an exercise
price of $33.75 per share. Such options are immediately exercisable. Such
options were granted to Mr. Ferrel in consideration for his serving as a
consultant to SFX and in connection with his anticipated employment by SFX as
its Chief Executive Officer. See Note 5--Pending MMR Merger. SFX recorded a
charge to earnings in the quarter ended September 30, 1996 in connection with
these options of $119,000.
Wichita JSA. In September 1996, the Company entered into a joint sales
agreement with Triathlon Broadcasting Company ("Triathlon") whereby Triathlon
has agreed to sell advertising time on the Company's three radio stations in
the Wichita, Kansas market in exchange for a monthly fee which ranges from
$75,000 per month to $100,000 per month, and an additional monthly payment of
approximately $175,000 which is subject to adjustment based on the actual
operating expenses of the stations (the "Wichita JSA"). The agreement has a
ten-year term with an option by Triathlon to extend the agreement for an
additional ten years upon payment of a $1.0 million fee to SFX prior to
September 1, 2003. The agreement is subject to termination upon a "change of
control" of Triathlon, as defined in the agreement. The Company has received a
request from the Department of Justice to provide information regarding the
Wichita JSA, and there can be no assurance that the Department of Justice will
allow Triathlon to continue to provide services under the Wichita JSA.
Investment in Music Technologies LLC. In August 1996, SFX invested
approximately $3.8 million for a 25% interest in a newly formed company, Music
Technologies LLC ("Music Technologies"). Music Technologies will provide music
research services to SFX and other radio broadcasting companies. In exchange
for SFX's investment, Music Technologies has agreed to provide certain music
testing services to SFX at cost. This investment will be accounted for using
the equity method of accounting.
NOTE 4 - TERMINATION 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.
On April 11, 1996, in order to facilitate the Houston Exchange (as
hereinafter defined), 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 recorded a
$1,600,000 charge in the second quarter of 1996 related to the termination of
the agreement and to adjust the value of the contract for the 1996 season.
NOTE 5 - PENDING MMR MERGER
In April 1996, the Company entered into an agreement (the "Merger
Agreement") and plan of merger (the "MMR Merger"), which was amended in May,
July and September 1996, pursuant to which it has agreed to acquire 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 13 FM
stations and one AM station located in eight markets: New Haven, Connecticut;
Hartford, Connecticut; Springfield/Northampton, Massachusetts; Daytona Beach,
Florida; Augusta, Georgia; Biloxi, Mississippi; Myrtle Beach,
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South Carolina and Little Rock, Arkansas. MMR has entered into agreements to
sell two stations operating in Myrtle Beach, South Carolina and one station
operating in Little Rock, Arkansas (the "MMR Dispositions"). MMR has also
decided not to renew its Joint Sales Agreement ("JSA") with one station
operating in Augusta, Georgia and its Local Marketing Agreement ("LMA") with
one station operating in Myrtle Beach, South Carolina.
Upon consummation of the MMR Merger and subject to certain conditions,
including approval of the shareholders of MMR and SFX, the outstanding
securities of MMR will be converted into shares of common stock of the Company
as follows: (i) the shares of Class A Common Stock of MMR and the 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 shares of Class B Common Stock
of MMR and 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.
The 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 $12.50 by the average of
the last bid and asked prices of the Company's Common Stock for the 20
consecutive trading days ending on the fifth trading day prior to the closing
(the "Class A Common Stock Price"); provided, however, that (1) 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) $12.50, plus (B)
the product of (I) thirty percent (30%) multiplied by (II) the difference
between the Class A Common Stock Price and $44.00, or (2) in the event that the
Class A Common Stock Price is less than $32.00, then the Exchange Ratio shall
be .3750.
Upon the completion of the MMR Merger, each outstanding warrant,
option and stock appreciation right issued pursuant to MMR's stock option
plans, whether vested or unvested, will be assumed by the Company.
Additionally, each outstanding (i) 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 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.
In September 1996, pursuant to the Merger Agreement, SFX entered into
an agreement to loan MMR up to $23.0 million (the "MMR Loan"). As of September
30, 1996, the Company had advanced MMR $18 million to finance its acquisition
of WKSS-FM, Hartford, Connecticut and approximately $2.4 million for working
capital, including $2 million which was paid to SCMC for investment banking
services provided to MMR in connection with the MMR Merger. The MMR Loan bears
interest on the principal amount at a rate of 12%. If the merger is terminated,
MMR is required to repay the loan according to the specific terms stated in the
MMR Loan. In addition, SFX and MMR agreed that Michael G. Ferrel, the Chief
Executive Officer, Chief Operating Officer and President of MMR, would become
the Chief Executive Officer of SFX upon the consummation of the Merger and MMR
agreed to make available to SFX, until the earlier of the termination of the
Merger Agreement or the consummation of the MMR Merger, the services of Mr.
Ferrel as a consultant to SFX to the extent that such services do not conflict
with Mr. Ferrel's obligations to MMR. Upon completion of the MMR Merger the
Company will be required to repay MMR's senior debt and senior subordinated
notes totaling approximately $39.6 million, plus certain prepayment penalties,
and to treat any amounts outstanding under the MMR Loan as contributed capital.
In the event that the Merger Agreement is terminated, except in
certain circumstances, MMR will have the right, subject to the receipt of prior
FCC approval, to acquire SFX's interests in the MMR Liberty Stations (as
defined in the Merger Agreement) for $100.0 million, or, in certain
circumstances, to acquire SFX'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 Internal Revenue Code of 1986, as amended. The MMR Merger
is scheduled to close on November 22, 1996 and will be accounted for as a
purchase transaction.
NOTE 6 - PENDING ACQUISITIONS AND DISPOSITIONS
SFX has agreed to acquire substantially all of the assets of WHSL-FM,
operating in Greensboro, North Carolina, for a purchase price of $6.0 million
(the"Greensboro Acquisition"). The acquisition is currently scheduled to close
during the fourth quarter of 1996.
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SFX has also (i) entered into an agreement pursuant to which SFX will
exchange radio station KRLD-AM, Dallas, Texas, and the Texas State Networks for
radio station KKRW-FM, Houston, Texas (the "Houston Exchange"), (ii) entered
into an agreement pursuant to which SFX will exchange three FM radio stations
and one AM radio station, each operating in the Long Island, New York market,
all of which were acquired in the Liberty Acquisition, for two FM radio
stations, WAPE-FM and WFYV-FM, both operating in the Jacksonville, Florida
market and both of which Chancellor Radio Broadcasting Company ("Chancellor")
has agreed to acquire, and a payment to SFX in the amount of $11.0 million from
Chancellor (the "Chancellor Exchange"), and (iii) entered into an agreement
with CBS Inc. pursuant to which SFX agreed to exchange WHFS-FM, serving the
Baltimore, Maryland and Washington, D.C. markets, for KTXQ-FM and KRRW-FM, both
serving the Dallas, Texas market (the "CBS Exchange"). The Company does not
expect to recognize a gain or loss on either the Houston Exchange, the
Chancellor Exchange or the CBS Exchange. The Houston Exchange is currently
scheduled to close during the fourth quarter of 1996 and the Chancellor
Exchange and CBS Exchange during the first quarter of 1997. Until the
consummation of the Chancellor Exchange, SFX and Chancellor are providing
programming and selling advertising pursuant to LMA's on the Jacksonville radio
stations and the Long Island radio stations, respectively.
In August 1996, SFX agreed, subject to execution of a definitive
agreement, to acquire a 96% in ABS Communications LP ("ABS") (the "Richmond
Acquisition"). In connection with this transactions, SFX will first loan ABS
the funds necessary to acquire radio stations WKHK-FM and WBZU-FM, both
operating in Richmond, Virginia secured by a first priority security position
in all of the assets of ABS. Thereafter, SFX will convert its debt position in
ABS into a 96% equity position. Lastly, ABS will acquire WVGO-FM and WLEE-FM,
both operating in Richmond, Virginia. The aggregate purchase price for the
fours stations is $38.8 million, inclusive of certain transaction costs. The
Richmond Acquisition is expected to close during the second quarter of 1997.
Also, In August 1996, SFX agreed to acquire substantially all of the assets
used in the operations of radio station WYSR-FM, operating in Albany, New York,
for a purchase price of approximately $1.0 million (the "Albany Acquisition").
The Albany Acquisition is expected to close during the first quarter of 1997.
In September 1996, SFX agreed to acquire three Charlotte, North
Carolina stations (WSSS-FM, WRFX-FM and WNKS-FM) from EZ Communications in
exchange for WTDR-FM, Charlotte, North Carolina, and $64.8 million ("Charlotte
Exchange"). EZ Communications is in the process of acquiring WRFX-FM and
WNKS-FM from Evergreen Media Corp. The Charlotte Exchange is conditioned on the
prior receipt of FCC approval and approval under the HSR Act. SFX has received
a civil investigative demand from the Department of Justice's Antitrust
Division relating to its investigation of a proposed acquisition of EZ
Communications by a third party and, in connection therewith, the exchange of
these stations, and there can be no assurance as to the impact of this
investigation or the proposed acquisition on the Charlotte Exchange. Edward F.
Dugan, who has been nominated to the Board of Directors of SFX, will receive a
payment from each of SFX and EZ Communications upon the consummation of the
Charlotte Exchange.
In October 1996, SFX entered into an agreement with Secret
Communications Limited Partnership ("Secret Communications Acquisition"),
pursuant to which SFX agreed to acquire substantially all of the assets used in
the operation of nine radio stations located in three markets: WTAM-AM and
WLTF-FM, both serving the Cleveland, Ohio market; WFBQ-FM, WRZX-FM and WNDE-AM,
each serving the Indianapolis, Indiana market; and WDVE-FM, WXDX-FM, WDSY-FM
and WJJJ-FM, each serving the Pittsburgh, Pennsylvania market. Two of the radio
stations, WDSY-FM and WJJJ-FM (collectively, the "Third Party Stations"), are
not yet owned by Secret Communications. Secret Communications currently
operates the Third Party Stations under an LMA. Secret Communications has
entered into an agreement to acquire these two stations from a third party and
it is anticipated that the acquisition of the Third Party Stations by Secret
Communications will occur prior to the consummation of the Secret
Communications Acquisition. The purchase price for the nine stations is $300.0
million, subject to certain downward adjustments based upon the cash flow of
the stations to be acquired, and SFX has deposited $15.0 million in escrow in
order to secure its obligations under the purchase agreement. It is anticipated
that the Secret Communications Acquisition will be consummated during the
second or third quarter of 1997.
In October 1996, SFX entered into an agreement to acquire
Delsener/Slater Enterprises, Ltd., a concert promotion company, for
approximately $24.0 million (the "Delsener/Slater Acquisition"). SFX has
deposited $2.0 million in escrow to secure its obligations under the purchase
agreement. The acquisition is currently scheduled to close in the first quarter
of 1997.
In October 1996, SFX entered into an agreement to acquire the
outstanding shares of WWYZ, Inc. ("WWYZ") and an affiliated entity for $25.5
million, subject to adjustment under certain circumstances (the "SFX Hartford
Acquisition"). WWYZ owns and operates radio station WWYZ-FM, serving the
Hartford, Connecticut market. SFX has deposited $2.5
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million in escrow to secure its obligations under the purchase agreement. The
purchase is scheduled to close by February 1, 1997.
MMR has entered into a purchase agreement with Texas Coast
Broadcasters, Inc. pursuant to which MMR has agreed to acquire substantially
all of the assets (other than the real property upon which the radio tower is
located) of KQUE-FM and KNUZ-AM, both serving the Houston, Texas market, for an
aggregate purchase price of approximately $43.0 million, including payments in
connection with a non-competition agreement and certain matters related to the
lease on the real property containing the radio tower (the "Texas Coast
Acquisition"). SFX, on behalf of MMR, deposited in escrow $2.0 million to
secure MMR's obligation under the purchase agreement. It is anticipated that
the Texas Coast Acquisition will be consummated in the first quarter of 1997.
The Greensboro Acquisition, the MMR Merger, the Houston Exchange, the
Chancellor Exchange, the CBS Exchange, the Albany Acquisition, the Richmond
Acquisition, the Charlotte Exchange, the Secret Communications Acquisition, the
Delsener/Slater Acquisition, the SFX Hartford Acquisition and the Texas Coast
Acquisition are referred to herein collectively as the "Pending Acquisitions."
The Pending Acquisitions and the Completed Acquisitions are referred to herein
collectively as the "Acquisitions." The Louisville Dispositions, the Dallas
Disposition and the Washington Dispositions are referred to herein collectively
as the "Dispositions."
The timing and completion of the Pending Acquisitions are subject to a
number of conditions, certain of which are beyond SFX's control, and there can
be no assurance that such transactions will be completed during such periods,
approved by the FCC or the Department of Justice or completed on the terms
described herein, or at all.
ITEM 2. 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. 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 Pending Acquisitions ,
integration of the Acquisitions, the ability of the Company to achieve certain
cost savings, the management of growth, the introduction of new technology,
changes in the regulatory environment, the popularity of radio as a
broadcasting and advertising medium and changing consumer tastes. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
GENERAL
The Company currently owns and operates, provides programming to or
sells advertising on behalf of 53 radio stations located in 18 markets.
Following completion of the Pending Acquisitions and the Pending Dispositions,
the Company will own and operate, provide programming to or sell advertising on
behalf of 80 radio stations located in 23 markets. SFX will be required to
obtain additional financing in order to consummate the Pending Acquisitions.
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.
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 generally accepted accounting
principles ("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 revenue is the sale of advertising
time on its radio stations. In April 1996, the Company entered into the SCMC
Termination Agreement and expects to receive fees pursuant thereto. In
addition, in October 1996, the Company agreed to acquire Delsener/Slater, which
is in the concert promotion business. The Company's
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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 (an
independent rating service) 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 such 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. For the three and nine months ended
September 30, 1996, approximately 77% 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 radio broadcasting industry is highly competitive and the
Company's stations are located in highly competitive markets. 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 rating and market share in any particular market
could have a material and adverse effect on the Company's net revenues.
Although the Company competes with other radio stations with comparable
programming formats in most of its markets, if another station in the market
were to convert its programming format to a format similar to one of the
Company's radio stations, if a new radio station were to adopt a competitive
format, or if an existing competitor were to strengthen its operations, the
Company's stations could suffer a reduction in ratings or advertising revenue
and could require increased promotional and other expenses. In addition,
certain of the Company's stations compete, and in the future other stations may
compete, with groups of stations in a market operated by a single operator. As
a result of the Telecommunications Act of 1996 (the "Recent Legislation"), the
radio broadcasting industry has become increasingly consolidated, resulting in
the existence of radio broadcasting companies which are significantly larger,
with greater financial resources, than the Company. Furthermore, the Recent
Legislation will permit other radio broadcasting companies to enter the markets
in which the Company operates or may operate in the future. 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. 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. The
Company cannot predict the effect, if any of these new technologies may have on
the radio broadcasting industry.
The Company's revenue 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 $900,000 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) of which $625,000 is due
in the first calendar quarter of 1997.
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Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
The Company's net revenue increased 117% to $45.3 million from $20.9
million, for the three months ended September 30, 1996 ("1996 quarter") and
1995 ("1995 quarter"), respectively, primarily as a result of the Greenville
Acquisition and the HMW Acquisition in June of 1996 and the Liberty
Acquisition, the Prism Acquisition and the Jackson Acquisitions in July and
August of 1996 (collectively the "Recent Acquisitions") which increased net
revenues $23.7 million. In addition, the net revenue at existing SFX stations
(excluding KTCK-AM Dallas, which was operated by a third party under an LMA in
the 1996 quarter) increased $1.7 million or 9% as a result of strong radio
advertising, combined with improved inventory management, ratings and other
factors generally affecting sales and rates.
