<PAGE>
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, 1997
[ ] 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)
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 6, 1997, 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 8,777,682 and
1,047,037, respectively.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997 (unaudited) and December 31, 1996.................3
Consolidated Statements of Operations for Three Months Ended
September 30, 1997 and 1996 (unaudited).............................................................5
Consolidated Statements of Operations for Nine Months Ended
September 30, 1997 and 1996 (unaudited).............................................................6
Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 1997 and 1996 (unaudited).............................................................7
Notes to Consolidated Financial Statements (unaudited)..............................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............11
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................21
Item 6. Exhibits and Reports on Form 8-K...................................................................21
SIGNATURES.......................................................................................................23
</TABLE>
2
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S><C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 18,474 $ 10,601
Cash pledged for letters of credit and restricted cash ...................... 1,718 20,000
Accounts receivable less allowance for doubtful accounts of $2,634 in
1997 and $1,620 in 1996.................................................. 69,179 47,275
Assets under contract for sale............................................... 42,843 8,352
Other current assets......................................................... 8,475 2,461
--------------- ----------------
Total current assets.................................................. 140,689 88,689
--------------- ----------------
Property and Equipment:
Land 15,434 6,791
Buildings and improvements................................................... 60,466 11,485
Equipment and furniture...................................................... 73,864 54,736
--------------- ----------------
149,764 73,012
Less accumulated depreciation and amortization .............................. (17,057) (10,192)
--------------- ----------------
Net property and equipment............................................ 132,707 62,820
Intangible Assets:
Broadcast licenses........................................................... 949,096 558,640
Goodwill .................................................................... 148,940 98,165
Deferred financing costs..................................................... 22,008 19,504
Other .................................................................. 11,699 4,727
--------------- ----------------
1,131,743 681,036
Less accumulated amortization................................................ (33,992) (16,933)
--------------- ----------------
Net intangible assets................................................. 1,097,751 664,103
Deposits and other payments for pending acquisitions......................... 4,631 31,692
Other assets................................................................. 17,109 12,023
--------------- ----------------
--------------- ----------------
TOTAL ASSETS................................................................. $ 1,392,887 $ 859,327
=============== ================
</TABLE>
Note: The balance sheet at December 31, 1996 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 EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ----------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 9,726 $ 10,921
Accrued expenses.............................................................. 20,618 21,913
Deferred concert revenue...................................................... 4,095 --
Accrued interest and dividends................................................ 26,749 7,111
Current portion of long-term debt and capital lease obligations............... 1,711 381
---------------- ----------------
Total current liabilities.............................................. 62,899 40,326
Other liabilities............................................................. 4,556 --
Deferred income taxes ........................................................ 105,497 91,352
Long-term debt and capital lease obligations, less current portion............ 782,544 481,079
---------------- ----------------
Total liabilities...................................................... 955,496 612,757
Redeemable preferred stock ................................................... 367,837 152,053
Commitments and contingencies
Shareholders' Equity :
Class A voting common stock, $.01 par value; 100,000,000 shares authorized;
8,740,508 issued and 8,712,630 outstanding at September 30, 1997 and
8,089,658 issued and 8,063,340 outstanding at December 31, 1996............ 87 81
Class B voting convertible common stock, $.01 par value; 10,000,000
shares authorized; 1,190,911 issued and 1,047,037 outstanding at
September 30, 1997 and 1,208,810 issued and 1,064,936 outstanding at
December 31, 1996.......................................................... 12 12
Additional paid-in capital.................................................... 174,325 183,866
Treasury Stock; 171,752 shares, at cost....................................... (6,414) (6,393)
Accumulated deficit........................................................... (98,456) (83,049)
---------------- ----------------
Total shareholders' equity............................................. 69,554 94,517
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $ 1,392,887 $ 859,327
================ ================
</TABLE>
Note: The balance sheet at December 31, 1996 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 DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
1997 1996
--------------- -----------------
<S> <C> <C>
Radio broadcasting revenue...................................................... $ 88,708 $ 51,174
Less: agency commissions........................................................ 10,592 5,888
--------------- -----------------
Net radio broadcasting revenue........................................... 78,116 45,286
Concert promotion revenue....................................................... 44,769 --
--------------- -----------------
Total net revenue........................................................ 122,885 45,286
Radio station operating expenses................................................ 46,719 28,271
Concert promotion operating expenses............................................ 35,569 --
Depreciation, amortization, duopoly integration costs and acquisition
related costs................................................................ 13,350 6,015
Corporate expenses, net of Triathlon fees....................................... 2,504 1,685
Corporate expenses: non-cash stock compensation................................. 156 --
Non-recurring and unusual charges............................................... 17,995 --
--------------- -----------------
Operating income......................................................... 6,592 9,315
Investment income............................................................... (670) (1,022)
Interest expense................................................................ 19,015 12,581
--------------- -----------------
Loss before income taxes................................................. (11,753) (2,244)
Income tax expense.............................................................. 240 --
---------------- ----------------
Net loss ................................................................ (11,993) (2,244)
Redeemable preferred stock dividends and accretion.............................. 9,926 2,584
--------------- -----------------
Net loss applicable to common stock...................................... $ (21,919) $ (4,828)
================ ================
Net loss per common share.................................................. $ (2.30) $ (.66)
================ ================
Weighted average common shares outstanding...................................... 9,526,694 7,288,023
</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 DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
1997 1996
--------------- -----------------
<S> <C> <C>
Radio broadcasting revenue...................................................... $ 214,686 $ 105,153
Less: agency commissions........................................................ 25,702 12,313
--------------- -----------------
Net radio broadcasting revenue........................................... 188,984 92,840
Concert promotion revenue....................................................... 75,740 --
--------------- -----------------
Total net revenue........................................................ 264,724 92,840
Radio station operating expenses................................................ 115,871 61,448
Concert promotion operating expenses............................................ 63,394 --
Depreciation, amortization, duopoly integration costs and acquisition
related costs................................................................ 31,429 10,663
Corporate expenses, net of Triathlon fees....................................... 6,381 4,475
Corporate expenses: non-cash stock compensation................................. 468 --
Non-recurring and unusual charges............................................... 17,995 27,489
---------------- ------------------
Operating income (loss).................................................. 29,186 (11,235)
Investment income............................................................... (2,692) (3,320)
Interest expense................................................................ 46,438 22,169
--------------- ------------------
Loss before income taxes and extraordinary item.......................... (14,560) (30,084)
Income tax expense.............................................................. 845 --
--------------- ------------------
Net loss before extraordinary item....................................... (15,405) (30,084)
Extraordinary loss on debt retirement........................................... -- 15,219
--------------- -----------------
Net loss................................................................... (15,405) (45,303)
Redeemable preferred stock dividends and accretion.............................. 27,723 3,551
--------------- -----------------
Net loss applicable to common stock............................................. $ (43,128) $ (48,854)
=============== =================
Net loss per common share before extraordinary item........................ $ (4.61) $ (4.55)
Extraordinary loss on debt retirement per common share..................... -- (2.06)
--------------- -----------------
Net loss per common share.................................................. $ (4.61) $ (6.61)
=============== ================
Weighted average common shares outstanding...................................... 9,364,089 7,394,238
</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 EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
1997 1996
------------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................................ $ (15,405) $ (45,303)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................ 30,585 10,386
Interest on receivables from related parties and officers.................... (124) (232)
Non-cash portion of non-recurring charge..................................... 2,624 8,578
Write off of debt costs...................................................... -- 5,593
Changes in assets and liabilities, net of amounts acquired:
Increase in accounts receivable.............................................. (18,239) (11,015)
Increase in other assets..................................................... (1,821) (2,137)
Decrease in deferred income taxes payable.................................... -- (952)
(Decrease) increase in accounts payable, accrued expenses and other liabilities. (8,062) 1,650
Increase in accrued interest and dividends .................................. 13,314 14,659
Decrease in deferred concert revenue............................ (6,290) --
----------------- ---------------
Net cash used in operating activities...................................... (3,418) (18,773)
INVESTING ACTIVITIES:
Deposits and other payments for pending acquisitions......................... (2,327) (13,101)
Purchases of radio stations and concert promotion businesses, net of cash
acquired.................................................................. (475,807) (430,457)
Proceeds from sales of radio stations........................................ 950 25,000
Purchases of property and equipment.......................................... (12,683) (1,769)
Proceeds from sales of property and equipment................................ 367 --
Loans and advances to officers and related parties........................... (2,800) (20,415)
Increase in other intangibles................................................ -- (2,055)
----------------- ----------------
Net cash used in investing activities...................................... (492,300) (442,797)
FINANCING ACTIVITIES:
Additions to debt issuance costs............................................. (2,753) (14,910)
Proceeds from senior and subordinated debt................................... 339,000 471,500
Payments on senior loans, capital lease obligations and subordinated debt.... (53,809) (101,302)
Net proceeds from sale of preferred stock and exercise of warrants........... 224,029 143,445
Purchase of treasury stock................................................... (130) (6,393)
Dividends paid on preferred stock............................................ (21,028) (2,524)
----------------- ---------------
Net cash provided by financing activities.................................. 485,309 489,816
Net (decrease) increase in cash and cash equivalents............................ (10,409) 28,246
Cash and cash equivalents at beginning of period................................ 30,601 11,893
----------------- ---------------
Cash and cash equivalents at end of period...................................... $ 20,192 $ 40,139
================= ===============
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest..................................................................... $ 33,348 $ 7,058
Income taxes................................................................. $ 712 $ 111
Supplemental disclosure of non-cash financing activities:
Issuance of 250,838 shares of Class A Common Stock and assumption of $15.4
million of debt in connection with the Meadows Acquisition and issuance of
62,792 shares of Class A Common Stock and assumption of $1.6 million in
connection with the Sunshine Promotions Acquisition.