Station operating expenses increased 115% to $28.3 million in the 1996
quarter from $13.2 million in the 1995 quarter primarily due to: the inclusion
of expenses of $13.6 million related to the stations which SFX began operating
as discussed above; and $386,000 of increases in variable costs related to the
increase in net revenues of the existing SFX stations.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 203% to $6.0 million from $2.0 million due to the
inclusion of $3.7 million of depreciation and amortization related to the
Recent Acquisitions.
Corporate, general and administrative expenses were $1.7 million and
$1.1 million for the 1996 quarter and 1995 quarter, respectively. The increase
reflects the growth in the Company's overall operations.
Operating income was $9.3 million for the 1996 quarter as compared to
operating income of $4.7 million for the 1995 quarter due to the results
discussed above.
Interest expense, net of interest income, increased 273% to $11.6
million from $3.1 million in 1995 quarter, primarily due to interest on the
$450 million of subordinated debt issued in May 1996.
The Company recorded no income tax benefit for the 1996 quarter
compared to income tax expense of $2.3 million for the 1995 quarter. The
Company has not provided a tax benefit for the 1996 quarter based upon the
expectation of recording a full valuation allowance for the current year loss,
prior to giving effect to the pending acquisitions.
The Company's net loss was $2.2 million for the 1996 quarter compared
to a net loss of $731,000 for the 1995 quarter due to the factors discussed
above.
Net loss applicable to common stock increased to $4.8 million in the
1996 quarter from $806,000 in the 1995 quarter due to dividends on the Series D
Preferred Stock issued in May 1996 and the increase in the net loss discussed
above.
Broadcast Cash Flow increased 121% to $17 million for the 1996 quarter
from $7.7 million for the 1995 quarter. The increase was a result of the
inclusion of the Recent Acquisitions in the results of the 1996 quarter as well
as improved results at the Company's existing stations in all markets except
Nashville.
Results for the 1996 quarter included WLYT-FM and WTDR-FM, Charlotte,
North Carolina, (the "Charlotte Stations") for which the Company had provided
programming and sold advertising time pursuant to an LMA prior to the
acquisition of such stations in March 1996 (the "Charlotte Acquisition"); and
WHSL-FM in Greensboro, North Carolina for which the Company had sold
advertising pursuant to a JSA beginning in the first of 1996 quarter.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
The Company's net revenue increased 68% to $92.8 million from $55.3
million, for the nine months ended September 30, 1996 and 1995, respectively,
primarily as a result of the Recent Acquisitions which increased net revenues
$30 million. Net revenue from existing SFX Stations (excluding the Recent
Acquisitions and KTCK-AM Dallas which was operated by a third party under an LMA
during the third quarter of 1996 and the Charlotte Stations which the Company
did not operate for the entire 1995 period) increased 10% as a result of strong
radio advertising growth in the Company's markets, combined with improved
inventory management, ratings and other factors generally affecting sales and
rates.
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Station operating expenses increased 68% to $61.4 million for the nine
months ended September 30, 1996 from $36.6 million for the nine months ended
September 30, 1995 primarily due to the inclusion of: expenses related to the
Recent Acquisitions of $19.8 million as discussed above; the inclusion of
expenses of $2 million related to KTCK-AM, Dallas, Texas, and WTDR-FM and
WLYT-FM, both operating in Charlotte, North Carolina for the entire nine month
period ended September 30, 1996; and $877,000 of increases in variable expenses
related to the increases in net revenue at the existing SFX stations.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 88% to $10.7 million from $5.7 million due to the
inclusion of depreciation and amortization related to the Recent Acquisitions
and the San Diego, Charlotte and Dallas Acquisitions, and to $355,000 of
certain one time acquisition related costs.
Corporate, general and administrative expenses were $4.5 million and
$2.8 million for the nine months ended September 30, 1996 and 1995,
respectively. The increase reflects the growth in the Company's overall
operations.
The Company recorded a non-recurring charge of $27.5 million in the
second quarter of 1996 which consisted primarily of payments in excess of the
fair value of stock repurchased totaling $12.5 million to Mr. Hicks and the
reserve by the Company of $2.3 million relating to the loan and accrued
interest to Mr. Hicks, $5.6 million related to the reserve of the $2.0 million
loan and accrued interest to SCMC and the issuance of 600,000 warrants to SCMC,
$4.6 million for the repurchase of Mr. Armstrong's options, and a charge of
$1.6 million related to the termination of the Company's contractual four-year
broadcast rights of Texas Rangers baseball and an adjustment in the value of
the contract for the 1996 season. In the 1995 period, the Company recorded a $5
million special charge related to the write down in value of the Company's
broadcast rights of Texas Rangers baseball.
The operating loss was $11.2 million for the nine month period ended
September 30, 1996 compared to operating income of $5.3 million for the same
period in 1995 due to the results discussed above.
Interest expense, net of interest income, increased 108% to $18.8
million from $9.1 million in the period ended September 30, 1995, primarily due
to interest on the $450 million of subordinated debt issued in May 1996.
Additionally, interest on borrowings earlier in the year, related to the
Charlotte Acquisition contributed to the increase.
The Company incurred an extraordinary loss totaling $15.2 million in
the period ended September 30, 1996 which consisted primarily of payments of $9
million for the repurchase premium and consent payments related to the early
redemption of $79.4 million of the Company's Old Notes in the Tender Offer and
the related Consent Solicitations and the write-off of $5.6 million of debt
issue costs.
The Company has not recorded an income tax benefit for the nine month
periods ended September 30, 1996 or 1995. A tax benefit for the 1996 was not
provided based upon the expectation of recording a full valuation allowance for
the current year loss, prior to giving effect to the pending acquisitions.
The Company's net loss was $45.3 million for the nine month period
ended September 30, 1996 compared to a net loss of $3.8 million for the same
period ended 1995 due to the factors discussed above.
Net loss applicable to common stock increased to $48.9 million in the
1996 quarter from $4.0 million in the 1995 quarter due to dividends on the
Series D Preferred Stock issued in May 1996 and the increase in the net loss
discussed above.
Broadcast Cash Flow increased 67% to $31.4 million for the nine months
ended September 30, 1996 from $18.8 million for the 1995 period. The increase
was primarily a result of the inclusion of the results of the Recent
Acquisitions of $10.2 million and KYXY-FM, KTCK-AM, WTDR- FM, and WLYT-FM for
the portions of the periods the Company owned and operated, provided
programming to or sold advertising on behalf of the stations as well as
improved results at the Company's existing stations in all markets except
Jackson.
Results for the nine month period ending September 30, 1996 include
WLYT-FM and WTDR-FM, Charlotte, North Carolina, for which the Company had
provided programming and sold advertising time pursuant to an LMA prior to its
acquisition in the first quarter of 1996; 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; KTCK-AM,
Dallas, Texas for which the Company had provided programming and sold
advertising time pursuant to an
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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 and WROQ-FM, Greenville, South Carolina for which
the Company had sold advertising pursuant to a JSA beginning in the first
quarter of 1996 quarter.
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 $33.75 per share (fair value of
approximately $9 million). In connection with the SCMC Termination Agreement,
the Company has allocated $5.6 million of value to the Triathlon agreement and
will amortize such amounts over the life of the agreement.
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 day's 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 Company's stock options 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 Class A Common Share
during the 20 days prior to five days before the effective date of the
termination of the employment agreement. In the event that the Company is
required to purchase Mr. Armstrong's options, based upon a repurchase price of
$40.00 per share, the Company will make a payment to Mr.
Armstrong of approximately $3.25 million.
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 and private 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
$18.8 million for the nine months ended September 30, 1996 as compared to $2.1
million for the nine months ended September 30, 1995. The increase in 1996 was
primarily due to the cash portion of the non-recurring charges.
Net cash used in investing activities was $442.8 million for the nine
months ended September 30, 1996 as compared to $25.5 million for the nine
months ended September 30, 1995. The cash used in investing activities in 1996
related primarily to the Charlotte, Greenville, HMW, Liberty, Prism, Louisville
and Jackson Acquisitions. In addition, proceeds from sale of radio stations of
$25 million was offset by advances to related parties of $20.4 million,
deposits and other payments for Pending Acquisitions of $13.1 million and
capital expenditures of $1.8 million.
Net cash provided by financing activities was $489.8 million for the
nine months ended September 30, 1996 as compared to $35.7 million for the nine
months ended September 30, 1995. The net cash provided by financing activities
in 1996 was primarily due to $614.9 million of proceeds from the Note Offering
and the Preferred Stock Offering and the borrowing under a credit agreement. In
addition, cash provided was offset by payments on subordinated debt, senior
loans and capital lease obligations of $101.3 million during 1996.
Recent Acquisitions and Dispositions. In June 1996, SFX completed the
Greenville Acquisition and the HMW Acquisition. MMR initially entered into the
acquisition agreements relating to these stations. SFX and MMR agreed that SFX
would finance the purchase of such stations and that MMR would transfer the
purchased assets to SFX simultaneously with the acquisition by MMR.
In July and August 1996, SFX completed the Jackson Acquisitions, the
Prism Acquisition, the Liberty Acquisition and the Washington Dispositions. In
September and October 1996, SFX completed the Louisville Acquisitions and
related Louisville Dispositions and the Dallas Disposition.
Pending Acquisitions and Dispositions. The Company has entered into
agreements relating to the Pending Acquisitions and the Dispositions. In April
1996, the Company entered into the Merger Agreement pursuant to which it has
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agreed to acquire MMR in exchange for capital stock of the Company having a
value estimated at approximately $80.0 million assuming the reported price of
the Company's stock is $40.00 per share. The Company has agreed to repay MMR's
senior debt and subordinated notes totaling approximately $39.6 million as of
October 31,1996 and to treat any amounts outstanding under the MMR Loan as
contributed capital. As of November 1996, substantially all of MMR's
outstanding Class A Warrants to purchase 1,840,000 shares of MMR Class A Common
Stock were exercised at an exercise price of $7.75 per share. Such exercise
resulted in net proceeds to MMR of approximately $13.2 million. In November
1996, MMR also completed an exchange offer whereby 1,090,540 of MMR's 1,840,000
original outstanding Class B Warrants were exchanged for 218,101 shares of MMR
Class A Common Stock.
In the event that the MMR Merger is terminated, the Company will be
required, except in certain circumstances, to pay $3.5 million to MMR. In
addition, the Company will be required to pay MMR $1.0 million in the event the
majority of the combined voting power of SFX votes with respect to, but does
not vote in favor of, the MMR Merger.
The Company anticipates that it will consummate all of the Pending
Acquisitions by the second or third quarter of 1997. However, the timing and
completion of the Pending Acquisition and the Dispositions are subject to
number of conditions, certain of which are beyond the Company's control. Each
of the Pending Acquisitions (other than the Delsener/Slater Acquisition) and
the Dispositions is subject to the approval of the FCC. Additionally, the
Federal Trade Commission and the Department of Justice, Antitrust Division (the
"Antitrust Agencies") have increased their scrutiny of the radio industry. The
Antitrust Agencies have indicated their intention to review matters related to
the concentration of ownership within markets even when the ownership in
question is permitted under the provisions of the Recent Legislation. While the
Company believes that each of the Pending Acquisitions and the Dispositions
does not represent or result in an impermissible concentration of ownership,
there can be no assurance that the Antitrust Agencies will not take a contrary
position, which could delay or prevent the consummation of any or all the
Pending Acquisition or Dispositions or require the Company to restructure its
ownership in the relevant market or markets. In order to fund certain of the
Pending Acquisitions, the Company will 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. The MMR Merger is also subject to
the approval of stockholders of MMR and the Company.
The Company expects that the Acquisitions will be accounted for using
the purchase method of accounting, 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.
SOURCES OF LIQUIDITY. In May 1996, the Company repaid all amounts
owing under the Old Credit Agreement with the proceeds of the Financing. The
Company has received a firm commitment from a lending institution to underwrite
the New Credit Agreement, a $225 million senior credit facility. The Company's
obligations under the New Credit Agreement will be 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 guaranteed by the
subsidiaries of the Company. It is expected that the New Credit Agreement will
prohibit SFX from utilizing funds available thereunder unless SFX meets certain
specified financial ratios, such as total leverage and senior leverage ratios.
The Company expects to complete the New Credit Agreement prior to the MMR
Merger. The Company currently anticipates that borrowings will be required
under the New Credit Agreement to finance a portion of the Pending
Acquisitions, including the repayment of MMR's debt upon completion of the
merger. There can be no assurance, however, that the Company will be able to
enter into the New Credit Agreement on a timely basis, or at all, or that the
Company will be able to borrow under the New Credit Agreement.
In May 1996, the Company issued $149.5 million in aggregate
liquidation preference of the Series D Preferred Stock. Dividends on the Series
D Preferred Stock are payable quarterly in cash. The Series D Preferred Stock
will be converted into shares of Class A Common Stock at any time prior to the
close of business on the maturity date, unless previously redeemed or
repurchased. The Certificate of Designation contains certain covenants that,
among other things, limit the ability of the Company and its subsidiaries to
engage in transactions with their affiliates.
In May 1996, the Company issued $450.0 million of its 10.75% Senior
Subordinated Notes due in 2006. The indenture relating to its 10.75% Senior
Subordinated Notes due 2006 ("Indenture") contains covenants that, among other
things, limit the ability of the Company and its subsidiaries to engage in
transactions with their affiliates.
18
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In addition, SFX is currently exploring a number of alternatives,
including offerings of equity and/or debt securities to fund certain of the
Pending Acquisitions. SFX's ability to issue preferred stock or debt securities
and to make borrowings under the New Credit Agreement may be significantly
impacted by the covenants in the New Credit Agreement, the Certificate of
Designations relating to the Series D Preferred Stock, and/or the Indenture.
SFX's ability to raise financing on favorable terms and to make certain
borrowings under the New Credit Agreement is also dependent on improvements in
the Broadcast Cash Flow of SFX's existing stations and the stations which SFX
has agreed to acquire.
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 on
favorable terms 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 and the Series D Preferred Stock.
The Company's ability to fund the Pending Acquisitions, make scheduled
payments of principal, or to pay interest on or to refinance its debt and to
make dividend payments on the Series D Preferred Stock, to make conversion
payments with respect to the Series D Preferred Stock and to redeem the Series
B Preferred Stock and 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. There can
be no assurance that the Company will be able to borrow under the New Credit
Agreement, that the Company's business will generate sufficient cash flow from
operations, that anticipated improvements in operating results will be achieved
or that future financing including borrowings under the New Credit Agreement
will be available in an amount sufficient to enable the Company to service its
debt, to make dividend, conversion or redemption 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 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported in the Forms 10-Q filed by the Company in respect of the
quarterly periods ended March 31, 1996 and June 30, 1996, in a complaint (Index
No. 602056/96) dated April 18, 1996, Paul Pops, who purports to be a
stockholder of MMR, brought suit in the Supreme Court of the State of New York
against MMR, each of the directors of MMR, the Company and Robert F.X.
Sillerman, the Chief Executive Officer of the Company, 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 security holders in the MMR Merger
is unfair and grossly inadequate. The suit also alleges that in connection with
entering into the Merger Agreement, the directors of MMR violated their
fiduciary duties to MMR and its stockholders and that the Company aided and
abetted such violation. The complaint also alleges that the action should be
certified as a class action representing the interests of the stockholders of
MMR. The defendants filed a motion to dismiss the complaint for failure to
state a cause of action. On September 25, 1996, the parties entered into a
Memorandum of Understanding, pursuant to which the parties have reached an
agreement in principle providing for the settlement of the action. Pursuant to
the Settlement, the plaintiff has agreed that the Exchange Ratio, as set forth
in Amendment No. 3 to the Merger Agreement, is fair to the public shareholders
of MMR. The Settlement provides for the Company to pay plaintiff's counsel's
fees as approved by the Court. The Settlement is conditioned upon the (i)
consummation of the MMR Merger, (ii) completion of certain confirmatory
discovery, and (iii) approval of the Court. Pursuant to the Settlement, the
defendants have denied, and continue to deny, that they committed any
violations of law or have acted in bad faith. There can be no assurance that
the Court will approve the Settlement on the terms and conditions provided for
therein, or at all. Management believes that this proceeding will not impact
the planned closing of the MMR Merger on November 22, 1996.