See accompanying notes to consolidated financial statements
</TABLE>
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, 1997 and 1996 is unaudited. The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and 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 periods 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, 1996.
In February 1997, the FASB issued Statement No. 128 (SFAS 128),
"Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Management does not anticipate that the effect of adopting this new standard
will have a material impact on the calculation of the Company's net earnings
or loss per share.
NOTE 2 - RECENT DEVELOPMENT; PENDING SPIN-OFF AND MERGER
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger with SBI Holdings Corporation ("Buyer") and SBI Radio Acquisition
Corporation pursuant to which the Company will become a wholly owned
subsidiary of Buyer (the "Merger"). In the Merger, holders of the Company's
Class A Common Stock will receive $75.00 per share and the holders of the
Company's Class B Common Stock will receive $97.50 per share, subject to
adjustment under certain circumstances. Pursuant to the merger agreement, the
Company intends to spin-off (the "Spin-Off") its concert promotion and venue
operation business (the "Spin-Off Company") pro-rata to its stockholders and
the holders of certain warrants, options, and stock appreciation rights prior
to the effective time of the Merger. In general, the receipt of cash by the
Company's stockholders pursuant to the Merger and the receipt of stock in the
Spin-Off, will be taxable events for stockholders.
Upon the consummation of the Spin-Off and prior to the Merger, senior
management of the Company will continue to serve in their present capacities
with the Company while devoting such time as they deem reasonably necessary to
conduct the operations of the Spin-Off Company. Although the Spin-Off Company
has not yet entered into employment agreements with such members of senior
management, it is anticipated that many members of existing management will
become full-time employees of the Spin-Off Company and that Mr. Sillerman will
become Executive Chairman of the Spin-Off Company upon consummation of the
Merger.
The Company is currently negotiating substantial acquisitions in the
concert promotion and venue operation business, certain of which may be
consummated prior to the Spin-Off. At the time of the Spin-Off, the Spin-Off
Company is required to repay to the Company all amounts paid in connection
with its acquisitions and capital improvements and the Spin-Off Company will
assume all the liabilities and obligations related to such company's business.
At the time of the Spin-Off, management of the Company will make a good-faith
allocation of the working capital between the Company and the Spin-Off
Company. Upon the consummation of the Merger, all net working capital of the
Company, as determined in accordance with the merger agreement, will be paid
to the Spin-Off Company. Even if the Merger does not occur for any reason, the
Company intends to consummate the Spin-Off.
The consummation of the Spin-Off and/or the Merger is subject to
certain conditions and the receipt of certain consents including, among other
things, the approval of the Company's common stock voting together as a single
class, the approval of each of the Class A Common Stock and Series D Preferred
Stock, voting separately as a class, and the consents of the holders of the
Series E Preferred Stock and certain of the Company's outstanding notes. In
addition, the Merger is subject to the receipt of certain regulatory
approvals.
8
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The Company anticipates that the Merger will be consummated in the
second quarter of 1998 and that the Spin- Off will occur prior thereto. There
can be no assurance that the various approvals or consents will be given or
that the conditions to consummating the Merger will be met or that the
Spin-Off will occur as presently contemplated or at all.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
Recently Completed Acquisitions and Dispositions.
During 1997, the Company completed the following radio broadcasting and
concert promotion transactions. All concert promotion acquisitions will be
part of the Spin-Off Company and all radio broadcasting acquisitions will be
acquired by the Buyer upon consummation of the Merger.
Radio Broadcasting Acquisitions. In January 1997, the Company
purchased one radio station operating in Albany, New York (the "Albany
Acquisition"), for a purchase price of $1.0 million.
In February 1997, the Company acquired two radio stations in Houston,
Texas (the "Houston Acquisition"), for a purchase price of $42.9 million,
including fees and expenses plus certain contingent payments of up to
$750,000.
Also, in February 1997, the Company consummated the acquisition of
radio station WWYZ-FM in Hartford, Connecticut (the "Hartford Acquisition"),
for a purchase price of $25.9 million, including fees and expenses.
In March 1997, the Company exchanged one radio station operating in
Washington, D.C./Baltimore, Maryland, for two radio stations operating in
Dallas, Texas (the "CBS Exchange") and completed the sale of two radio
stations operating in the Myrtle Beach, South Carolina market for $5.1 million
payable in installments over a five year period (present value approximately
$4.3 million). The CBS Exchange was structured as a substantially tax free
exchange of like-kind assets. The contract for the sale of the Myrtle Beach
stations was in place prior to the merger with Multi-Market Radio, Inc.
("MMR"). No gain or loss was recognized on these transactions as the assets
were recently acquired .
In April 1997, the Company acquired substantially all of the assets
of three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications Limited Partnership ("Secret
Communications") (the "Secret Communications Acquisition") for a total
purchase price of $255.0 million.
Also in April 1997, the Company sold one radio station operating in
Little Rock, Arkansas (the "Little Rock Disposition") to Triathlon
Broadcasting Company, a related party. The station was sold for $4.1 million,
of which $3.5 million had been held as a deposit by the Company since 1996. No
gain or loss was recorded on the transaction as the assets was recently
acquired.
In July 1997, the Company acquired substantially all of the assets of
four radio stations operating in Richmond, Virginia for approximately $46.5
million, including payments made to buy out minority equity interests which
the Company had originally agreed to provide to certain of the sellers (the
"Richmond Acquisition").
In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two radio stations in Milwaukee, Wisconsin for
$35.0 million (the "Hearst Acquisition").
In August 1997, the Company exchanged one radio station in
Pittsburgh, Pennsylvania, which the Company had recently acquired from Secret
Communications, and $20.0 million in cash for one radio station in Charlotte,
North Carolina (the "Charlotte Exchange"). The Company operated the radio
station in Charlotte, North Carolina pursuant to a local market agreement
during July 1997.
Concert Promotion Acquisitions. In January 1997, the Company
purchased Delsener/Slater Enterprises, Ltd ("Delsener/Slater"), a concert
promotion company based in New York City, for an aggregate consideration of
approximately $26.6 million, including $2.9 million for working capital and
the present value of deferred payments of $3.0 million to be paid, without
interest, over five years, and $1.0 million to be paid, without interest, over
ten years (the "Delsener/Slater Acquisition"). The deferred payments are
subject to acceleration in certain circumstances.
9
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In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows Music Theater in
Hartford, Connecticut (the "Meadows Acquisition") for $0.9 million in cash,
shares of SFX Class A Common Stock with a value of approximately $7.5 million
and the assumption of approximately $15.4 million of debt.
In June 1997, the Company acquired Sunshine Promotions, Inc., a
concert promotion company based in Indianapolis, Indiana, and certain related
companies (the "Sunshine Promotions Acquisition"), for $53.9 million in cash
at closing, $2.0 million in cash payable over 5 years, shares of Class A
Common Stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million of
debt.
As of September 30, 1997, the combined concert promotion entities of
the Company had current assets of $13.5 million, total assets of $129.4
million, current liabilities of $7.2 million and long-term debt of $20.6
million.
For financial statement purposes, all of the acquisitions described
above were accounted for using the purchase method, with the aggregate
purchase price allocated to the tangible and identifiable intangible assets
based upon current estimated fair market values. Certain of the recent
transactions are based on preliminary estimates of the fair value of the net
assets acquired and subject to final adjustment. The allocation resulted in an
excess of costs over estimated fair value of identifiable net assets acquired
of approximately $248,214,000, $63,070,000, $42,679,000, $42,124,000,
$36,415,000, $29,934,000, $29,303,000, $21,580,000 and $934,000, for the
Secret Communications Acquisition, the Charlotte Exchange, the Houston
Acquisition, the Richmond Acquisition, the Hartford Acquisition, the Sunshine
Promotions Acquisition, the Hearst Acquisition, the Delsener/Slater
Acquisition and the Albany Acquisition, respectively, in 1997. The assets and
liabilities of these acquisitions and the results of their operations for the
period from the date of acquisition have been included in the accompanying
consolidated financial statements.