The Company is a defendant in a lawsuit filed October 21, 1996 by
Cardinal Communications Partners, L.P. ("Cardinal") in the District Court of
Dallas County, Texas (No. 9611157). Also named as defendants are D. Geoffrey
Armstrong and Robert F.X. Sillerman, executive officers of the Company. The
complaint alleges that Cardinal is entitled to contingent payments related to
its sale of Dallas radio station KTCK-AM to the Company in April 1995 and the
Company's subsequent sale of KTCK-AM in October 1996 in the Dallas Disposition.
The complaint seeks a declaratory judgment and actual and punitive damages in
an unspecified amount, as well as attorneys' fees, based on claims of breach of
contract,
19
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fraud, negligent misrepresentation, quantum meruit and unjust enrichment. The
Complaint has not yet been joined and there has been no discovery or other
proceedings. The Company intends to defend the case vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Stock Purchase Agreement by and among SFX Broadcasting, Inc.,
Liberty Broadcasting, Incorporated, Josephthall, Littlejohn
and Levy Fund, L.P., Michael Craven and James Thompson dated
as of November 15, 1995 (incorporated by reference to Exhibit
10.34 of the Form 10-K of SFX Broadcasting, Inc. (Commission
File No. 0-22486) for the fiscal year ended December 31,
1995).
2.2 Asset Purchase Agreement, dated May 1, 1996, among SFX
Broadcasting, Inc., KIRO, Inc. and Bonneville Holding Company
(incorporated by reference to Exhibit 10.2 to the Form 8-K of
SFX Broadcasting, Inc. (Commission File No. 0-22486) filed
with the Securities and Exchange Commission on May 9, 1996).
2.3 Asset Purchase Agreement by and between Prism Radio Partners,
L.P. and SFX Broadcasting, Inc. (incorporated by reference to
Exhibit 10.40 of the Form 10-K of SFX Broadcasting, Inc.
(Commission File No. 0-22486) for the fiscal year ended
December 31, 1995).
2.4 Amendment No. 2, dated as of July 30, 1996, to the Amended
and Restated Agreement and Plan of Merger, dated as of April
15, 1996, as amended on May 6, 1996, among SFX Broadcasting,
Inc., SFX Merger Company and Multi-Market Radio, Inc.
(incorporated by reference to Exhibit 2.1 to the Form 8-K of
SFX Broadcasting, Inc. (Commission File No. 0-22486) filed
with the Securities and Exchange Commission on August 22
1996).
2.5 Exchange Agreement, dated July 1, 1996, between Chancellor
Radio Broadcasting Company and SFX Broadcasting, Inc.
(incorporated by reference to Exhibit 10.59 of Amendment No.
1 to the Form S-4 of SFX Broadcasting, Inc. (Commission File
No. 333-06553) filed with the Securities and Exchange
Commission of July 16, 1996).
2.6 Asset Purchase Agreement by and between SFX Broadcasting of
Texas (KTCK) Licensee, Inc., SFX Broadcasting of Texas
(KTCK), Inc. and KRBE Co. (incorporated by reference to
Exhibit 10.58 of Amendment No. 1 to the Form S-4 of SFX
Broadcasting, Inc. (Commission File No. 333-06553) filed with
the Securities and Exchange Commission on July 16, 1996).
2.7 Option Agreement by and between Capstar Communications of
Mississippi, Inc. and SPUR Capital, Inc. dated December 15,
1993 (incorporated by reference to Exhibit 10.1 of the Form
10-Q of SFX Broadcasting, Inc. (Commission File No. 0-22486)
for the three-month period ended March 31, 1996).
2.8 Amendment No. 3, dated as of September 30, 1996, to the
Amended and Restated Agreement and Plan of Merger, dated as
of April 15, 1996, as amended on May 6, 1996 and July 30,
1996, among SFX Broadcasting, Inc, SFX Merger Company and
Multi-Market Radio, Inc. (incorporated by reference to
Exhibit 2.1 to the Form 8-K of SFX Broadcasting, Inc.
(Commission File No. 0-22486) filed with the Securities and
Exchange Commission on October 3, 1996).
2.9 Asset Purchase Agreement between Lewis Broadcasting
Corporation and Multi-Market Radio Acquisition Corp.
(incorporated by reference to Exhibit 10.49 of the Form SB-2
of Multi-Market Radio, Inc. (Commission File No. 333-1712)
filed on February 27, 1996).
2.10 Letter of intent, dated August 28, 1996, between SFX
Broadcasting, Inc. and EZ Communications, Inc.
2.11 Letter of intent, dated August 9, 1996, between SFX
Broadcasting, Inc., Kenneth A. Brown, ABS Communications,
Inc., ABS Communications, L.L.C., ABS Richmond Partners,
L.P., ABS Richmond Partners II, L.P., EBF, Inc. and EBF
Partners.
20
<PAGE>
2.12 Asset Exchange Agreement, dated as of September 24, 1996,
among WHFS, Inc., Liberty Broadcasting of Maryland
Incorporated, SFX Broadcasting, Inc. and CBS Inc.
(incorporated by reference to Exhibit 2.5 to the Form 8-K of
SFX Broadcasting, Inc. (Commission File No. 0-22486) filed
with the Securities and Exchange Commission on October 3,
1996).
2.13 Asset Purchase Agreement between Jarad Broadcasting Company
of Albany Inc. and Liberty Broadcasting of Albany,
Incorporated.
2.14 Asset Purchase Agreement between Secret Communications
Limited Partnership and SFX Broadcasting, Inc. (incorporated
by reference to Exhibit 10.2 to the Form 8-K of SFX
Broadcasting, Inc. (Commission File No. 0-22486) filed with
the Securities and Exchange Commission on October 30, 1996).
2.15 Purchase and Sale Agreement among WWYZ, Inc. Great American
Music Fest & Production Co. (collectively the "Companies"),
each of the shareholders of the Companies and SFX
Broadcasting, Inc. (incorporated by reference to Exhibit 10.4
to the Form 8-K of SFX Broadcasting, Inc. (Commission File
No. 0-22486) filed with the Securities and Exchange
Commission on October 30, 1996).
2.16 Amendment to Asset Purchase Agreement between Texas Coast
Broadcasters, Inc. and Multi-Market Radio, Inc. (incorporated
by reference to Exhibit 10.5 to the Form 8-K of SFX
Broadcasting, Inc. (Commission File No. 0-22486) filed with
the Securities and Exchange Commission on October 30, 1996).
2.17 Stock Purchase Agreement between Delsener/Slater Enterprises,
Ltd., Beach Concerts, Inc. Connecticut Concerts,
Incorporated, Broadway Concerts, Inc., Ardee Productions,
Ltd., Ardee Festivals NJ, Inc., In- House Tickets, Inc. Exit
116 Revisited, Inc. Dumb Deal, Inc., Ron Delsener, Mitch
Slater and SFX Broadcasting, Inc. (incorporated by reference
to Exhibit 10.3 to the Form 8-K of SFX Broadcasting, Inc.
(Commission File No. 0-22486) filed with the Securities and
Exchange Commission on October 30, 1996).
10.1 Loan Agreement, dated September 4, 1996, by and between
Multi-Market Radio, Inc. and SFX Broadcasting, Inc.
(incorporated by reference to Exhibit 10.1 of the Form 8-K of
Multi-Market, Inc. (Commission File No. 0-22080) filed on
September 10, 1996).
11. Statement regarding Calculation of Per Share Earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
On July 10, 1996, the Company filed a Form 8-K under cover of Items 2
(Acquisition or Disposition of Assets) and 5 (Other Events) thereof disclosing
various acquisitions and dispositions by the Company and the consummation of a
tender offer and consent solicitation by the Company in respect of its 11.375%
Senior Subordinated Notes due 2000. The Form 8- K included historical financial
statements for the businesses acquired by the Company. The Form 8-K was amended
by a Form 8-K/A filed on August 22, 1996. The Form 8-K/A included historical
financial statements for the businesses acquired by the Company and unaudited
pro forma financial information of the Company.
On August 8, 1996, the Company filed a Form 8-K under cover of Item 5
(Other Events) thereof, to disclose the execution of Amendment No. 2 to the
Merger Agreement among the Company, SFX Merger Company and MMR, the
consummation of certain private placements and the effectiveness of related
registration statements, the execution of agreements relating to the
acquisition and disposition of certain radio stations, the acquisition of one
radio station and the announcement of a date by which stockholders of the
Company must submit proposals for inclusion in the proxy statement relating to
the 1996 annual meeting of stockholders of the Company. The Form 8-K included
certain unaudited pro forma financial information of the Company.
21
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SFX BROADCASTING, INC.
Date: November 14, 1996 By:/s/Howard Tytel
-------------------------------
Howard J. Tytel
Executive Vice President and
Secretary
Date: November 14, 1996 By:/s/D. Geoffrey Armstrong
-------------------------------
D. Geoffrey Armstrong
Vice President, Treasury, and Chief
Financial Officer
22
EZ COMMUNICATIONS, INC.
10800 MAIN STREET, P.O. BOX 10103
FAIRFAX, VA 22030-8003 703/591-1000 FAX 703/934-1200
August 28, 1996
Mr. Geoffrey Armstrong
SFX Broadcasting, Inc.
600 Congress Avenue
Suite 1270
Austin, Texas 78701
Re: Asset Exchange of WSSS(FM), Charlotte, North Carolina for WTDR(FM),
Stateville, North Carolina and Asset Purchase of WNKS(FM), Charlotte,
North Carolina and WRFX(FM), Kannapolis, North Carolina
Dear Jeff:
This letter is intended to set forth the basic terms of a possible like-kind
exchange within the meaning of Section 1031 of the Internal Revenue Code and
the regulations thereunder and asset purchase (the "Subject Transaction")
between EZ Communications, Inc., a Virginia corporation ("EZ"), present or
future licensee and owner of substantially all of the assets that are used or
useful in the operation of radio stations WSSS(FM) and WNKS(FM), Charlotte,
North Carolina and WRFX(FM), Kannapolis, North Carolina (the "EZ Stations")
and SFX Broadcasting, Inc. ("SFX"), a Delaware corporation, licensee and owner
of substantially all of the assets that are used or useful in the operation of
radio station WTDR(FM), Charlotte, North Carolina (the "SFX Station," and,
with the EZ Stations the "Stations").
1. Nature of the Subject Transaction. The Subject Transaction shall
involve the transfer and delivery by EZ and SFX at Closing of all the tangible
and intangible assets, both real and personal, used or useful in the operation
of the EZ Stations and SFX Station, respectively, and related real property,
but excluding cash, cash equivalents, and accounts receivable. The transfer
and delivery of the assets comprising WNKS(FM) and WRFX(FM), Charlotte, North
Carolina shall be excluded from the like-kind exchange described above, but
shall be the subject of a separate asset purchase agreement pursuant to which
SFX shall convey to EZ at Closing for such assets Sixty-Four Million Eight
Hundred Thousand Dollars ($64,800,000) in immediately available funds (the
"Asset Purchase Agreement"). As of this date, EZ has not been granted licenses
by the Federal Communications Commission to operate radio stations WNKS(FM)
and WRFX(FM) (the "Future EZ Stations"). In addition, EZ has not closed the
transactions to purchase the Future EZ Stations.
<PAGE>
Mr. Geoffrey Armstrong
August 28, 1996
Page 2
Therefore, EZ agrees to transfer all the tangible and intangible assets, both
real and personal, used or useful in the operation of the Future EZ Stations,
and related property, but excluding cash, cash equivalents, and accounts
receivable subject to an Asset Purchase Agreement and Asset Exchange Agreement
between EZ and Evergreen Media Corporation with respect to WNKS(FM) and
WRFX(FM) (collectively referred to as "Purchase & Exchange Agreements"). The
assets of the Stations to be exchanged will be transferred free and clear of
all liabilities, liens and encumbrances, including liabilities under financing
agreements, except those specifically provided for under the Purchase &
Exchange Agreements referred to above, if any.
2. Working Capital Adjustments. Within sixty (60) days following the
Closing Date, the parties shall establish a net working capital adjustment
based on customary accounting principles, including, without limitation, the
amount of the Stations' respective aggregate net trade balance at closing, if
and to the extent such balance is negative and exceeds mutually agreed levels
as to the EZ Stations and the SFX Station, respectively, and otherwise by the
amount of any prorations for rent, utility payments, employee benefits
(including vacation and sick leave), and other normal income and expense items
related to the operation of the Stations. Income and expense of the Stations
will be prorated as of 12:01 a.m., Eastern time, on the day of Closing.
3. Accounts Receivable. The parties will use their best efforts to
collect the accounts receivable of the Stations existing as of the Closing for
a period of 90 days after the Closing. Prior to the fifteenth day after the
end of the 90-day collection period, the parties will remit to the other all
amounts collected with respect to those account receivable, and all records,
or copies thereof, with respect to any accounts receivable.
4. Definitive Agreements. The parties will undertake to negotiate a
definitive Asset Exchange Agreement and Asset Purchase Agreement (together,
the "Agreements"), setting forth the terms and conditions of the exchange,
which will supersede all prior agreements, if any, between EZ and SFX. The
parties may assign their rights and obligations under this letter of intent
and the definitive Agreements to a wholly owned subsidiary, or to American
Radio Systems Corporation in the case of EZ, provided however that each party
shall remain liable to the other party for the satisfactory performance of
such assignee's obligations under this letter of intent or the Agreements, as
the case may be.
a. Terms of the Agreements. The Agreements will contain provisions
appropriate for a radio station asset exchange and purchase transaction,
including appropriate representations, warranties, covenants (which, as to
stations WNKS(FM) and WRFX(FM), shall be no greater than those granted by EZ's
predecessor), and indemnification agreement, such as the following:
<PAGE>
Mr. Geoffrey Armstrong
August 28, 1996
Page 3
i. FCC Approval. The exchange and sale of the Stations will be
conditioned on the prior consent of the FCC as to EZ's acquisition of the SFX
Station and SFX's acquisition of the EZ Stations, with the consent having
become a Final Order (as that term is commonly understood) and the parties
having complied with any statutory or regulatory requirements imposed or
administered by the FCC, provided, however, that the Closing shall not occur
prior to the close of the Purchase & Exchange Agreements between EZ and
Evergreen Media Corporation.
ii. Governmental Approvals. The exchange and sale of the
Stations will also be conditioned on the prior consent and approval of any
other Federal, state or local governmental agencies, the compliance by the
parties with any statutory or regulatory requirements imposed or administered
by any of those agencies and authorities, and the expiration of any applicable
waiting periods. The Agreements shall provide that it shall be the primary
responsibility of EZ, in the case of the EZ Stations, and SFX, in the case of
the SFX Station, to obtain necessary regulatory consents, including, without
limitation, making arrangements with third parties to insure regulatory
compliance of the Subject Transaction within the respective markets.
iii. Other Approvals. The exchange of the Stations will also
be conditioned on the receipt of all material third-party consents without the
imposition of any conditions that would be adverse to EZ or SFX. SFX and EZ
will warrant in the Agreements that it will use its best efforts to obtain all
material consents required under this paragraph prior to the Closing.
iv. Assumption of Liabilities. At Closing EZ in the case of
the SFX Station and SFX in the case of the EZ Stations will assume the
obligations of ongoing agreements of the Stations to the extent that the
obligations relate to the period after the Closing, and to the extent such
obligations are disclosed in the Agreements or are entered into thereafter in
the ordinary course of business. However, the parties will not assume any
obligations arising under financing arrangements or under agreements entered
into other than in the ordinary course of business.
v. Conditional Nature of the WNKS/WRFX Agreement. The Asset
Purchase Agreement shall provide that the closing under the Asset Exchange
Agreement is a condition precedent to closing the Asset Purchase Agreement,
but the closing of the Asset Purchase Agreement shall not be a condition to
closing the Asset Exchange Agreement; provided, however, SFX shall have the
option to terminate both the Asset Purchase Agreement and Asset Exchange
Agreement if EZ is unable to close under either agreement.
vi. Specific Performance. Agreements shall provide that either
party shall be entitled to obtain specific performance of the other's
obligation in the event such other party
<PAGE>
Mr. Geoffrey Armstrong
August 28, 1996
Page 4
wrongfully breaches its obligations to close the transaction pursuant to the
terms of the Agreements.
vii. Upset Date. The Asset Exchange Agreement will provide
that either party, if not then in default, could terminate the agreement at
any time after December 31, 1997.
b. Delivery of Draft Agreements; Due Diligence. EZ is prepared to
deliver a first draft of the Agreements to SFX within ten (10) days of the
date that this letter is countersigned on behalf of SFX. The parties shall
immediately have the opportunity to begin a thorough investigation and review
of (i) the conditions of the technical facilities of the Stations, and (ii)
the cash flow, assets and liabilities of the Stations as reflected in its
books, financial records and material contracts. The satisfactory completion
of such investigation and review and the approval of the Board of EZ
Communications, Inc. and SFX shall be condition precedents to the execution
and delivery of the Agreements.
c. Execution of Asset Exchange Agreement; Filing of FCC
Application. Unless otherwise mutually agreed, the parties shall use their
best efforts to execute and deliver the Agreements within thirty days after
the full execution and delivery of this letter, and to prepare and file an FCC
Assignment Application with respect to the Stations' licenses within ten (10)
days following such execution and delivery of the Agreements.
5. Time Brokerage Agreement. EZ and SFX agree to mutually negotiate in
good faith and enter into a Time Brokerage Agreement, which shall become
effective as of September 15, 1996, pursuant to which EZ (or its assignee), in
the case of the SFX Stations, and SFX, in the case of the EZ Stations, shall
be entitled to program, promote and sell advertising time on such respective
Stations to the fullest extent allowable by law. The parties agree that their
respective fees provided for under the Time Brokerage Agreements, shall be
equal and offsetting, subject to adjustment to reflect the projected 1996
monthly cash flow of the EZ Stations and SFX Station, respectively.
6. Broker, Expenses of Transaction. EZ and SFX will share equally any
transfer taxes, sales taxes, document stamps, or other charges levied by any
governmental entity including FCC, FTC and other filing fees on account of the
exchange and sale of the Stations. SFX and EZ hereby represent and warrant to
the other that neither has retained any broker or agent in connection with the
purchase or sale or exchange of the Stations other than Ed Dougan &
Associates, whose fee shall be borne equally between SFX and EZ, provided that
EZ's share of such fees shall not exceed Three Hundred Twenty Four Thousand
Dollars ($324,000).
7. Exclusive Negotiations. During the period of negotiation of the
Agreements, the parties hereby agree, in consideration of expenses to be
incurred in pursuing exchange of the Stations, that they will not discuss or
negotiate with any other possible party, or entertain or consider
<PAGE>
Mr. Geoffrey Armstrong
August 28, 1996
Page 5
any inquiries or proposals relating to, the possible disposition of the Stations
or of any material portion thereof.
8. Operations in Ordinary Course. Except to the extent provided for
otherwise in the respective Time Brokerage Agreement, the parties hereby agree
that they will operate their respective Stations only in the ordinary course
of business, including, without limitation, using its reasonable best efforts
to maintain all existing individual employment agreements and arrangements,
and to maintain levels of marketing and promotion efforts and expenditures in
the period prior to Closing at levels no less than those currently budgeted in
1996 business plans.
9. Confidentiality. During the course of negotiation of the Agreements,
the parties will continue to discuss and obtain information regarding the
Stations. The parties and their affiliates and agents agree to maintain in
confidence all such information and any other information obtained from the
other, whether written or oral. Subject to the requirements of law, EZ and SFX
shall keep confidential their negotiations regarding, and any definitive
agreement reached for, the exchange of the Stations. Upon request, the parties
will return all written information obtained from the other, any written
record of all oral information obtained from the other and all copies thereof,
including any corporate data files with respect thereto. Subject to applicable
FCC and other legal requirements, no public announcement regarding this letter
of intent or the underlying transaction shall be made without the express
written approval of both EZ and SFX, which shall not be unreasonably withheld
and with the understanding that the parties desire to issue public
announcements of the contemplated transactions on Thursday, August 29, 1996.
If the foregoing is acceptable, please countersign below to confirm your
intent to proceed with negotiations consistent with the terms of this letter
no later than three (3) business days following its receipt. By so doing, the
parties (i) agree to be bound by the terms set forth herein, which represent
the essential terms of the Subject Transaction, and agree to negotiate in good
faith such supplemental terms as are customary in similar transactions, and
(ii) represent and warrant to each
<PAGE>
Mr. Geoffrey Armstrong
August 28, 1996
Page 6
other that said negotiation, execution, delivery and performance of the
Agreements substantially as described above would not violate, conflict with,
or result in the breach of terms of any agreement, written or oral, or by
which the parties or any of their property is bound.
Very truly yours,
EZ COMMUNICATIONS, INC.
By: /s/ Alan Box
---------------------------
Alan Box, President
ACCEPTED:
SFX BROADCASTING, INC.
By: /s/ D. Geoffrey Armstrong
---------------------------------------------
Its: Executive Vice President, CFO and COO
--------------------------------------
Date: August 28, 1996
-------------------------------------
In acknowledgment that EZ and American Radio Systems Corporation ("ARS")
have entered into an Agreement and Plan of Merger dated August 5, 1996, ARS
hereby acknowledges receipt of notice of the Subject Transaction and consents
to the terms herein.
AMERICAN RADIO SYSTEMS
CORPORATION
By: /s/ Steve Dodge
--------------------------------
August 9, 1996
PERSONAL AND CONFIDENTIAL
Mr. Kenneth A. Brown
ABS Communications, Inc.
ABS Communications, L.L.C.
ABS Richmond Partners, L.P.
ABS Richmond Partners II, L.P.
EBF, Inc.
EBF Partners
Acquisition of WKHK-FM, WBZU-FM,
WLEE-FM & WVGO-FM of Richmond, Virginia
Gentlemen:
This letter is intended to set forth basic substantive terms under which
SFX Broadcasting, Inc., or one of its subsidiaries, provided the subsidiary is
guaranteed by SFX Broadcasting, Inc., (together, "SFX") has agreed to acquire
interests in the partnerships owning WKHK-FM and WBZU-FM, and to finance the
acquisition of WLEE-FM and WVGO-FM of Richmond, Virginia (together with
WKHK-FM and WBZU-FM, the "Stations"). This letter represents a binding letter
of intent with no financing contingency (the "Letter") and the parties to this
Letter agree to expeditiously proceed with the good faith negotiation and
execution of the agreements necessary to complete the transaction contemplated
hereby (the "Definitive Agreements").
We understand that Kenneth A. Brown ("Ken") and ABS Communications,
Inc., a Virginia corporation (the "Corporation"), formed ABS Communications,
L.L.C., a Virginia limited liability company (the "L.C.") on April 29, 1996.
These Members initially own 99% and 1%, respectively, in the L.C. On June 1,
1996, Ken and the Corporation assigned to the L.C. their rights and
obligations under an Escrow Agreement and a Time Brokerage Agreement. and on
July 15, 1996, Ken and the Corporation assigned to the L.C. their rights and
obligations under an Asset Purchase Agreement, with Benchmark Communications
Radio Limited Partnership (the Escrow Agreement, the Time Brokerage Agreement
and the Asset Purchase Agreement hereinafter referred to as the "Benchmark
Contracts") with respect to the acquisition of WLEE-FM and WVGO-FM (the
"Benchmark Stations"). SFX acknowledges that it has received copies of the
Benchmark Contracts.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 2
Ken and the Corporation also currently own partnership interests in two
Virginia limited partnerships: ABS Richmond Part Partners, L.P. ("RICH-I") and
ABS Richmond Partners II, L.P. ("RICH-II"). The other partners in these
partnerships are EBF, Inc. and EBF Partners (together with Ken and the
Corporation collectively referred to as the "Current Partners").
The acquisition of the Stations (the "Acquisition") will be effected by
(i) SFX financing the L.C.'s acquisition of the Benchmark Stations under the
Benchmark Contracts and (ii) Ken and the Corporation contributing all or part
of their interests in RICH-I and RICH-II to the L.C., while SFX will
contribute WMXB-FM and cash necessary to capitalize the L.C. as described
below. Thus, RICH-I and RICH-II will dissolve, terminate, and liquidate into
the L.C.
First, SFX will make a loan to the L.C. in an amount sufficient to allow
the L.C. to complete the acquisition of the Benchmark Stations under the terms
of the Benchmark Contracts. Upon completion of the acquisition of the
Benchmark Stations, SFX will file an application with the Federal
Communications Commission ("FCC") seeking permission to (i) convert its loan
to the L.C. into equity in the L.C. and (ii) acquire the partnership interests
in RICH-I and RICH-II through the L.C. Once this application has been granted,
then SFX will: (i) convert its loan to the L.C. into equity in the L.C., (ii)
cause the L.C. to acquire the partnership interests in RICH-I and RICH-II, and
(iii) contribute WMXB-FM to the L.C.
Following are the substantive terms of SFX's proposed acquisitions:
1. Agreement. Unless extended by mutual agreement, within 30 days of the
date hereof the parties will negotiate in good faith the execution and
delivery of the Definitive Agreements, drafts of which shall be prepared by
SFX's counsel. Failure to execute within this time will not effect the binding
nature of this Letter. Without limiting the foregoing, SFX agrees that the
Definitive Agreements shall include:
A. Acquisitions and Form of Payment
SFX agrees to finance the L.C.'s acquisition of the Benchmark
Stations for $14,500,000, as specified in the Benchmark Contracts. While
this financing is outstanding, SFX will have a first priority security
interest in all of the assets of the L.C. The successful acquisition of
the Benchmark Stations is a condition precedent to SFX's acquisition of
partnership interests in RICH-I and RICH-II.
SFX also agrees that, upon signing of the Definitive
Agreements, it will finance the L.C.'s assumption or completion, as the
case may be, of all of Ken's and the Corporation's rights and
obligations with respect to the acquisition of the Benchmark Stations.
These obligations will include, but not be limited to:
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 3
o repaying Ken's good faith deposit, not to exceed $1,000,000, which
is being held in escrow (which is in addition to the $2,000,000
escrow for the RICH-I and RICH-II transaction);
o repaying the outstanding borrowings, net of the $1,000,000 good
faith deposit referred to above, under Ken's bridge facility with
Signet Bank;
o reimbursing Ken for all additional expenses directly related to
acquiring and operating the Benchmark Stations under the Time
Brokerage Agreement; and
o indemnifying Ken with respect to his personal performance guarantees.
As of August 6, 1996, the outstanding balance under the Signet
bridge facility was $1,526,051. The bridge facility has been used to
fund the Benchmark escrow deposit ($1,000,000) and the differential
between cash receipts and working capital, payments to Benchmark under
the Time Brokerage Agreement ($48,732 per month) and transaction-related
expenses. Ken will agree to represent that all borrowings under the
bridge facility are directly related to the Benchmark acquisition and
Time Brokerage Agreement and over-all Richmond transaction expenses.
Upon the successful acquisition of the Benchmark Stations by
the L.C., as described above, Ken and the Corporation will contribute to
the L.C. the proportion of their interests in RICH-I and RICH-II that
have an equity value of $1,700,000. The cash that SFX will contribute to
the L.C. along with the available loan proceeds referred to below in
this paragraph will be sufficient to, and will be used for: (i) as
described in more detail in the next paragraph, the acquisition of the
remaining partnership interests in RICH-I and RICH-II for $21,300,000
plus the Net Working Capital (the acquisition price of $23,000,000 plus
the Net Working Capital, less Ken and the Corporation's contribution of
their equity interest valued at $1,700,000); and (ii) any projected cash
needs for operation of the Stations. Net Working Capital shall be the
excess, if any, of the sum of cash and cash equivalents, accounts
receivable, and any liquid assets of RICH-I and RICH-II over the current
accounts payable of RICH-I and RICH-II. In addition, the L.C. shall only
be responsible for the recorded liabilities of RICH-I and RICH-II, not
to exceed $21,300,000.
The amount paid to the remaining partners in RICH-I and RICH
II (EBF, Inc., EBF Partners, and perhaps, Ken) shall equal the excess of
(A) $21,300,000 plus Net Working Capital over (B) the recorded
liabilities, excluding current accounts payable, of RICH-I and RICH-II
(which the L.C. is assuming and extinguishing at closing). Whether Ken
has interests remaining to be purchased after his and the Corporation's
contribution
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 4
to the L.C. will depend upon whether the Current Partners agree that the
equity interest of Ken and the Corporation exceeds $1,700,000. In either
event, the amount that the L.C. pays (and, thus, the required
contribution of SFX) to purchase the remaining interests will remain the
same. Therefore, the L.C. will acquire 100% of the partnership interests
in RICH-I and RICH-II for $23,000,000 plus Net Working Capital, which is
the sum of Ken's and the Corporation's $1,700,000 contributed interest
plus SFX's cash contribution of $21,300,000 plus Net Working Capital.
The resulting Membership Interests in profits, losses, and
distributions of the L.C. will be 96.00% for SFX and 4.00% aggregate for
Ken and the Corporation. Ken and the Corporation will have an aggregate
capital account of $1,700,000 while SFX's capital account will be equal
to its cash contribution and the value of WMXB-FM ($15,000,000). Ken and
the Corporation will retain ultimate liability for an amount of debt
equal to their negative capital accounts in RICH-I and RICH-II;
currently estimated at an aggregate of $2,900,000. The debt will be of a
sufficient amount and type to defer these negative capital accounts.
Other than amounts reasonably necessary for working capital, all Members
must agree for the L.C. to incur debt in excess of the estimated
$2,900,000 and any debt that the L.C. incurs must be on commercially
reasonable terms regarding interest rates, amortization schedule, and
otherwise. The L.C. will account for the disparity between the book
capital accounts of Ken and the Corporation ($1,700,000 (credit)) and
their tax capital accounts (est. $2,900,000 (debit)) using the
traditional method provided in the income tax regulations unless all the
Members agree otherwise. The new Operating Agreement will require
minimum quarterly distributions to fund the Members' tax liability based
on their allocations from the L.C.
The L.C. will acquire 100% of the partnership interests in
RICH-I and RICH-II, the entities that own 100% of WKHK-FM and WBZU-FM.
These acquisitions will cause these partnerships to dissolve, terminate,
and liquidate into be L.C. for state law and federal and state income
tax purposes. Thus, the L.C. will succeed to all of the assets,
including Working Capital, and recorded liabilities of these
partnerships. In the Definitive Agreements, the partners will give
standard representations and warranties to a transaction of this nature
in the radio industry, and the cash investment of SFX will be the same
as an asset sale on the same basis.