Pending Acquisitions and Dispositions.
The Company expects to complete the following radio broadcasting
transactions which will be acquired by the Buyer upon consummation of the
Merger.
Pursuant to separate agreements, the Company has agreed to: (i)
exchange four radio stations owned by the Company and located on Long Island,
New York, for two radio stations operating in Jacksonville, Florida, where the
Company currently owns four stations, and a cash payment of $11.0 million (the
"Chancellor Exchange"); (ii) acquire three radio stations operating in
Nashville, Tennessee, where the Company currently owns two radio stations, for
$35 million (the"Nashville Acquisition"); (iii) sell six stations in Jackson,
Mississippi and two stations in Biloxi, Mississippi for a minimum
consideration of $60.0 million (the "Jackson and Biloxi Disposition"); and
(iv) sell one recently acquired radio station in Richmond, Virginia for $4.5
million (the "Richmond Disposition"). The Department of Justice has brought
suit alleging that the Chancellor Exchange is likely to reduce competition.
The complaint requests permanent injunctive relief preventing the consummation
of the acquisition of the Long Island stations by Chancellor. The Company
intends to defend the suit vigorously. The aggregate proceeds to be received
from these transactions, net of acquisitions, is approximately $40.5 million,
of which the Company has deposited $2.0 million in escrow to secure its
obligations under these agreements. The Company expects to record a pre-tax
gain of approximately $20.0 million on the Jackson and Biloxi Disposition. The
Company does not expect to record a gain or loss on the other transactions as
the assets were recently acquired.
NOTE 4 - OTHER RECENT TRANSACTIONS
Preferred Stock Offering. On January 23, 1997, the Company completed
the sale of $225.0 million of Series E Cumulative Exchangeable Preferred Stock
("Series E Preferred Stock"). Dividends on the Series E Preferred Stock accrue
at the rate of 12 5/8% per annum and are payable on January 15 and July 15 of
each year. Dividends may be paid, at the Company's option, through January 15,
2002, in cash or additional shares of Series E Preferred Stock. Subject to
certain conditions, the shares of the Series E Preferred Stock are
exchangeable in whole or in part on a pro rata basis, at the option of the
Company, on any dividend payment date, for the Company's 12 5/8% Senior
Subordinated Exchangeable Debentures due 2006. The Company is required,
subject to certain conditions, to redeem all of the Series E Preferred Stock
outstanding on October 31, 2006.
Note Receivable From Officer. The Company entered into a new
employment agreement with Robert F.X. Sillerman, the Company's Executive
Chairman, effective January 1, 1997. Pursuant to the terms of the employment
agreement, the Company made a $2.5 million loan to Mr. Sillerman. The loan is
a full-recourse obligation of Mr. Sillerman and bears interest.
10
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In September 1997, the Company fully reserved the loan since the Board of
Directors agreed, in principle, to forgive the loan.
Change of Control Arrangements. Pursuant to Messrs. Sillerman's and
Ferrel's employment agreements with the Company, each of them is entitled to
receive cash payments aggregating approximately $4.1 million and $1.5 million,
respectively, if his employment agreement is terminated following a change of
control of the Company. In addition, if their employment agreements are so
terminated, Messrs. Sillerman and Ferrel are entitled to receive options
("Change of control Options") to purchase 650,000 shares of Class A Common
Stock (300,000 of which would be at an exercise price of $28.00 per share and
350,000 of which would be at an exercise price of $8.38 per share) and 100,000
shares of Class A Common Stock (at an exercise price of $13.75 per share),
respectively. It was determined that an excise tax may be assessed against Mr.
Sillerman if the Change of Control Options were granted, due to such payments
and options possibly being characterized as "parachute payments." In this
event, pursuant to the terms of Mr. Sillerman's employment agreement, the
Company would be required to indemnify Messrs. Sillerman for one-half of the
cost of any such excise tax assessed. Moreover, the Company would lose the
deduction of any portion of the compensation subject to the excise tax. In
order to facilitate the Merger negotiations, Messrs. Sillerman and Ferrel
agreed to amend their employment agreements to reduce the number of Change of
Control Options that they would otherwise be entitled to receive to 325,000
shares (300,000 of which would remain at an exercise price of $28.00 per share
and 25,000 of which would be at an exercise price of $8.38 per share, for an
aggregate cash value based on the Class A Merger Consideration of
approximately $15.8 million) and 70,000 shares (at an exercise price of $13.75
per share, for an aggregate cash value based on the Class A Merger
Consideration of approximately $4.3 million), respectively, without any
further consideration.
The value of the Change of Control Options relinquished by Messrs.
Sillerman and Ferrel (based solely on the Class A Merger Consideration,
without giving effect to any right to receive shares of common stock of SFX
Entertainment upon exercise) was approximately $21.7 million and $1.8 million,
respectively. In addition, the additional excise tax cost to the Company if it
granted Mr. Sillerman's relinquished options would have been approximately
$11.4 million. Accordingly, the relinquishment of Messrs. Sillerman's and
Ferrel's options resulted in net savings to the Company of approximately $34.9
million. The surrender of Messrs. Sillerman's and Ferrel's options was not
conditioned on, or linked to, the receipt of any consideration by Messrs.
Sillerman and Ferrel.
Bonus Payments and Loan Forgiveness. On July 31, 1997, the Board of
Directors approved the payment of a $1 million bonus to Mr. Ferrel and
requested that the Compensation Committee consider the reasonableness and
fairness of the payment of a $10 million bonus and the forgiveness of a
$2.5 million loan (along with accrued but unpaid interest thereon of
approximately $100,000) made by the Company to Mr. Sillerman. In its
evaluation, the Compensation Committee received an opinion by an independent,
nationally recognized compensation consulting firm that such amounts fell
within the range of reasonable fees. The Compensation Committee subsequently
recommended and the Board of Directors approved the payment of the $10 million
bonus to Mr. Sillerman and approved in principle the forgiveness of his
$2.5 million loan. The Company has paid such bonuses and it is anticipated that
the loan will be forgiven in the future.
NOTE 5 - NON-RECURRING AND UNUSUAL CHARGES
In the third quarter of 1997, the Company recorded $18.0 million of
non-recurring and unusual charges including amounts related to the pending
Spin-Off and Merger which consisted of $11.6 million of executive bonus
payments, the establishment of a reserve for a loan made to the Company's
Executive Chairman of $2.6 million and $3.8 million of primarily legal and
professional fees associated with the Merger and Spin-Off.
In 1996, the Company recorded non-recurring charges of $27.5 million
which included the repurchase of stock and the forgiveness of a loan to the
Company's former president, a reserve of a loan and the issuance of warrants
to a related party, the purchase of an officer's options and a charge related
the termination of a broadcast rights agreement.
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
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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 recently completed 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.
RECENT DEVELOPMENT; PENDING SPIN-OFF AND MERGER.
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger with SBI Holdings Corporation ("Buyer") and SBI Radio Acquisition
Corporation pursuant to which the Company will become a wholly owned
subsidiary of Buyer (the "Merger"). In the Merger, holders of the Company's
Class A Common Stock will receive $75.00 per share and the holders of the
Company's Class B Common Stock will receive $97.50 per share, subject to
adjustment under certain circumstances. Pursuant to the merger agreement, the
Company intends to spin-off (the "Spin-Off") its concert promotion and venue
operation business (the "Spin-Off Company") pro-rata to its stockholders and
the holders of certain warrants, options, and stock appreciation rights prior
to the effective time of the Merger. In general, the receipt of cash by the
Company's stockholders pursuant to the Merger and the receipt of stock in the
Spin-Off, will be taxable events for stockholders.
Upon the consummation of the Spin-Off and prior to the Merger, senior
management of the Company will continue to serve in their present capacities
with the Company while devoting such time as they deem reasonably necessary to
conduct the operations of the Spin-Off Company. Although the Spin-Off Company
has not yet entered into employment agreements with such members of senior
management, it is anticipated that many members of existing management will
become full-time employees of the Spin-Off Company and that Mr. Sillerman will
become Executive Chairman of the Spin-Off Company upon consummation of the
Merger.
The Company is currently negotiating substantial acquisitions in the
concert promotion and venue operation business, certain of which may be
consummated prior to the Spin-Off. At the time of the Spin-Off, the Spin-Off
Company is required to repay to the Company all amounts paid in connection
with its acquisitions and capital improvements and the Spin-Off Company will
assume all the liabilities and obligations related to such company's business.
At the time of the Spin-Off, management of the Company will make a good-faith
allocation of the working capital between the Company and the Spin-Off
Company. Upon the consummation of the Merger, all net working capital of the
Company, as determined in accordance with the merger agreement, will be paid
to the Spin-Off Company. Even if the Merger does not occur for any reason, the
Company intends to consummate the Spin-Off.
The consummation of the Spin-Off and/or the Merger is subject to
certain conditions and the receipt of certain consents including, among other
things, the approval of the Company's common stock voting together as a single
class, the approval of each of the Class A Common Stock and Series D Preferred
Stock, voting separately as a class, and the consents of the holders of the
Series E Preferred Stock and certain of the Company's outstanding notes. In
addition, the Merger is subject to the receipt of certain regulatory
approvals.
The Company anticipates that the Merger will be consummated in the
second quarter of 1998 and that the Spin-Off will occur prior thereto. There
can be no assurance that the various approvals or consents will be given or
that the conditions to consummating the Merger will be met or that the
Spin-Off will occur as presently contemplated or at all.
GENERAL
Radio Broadcasting. The Company currently owns and operates, provides
programming to or sells advertising on behalf of 81 radio stations located in
24 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 74 radio stations located in 19 markets.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow.
"Broadcast Cash Flow" is defined as net revenues less station operating
expenses. Although Broadcast Cash Flow is not a measure of performance
calculated in accordance with 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
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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. The Company's most significant station
operating expenses are employee salaries and commissions, programming expenses
and advertising and promotional expenditures. The Company strives to control
these expenses by working closely with local station management.
The Company's revenues are primarily affected by the advertising
rates its radio stations can obtain in the face of competition from radio and
other media. 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 competitive 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 nine months ended September 30, 1997, approximately 77%
of the Company's radio 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, including newspapers and
television, 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
Telecommunication Act of 1996 (the "Telecom Act") 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 Telecom Act 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, which these new technologies may have on the radio
broadcasting industry.
Concert Promotion. In addition to its radio station operations, in
the first nine months of 1997, the Company, through completed acquisitions,
became one of the leading promoters of music concerts and other entertainment
events. The Company's primary sources of revenues from its concert promotion
activities is from ticket sales, sponsorships, concessions and other ancillary
services at events which the Company promotes. The most significant expense
with respect to its concert promotion activities is talent and other expenses
associated with producing an event. The booking of talent in the concert
promotion business generally involves contracts for limited engagements often
involving a small number of performances. The Company believes that the
concert promotion business is highly competitive, and competes with other live
entertainment, including sports activities as well as the electronic
entertainment industry.
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first calendar quarter generally
produces lower revenues than the second, third and fourth calendar quarters.
The Company's
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radio 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. The Company anticipates that the second and third
quarters will reflect the highest revenues from the Company's concert
promotion activities.
RESULTS OF OPERATIONS
The Company's consolidated financial statements tend not to be
directly comparable from period to period due to acquisition and disposition
activity. The major acquisitions in 1996 and 1997, all of which have been
accounted for using the purchase method of accounting, and major dispositions
were as follows:
1996 Acquisitions and Dispositions: In February 1996, the Company
acquired substantially all the assets of WKKT-FM (formerly WTDR-FM) and
WLYT-FM in Charlotte, North Carolina pursuant to the Charlotte Acquisition. In
June 1996, the Company acquired substantially all of the assets of WROQ-FM,
Greenville, South Carolina, pursuant to 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
pursuant to the Raleigh-Greensboro Acquisition.
The Company acquired from Prism Radio Partners, LP pursuant to the
Prism Acquisition (i) 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 July
1996, and (ii) substantially all of the assets of three radio stations
operating in Louisville, Kentucky, in September 1996. In October 1996, the
Company sold the Louisville stations (the "Louisville Disposition").
In July 1996, pursuant to the Liberty Acquisition, the Company
acquired Liberty Broadcasting, Inc., 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 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, the Company sold three of the Liberty
Stations operating in the Washington, DC/Baltimore, Maryland market pursuant
to the Washington Dispositions.
In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi and in August 1996, the Company acquired
substantially all of the assets of WSTZ-FM and WZRX-AM, each operating in
Jackson, Mississippi, pursuant to collectively, the Jackson Acquisitions.
In October 1996, the Company sold radio station KTCK-AM, Dallas,
Texas pursuant to the Dallas Disposition.
In November 1996, the Company acquired Multi-Market Radio, Inc.
("MMR"), a radio broadcasting company which owned and operated, provided
programming to or sold advertising on behalf of sixteen 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, South Carolina and Little
Rock, Arkansas pursuant to the MMR Merger. Prior to the merger, MMR had
entered into agreements to sell two stations operating in Myrtle Beach, South
Carolina and one station operating in Little Rock, Arkansas. MMR had also
chosen 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.
In December 1996, the Company acquired WHSL-FM operating in
Greensboro, North Carolina pursuant to the Greensboro Acquisition.
Also, in December 1996, the Company exchanged the assets of KRLD-AM,
operating in Dallas, Texas, along with the Texas State Networks for the assets
of KKRW-FM operating in Houston, Texas pursuant to the Houston Exchange.
The Charlotte Acquisition, the Greenville Acquisition, the
Raleigh-Greensboro Acquisition, the Prism Acquisition, the Louisville
Disposition, the Liberty Acquisition, the Washington Dispositions, the Jackson
Acquisitions, the Dallas Disposition, the MMR Merger, the Greensboro
Acquisition and the Houston Exchange are collectively herein referred to as
the "1996 Acquisitions and Dispositions."
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1997 Acquisitions and Dispositions: Radio Broadcasting. In
January 1997, the Company purchased one radio station operating in
Albany, New York, (the "Albany Acquisition").
In February 1997, the Company acquired two radio stations in Houston,
Texas (the "Houston Acquisition").
Also, in February 1997, the Company consummated the acquisition of
radio station WWYZ-FM in Hartford, Connecticut (the "Hartford Acquisition").
In March 1997, the Company exchanged one radio station operating in
Washington, D.C./Baltimore, Maryland, for two radio stations operating in
Dallas, Texas (the "CBS Exchange") and completed the sale of two radio
stations operating in the Myrtle Beach, South Carolina market (the "Myrtle
Beach Disposition"). The CBS Exchange was structured as a substantially tax
free exchange of like kind assets. The contract for sale of the Myrtle Beach
stations was in place prior to the merger with MMR. No gain or loss was
recognized on these transactions as the assets were recently acquired.
In April 1997 the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications Limited Partnership ("Secret
Communications") (the "Secret Communications Acquisition").
Also in April 1997, the Company sold one radio station operating in
Little Rock, Arkansas (the "Little Rock Disposition") to Triathlon
Broadcasting Company ("Triathlon"), a related party. The contract for this
sale was in place prior to the merger with MMR. No gain or loss was recorded
on the transaction as the assets were recently acquired.
In July 1997, the Company acquired substantially all of the assets of
four radio stations operating in Richmond, Virginia for approximately $46.5
million, including payments made to buy out minority equity interests which
the Company had originally agreed to provide to certain of the sellers (the
"Richmond Acquisition").
In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two in Milwaukee, Wisconsin for $35.0 million
(the "Hearst Acquisition").
In August 1997, the Company also exchanged one radio station in
Pittsburgh, Pennsylvania, which the Company had recently acquired from Secret
Communications, and $20.0 million in cash for one radio station in Charlotte,
North Carolina (the "Charlotte Exchange"). The Company operated the one radio
station in Charlotte, North Carolina pursuant to a local marketing agreement
during July 1997.
Concert Promotion. In January 1997, the Company purchased
Delsener/Slater Enterprises, Ltd ("Delsener/Slater"), a concert promotion
company based in New York City (the "Delsener/Slater Acquisition").
In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows Music Theater in
Hartford, Connecticut (the "Meadows Acquisition").
In June 1997, the Company acquired Sunshine Promotions, Inc., a
concert promotion company based in Indianapolis, Indiana, and certain related
companies (the "Sunshine Promotions Acquisition").
As of September 30, 1997, the combined concert promotion entities of
the Company had current assets of $13.5 million, total assets of $129.4
million, current liabilities of $7.2 million and long-term debt of $20.6
million.
The Albany Acquisition, the Houston Acquisition, the Hartford
Acquisition, the CBS Exchange, the Myrtle Beach Disposition, the Secret
Communications Acquisition, the Little Rock Disposition, the Richmond
Acquisition, the Hearst Acquisition, the Charlotte Exchange,
Delsener/Slater Acquisition, the Meadows Acquisition, and the Sunshine
Promotions Acquisition, are collectively herein referred to as the "1997
Acquisitions and Dispositions".