Upon successful completion of the Acquisition and receipt of
FCC approval, the L.C. will have the right to require SFX to convert the
$14,500,000 financing for the acquisition of the Benchmark Stations into
equity in the L.C., however, such conversion will not cause SFX's
Membership Interest in the L.C. to be greater than 96.00%.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 5
B. Management's Carried Interest
Five years from closing of the Acquisition, SFX agrees to cause the L.C.
to pay Ken, and at his election, other members of his management team
("Management"), a dollar amount equal to the greater of:
o the appreciation in value of 100,000 shares of SFX common stock
(adjusted for stock splits, stock dividends and any future issuance
of common stock), currently traded on the NASDAQ under the ticker
SFXBA, over the five-year period, or
o 20% of the value of the Stations plus the value of WMXB-FM
(collectively the "Richmond Station Group"), less an amount equal
to $78,189,501 reduced for disposition of any material assets
before such valuation (the "Hurdle"). The 20% carried interest will
in no way interfere with the L.C.'s right to acquire and dispose of
assets, so long as the Hurdle is adjusted to account for these
acquisitions and/or dispositions (the methodology for calculating
adjustments in the Hurdle will be agreed upon in the Definitive
Agreements).
SFX and Ken agree that the Richmond Station Group will be valued by a
mutually acceptable third party, with said valuation based on comparable
valuations for other similar station groups. Balance sheet adjustments
will not be taken into account in determining the valuation.
SFX agrees that Management will be entitled to the full carried interest
under all circumstances, provided, however, that should Ken terminate
his employment by his own choice:
o before the second anniversary of closing, Management would forfeit
the carried interest;
o on or after the second and before the third anniversary of closing,
Management would be entitled to 2/5 of the carried interest;
o on or after the third and before the fourth anniversary of closing,
Management would be entitled to 3/5 of the carried interest; or
o on or after the fourth and before the fifth anniversary of closing,
Management would be entitled to 4/5 of the carried interest.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 6
If SFX terminates Ken's employment for any reason, other than his being
convicted of a felony or gross misconduct/fraud, SFX agrees that
Management will be paid the carried interest. Under all circumstances,
payment will be made in cash within ninety days following the fifth
anniversary of closing, with interest accruing at a market rate after
ninety days, unless otherwise agreed upon on the fifth anniversary of
closing.
C. Ken Brown's Ownership Interest
Ken, the Corporation and SFX agree that, beginning on the fifth
anniversary of closing, Ken and the Corporation will have the right to
put, and the L.C. will have the right to call, for cash, Ken's and the
Corporation's 4.00% Membership Interest in the L.C. SFX, Ken and the
Corporation agree that, upon exercise of either the put or call option,
the value of Ken's or the Corporation's respective Membership Interest
will equal the market value of the Richmond Station Group multiplied by
Ken's or the Corporation's respective ownership percentage.
Ken, the Corporation and SFX agree that, upon exercise of either the put
or call option, the Richmond Station Group will be valued by a mutually
acceptable third party, with said valuation based on comparable
valuations for other similar station groups. For purposes of valuing
Ken's or the Corporation's respective Membership Interest, the valuation
of the Richmond Station Group will include Net Working Capital and will
be net of recorded liabilities, excluding current accounts payable.
Payment for Ken's or the Corporation's respective Membership Interest
will be made in cash within ninety days, with interest accruing at a
market rate after ninety days, following the exercise of the put or call
option. For purposes of this Section C, Ken and the Corporation will
put, or SFX will call, Ken's and the Corporation's entire respective
Membership Interest if the put or call option is exercised.
D. Ken Brown's Employment Contract
SFX agrees that the L.C. will enter into a five-year employment contract
with Ken to serve as the General Manager of the Richmond Station Group.
SFX agrees that the L.C. will pay Ken a base annual salary of $200,000
and guaranteed minimum incentive compensation, linked to the performance
of the Richmond Station Group, of $50,000 per year. Ken would
participate in SFX's option plan and receive standard benefits which
would include, but not be limited to, paid vacation, expense
reimbursement, use of company automobile, and health insurance.
SFX agrees, that if the L.C. terminates Ken's employment before the end
of the fifth year for any reason, other than a felony conviction or
gross misconduct/fraud on his part, SFX
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 7
would immediately pay Ken a lump sum of $500,000 and continue his
benefits for 18 months. Ken agrees, that if he terminates his employment
on his own accord, SFX would be released from its obligation to pay this
severance package.
As a condition of his employment contract, Ken will enter into a
non-compete and non-solicitation agreement with SFX (the "Non-compete
Agreement") governing his activities within the Richmond, Virginia radio
market. This agreement will contain terms customary in transactions
similar to the transaction contemplated under the Letter. The
Non-compete Agreement shall expire at the earliest of (i) one year after
the termination of Ken's employment with SFX by either party; (ii) six
years from Ken's employment date; or (iii) termination of Ken's
employment contract due to SFX's breach.
E. Ed Conrad's Employment Contract
SFX agrees to enter into a five-year employment contract with Ed Conrad
("Ed") to serve as the Chief Financial Officer of the Richmond Station
Group. SFX agrees that the L.C. will pay Ed a base annual salary of
$130,000 and guaranteed minimum incentive compensation of $10,000 for
1996, with a target of $20,000 per year for incentive compensation,
linked to the performance of the Richmond Station Group, thereafter. Ed
would participate in SFX's option plan and receive standard benefits
which would include, but not be limited to, paid vacation, expense
reimbursement, use of company automobile, and health insurance.
SFX agrees that if the L.C. terminates Ed's employment before the end of
the fifth year for any reason, other than a felony conviction or gross
misconduct/fraud on his part, SFX would immediately pay Ed a lump sum
payment in cash equal to the lesser of $300,000 or the remaining salary
and guaranteed minimum incentive compensation due him under his
employment contract, and would continue his benefits for 18 months. Ken
agrees, that if he terminates his employment on his own accord, SFX
would be released from its obligation to pay this severance package.
As a condition of his employment contract, Ed will enter into a
non-compete and non-solicitation agreement with SFX (the "Non-compete
Agreement") governing his activities within the Richmond, Virginia radio
market This agreement will contain terms customary in transactions
similar to the transaction contemplated under the Letter. The
Non-compete Agreement shall expire at the earliest of (i) One year after
the termination of Ed's employment with SFX by either party; (ii) six
years from Ed's employment date; or (iii) termination of Ed's employment
contract due to SFX's breach.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 8
F. Fees and Expenses
The parties agree that Interstate/Johnson Lane Corporation has been
retained as exclusive placement agent with respect to the transaction
and SFX agrees to pay Interstate/Johnson Lane's transaction fees and
expenses. Payment of these fees and expenses will be governed by the
Placement Agency Agreement between ABS Communications, Inc. and
Interstate/Johnson Lane Corporation dated April 17, 1996. A calculation
of the estimated fees due to Interstate/Johnson Lane is attached as
Annex A.
In addition to the amounts due to Interstate/Johnson Lane and expenses
related solely to the Benchmark transaction, all reasonable fees due or
expenses incurred in connection with the over-all Richmond transaction
(e.g., out-of-pocket and legal expenses) are for the account of SFX.
G. Tower Lease
Ken agrees to cause Token Towers, L.C. to enter into a lease with the
L.C. for WKHK-FM to transmit from the tower owned by Token Towers, L.C.
as part of the Definitive Agreements. The lease will have an initial
term of five years, with five subsequent five year renewal options. In
addition, upon successful negotiation of a new land lease by Token
Towers, L.C., the L.C. will receive two additional five year renewal
options. Lease payments will be made monthly, or annually in advance, at
a base rate of $30,000 per year for the first five years, with a rate
adjustment upon subsequent renewals based on the annual compounded
change in the Consumer Price Index since the date of the last rate
adjustment.
H. Representation, Warranties, Covenants and Good Faith Deposit
The Definitive Agreements shall contain (i) customary representations
and warranties for a transaction of the proposed nature of the
Acquisition; (ii) covenants as to the operation of the Stations before
closing in the normal course in accordance with good commercial practice
and the prior established practices of the Current Partners; (iii) the
required maintenance of the Stations' physical assets prior to closing
in accordance with governmental regulations, sound commercial practices
and the Current Partners' prior operating procedures; (iv) maintenance
of insurance before closing as appropriate and in accordance with past
practices; and (v) a requirement that SFX make a good faith deposit of
$2,000,000 (two million dollars) upon execution of the Definitive
Agreements that will be held in escrow for the benefit of the Current
Partners, first to pay any losses, costs or
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 9
expenses incurred by such Current Partners related to this transaction
and then equally to RICH-I and RICH-II.
3. No Shop: To induce SFX to proceed, the Current Partners agree that
from the date hereof, neither the Current Partners, nor any principal,
employee, agent or other representative of the Current Partners shall solicit
any offer to purchase, directly or indirectly, the Stations, nor shall any
such persons negotiate or discuss (except to advise any party making an
unsolicited offer that no discussions or negotiations will be pursued) the
purchase directly or indirectly, of the Stations.
4. Investigation; Confidentiality of Information; Non-solicitation of the
Current Partners' Employees: The Current Partners shall, at SFX's request,
provide SFX with copies of contracts and other business records relating to
the operation of the Stations. The Current Partners shall also permit SFX,
subject to terms and limitations satisfactory to the Current Partners, to
inspect the Stations and conduct investigations and surveys of the Stations'
facilities. Until the transactions contemplated hereunder are consummated, SFX
shall not disclose any information received pursuant to this provision except
as required by law or except to the extent the same is reasonably required to
be disclosed to SFX's lenders, partners, principals, employees, or
professional advisors to proceed with this transaction, provided that SFX
shall take reasonable steps to ensure that such lenders, partners, principals,
employees or professional advisors maintain the confidentiality of such
information. If, for any reason, the Agreement is not executed and delivered,
SFX will return to the Current Partners all materials received by SFX pursuant
to this provision.
For the period commencing on the date of this Letter and ending on the
date on which SFX and the Current Partners execute and deliver the Definitive
Agreements, SFX shall not, directly or indirectly, (i) hire, attempt to hire,
or otherwise solicit, for or on behalf of any entity or person, any employee
of RICH-I and RICH-II or the Benchmark stations or (ii) encourage, for or on
behalf of any entity or person, any employee of the Current Partners to
terminate his or her relationship or employment with the Current Partners.
In addition, for the period commencing on the date of this Letter and
ending on the late on which SFX and the Current Partners execute and deliver
the Definitive Agreements, the Current Partners shall not, directly or
indirectly, (i) hire, attempt to hire, or otherwise solicit, for or on behalf
of any entity or person, any employee of WMXB-FM or (ii) encourage, for or on
behalf of any entity or person, any employee of SFX to terminate his or her
relationship or employment with SFX.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 10
5. Time Brokerage Agreement for Certain Stations: The Definitive
Agreements will include an appropriate time brokerage agreement or agreements
for the operation of WKHK-FM, WBZU-FM, WLEE-FM & WVGO-FM during pendency of
required FCC and FTC approvals.
6. Confidentiality: Except to the extent required by law or advice of
counsel and until the parties execute Definitive Agreements, no party shall
make any public disclosure of the existence or terms of this Letter and shall
keep such matters confidential except to the extent disclosure to lenders,
partners, principals, employees or professional advisors is reasonably
necessary to proceed with this transaction, provided that each such party will
take reasonable steps to ensure that such lenders, partners, principals,
employees, or professional advisors maintain the confidentiality of such
information. However, a press release or similar announcement may be issued
regarding the transaction if agreed to in writing by SFX and Ken Brown, such
agreement not to be unreasonably withheld.
7. Contingencies of Closing: The closing of the Acquisition shall be
conditioned upon (i) approvals of the Federal Communication Commission ( the
"FCC") and the Federal Trade Commission (the "FTC"); (ii) the continued truth
and accuracy of the representations and warranties in the Definitive
Agreements; and (iii) the maintenance of the physical assets of the Stations.
If this Letter is accepted, all parties agree to cooperate promptly and
negotiate in good faith in the preparation of the Definitive Agreements and
all other documents and applications required for filing with the FCC to
effect this transaction. If the parties fail to agree on the terms and
conditions of the Definitive Agreements or there is any other dispute or
controversy between the parties with respect to or arising under the Letter or
any amendment or modification hereof, such dispute shall be resolved by
arbitration in Washington D.C. in accordance with the Rules for Commercial
Arbitration of the American Arbitration's Association before a panel of three
(3) arbitrators, one appointed by SFX, one appointed by Ken and the
Corporation, and the third appointed by said Association. In such event, the
parties shall have the right to submit examples of ordinary and customary
agreements of the nature of the agreements under dispute to the arbitration
panel for review together with this Letter. The decision and judgment or order
may be entered thereon by any court of competent jurisdiction and that
decision and judgment or order may include termination of negotiations and
this Letter. The service of any notice, process, motion or other document in
connection any arbitration under this Letter or the enforcement of any
arbitration award hereunder may be effectuated either by personal service upon
a party or by certified mail duly addressed to him or to his executors,
administrators, personal representatives, next of kin, successors or assigns,
at the last known address or addresses of such party or parties.
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 11
If the foregoing meets with your approval, please evidence your
acceptance by executing a copy of this letter in the space below provided for
your signature and returning the same to SFX by telecopy.
Sincerely,
SFX BROADCASTING, INC.
By: /s/ Robert F.X. Sillerman
----------------------------
Title: Chairman and CEO
-------------------------
AGREED AND ACKNOWLEDGED
AS OF AUGUST 10, 1996
/s/ Kenneth A. Brown
- ---------------------------
Kenneth A. Brown
ABS COMMUNICATIONS, INC.
By: /s/ Kenneth A. Brown
------------------------
Kenneth A. Brown
President & CEO
ABS COMMUNICATIONS, L.L.C.
By: /s/ Kenneth A. Brown
------------------------
Kenneth A. Brown
Manager
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 12
ABS RICHMOND PARTNERS, L.P.
By: /s/ Kenneth A. Brown
------------------------------------
Title: President, ABS Communications,
---------------------------------
its Managing General Partner
---------------------------------
ABS RICHMOND PARTNERS II, L.P.
By: /s/ Kenneth A. Brown
------------------------
Title: President, ABS Communications,
---------------------------------
its Managing General Partner
---------------------------------
EBF, INC.
By: /s/ Coleman Wortham III
-----------------------------
Title: Vice President
--------------------------
EBF PARTNERS
By: /s/ Coleman Wortham III
-----------------------------
Title: General Partner
--------------------------
<PAGE>
ABS Communications, Inc.
August 9, 1996
Page 13
Addendum
The following will be incorporated as an addendum to the letter of
intent for the acquisition of WKHK-FM, WBZU-FM, WLEE-FM and WVGO-FM by SFX
Broadcasting, Inc., dated August , 1996:
Ken and the Corporation agree that none of the Stations will be sold
prior to the completion of the Acquisition without the consent of SFX.
In addition, if any of the Stations are sold prior to the completion of
the Acquisition, then the proceeds from the sale will be contributed to
the L.C. in lieu of the station which is sold, and will remain in the
L.C. until the completion of the Acquisition.
If the foregoing meets with your approval, please evidence your acceptance by
executing a copy of this letter in the space below provided for your signature
and returning the same to SFX by telecopy.
Sincerely,
SFX BROADCASTING, INC.
By:
---------------------------
Robert F.X. Sillerman
Chairman & CEO
AGREED AND ACKNOWLEDGED
AS OF AUGUST ___, 1996
- ----------------------------
Kenneth A. Brown
ABS COMMUNICATIONS, INC.
By
--------------------------
Kenneth A. Brown
President & CEO
ASSET PURCHASE AGREEMENT
FOR STATION WYSR(FM)ROTTERDAM, NEW YORK
between
JARAD BROADCASTING COMPANY OF NEW YORK, INC.
and
LIBERTY BROADCASTING OF ALBANY, INCORPORATED
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. Exchange of Consideration..............................1
1.1. Consideration Conveyed by Seller.......................1
1.2. Payment by Buyer to Seller.............................3
1.3. Adjustments............................................3
1.4. Allocation.............................................4
1.5. Closing................................................4
1.6. Timing.................................................4
ARTICLE 2. Representations and Warranties of Seller...............4
2.1. Incorporation..........................................4
2.2. FCC Licenses...........................................4
2.3. Condition of Assets....................................5
2.4. Title..................................................5
2.5. Employees..............................................5
2.6. Taxes..................................................5
2.7. Environmental..........................................6
2.8. Litigation.............................................6
2.9. Compliance with Laws...................................7
2.10. No Defaults............................................7
2.11. Brokers................................................7
2.12. Corporate Action.......................................7
2.13. Station Assets.........................................7
2.14. Leases.................................................7
2.15. Insolvency.............................................7
2.16. Government Approvals...................................8
2.17. Contracts..............................................8
2.18. No Material Omission...................................8
ARTICLE 3. Representations and Warranties of Buyer................8
3.1. Status.................................................8
3.2. Corporate Action.......................................8
3.3. No Defaults............................................8
3.4. Brokers................................................8
3.5. Litigation.............................................9
3.6. Qualification as a Broadcast Licensee..................9
3.7. Financial Capabilities.................................9
3.8. No Material Omission...................................9
ARTICLE 4. Covenants of Seller Pending Closing....................9
4.1. Maintenance of Station.................................9
4.2 Organization, Good Will, Promotion....................10
4.3. Access to Facilities, Files, and Records..............10
4.4. Representations and Warranties........................10
4.5. Application for FCC Consent...........................10
4.6. Consents..............................................11
- i -
<PAGE>
4.7. Notice of Proceedings.................................11
4.8. Confidential Information..............................11
4.9. Consummation of Agreement.............................11
4.10. Compliance with Law...................................11
4.11. Performance under Leases..............................11
ARTICLE 5. Covenants of Buyer Pending the Closing................11
5.1. Representation and Warranties.........................12
5.2. Application for Commission Consent....................12
5.3. Confidential Information..............................12
5.4. Consummation of Agreement.............................12
5.5. Notice of Proceedings.................................12
5.6. Actions Inconsistent with Consummation................12
ARTICLE 6. Conditions Precedent to Obligations of Seller.........13
6.1. Representations, Warranties, Covenants................13
6.2 Proceedings...........................................13
6.3 FCC Approval..........................................13
ARTICLE 7. Conditions Precedent to Obligations of Buyer..........13
7.1 Representations, Warranties, Covenants................13
7.2 Proceedings...........................................14
7.3 FCC Approval..........................................14
ARTICLE 8 Indemnification.......................................14
8.1 Survival..............................................14
8.2 Indemnification of Buyer..............................14
8.3 Indemnification of Seller.............................14
8.4 Notice of Claim.......................................15
8.5 Defense of Third Party Claims.........................15
ARTICLE 9 Miscellaneous.........................................15
9.1 Termination of Agreement..............................15
9.2 Liabilities Upon Termination..........................16
9.3 Expenses..............................................16
9.4 Assignments...........................................17
9.5 Further Assurances....................................17
9.6 Damage to the Assets..................................17
9.7 Notices...............................................17
9.8 Captions..............................................18
9.9 Law Governing.........................................18
9.10 Waiver of Provisions..................................18
9.11 Counterparts..........................................18
9.12 Reimbursement of Legal Expenses.......................18
9.13 Entire Agreement......................................18
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SCHEDULE 1 FCC Licenses
SCHEDULE 2 Personal Property
SCHEDULE 3 Leases
SCHEDULE 4 Allocation
SCHEDULE 5 Employees
SCHEDULE 6 Contracts
EXHIBIT A Escrow Agreement
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT is dated as of August 15, 1996, and is between Jarad
Broadcasting Company of New York, Inc. ("Seller"), a corporation organized
under laws of the State of New York, and Liberty Broadcasting of Albany,
Incorporated ("Buyer"), a corporation duly organized under the laws of the
State of New York.
W I T N E S S E T H:
1. Seller holds licenses from the Federal Communications Commission (the
"FCC") for broadcast station WYSR(FM) in Rotterdam, New York (the "Station")
and owns or holds other assets used and useful in connection with the
operation of the Station.
2. Seller desires to sell, assign, and transfer, to the fullest extent
permitted by law, the FCC licenses and other assets owned or held by Seller
and used and useful in the operation of the Station, and, to the fullest
extent permitted by law, Buyer desires to acquire the FCC licenses and other
assets owned or held by Seller and used and useful in the operation of the
Station under the terms described herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereby agree as follows:
ARTICLE 1. Exchange of Consideration
1.1. Consideration Conveyed by Seller. At the Closing, Seller shall
provide Buyer with the following consideration:
1. Subject to the terms and conditions of this Agreement, Seller
shall, to the fullest extent permitted by law, convey, transfer, and deliver
to Buyer, and Buyer shall, to the fullest extent permitted by law, acquire
from Seller free and clear of all liens, claims, security interests and
encumbrances of any kind whatsoever, all of Seller's right, title and interest
in and to Seller's assets, as set forth hereafter, real and personal, tangible
and intangible, of every kind and description owned by Seller and used and
useful in connection with the business and operation of the Station as a going
concern (collectively the "Station Assets") except the assets described in
Section 1.1.2. of this Agreement. The Station Assets consist of the following
items:
1. FCC Licenses. All licenses issued by the FCC to Seller (the
"FCC Licenses") with respect to the Station, as shown on Schedule l to
this Agreement, and all applications therefore, together with any and
all applications pending before and orders issued by the FCC with
respect to renewals, extensions, or modifications thereof.
2. Tangible Personal Property. All equipment, furniture,
fixtures, office materials and supplies, spare parts, and other tangible
personal property of every kind and description owned as of the date of
this Agreement by Seller and used and useful in connection with the
business and operation of the Station, all of which are set
<PAGE>
forth on Schedule 2 to this Agreement, and any additions, improvements,
replacements, and alterations made thereto in the ordinary course of
business between the date of this Agreement and the Closing Date, as
defined herein.
3. Leases. Seller's leases for the main studio and the
Station's transmitter site, both of which are annexed hereto in
Schedule 3.
4. Marketing Items. All trademarks, call signs, service marks,
franchises, patents, trade names, jingles, slogans, and logotypes owned
and used by Seller as of the date hereof as well as those acquired
between the date hereof and the Closing Date in connection with the
business and operation of the Station.
5. Programming and Copyrights. All programs and programming
materials and elements of whatever form or nature owned by Seller and
used and useful in connection with the business and operation of the
Station as of the date hereof, together with all such programs,
materials, elements and copyrights acquired between the date hereof and
the Closing Date, whether recorded on tape or any other substance or
intended for live performance, and whether completed or in production,
and all related common law and statutory copyrights owned by or licensed
to Seller and used in connection with the business and operation of the
Station.
6. Records. Any and all files, program logs, public inspection
files, and other records that relate to the operation of the Station.
7. Warranties. Any and all warranties and guarantees supplied
by vendors, suppliers, and other third parties which cover or provide
any benefit with respect to any of the Personal Property being assigned.
8. Goodwill. All of Seller's goodwill in and going concern
value of the Station.
2. There shall be excluded from the Station Assets and retained by
Seller, to the extent in existence on the Closing Date, the following assets
(the "Excluded Assets"):
1. Receivables. All notes and accounts receivable and other
receivables of Seller relating to or arising out of the business and
operation of the Station.
2. Cash and Investments. All cash on hand or in bank accounts.
3. Prepaid Items. All deposits, reserves, and prepaid expenses
and taxes (which shall be prorated as provided in Section 1.3. below).
4. Personal Property. All tangible personal property disposed
of or consumed in the ordinary course of business of the Station.
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5. Insurance. All contracts of insurance.
6. Securities. Any and all securities owned or held by
Seller.
7. Claims. Any and all claims of Seller with respect to
transactions which transpire prior to the Closing Date, including,
without limitation, claims for tax refunds.
8. Name. Any right to use the name "Jarad Broadcasting
Company of New York, Inc." or any logo or variation of such name.
9. Contracts. All agreements and contracts except for those
which Buyer will assume in accordance with Section 1.1.1.(c) of this
Agreement.
10. Miscellaneous Assets. Pension, profit-sharing, and savings
plans and trusts and any assets thereof.
3. The Station Assets shall be sold and conveyed to Buyer free and
clear of all liens, claims, security interests and encumbrances except for (a)
liens for taxes not yet due and payable, and (b) the obligations of Seller
which Buyer shall assume under leases described in Subsection 1.1.1.(c)
hereof. Buyer shall not assume or be liable for any liability or obligation of
Seller arising out of any contract of insurance, any pension, retirement or
profit-sharing plan, trust or other benefit plan, or any litigation,
proceeding, or claim by any person or entity relating to the business or
operation of the Station prior to the Closing Date, whether or not such
litigation, proceeding, or claim is pending, threatened, or asserted before,
on, or after the Closing Date.
1.2. Payment by Buyer to Seller.
1. Buyer shall pay Seller One Million Dollars ($1,000,000) (the
"Purchase Price") in cash at the Closing, as defined herein.
2. Simultaneous with the execution of this Agreement, Buyer will
deposit One Hundred Thousand Dollars ($100,000) in an interest-bearing account
in North Fork Bank pursuant to the terms of an Escrow Agreement in the form
annexed hereto as Exhibit A. Such deposit shall be referred to herein as the
"Escrow Funds." The Escrow Funds shall be paid to Seller at the Closing,
subject to any adjustments made under Section 1.3. of this Agreement. All
interest accrued prior to Closing shall be paid to Buyer. In the event this
Agreement is terminated prior to any Closing, the Escrow Funds will be
distributed in accordance with Section 9.2. of this Agreement.
1.3. Adjustments. At the Closing, all tangible and intangible personal
property taxes and assessments, rent, water, sewer and other utility charges,
if any, and any other lienable municipal services, if any, and any other
pre-paid items with respect to the Station Assets to be acquired by Buyer
shall be apportioned and allocated between Buyer and Seller as of the Closing
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<PAGE>
Date on the basis of the period of time to which such items or liabilities
apply. To the extent such items cannot be determined at Closing, a final
settlement on such prorations shall be held within thirty (30) days after the
Closing Date. If the Closing occurs before the tax rate is fixed for the then
current term, the apportionment of taxes at Closing shall be upon the basis of
the tax rate for the preceding tax year applied to the latest assessed
valuation. All transfer, sales, use or other taxes or assessments or
documentary stamps imposed by any governmental body or others on the sale
and/or transfer of the Station Assets herein, if any, shall be paid by Buyer.
1.4. Allocation. The Purchase Price shall be allocated in accordance with
Schedule 4 annexed hereto.
1.5. Closing. The closing of the transactions provided for in this
Agreement (the "Closing") shall be accomplished by overnight delivery services
and such other communications, including the wire transfer of funds, mutually
agreed to by the parties commencing at 10:00 a.m. on a date (the "Closing
Date") mutually agreed to or, in the absence of a mutual agreement, selected
by Seller, which shall be within ten (10) days after the date on which the FCC
order approving the assignment of the FCC Licenses becomes a Final Order
(which, for purposes of this Agreement, means an order issued by the FCC
consenting to the assignment of the FCC Licenses which is no longer subject to
reconsideration or review by the FCC or a court of competent jurisdiction and
does not include conditions materially adverse to Seller or Buyer). At the
Closing, each party shall execute and deliver to the other party the documents
and other items (including but not limited to the Purchase Price) specified
herein as well as any other document(s) and item(s) reasonably necessary for
the consummation of the transactions contemplated herein. Such additional
documents shall be reasonably satisfactory to the other party as to both form
and substance and shall include, without limitation, a bill of sale and
assignments of licenses and leases.
1.6. Timing. Time is of the essence to implementation of this Agreement.
It is the intention of the parties that the Closing of the transactions
contemplated herein occur not later than April 1, 1997.
ARTICLE 2. Representations and Warranties of Seller.
Seller represents and warrants to Buyer as to the following matters from
now until the date one (1) year after the Closing Date hereunder:
2.1. Incorporation. Seller is a corporation duly organized, validly
existing, and in good standing in the State of New York and has the corporate
power to carry on the business of the Station as it is now being conducted, to
own and operate the Station Assets, and to enter into and consummate the
transactions contemplated by this Agreement.
2.2. FCC Licenses. Seller is the holder of the FCC Licenses listed in
Schedule 1 to this Agreement. The FCC Licenses constitute all of the licenses
required under the Communications Act of 1934, as amended (the "Communications
Act"), and the current rules,
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<PAGE>
regulations, and policies of the FCC for the operation of the Station as
currently conducted. The FCC Licenses are in full force and effect and are in
good standing in every respect for the purpose of operating the Station for
its full term expiring on June 1, 1998. All material applications, reports and
other disclosures required by the FCC with respect to the Station have been
and will be, as of the Closing, timely filed. There is not, as of the date of
this Agreement, pending or, to the best of Seller's knowledge, threatened, any
action by or before the FCC or any court to revoke, cancel, rescind, modify,
or refuse to renew any of the FCC Licenses, or which would otherwise have a
material adverse impact on the operation of the Station. There is not now
pending or, to the best of Seller's knowledge, threatened, any petition,
informal objection, investigation, order to show cause, notice of violation,
notice of apparent liability, or notice of forfeiture or complaint before the
FCC or any court against Seller with respect to the Station. The Station is
operating in material compliance with the FCC Licenses, the Communications
Act, and the rules, regulations and policies of the FCC. There is not now
pending or, to the best of Seller's knowledge, threatened any petition,
application, or proposal (except those of general applicability) which, if
favorably acted upon, would have a material adverse impact on the Station's
signal coverage.
2.3. Condition of Assets. The Station Assets are in good working order
(ordinary wear and tear excepted), meet any and all government-requirements,
are being maintained in accordance with generally accepted engineering
practices, and constitute all the assets needed to operate the Station as
currently conducted.
2.4. Title. On the Closing Date, the Station Assets will be in each case
free and clear of all security interests, mortgages, pledges, liens,
conditional sales agreements, leases, encumbrances, or charges of any nature
whatsoever except for those referenced in Section 1.1.3. of this Agreement.
2.5. Employees. Annexed hereto as Schedule 5 is a list of Station
employees and their respective compensation. Seller is not a party to any
pending or, to its knowledge, threatened labor dispute affecting the Station.
Except for taxes due to be paid to the Internal Revenue Service and
instrumentalities of the State of New York with respect to Seller's employees,
Seller (a) has complied in all material respects with all applicable federal,
state, and local laws, ordinances, rules and regulations and requirements
relating to employment or labor, including but not limited to the provisions
thereof relative to wages, hours, collective bargaining, and payment of Social
Security, unemployment and withholding taxes and (b) is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. There are no collective bargaining agreements, or negotiations
for the same, in existence which affect any of the Station employees, and
Seller is not aware of any efforts to have the Station recognize any union as
the bargaining agent for Station employees.
2.6. Taxes. To the best of Seller's knowledge, it has duly and timely
filed all required federal, state and local tax returns and paid all taxes,
interest and penalties due with respect to Seller's interest in the Station
Assets or its operation of the Station, has sought and obtained extensions of
time to file such and pay same within the time provided therefor, or is
challenging such taxes in good faith in accordance with applicable procedures.
Between the date hereof and
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<PAGE>
the Closing Date Seller shall exercise its best efforts to duly and timely
file all such required returns and pay all such taxes, interest and penalties
or to obtain such extensions within the time provided therefor, unless such
taxes are being challenged in good faith in accordance with applicable
procedures. Seller shall indemnify, defend, save and hold Buyer harmless from
and against all claims, obligations and liabilities for all taxes, interest
and penalties attributable to Seller's ownership or operation of the Station
and the Station Assets prior to the Closing Date.