Results for the three and nine months ended September 30, 1996
included WLYT-FM and WKKT-FM (formerly 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; and WHSL-FM in Greensboro, North Carolina for which
the Company had sold advertising pursuant to a JSA beginning in the first
quarter of 1996. Results for the three and nine months ended September 30,
1997 included WAPE-FM and WFYV-FM, Jacksonville, Florida (the "Jacksonville
Stations") for which the Company had provided programming and sold advertising
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time pursuant to an LMA since July 1, 1996. Results for the three and nine
months ended September 30, 1997 also include the results for WRFX-FM in
Charlotte, North Carolina for which the Company had provided programming and
sold advertising time pursuant to an LMA during July 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
The Company's total net revenue increased 171% to $122.9 million from
$45.3 million, for the three months ended September 30, 1997 ("1997 quarter")
and 1996 ("1996 quarter"), respectively, primarily as a result of the 1996
Acquisitions and Dispositions and the 1997 Acquisitions and Dispositions
(collectively the "Recent Acquisitions") which increased net revenues $75.1
million, including $44.8 million of concert promotion revenue. In addition,
the net revenue at existing stations increased as a result of strong radio
advertising, combined with improved inventory management, ratings and other
factors generally affecting sales and rates. On a same station basis, assuming
all radio stations owned and operated as of September 30, 1997 were owned for
the periods reported, net radio broadcasting revenue would have increased
approximately 12% from the 1996 quarter.
Radio station operating expenses increased 65% to $46.7 million in
the 1997 quarter from $28.3 million in the 1996 quarter primarily due to the
inclusion of expenses of $17.7 million related to the Recent Acquisitions as
discussed above and increased expenses at the Company's existing stations
primarily related to higher variable costs resulting from the increase in net
revenues. In addition, $35.6 million of concert promotion operating expenses
were recorded in the 1997 quarter.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 123% to $13.4 million from $6.0 million in the 1996
quarter due to the inclusion of $6.8 million of depreciation and amortization
related to the Recent Acquisitions and increased amortization related to debt
issuance costs.
Corporate, general and administrative expenses were $2.5 million and
$1.7 million for the 1997 quarter and 1996 quarter, respectively. The increase
reflects the growth in the Company's overall operations and its contractual
obligation to perform services for Triathlon. As a percent of total net
revenue, corporate general and administrative expense declined from 3.7% to
2.0% from the comparable prior year period. The 1997 quarter corporate,
general and administrative expenses are net of $483,000 of fees from
Triathlon.
Operating income was $6.6 million for the 1997 quarter as compared to
operating income of $9.3 million for the 1996 quarter due to the results
discussed above. In addition, the 1997 quarter also included $18.0 million of
non-recurring and unusual charges, including amounts related to the pending
Spin-Off and Merger, which consisted of $11.6 million of executive bonuses,
the establishment of a reserve for a loan from the Company's Executive
Chairman of $2.6 million and $3.8 million of primarily legal and professional
fees associated with the transaction.
Interest expense, net of investment income, increased 68% to $18.3
million from $11.0 million in the 1996 quarter, primarily as a result of
borrowings under the Company's Credit Agreement.
The Company recorded state income tax expense of $240,000 in the 1997
quarter and no federal or state income tax benefit or expense for the 1996
quarter. The Company did not recognize a federal tax benefit for losses for
the three months ended September 30, 1997 and 1996 periods based upon the
expectation of recording a full valuation allowance for the full year loss,
prior to giving effect to the pending acquisitions.
The Company's net loss was $12.0 million for the 1997 quarter
compared to a net loss of $2.2 million for the 1996 quarter due to the factors
discussed above.
Net loss applicable to common stock increased to $21.9 million in the
1997 quarter from $4.8 million in the 1996 quarter due to the increase in the
net loss and dividends related to the Company's 12 5/8% Series E Cumulative
Exchangeable Preferred Stock (the "Series E Preferred Stock") issued in
January 1997.
Broadcast Cash Flow increased 85% to $31.4 million for the 1997
quarter from $17.0 million for the 1996 quarter. The increase was a result of
the inclusion of cash flow from the Recent Acquisitions of $12.6 million as
well as $1.8 million of improved results at the Company's existing stations.
On a same station basis, assuming all radio stations were owned and operated
as of September 30, 1997 were owned for the periods reported, Broadcast Cash
Flow from radio stations would have increased approximately 19% from the 1996
quarter.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
The Company's total net revenue increased 198% to $264.7 million from
$92.8 million, for the nine months ended September 30, 1997 and 1996,
respectively, primarily as a result of the Recent Acquisitions which increased
net revenues $91.3 million, including $75.7 million of concert promotion
revenue. In addition, the net revenue at existing SFX stations increased as a
result of strong radio advertising, combined with improved inventory
management, ratings and other factors generally affecting sales and rates. On
a same station basis, assuming all radio stations owned and operated as of
September 30, 1997 were owned for the periods reported, net radio broadcasting
revenue would have increased approximately 10% from the nine months ended
September 30, 1996.
Radio station operating expenses increased 89% to $115.9 million for
the nine months ended September 30, 1997 from $61.4 million for the nine
months ended September 30, 1996 primarily due to the inclusion of expenses of
$52.9 million related to the Recent Acquisitions as discussed above and $1.5
million of increased expenses at the Company's existing stations primarily
related to increased advertising and promotion costs and higher variable costs
resulting from the increase in net revenues. In addition, $63.4 million of
concert promotion operating expenses were recorded in the nine months ended
September 30, 1997.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 195% to $31.4 million from $10.7 million in the nine
months ended September 30, 1996 due to the inclusion of $19.4 million of
depreciation and amortization related to the Recent Acquisitions and increased
amortization related to debt issuance costs.
Corporate, general and administrative expenses were $6.4 million and
$4.5 million for the nine months ended September 30, 1997 and nine months
ended September 30, 1996, respectively. The increase reflects the growth in
the Company's overall operations and its contractual obligation to perform
services for Triathlon Broadcasting Company. As a percent of total net
revenue, corporate general and administrative expense declined from 4.8% to
2.4% from the comparable prior year period. Corporate, general and
administrative expenses for the nine months ended September 30, 1997 are net
of $1.7 million of fees from Triathlon.
Operating income was $29.2 million for the nine months ended
September 30, 1997 as compared to operating loss of $11.2 million for the nine
months ended September 30, 1996 due to the results discussed above and as a
result of a decrease in non-recurring and unusual charges from $27.5 million
in 1996 to $18.0 million in 1997. The 1997 non-recurring and unusual charges,
including amounts related to the pending Spin-Off and Merger, consisted
of $11.6 million of executive bonuses, the establishment of a reserve for a
loan from the Company's Executive Chairman of $2.6 million and $3.8 million
of primarily legal and professional fees associated with the pending Spin-Off
and Merger. The 1996 non-recurring charges of $27.5 million included the
repurchase of stock from and the forgiveness of a loan to the Company's former
president, a reserve of a loan and the issuance of warrants to a related party,
the purchase of an officer's options and a charge related the termination of a
broadcast rights agreement.
Interest expense, net of investment income, increased 132% to $43.7
million from $18.8 million in the nine months ended September 30, 1997,
primarily due to interest on the $450.0 million in aggregate principal of the
Company's 10 3/4% Senior Subordinated Notes due 2006 issued in May 1996 (the
"Note Offering") and interest on borrowings under the Credit Agreement.
The Company recorded state income tax expense of $845,000 for the
nine months ended September 30, 1997 and no federal or state income tax
benefit or expense for the nine months ended September 30, 1996. The Company
did not recognize a federal tax benefit for losses for the nine months ended
September 30, 1997 and 1996 periods based upon the expectation of recording a
full valuation allowance for the full year loss, prior to giving effect to the
pending acquisitions.
The Company's net loss was $15.4 million for the nine months ended
September 30, 1997 compared to a net loss of $45.3 million for the nine months
ended September 30, 1996 was due to the factors discussed above and a $15.2
million extraordinary loss on debt retirement recorded in 1996.
Net loss applicable to common stock decreased to $43.1 million in the
nine months ended September 30, 1997 from $48.9 million in the nine months
ended September 30, 1996 due to the decrease in the net loss partially offset
by dividends on the Series D Preferred Stock and the Series E Preferred Stock
issued in May 1996 and January 1997, respectively.