2.7. Environmental. (a) To the best of Seller's knowledge, none of the
real property or buildings and improvements erected thereon and leased by
Seller and assigned to Buyer hereunder has ever been used by Seller or, to the
best of Seller's knowledge, by any prior owner or occupant to refine, produce,
store, handle, transfer, process, dispose of or transport "Hazardous or Toxic
Waste or Substances" or "Pollutants" (including and without limitation
hydrocarbons, polychlorinated biphenyls, petroleum and the like) as such terms
or similar terms are defined under the laws, rules, regulations or ordinances
of the United States, the State of the State of New York or any other
governmental authority with jurisdiction over the Station Assets. Seller has
not received any notice, summons, citation, directive, letter or other
communication, written or oral, from the United States or New York
Environmental Protection Agencies or anyone else concerning any intentional or
unintentional action or omission on Seller's or any prior owner or prior
occupant's part which resulted in the releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leeching,
dumping or disposing or the like of such "Hazardous or Toxic Waste or
Substances" or "Pollutants" into the waters, into the air or onto the land
which may or may not have resulted in damage to the land, waters, fish,
shellfish, wildlife, air or other resources owned, managed, held in trust or
otherwise controlled by the United States, the State of New York, Seller, or
others.
(b) Buyer shall have the right to conduct a Phase I
environmental audit of the Station Assets at Buyer's expense. If the audit
reveals any material discrepancy with the representations contained in this
section, Seller shall, within 30 days after receipt of notice of such
discrepancy and at Seller's expense, eliminate the discrepancy or, at Seller's
option, provide an appropriate reduction in the Purchase Price based on the
monies to be expended by Buyer to eliminate the discrepancies. Notwithstanding
anything herein to the contrary, the Closing contemplated herein shall not
occur until after expiration of the aforesaid 30-day notice period provided to
Seller by this subsection.
2.8. Litigation. Seller has not 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, which has
had or could reasonably be expected to have a material adverse effect on the
operation of the Station. There is no litigation, arbitration, dispute,
proceeding or investigation ("Litigation") pending by or against, or, to the
best of Seller's knowledge, threatened against Seller relating to or affecting
the Station Assets or the business of the Station which materially interferes
or could reasonably be expected materially to interfere with (a) the Seller's
right, title to, interest in, and operation of the Station or (b) Seller's
ability to transfer the Station Assets to Buyer free of such Litigation.
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2.9. Compliance with Laws. Seller is in material compliance with all
applicable laws, rules, regulations, and orders of the federal, state, and
local governments with respect to the Station. The present uses by Seller of
the Station Assets do not violate any such laws, regulations, or orders in any
material respect.
2.10.No Defaults. Neither the execution and delivery by Seller of this
Agreement nor the consummation by Seller of the transactions contemplated
herein are events that, by themselves or with the giving of notice or the
passage of time or both, constitute a material violation of or will conflict
with or result in any material breach of or any default under (a) the terms,
conditions, or provisions of any arbitration award, judgment, law, judicial
order, or regulation to which Seller is subject, (b) its articles of
incorporation or by-laws, or (c) any agreement or instrument to which Seller
is a party or by which Seller is bound, or result in the creation of
imposition of any lien, charge, or encumbrance on any of the Station Assets.
2.11.Brokers. There is no broker or finder or other person who would, as
a result of any agreement of or action taken by Seller, have any valid claim
against any of the parties to this Agreement for a commission or brokerage fee
in connection with this Agreement or the transactions contemplated herein.
2.12.Corporate Action. All corporate actions and proceedings necessary
to be taken by or on the part of Seller in connection with the transactions
contemplated by this Agreement and necessary to make them effective have been
duly and validly taken. This Agreement has been duly and validly authorized,
executed, and delivered by Seller and constitutes a valid and binding
agreement of Seller, enforceable in accordance with and subject to its terms,
except as limited by laws affecting the enforcement of creditor rights or
contractual obligations generally. Seller shall deliver to Buyer at Closing
copies of the resolutions adopted by the Board of Directors and shareholders
of Seller authorizing the delivery, execution and consummation of the
transactions contemplated by this Agreement.
2.13.Station Assets. All of the statements made and Schedules referred
to in this Agreement with respect to the Station Assets are true, accurate,
and complete in all material respects.
2.14.Leases. All of the leases listed on Schedule 3 have been complied
with in all material respects by Seller and will have been complied with in
all material respects by Seller as of the Closing Date hereunder, and no
material default of Seller in respect to any duties or obligations required to
be performed by Seller has or will have occurred. All such leases are valid,
binding, and enforceable in accordance with their respective terms and are
sufficient to enable the Station to operate as currently conducted. The leases
listed in the schedule are all of the leases currently used in the operation
of the station.
2.15.Insolvency. No insolvency proceedings of any character, including,
without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting the Seller or
any of the Station Assets is pending or, to the best of Seller's knowledge,
threatened, and Seller has made no assignment for the benefit of
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<PAGE>
creditors, nor taken any actions with a view to, or which would constitute the
basis for, the institution of any such insolvency proceedings.
2.16.Government Approvals. No approval of any third party, governmental
agency or of any court is required to be obtained by Seller with regard to the
assignment of the FCC Licenses and the other Station Assets except the lessors
of the leases cited in Schedule 3 and approval by the FCC as provided herein.
2.17.Contracts. Annexed hereto in Schedule 6 is a list of all the
material contracts utilized in the current operation of the Station.
2.18.No Material Omission. Seller has not failed to disclose any
material fact within its knowledge which would make any statement or
representation in this Agreement inaccurate or misleading.
ARTICLE 3. Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as to the following matters now
and on the Closing Date hereunder:
3.1. Status. Buyer is a corporation duly organized, validly existing,
and in good standing in the State of New York and has the corporate power to
enter into and consummate the transactions contemplated by this Agreement.
3.2. Corporate Action. All corporate actions and proceedings necessary
to be taken by or on the part of Buyer in connection with the transactions
contemplated by this Agreement and necessary to make them effective have been
duly and validly taken. This Agreement has been duly and validly authorized,
executed, and delivered by Buyer and constitutes a valid and binding agreement
of Buyer, enforceable in accordance with and subject to its terms, except as
limited by laws affecting the enforcement of creditor rights or contractual
obligations generally. Buyer shall deliver to Seller at Closing copies of the
resolutions adopted by the Board of Directors and shareholders of Buyer
authorizing the delivery, execution and consummation of the transactions
contemplated by this Agreement.
3.3. No Defaults. Neither the execution and delivery by Buyer of this
Agreement nor the consummation by Buyer of the transactions contemplated
herein are events that, by themselves or with the giving of notice or the
passage of time or both, constitute a material violation of or will conflict
with or result in any material breach of or any default under (a) the terms,
conditions, or provisions of any arbitration award, judgment, law, judicial
order, or regulation to which Buyer is subject, (b) its articles of
incorporation or by-laws, or (c) any agreement or instrument to which Buyer is
a party or by which Buyer is bound, or result in the creation of imposition of
any lien, charge, or encumbrance on any of the Station Assets.
3.4. Brokers. There is no broker or finder or other person who would, as
a result of any agreement of or action taken by Buyer, have any valid claim
against any of the parties to this
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Agreement for a commission or brokerage in connection with this Agreement or
the transactions contemplated herein.
3.5. Litigation. There is no litigation, proceeding, or investigation of
any nature pending or, to the best of Buyer's knowledge, threatened against or
affecting Buyer that would affect Buyer's ability to carry out the
transactions contemplated herein.
3.6. Qualification as a Broadcast Licensee. Buyer is legally and
financially qualified under the Communications Act and all other applicable
federal, state and local laws, rules and regulations, to acquire the Station
Assets from Seller. Buyer knows of no fact that would, under the
Communications Act and the rules, policies and practices of the FCC,
disqualify Buyer as an assignee of the FCC Licenses or as owner and holder of
the Station Assets.
3.7. Financial Capabilities. Buyer has sufficient liquid resources on
hand or from committed sources to fulfill its financial obligations under this
Agreement.
3.8. No Material Omission. Buyer has not failed to disclose any material
fact within its knowledge which would make any statement or representation in
this Agreement inaccurate or misleading.
ARTICLE 4. Covenants of Seller Pending Closing.
Seller covenants and agrees that, from the date of this Agreement to and
including the Closing Date, it will take, or refrain from taking, the
following actions:
4.1. Maintenance of Station. Seller shall continue to carry on the
Station's business and keep its books of account, records, and files in the
ordinary course of business. Seller also shall continue to operate the Station
in all material respects in accordance with the terms of the FCC Licenses and
in material compliance with all applicable rules, regulations, policies and
laws. Seller will maintain in full force and effect through and including the
Closing Date existing property damage, liability, and other insurance with
respect to the Station Assets and to cover contingencies that can be
reasonably anticipated. Prior to the Closing, Seller will not, without the
prior written consent of Buyer:
1. sell, lease, transfer, or agree to sell, lease, or transfer
any Station Assets without replacement thereof with a substantially
equivalent asset of substantially equivalent kind, condition, and value;
2. enter into any collective bargaining agreement;
3. renew, renegotiate, modify, amend, or terminate any
existing time sales contracts with respect to the Station except in the
ordinary course of business;
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4. enter into or amend any contract or commitment with respect
to the Station or the Station Assets in excess of $25,000 unless such
contract or amended contract is cancellable upon 30 days notice without
liability;
5. make any material change in the Station's buildings,
leasehold improvements, or fixtures except in the ordinary course of
business; or
6. except in the ordinary course of business consistent with
prior practices, (i) grant or agree to grant any general increases in
the rates of salaries or compensation payable to employees of the
Station; (ii) grant or agree to grant any specific bonus or increase to
any executive or management employee of the Station; or (iii) provide
for any new pension, retirement or other employment benefits for
employees of the Station or any increases in any existing benefits.
4.2. Organization, Good Will, Promotion. Seller shall use its best
efforts to preserve the business organization of the Station intact as well as
the goodwill of the Station's suppliers, customers, and others having business
relations with the Station and, to that end, will continue to expend whatever
monies Seller has previously budgeted for marketing purposes: provided, that
Buyer expressly acknowledges that the announcement of a sale of the Station
from Seller to Buyer may affect the business of the Station and the goodwill
of the Station's suppliers, customers, employees, and others having business
relations with the Station.
4.3. Access to Facilities, Files, and Records. At the reasonable request
of Buyer, Seller shall give Buyer and/or its representatives (a) reasonable
access during normal business hours to all facilities, property, accounts,
title papers, insurance policies, licenses, agreements, commitments, records,
machinery, fixtures, furniture, and inventories related to the Station, and
(b) all such other information concerning the affairs of the Station as Buyer
may reasonably request. The rights of Buyer under this Section shall not be
exercised in such a manner as to interfere unreasonably with the business of
the Station.
4.4. Representations and Warranties. Seller shall give notice to Buyer
promptly upon the occurrence of, or upon becoming aware of the impending or
threatened occurrence of, any event that would cause or constitute a material
breach of any of Seller's representations or warranties contained in this
Agreement.
4.5. Application for FCC Consent. Within ten (10) business days after
execution of this Agreement, Seller shall prepare and file an appropriate
application (the "Application") with the FCC requesting its written consent to
the assignment of the FCC Licenses for the Station to Buyer. Seller shall
diligently take, or cooperate in the taking of, all steps necessary and
appropriate to expedite the preparation of the Application and its prosecution
to a favorable conclusion. Seller will promptly provide Buyer with a copy of
any pleading, order, or other document served on it relating to the
Application. Seller will use its best efforts and otherwise cooperate with
Buyer in responding to any information requested by the FCC related to the
Application or this Agreement and in defending against any petition, informal
complaint, and
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other objection which may be filed against the Application. The FCC filing
fees shall be divided equally between Seller and Buyer.
4.6. Consents. Seller shall obtain or cause to be obtained prior to the
Closing consents to the assignment to or assumption by Buyer of all leases of
Seller included in the Station Assets that require the consent of any third
party by reason of the transactions provided for in this Agreement. If any
necessary consent to any lease deemed material to Buyer's operation of the
Station is not obtained prior to the Closing, then Buyer has the option of
terminating this Agreement or of requiring Seller to cooperate with Buyer in
any reasonable arrangement necessary to provide to Buyer after the Closing the
benefits under such lease, including enforcement for the benefit of Buyer of
any and all rights of Seller against third parties.
4.7. Notice of Proceedings. Seller will promptly notify Buyer upon
becoming aware of any claim, dispute, arbitration, litigation, complaint,
order or decree relating to Seller, the Station, the operation of the Station,
or the consummation of this Agreement or any transaction contemplated herein.
4.8. Confidential Information. If the transactions contemplated in this
Agreement are not consummated for any reason, Seller shall not disclose to
third parties any information designated as confidential and received from
Buyer or its agents in the course of investigating, negotiating, and
consummating the transactions contemplated by this Agreement: provided, that
nothing shall be deemed to be confidential information that (a) is known to
Seller at the time of disclosure to it; (b) becomes publicly known or
available other than through disclosure by Seller; (c) is rightfully received
by Seller from a third party; or (d) is independently developed by Seller.
4.9. Consummation of Agreement. Seller shall fulfill and perform all
conditions and obligations to be fulfilled and performed by Seller under this
Agreement and make every reasonable effort to cause the transactions
contemplated by this Agreement to be fully carried out.
4.10.Compliance with Law. Seller will comply materially with all
applicable federal, state and local laws, ordinances and regulations,
including but not limited to the Communications Act and the rules, regulations
and policies of the FCC.
4.11.Performance under Leases. Seller will perform its obligations
under, and keep in good standing, all leases to which Seller is a party and
which will be assigned to Buyer at the Closing pursuant to this Agreement.
ARTICLE 5. Covenants of Buyer Pending the Closing.
Buyer covenants and agrees that, from the date of this Agreement to and
including the Closing, it will take, or refrain from taking, the following
actions:
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<PAGE>
5.1. Representation and Warranties. Buyer shall give notice to Seller
promptly upon the occurrence of, or upon becoming aware of the impending or
threatened occurrence of, any event that would cause or constitute a material
breach of any of the representations and warranties of Buyer contained in this
Agreement.
5.2. Application for Commission Consent. Within ten (10) business days
after execution of this Agreement, Buyer will prepare and provide Seller's
counsel with the assignee's portion of the Application. Buyer will diligently
take, or cooperate in the taking of, all steps necessary and appropriate to
expedite the preparation of the Application and its prosecution to a favorable
conclusion. Buyer will promptly provide Seller with a copy of any pleading,
order, or other document served on it relating to the Application. Buyer will
use its best efforts and otherwise cooperate with Seller in responding to any
information requested by the FCC related to the Application or this Agreement
and in defending against any petition, informal complaint, and other objection
which may be filed against the Application.
5.3. Confidential Information. If the transactions contemplated in this
Agreement are not consummated for any reason, Buyer 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
performing the transactions contemplated by this Agreement: provided, however,
that nothing shall be deemed to be confidential information that (a) is known
to Buyer at the time of disclosure to it; (b) becomes publicly known or
available other than through disclosure by Buyer; (c) is rightfully received
by Buyer from a third party; or (d) is independently developed by Buyer.
5.4. Consummation of Agreement. Buyer shall fulfill and perform all
conditions and obligations to be fulfilled and performed by Buyer under this
Agreement and make every reasonable effort to cause the transactions
contemplated by this Agreement to be fully carried out.
5.5. Notice of Proceedings. Buyer will promptly notify Seller upon
becoming aware of any order or decree or any complaint requesting an order or
decree restraining or enjoining the consummation of this Agreement or the
transactions contemplated herein, 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.