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Broadcast Cash Flow increased 133% to $73.1 million for the nine
months ended September 30, 1997 from $31.4 million for the nine months ended
September 30, 1996. The increase was a result of the inclusion of cash flow
from the Recent Acquisitions of $38.3 million as well as $3.4 million of
improved results at the Company's existing stations. On a same station basis,
assuming all radio stations were owned and operated as of September 30, 1997
were owned for the periods reported, Broadcast Cash Flow from radio would have
increased approximately 22% from the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's principal need for funds has historically been to fund
the acquisition of radio stations, including related working capital needs
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 offerings of equity and
debt securities, borrowings under credit agreements and, to a significantly
lesser extent, cash flows from operations.
Statement of Cash Flows. Net cash used in operations for the nine
months ended September 30, 1997 was $3.4 million as compared to cash used in
operations of $18.8 million for the nine months ended September 30, 1996. The
decrease in 1997 as compared to 1996 was primarily attributable to improved
Broadcast Cash Flow and the greater cash impact of the non-recurring changes
incurred in 1996.
Net cash used in investing activities for the nine months ended
September 30, 1997 was $492.3 million as compared to cash used in investing
activities of $442.8 million for the nine months ended September 30, 1996.
Cash used in investing activities in 1997 related primarily to the Secret
Communications, Delsener/Slater, Sunshine, Hearst, Richmond, Charlotte,
Albany, Houston, Hartford and Meadows Acquisitions. Cash used in investing
activities in the 1996 related primarily to the Liberty, Prism, Jackson,
Charlotte, Greenville and Raleigh-Greensboro Acquisitions.
Net cash provided by financing activities for the nine months ended
September 30, 1997 was $485.3 million as compared to cash provided by
financing activities of $489.8 million for the nine months ended September 30,
1996. For the nine months ended September 30, 1997, cash provided by financing
activities related primarily to $215.3 million of proceeds from the Company's
public offering of its Series E Preferred Stock in January 1997 (the "Series E
Preferred Stock Offering") and $285.2 million of net borrowings under the
Company's $400.0 million Senior Credit facility, as amended (the "Credit
Agreement"), partially offset by the payment of dividends on preferred stock.
The net cash provided by financing activities in 1996 was primarily due to the
proceeds of the Note Offering and the Series D Preferred Stock Offering.
1996 Acquisitions and Dispositions. During 1996 the Company completed
the Charlotte Acquisition ($21.5 million), the Greenville Acquisition ($14.3
million), the Raleigh-Greensboro Acquisition ($37.3 million), the Jackson
Acquisitions ($6.7 million), the Prism Acquisition ($106.7 million), the
Liberty Acquisition ($240.7 million), the Greensboro Acquisition ($6.7
million) and the MMR Merger (net cash of $55.4 million). In addition, the
Company received $18.5 million, $25.0 million and $13.4 million for the
Louisville Dispositions, the Washington Dispositions and the Dallas
Disposition, respectively.
The primary sources of funds for the Charlotte Acquisition were
proceeds from the Company's 1995 Public Offering of Common Stock (the "1995
Stock Offering") and funds available under the Company's senior secured credit
facility for borrowings of up to $50.0 million (the "Old Credit Agreement").
The Greenville Acquisition, Raleigh-Greensboro Acquisition, Jackson
Acquisitions, Prism Acquisition, Liberty Acquisition and Greensboro
Acquisition were primarily funded with proceeds from the Note Offering and the
Series D Preferred Stock Offering. The MMR Merger was funded primarily with
proceeds from the Note Offering, the Series D Preferred Stock Offering and the
Credit Agreement.
In December 1996, the Company loaned to ABS Communications, LLC
("ABS") $14.5 million to finance the purchase by ABS of two radio stations
operating in Richmond, Virginia in connection with the Richmond Acquisition.
The Company has also paid a $2.0 million deposit to ABS pursuant to its
agreement to purchase substantially all of ABS. The primary source of funds
for this loan was borrowings under the Credit Agreement.
1997 Acquisitions and Dispositions. In 1997, the Company consummated
the Delsener/ Slater Acquisition ($23.6 million plus $4.0 million of deferred
payments), the Albany Acquisition ($1.0 million), the Hartford Acquisition
($25.9 million),the Houston Acquisition ($42.9 million plus certain contingent
payments of up to $750,000), the Meadows Acquisition ( $0.9 million in cash,
shares of SFX Class A Common Stock with a value of approximately $7.5 million
and
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the assumption of approximately $15.4 million of debt), the Secret
Communications Acquisition ($255.0 million), the Sunshine Promotions
Acquisition ($53.9 million cash plus $2.0 million in deferred payments, shares
of Class A Common Stock with a value of approximately $4.0 million and the
assumption of $1.6 million of debt), the Richmond Acquisition ($46.5 million
cash plus $0.6 million in deferred payments),and the Hearst Acquisition ($35.0
million). The primary source of funds for these acquisitions was proceeds from
the Series E Preferred Stock Offering and the Credit Agreement.
In 1997, the Company also completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable
in installments over a five year period (present value of approximately $4.3
million) and one radio station operating in Little Rock, Arkansas for $4.1
million, of which $3.5 million had been held as a deposit.
In addition, the Company exchanged one radio station in Pittsburgh,
Pennsylvania, which the Company recently acquired from Secret Communications
and $20.0 million in cash for one radio station in Charlotte, North Carolina.
The primary source of funds for these acquisitions was proceeds from the
Credit Agreement.
Pending Acquisitions and Dispositions. Pursuant to separate
agreements, the Company has agreed to: (i) exchange four radio stations owned
by the Company and located on Long Island, New York, for two radio stations
operating in Jacksonville, Florida, where the Company currently owns four
stations, and a cash payment of $11.0 million (the "Chancellor Exchange");
(ii) acquire three radio stations operating in Nashville, Tennessee, where the
Company currently owns two radio stations, for $35 million (the"Nashville
Acquisition"); (iii) sell six stations in Jackson, Mississippi and two
stations in Biloxi, Mississippi for a minimum consideration of $60.0 million
(the "Jackson and Biloxi Disposition"); and (iv) sell one recently acquired
radio station in Richmond, Virginia for $4.5 million (the "Richmond
Disposition"). The aggregate proceeds to be received from these transactions,
net of acquisitions, is approximately $40.5 million, of which the Company has
deposited $2.0 million in escrow to secure its obligations under these
agreements. The Company expects to record a pre-tax gain of approximately
$20.0 million on the Jackson and Biloxi Disposition. The Company does not
expect to record a gain or loss on the other transactions.
The Company anticipates that it will consummate all of the pending
acquisitions and dispositions as follows:
<TABLE>
<CAPTION>
CASH (PURCHASE) SALE ANTICIPATED DATE OF
TRANSACTION PRICE (1) (IN MILLIONS) CONSUMMATION
<S> <C> <C>
Jackson and Biloxi Disposition 60.0 1st quarter 1998
Richmond Disposition 4.5 1st quarter 1998
Nashville Acquisition (35.0) 1st quarter 1998
Chancellor Exchange 11.0 3rd quarter 1998
</TABLE>
(1) Represents the gross cash sales or purchase price for the corresponding
transaction. Certain of these amounts do not reflect amounts advanced or
placed in escrow.
The timing and completion of each of the above pending transactions
are subject to a number of closing conditions, certain of which are beyond the
Company's control. The pending acquisition, exchange and dispositions are
subject to the approval of the Federal Communications Commission and the
Company's lenders. Additionally, the Department of Justice Antitrust Division
has indicated its intention to review matters related to the concentration of
ownership within markets even when the ownership in question is in compliance
with the provisions of the Telecom Act. In November 1997, the Department of
Justice brought suit alleging that the Chancellor Exchange is likely to
reduce competition. The complaint requests permanent injunctive relief
preventing the consummation of the acquisition of the Long Island stations by
Chancellor. The Company intends to defend the suit vigorously. While the
Company believes that each of the pending acquisitions and the pending
dispositions does not substantially lessen competition, there can be no
assurance that the Department of Justice will not prevail in its suit
challenging the Chancellor Exchange or will not take a contrary position with
respect to the other pending acquisitions and dispositions, which could delay
or prevent the consummation of any of the pending acquisitions or require the
Company to restructure its ownership in the relevant market or markets.
The pending acquisitions will be accounted for using the purchase
method of accounting and the intangible assets created in the purchase
transactions will be amortized against future earnings. The amount of such
amortization will be
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substantial and 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.
The Merger agreement places certain restrictions on the conduct of
business by the Company, including a restriction against any future radio
stations acquisitions or dispositions (other than the pending acquisition and
dispositions). However, pursuant to the merger agreement, the Company is
permitted to acquire businesses related to its concert promotion and venue
operation business, which the company intends to Spin-Off prior to the Merger.
The Company is currently negotiating with respect to substantial acquisitions
in the concert promotion and venue operation business, certain of which may be
consummated prior to the Spin-Off.
Prior to the completion of the pending Merger and Spin-Off, the
Company expects to incur additional professional fees and other expenses
related to the transactions. In addition, the Company intends to call the
250,838 shares of Class A Common Stock (the "Meadows Shares") issued in
connection with Meadows Acquisition for an aggregate purchase price of $8.3
million prior to the Merger.
Capital expenditures totaled $12,683,000 in the nine months ended
September 30, 1997 as compared to $1,769,000 in the nine months ended
September 30, 1996. Capital expenditures in 1997 included cash paid for
building, computer equipment, leasehold improvements, broadcasting equipment
and general operating equipment. The Company expects that capital expenditures
in 1997 will substantially exceed historical levels due to the overall growth
of the Company, one time costs associated with consolidating newly acquired
radio stations into common facilities with existing stations and capital
expenditures requirements of the Company's new concert promotion business.
Sources of Liquidity. As of September 30, 1997, the Company's cash
and cash equivalents totaled $18.5 million representing 1.3% of assets. As of
November 10, 1997, $94 million remained available under the Credit Agreement.
Borrowings under the Credit Agreement may be used to finance permitted
acquisitions, for working capital and general corporate purposes, and for
letters of credit up to $20.0 million. The facility converts into a five-year
term loan on March 31, 2000, with repayment due in quarterly installments
commencing December 31, 1998, and with the final payment due June 30, 2005.
The principal will be amortized by 18% in 2000, 18% in 2001, 18% in 2002, 18%
in 2003, 18% in 2004 and 10% in 2005. Interest on the funds borrowed under the
Credit Agreement is based on a floating rate selected by the Company of either
(i) the higher of (a) the Bank of New York's prime rate and (b) the federal
funds rate plus 0.5%, plus a margin which varies from 0.125% to 1.0%, based on
the Company's then-current leverage ratio, or (ii) the LIBOR rate plus a
margin which varies from 0.5% to 2.25%, based on the Company's then-current
leverage ratio. The Company must prepay certain outstanding borrowings in
advance of their scheduled due dates in certain circumstances. The Company
must also pay annual commitment fees of 0.375% of the unutilized total
commitments under the Credit Agreement. The Company's obligations under the
Credit Agreement are secured by substantially all of its assets, including
property, stock of subsidiaries and accounts receivable, and are guaranteed by
the Company's subsidiaries.
The Company may require financing in addition to cash on hand in
order fund to the Nashville Acquisition, fund any additional acquisitions in
the concert promotion business, purchase the Meadows Shares, finance capital
expenditures and fund working capital requirements. The Company anticipates
obtaining such financing through borrowings under the Credit Agreement,
proceeds from the Jackson and Biloxi Disposition, the Richmond Disposition and
the Chancellor Exchange and the issuance of additional debt and/or equity. The
Credit Agreement prohibits the Company from utilizing funds available
thereunder unless the Company meets certain specified financial tests, such as
maximum leverage, senior leverage ratios and pro forma interest expense. The
ability of the Company to meet such tests is dependent on the cash flow of the
Company, giving effect to the consummation of the acquisitions and
dispositions of the Company. In addition, the availability of additional
acquisition financing, depending on its terms, could be restricted by the
terms of the Credit Agreement, the debt incurrence test under the Note
Indenture, the Series D Preferred Stock and/or the Series E Preferred Stock.
At the time of the Spin-Off, the Spin-Off Company will repay to the Company
any amounts used by the Spin-Off Company in connection with acquisitions or
capital improvements and will assume all liabilities and obligations related
to such company's business. There can be no assurance that the Company will be
able to consummate the pending dispositions of the Chancellor Exchange, will
have adequate borrowing capacity under the Credit Agreement or will be able to
obtain additional financing on terms acceptable or the Company or at all.
The Company's ability to make scheduled payments of principal, to pay
interest on or to refinance its debt (including the Notes and the Company's
borrowings under the Credit Agreement), to make dividend payments on the
Series D Preferred Stock and the Series E Preferred Stock and to redeem the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock depends on its future financial performance, which, to a
certain extent, is subject to general economic,
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<PAGE>
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 these stations into the Company's operations. The Company's
borrowings under the Credit Agreement will be, and other future borrowings may
be, at variable rates of interest, which will result in higher interest
expense in the event of increases in interest rates. There can be no assurance
that the Chancellor Exchange, the Richmond Disposition or the Jackson and
Biloxi Disposition will be consummated, that the Company will be able to
borrow under the 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 working capital borrowings
will be available in an amount to enable the Company to service its debt, to
make dividend and redemption payments and to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of the Notes, or the aggregate liquidation preference of the
Series E Preferred Stock and the Series D Preferred Stock prior to their
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.
Interest and Dividends. The Company pays interest on the $450.0
million 10 3/4% Senior Subordinated Notes due 2006 semi-annually on May 15 and
November 15. The interest incurred under the Credit Agreement is paid as each
short-term borrowing matures. The Company's current LIBOR based rate loans
mature in one to three months. As of November 10, 1997 the Company had
outstanding borrowings under the Credit Agreement of $306.0 million and the
average interest rate on these borrowings approximated 7.7%. Dividends on the
$225.0 million Series E Preferred Stock accrue at the rate of 12.625% per
annum and are payable in cash or additional shares of Series E Preferred Stock
on January 15 and July 15 of each year. Dividends may be paid, at the
Company's option, through January 15, 2000, in cash or additional shares of
Series E Preferred Stock. On July 15, 1997, the Company elected to pay a cash
dividend. Dividends on the $149.5 million Series D Preferred Stock accrue at
the rate of 6.5% per annum and are payable on February 28, May 31, August 31
and November 30 of each year. The Company paid $1.0 million in November 1997
to redeem the outstanding shares of Series B Preferred Stock. The $2.0 million
Series C Preferred Stock accrues dividends at the rate of 6.0% per annum which
are payable on January 1, April 1, July 1, and October 1 of each year.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 29, 1997, two lawsuits were commenced against the Company
and its directors in the Court of Chancery of the State of Delaware (New
Castle County). Plaintiffs in the lawsuits are Harbor Finance Partners (C.A.
No. 15891) and Steven Lieberman (C.A. No. 15901). The complaints are identical
and allege that the consideration to be paid as a result of the Merger to the
holders of Class A Common Stock is unfair and that the individual defendants
have breached their fiduciary duties. Both complaints seek to have the actions
certified as class actions and seek to enjoin the Merger, or, in the
alternative, seek monetary damages. The defendants have filed answers denying
the allegations and discovery has commenced. While the lawsuits seeks, among
other things, injunctive relief, counsel has advised the Company that it is
unlikely that the plaintiffs will obtain relief which would materially delay
consummation of the Merger. The Company and its directors will defend both
lawsuits vigorously.
On November 6, 1997, the Department of Justice brought suit in the
United States District Court for the Eastern District of New York against
Chancellor Media Company, Inc. and the Company, alleging that the proposed
acquisition by Chancellor of four Long Island stations owned by the Company is
"likely to reduce competition substantially for radio advertising time for
coverage of Suffolk County in violation of the Clayton and Sherman Acts." The
Company's Long Island stations are currently being operated by Chancellor
pursuant to a Local Marketing Agreement ("LMA"). The Complaint requests
injunctive relief preventing the consummation of the acquisition and
an order terminating the LMA within 30 days after such injunction. While the
Merger is subject to independent review by the Justice Department, the Justice
Department has publicly taken the position that the Merger will not be linked
to this case. The defendants have not answered and there have been no other
proceedings to date. The Company intends to defend the suit vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to Form 8-K (Commission File No. 0-22486)
filed with the Commission on November 27, 1996).
3.2 By-laws, as amended (incorporated by reference to Exhibit 3.1 to
Form 8-K (Commission File No. 0-22486) filed with the Commission on
November 27, 1996).
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<PAGE>
10.1 Third Amended and Restated Credit Agreement, dated as of June 23,
1997, among SFX Broadcasting, Inc., the subsidiaries of SFX
Broadcasting, Inc. the subsidiaries of SFX Broadcasting, Inc. from
time to time parties thereto, The Bank of New York, individually and
as agent for the lenders, and the lenders from time to time parties
thereto (incorporated by reference to Exhibit 10.1 to Form 8-K
(Commission File No. 0-22486) filed with the Commission on July 11,
1997).
10.2 Agreement and Plan of Merger, dates as of August 24, 1997, among SBI
Holding Corporation, SBI Radio Acquisition Corporation and SFX
Broadcasting, Inc. (incorporated by reference to Exhibit 2.1 to Form
8-K (Commission File No. 0-22486) filed with the Commission on
August 26, 1997).
10.3 Stockholder Agreement, dates as of August 24, 1997, among SBI
Holding Corporation, SBI Radio Acquisition Corporation, Robert F.X.