5.6. Actions Inconsistent with Consummation. Prior to the Closing, Buyer
shall not (a) acquire (or, to the extent within Buyer's control, permit any
other person or entity affiliated with Buyer to acquire) any interest in any
radio or television station, newspaper, or other communications facility, or
take any other action, or omit to take any action, if such acquisition, action
or omission, together with the other interests of Buyer, would make the
consummation of this Agreement contrary to the Communications Act or the
rules, regulations, or policies of the FCC or would otherwise prevent the
consummation of this Agreement, or (b) have any right to
- 12 -
<PAGE>
exercise or attempt to exercise any control over programming, personnel,
finances, or any other matter relating to the Station.
ARTICLE 6. Conditions Precedent to Obligations of Seller.
The obligations of Seller under this Agreement are subject to the
fulfillment of the following conditions prior to or at the Closing.
6.1. Representations, Warranties, Covenants.
1. Each of the representations and warranties of Buyer contained in
this Agreement shall have been true and accurate in all material respects as
of the date when made and as of the Closing Date;
2. Buyer shall have performed and complied in all material respects
with each and every covenant and agreement required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing, other than the
delivery by Buyer of the Purchase Price; and
3. Buyer shall have delivered to Seller (a) a certificate executed
by an officer of Buyer, dated the Closing Date, certifying to the fulfillment
of the conditions set forth in Sections 6.1.1. and 6.1.2., and (b) certified
copies of the resolutions of Buyer's referred to in Section 3.2. of this
Agreement.
6.2 Proceedings. No action or proceeding shall have been instituted
before any court or governmental body to restrain or prohibit, or to obtain
substantial damages with respect to, the consummation of this Agreement that
may reasonably be expected to result in the issuance of a preliminary or
permanent injunction against such consummation or otherwise result in a
decision materially adverse to Seller.
6.3 FCC Approval. The FCC approval contemplated by this Agreement shall
have become a Final Order.
ARTICLE 7. Conditions Precedent to Obligations of Buyer.
The obligations of Buyer under this Agreement are subject to
the fulfillment of the following conditions prior to or at the Closing:
7.1. Representations, Warranties, Covenants.
1. Each of the representations and warranties of Seller contained
in this Agreement shall have been true and accurate in all material respects
as of the date when made and as of the Closing Date;
- 13 -
<PAGE>
2. Seller shall have performed and complied in all material
respects 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, other than
the delivery to Buyer of the instruments conveying the Station Assets to
Buyer; and
3. Seller shall have delivered to Buyer (a) a certificate executed
by an officer of Seller, dated the Closing Date, certifying to the fulfillment
of the conditions set forth in Sections 7.1.1. and 7.1.2., (b) certified
copies of the resolutions referred to in Section 2.12. hereof, and (c) the
required consents of the lessors for all leases being assigned hereunder.
7.2 Proceedings. No action or proceeding shall be pending or have been
instituted before any court or governmental body to restrain or prohibit, or
to obtain substantial damages with respect to, the consummation of this
Agreement that, in the reasonable opinion of Buyer, may reasonably be expected
to result in the issuance of a preliminary or permanent injunction against
such consummation or otherwise result in a decision materially adverse to
Buyer.
7.3. FCC Approval. The FCC approval contemplated by this Agreement shall
have become a Final Order: provided, that Buyer may waive the requirement that
the FCC approval become final, and, in that event, the parties may Close upon
the execution of an appropriate rescission agreement.
ARTICLE 8 Indemnification.
8.1 Survival. All statements of any party contained in this Agreement or
in any exhibit, schedule or certificate delivered pursuant to this Agreement
shall be deemed to be representations and warranties made pursuant to this
Agreement. The several representations, warranties, covenants, and agreements
of Seller and Buyer contained in or made pursuant to this Agreement shall be
deemed to have been made on the Closing, shall survive the Closing, and shall
remain operative and in full force and effect for a period of one (l) year
after the Closing, except that Buyer's obligation to pay or discharge any
liabilities assumed pursuant to this Agreement shall remain in effect until
such liabilities have been paid or discharged in full.
8.2 Indemnification of Buyer. Seller shall indemnify, defend, and hold
Buyer harmless from and against any and all damages, claims, losses, expenses,
costs, obligations, and liabilities including, without limiting the generality
of the foregoing, liabilities for reasonable attorneys' fees ("Loss and
Expense"), suffered, directly or indirectly, by Buyer after the Closing Date
by reason of, or arising out of, (a) any material breach of a representation
or warranty made by Seller pursuant to this Agreement, (b) any material
failure by Seller to perform or fulfill any of its covenants or agreements set
forth in this Agreement, (c) any material failure by Seller to pay or
discharge any liabilities which remain the responsibility of Seller under this
Agreement, or (d) any litigation, proceeding, or claim by any third party
relating to the business or operation of the Station prior to the Closing.
8.3 Indemnification of Seller. Buyer agrees that it shall indemnify,
defend and hold Seller harmless from and against any and all Loss and Expense
suffered, directly or
- 14 -
<PAGE>
indirectly, by Seller after the Closing Date by reason of, or arising out of,
(a) any material breach of a representation or warranty made by Buyer pursuant
to this Agreement, (b) any material failure by Buyer to perform or fulfill any
of its covenants or agreements set forth in this Agreement, (c) any material
failure by Buyer to pay or discharge any liabilities assumed pursuant to this
Agreement, (d) Buyer's termination of employment after the Closing of any
employee of the Station whom Buyer employs on or after the Closing Date, other
than any pre-closing claims of any such employee, or (e) any litigation,
proceeding, or claim by any third party relating to the business or operation
of the Station after the Closing.
8.4 Notice of Claim. If either Seller or Buyer believes that any
Loss and Expense has been suffered or incurred, such party shall notify the
other promptly in writing describing such Loss and Expense, the amount
thereof, if known, and the method of computation of such Loss and Expense, all
with reasonable particularity and containing a reference to the provisions of
this Agreement in respect of which such Loss and Expense shall have occurred.
If any action at law or suit in equity is instituted by a third party with
respect to which any of the parties intends to claim any liability or expense
as Loss and Expense under this Article 8, such party shall promptly notify the
indemnifying party of such action or suit.
8.5 Defense of Third Party Claims. The indemnifying party under this
Article 8 shall have the right to conduct and control, through counsel of that
party's own choosing, any third party claim, action, or suit at the
indemnifying party's sole cost and expense, but the indemnified party may, at
that latter party's election, participate in the defense of any such claim,
action, or suit at that party's sole cost and expense: provided, that if the
indemnifying party shall fail to defend any such claim, action, or suit, then
the indemnified party may defend, through counsel of that party's own
choosing, such claim, action, or suit and settle such claim, action, or suit,
and to recover from the indemnifying party the amount of such settlement or of
any judgment and the costs and expenses of such defense: provided further,
that the indemnifying party shall be given at least fifteen (15) days' prior
notice of the terms of any proposed settlement thereof so that the
indemnifying party may then undertake and/or resume the defense against the
claim. The indemnifying party shall not compromise or settle any third party
claim, action, or suit without the prior written consent of the indemnified
party, which consent will not be unreasonably withheld or delayed: provided,
that any such compromise or settlement shall include a release for the
Indemnified Party of all liability with respect to the matter being
compromised or settled.
ARTICLE 9 Miscellaneous.
9.1 Termination of Agreement. This Agreement may be terminated on or
prior to the Closing under one or more of the following circumstances upon 10
days prior notice (except for actions taken by mutual consent or for Buyer's
failure to timely pay the Purchase Price):
1. by the mutual consent of the parties hereto;
2. by Seller, if any of the conditions provided in Article 6 hereof
have not been met by the time required and have not been waived;
- 15 -
<PAGE>
3. by Buyer, if any of the conditions provided in Section 4.6 or
Article 7 hereof have not been met by the time required and have not
been waived;
4. by Seller or Buyer, if the FCC has failed by April 1, 1997 to
grant the Application in a decision which has become a Final Order
5. by any party hereto, if the FCC (a) denies the Application or
(b) designates a hearing on the Application or on any issue related to
the assignment contemplated herein.
9.2 Liabilities Upon Termination.
1. Except as provided in Section 9.2.2 of this Agreement, no party
shall have any liability to any other party for costs, expenses, or damages in
the event this Agreement is terminated pursuant to Section 9.1. and, in the
event of such termination, the Escrow Funds shall immediately be returned to
Buyer.
2. If the parties hereto shall fail to consummate this Agreement on
the Closing Date due to Buyer's material breach of any material
representation, warranty, covenant or condition hereunder, and Seller is not
at that time in material breach of any material representation, warranty,
covenant or condition hereunder, then Seller would suffer direct and
substantial damages that cannot be determined within reasonable certainty.
Seller shall thereupon be entitled to retain the Escrow Funds, which shall
constitute liquidated damages. Such liquidated damages represent Buyer's and
Seller's reasonable estimate of actual damages and do not constitute a
penalty. Recovery of liquidated damages shall be the exclusive remedy of
Seller against Buyer for termination of this Agreement under this Subsection
and shall be applicable regardless of the actual amount of damages sustained.
3. If the parties hereto shall fail to consummate this Agreement on
the Closing Date due to Seller's material breach of any material
representation, warranty, covenant or condition hereunder (after the
preparation of any applicable notice period), and Buyer is not at that time in
material breach of any material representation, warranty, covenant or
condition hereunder, then Buyer shall be entitled to specific performance of
the terms of this Agreement and of Seller's obligation to consummate the
transaction contemplated hereby. If any action is brought by Buyer to enforce
this Agreement, Seller shall waive the defense that there is an adequate
remedy at law or that Buyer has not incurred or will not incur irreparable
injury.
4. Notwithstanding any other provision of this Agreement, the
confidentiality provisions in Sections 4.8 and 5.3 shall survive any
termination of this Agreement.
9.3 Expenses. Each party hereto shall be solely responsible for all fees
and expenses each party incurs in connection with the transactions
contemplated by this Agreement, including, without limitation, legal fees
incurred in connection herewith: provided, that any and all FCC filing fees
shall be divided equally by Seller and Buyer.
- 16 -
<PAGE>
9.4 Assignments. This Agreement shall not be assigned by any party
hereto without the prior written consent of the other party: provided, that
Buyer may assign its rights under this Agreement to any other party controlled
by the Buyer or the same parties who control Buyer if such assignee agrees in
writing to be bound to the terms of this Agreement; and provided further, that
Buyer shall promptly notify Seller of any such assignment in writing.
9.5 Further Assurances. From time to time prior to, at and after the
Closing, each party hereto will execute all such instruments and take all such
actions any other party shall reasonably request in connection with
effectuating the intent and purpose of this Agreement and all transactions
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 at the Closing.
9.6 Damage to the Assets. The risk of loss or damage to any of the
Station Assets prior to the Closing shall be upon Seller. In consultation with
Buyer, Seller shall repair, replace and restore any such damaged or lost
Station Asset to its prior condition as soon as possible and in no event later
than the Closing.
9.7 Notices. All notices, demands and other communications which may be
or are required to be given hereunder shall be in writing, shall be delivered
either by personal delivery, by United States certified mail-return receipt
requested (postage prepaid), or by overnight delivery service (charges
prepaid), and shall be deemed to have been given or made when personally
delivered, within five (5) days after being deposited in the mail, postage
prepaid, or within one (1) day after being delivered to an overnight delivery
service, charges prepaid. Notices shall be delivered to each party at the
following addresses (or at such other address as any party may designate in
writing to the other parties):
1. If to Seller --
Ronald J. Morey, President
Jarad Broadcasting Co. of New York Inc.
1103 Stewart Ave.
Garden City, New York 11530
with a copy to (but which shall not constitute notice to
Seller):
Lewis J. Paper, Esq.
Dickstein, Shapiro, Morin & Oshinsky, L.L.P.
2101 L Street, N.W.
Washington, DC 20037
1. If to Buyer --
Robert F.X. Sillerman, Chief Executive Officer
Liberty Broadcasting of Albany, Incorporated
- 17 -
<PAGE>
150 East 58th Street
New York, New York 10155
with a copy to (but which shall not constitute notice to Buyer):
Kraig Fox, Esq.
Liberty Broadcasting of Albany, Incorporated
150 East 58th Street
New York, New York 10155
9.8 Captions. The captions of articles and sections of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
9.9 Law Governing. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of New York without regard
to conflicts of laws provisions.
9.10 Waiver of Provisions. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party
at any time or times to require performance of any provision of this Agreement
shall not affect the exercise of a party's rights at a later date. No waiver
by any party of any condition or the breach of any provision, term, covenant,
representation, or warranty contained in this Agreement, in any one or more
instances shall be deemed to be or construed as a further or continuing waiver
of any such condition or of the breach of any other provision, term, covenant,
representation, or warranty of this Agreement.
9.11 Counterparts. This Agreement may be executed in counterparts, and
all counterparts so executed shall collectively constitute one agreement,
binding on all of the parties hereto, notwithstanding that all the parties are
not signatory to the same counterpart.
9.12 Reimbursement of Legal Expenses. If a formal legal proceeding is
instituted by a party to enforce that party's rights under this Agreement, the
party prevailing in the proceeding shall reimburse the other party for all
reasonable costs, including but not limited to reasonable attorneys, fees,
incurred in conjunction with the proceeding.
9.13 Entire Agreement. This Agreement constitutes the entire Agreement
among the parties and supersedes any and all prior or contemporaneous
agreements between them relating to the subject matter hereof and may not be
amended except in a writing signed by the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year written above.
JARAD BROADCASTING COMPANY OF NEW YORK, INC.
- 18 -
<PAGE>
By: /s/ Ronald J. Morey
------------------------------------------
Ronald J. Morey
President
LIBERTY BROADCASTING OF ALBANY, INCORPORATED
By: /s/ Howard J. Tytel
------------------------------------------
- 19 -
SFX BROADCASTING, INC. AND SUBSIDIARIES
EXHIBIT 11.1
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Primary and Fully Diluted:
Average shares outstanding ................................. 7,288,023 7,381,249
Net effect of dilutive stock options - based on the treasury
stock method using average market price ................... -- 303,307
----------- ----------
Total ............................................. 7,288,023 7,684,556
=========== ===========
Net loss ................................................... $ (2,244) $ (731)
Less: preferred stock dividends and accretion .............. 2,584 75
----------- ----------
Net loss attributable to common shareholders ............... (4,828) (806)
=========== ===========
Net loss per common shares ................................. $ (0.66) $ (0.10)
=========== ===========
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
Primary and Fully Diluted:
Average shares outstanding ................................. 7,394,238 6,299,724
Net effect of dilutive stock options - based on the treasury
stock method using average market price ................... -- 231,937
----------- ----------
Total ...................................................... 7,394,238 6,531,661
=========== ===========
Net loss ................................................... $ (45,303) $ (3,802)
Less: preferred stock dividends and accretion .............. 3,551 219
----------- ----------
Net loss attributable to common shareholders ............... (48,854) (4,021)
=========== ===========
Net loss per common share .................................. $ (6.61) $ (0.62)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 40,139,000
<SECURITIES> 0
<RECEIVABLES> 43,663,000
<ALLOWANCES> 1,399,000
<INVENTORY> 0
<CURRENT-ASSETS> 112,046,000
<PP&E> 75,639,000
<DEPRECIATION> 10,331,000
<TOTAL-ASSETS> 725,929,000
<CURRENT-LIABILITIES> 39,575,000
<BONDS> 452,188,000
153,003,000
0
<COMMON> 74,000
<OTHER-SE> 25,005,000
<TOTAL-LIABILITY-AND-EQUITY> 725,929,000
<SALES> 0
<TOTAL-REVENUES> 92,840,000
<CGS> 0
<TOTAL-COSTS> 104,075,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,169,000
<INCOME-PRETAX> (30,084,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,084,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (15,219,000)
<CHANGES> 0
<NET-INCOME> (48,854,000)
<EPS-PRIMARY> (6.61)
<EPS-DILUTED> (6.61)
</TABLE>