Sillerman and SFX Broadcasting, Inc. (Commission File No. 0-22486)
filed with the Commission on August 26, 1997).
10.4 Consulting, Non-Compete and Termination Agreement, dated as of
August 24, 1997, among SBI Holding Corporation, SFX Broadcasting,
Inc. and Robert F.X. Sillerman.
10.5 SFX Broadcasting, Inc. Director Deferred Stock Ownership Plan.
11. Statement regarding Calculation of Per Share Earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
On July 11, 1997, the Company filed a Form 8-K under Item 5 (Other
Events) thereof, disclosing (i) the unaudited condensed pro forma combined
financial statements of the Company, (ii) an increase in the amount of the
Company's senior revolving credit facility to $400.0 million and a reduction
of the applicable interest rate on borrowings thereunder and (iii) the
acquisition of substantially all of the assets of Sunshine Promotions, Inc.
one of the largest concert promoters in the Midwest, and certain other related
entities.
On August 26, 1997, the Company filed a Form 8-K under Item 5 (Other
Events) thereof, disclosing the execution of a definitive merger agreement
with SBI Holding Corporation and SBI Radio Acquisition, pursuant to which the
Company will become a wholly-owned subsidiary of SBI Holding Corporation. In
connection with the merger agreement, the Company also entered into a
Stockholder Agreement with SBI Holding Corporation, SBI Radio Acquisition
Corporation and Robert F.X. Sillerman, pursuant to which Mr. Sillerman has
agreed to vote his shares of the Company's common stock in favor of the Merger
and against any competing transaction.
22
<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, 1997
By: \s\Howard J. Tytel
-----------------------------------
Howard J. Tytel
Executive Vice President and
Secretary
Date: November 14, 1997
By: \s\Thomas P. Benson
-----------------------------------
Thomas P. Benson
Chief Financial Officer and
Treasurer
23
<PAGE>
CONSULTING, NON-COMPETE AND TERMINATION AGREEMENT
THIS CONSULTING, NON-COMPETE AND TERMINATION AGREEMENT (this
"Agreement"), dated as of August 24, 1997, is made and entered into by and
among SBI Holding Corporation, a Delaware corporation ("Parent"), SFX
Broadcasting, Inc., a Delaware corporation (the "Company"), and Robert F. X.
Sillerman ("Executive").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, SBI Radio Acquisition
Corporation, a Delaware corporation ("Sub"), and the Company are entering into
an Agreement and Plan of Merger (as such agreement may hereafter be amended
from time to time, the "Merger Agreement"; capitalized terms used and not
otherwise defined herein have the respective meanings ascribed to them in the
Merger Agreement), pursuant to which Sub will be merged with and into the
Company (the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that Executive agree, and Executive has agreed,
to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT AGREEMENT. Executive hereby represents and warrants
that his employment relationship with the Company is pursuant to and governed
by the Amended and Restated Employment Agreement dated as of January 1, 1997,
as modified by that certain letter agreement of August 22, 1997, each by and
between the Company and Executive (collectively referred to as the "Employment
Agreement"). A true and correct copy of the Employment Agreement and the
Amendment are respectively attached hereto as Annex I and Annex II.
2. TERMINATION OF EMPLOYMENT AGREEMENT. Effective as of the Effective
Time (a) Executive hereby tenders his resignation as an officer and director
of the Company and each of its subsidiaries, and (b) the Employment Agreement
shall be terminated in full without any further action on the part of the
Company or Executive. Except as expressly provided for in this Agreement, from
and after the date of termination of the Employment Agreement, Executive shall
not be entitled to receive any further wages, compensation, stock options
provided in Section 7 of the Employment Agreement or benefits arising pursuant
to the Employment Agreement (other than the compensation payable to Executive
under Section 13.4 of the Employment Agreement upon termination of employment
as set forth in Section 13.4, including the stock options contemplated by
Sections 13.3 and 13.4) or his employment relationship with the Company or any
of its subsidiaries and Executive shall not be entitled to any
post-termination wages, compensation or benefits (including, without
limitation, severance pay, vacation pay or sick pay), except as expressly
provided in Section 4(a).
3. Intentionally omitted.
<PAGE>
4. RELEASE OF CLAIMS.
(a) RELEASE BY EXECUTIVE. Effective as of the Effective
Time, Executive hereby releases and discharges the Released Parties from all
Claims and Damages, including those related to, arising from, or attributed to
(i) his employment with, and membership on the Boards of Directors for, the
Company and its subsidiaries and resignations therefrom, (ii) the Employment
Agreement including, without limitation, the right to receive options for
shares of Common Stock under the terms of the Employment Agreement, and (iii)
all other acts or omissions related to any matter at any time prior to and
including the date of termination of the Employment Agreement; except that
this release shall not include Executive's (A) entitlement to continued group
medical coverage in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), (B) vested account balances in the
Company employee benefit plans and rights under option agreements, warrants or
stock appreciation rights outstanding as of the date hereof or issued prior to
the Effective Time as permitted in the Merger Agreement, in each case as
described in Annex III attached hereto, (C) rights with respect to shares of
capital stock of the Company (as listed on Annex III attached hereto) or
arising under the Merger Agreement, including the rights set forth in Section
5.04 thereof, (D) rights of Executive arising under this Agreement, (E) rights
of Executive under that certain Stockholders Agreement of even date herewith,
(F) rights of Executive arising under the Merger Agreement and any of the
other Transaction Documents, (G) accrued and unpaid salary and expenses
incurred by Executive in respect of the period prior to the Effective Time,
(H) cash compensation payable to Executive under the Employment Agreement upon
a termination of employment as provided in Section 13.4 of the Employment
Agreement, including the stock options contemplated by Sections 13.3 and 13.4
or (I) options to purchase 25,000 shares of Class A Common Stock as
contemplated in Section 13.4 of the Employment Agreement. Executive
understands and expressly agrees that, unless specifically excluded from this
release, this release extends to all Claims and Damages of every nature and
kind, known or unknown, suspected or unsuspected, past or present, whether or
not these Claims and Damages were set forth in any writing, and that all such
Claims and Damages are hereby expressly settled or waived. Notwithstanding the
foregoing, except as provided in Section 9(b) Executive does not release or
discharge the Company and its subsidiaries from any Claims or Damages related
to or arising from Executive's capacity as an officer or director of the
Company or its subsidiaries to which Executive is entitled to be indemnified
against or reimbursed by the Company or its subsidiaries, whether by statute,
contract or otherwise. Executive hereby represents and warrants to Parent that
pursuant to the Amendment, Executive has released any and all rights that
Executive may have to receive options pursuant to Section 13.4 of the
Employment Agreement.
(b) DEFINITIONS. As used in this Section 4, the following
terms shall have meanings set forth below:
(i) "Claims" means all theories of recovery of
whatever nature, whether known or unknown, at law or equity of any
jurisdiction, based on acts, omissions or other matters occurring on
or before the date the parties sign this Agreement. This term
includes, without limitation, lawsuits, petitions, complaints, causes
of action, charges, indebtedness, losses, claims, liabilities, and
demands, whether arising in equity or under the common law or under
any contract (including, without limitation, the Employment
Agreement), statute, regulation or ordinance. This term also
includes, without limitation, any Claim of
2
<PAGE>
discrimination (based on age or any other factor) under any statute
or law (including, without limitation, the Age Discrimination in
Employment Act, 29 U.S.C. ss. 621, et seq.; Title VII of the Civil
Rights Act of 1964, 42 U.S.C. ss. 2000e, et seq.; and the Americans
with Disabilities Act, 42 U.S.C. ss. 12101, et seq.), and all Claims
asserted by Executive, in writing or otherwise, or which could be
asserted, by Executive.
(ii) "Damages" means all elements of relief or
recovery of whatever nature, whether known or unknown, which are
recognized by the law or equity of any jurisdiction. This term
includes, without limitation, actual, incidental, indirect,
consequential, compensatory, liquidated, exemplary, and punitive
damages; rescission, attorneys' fees; interest; costs; equitable
relief; and expenses.
(iii) "Released Parties" means and includes the
Company and its subsidiaries, and all of the foregoing entities'
past, present and future shareholders, directors, officers,
employees, agents, insurance carriers, employee benefit plans (and
such plans' fiduciaries, trustees, administrators and
representatives), predecessors, successors, assigns, executors,
administrators, attorneys and representatives, in both their
corporate and individual capacities.
5. Intentionally omitted.
6. CONSULTING ARRANGEMENT.
(a) CONSULTING SERVICES. Effective as of the termination of
the Employment Agreement, the Company hereby retains Executive to render such
consulting and advisory services (the "Consulting Services") as the Company
may reasonably request from time to time during the term of the consulting
arrangement set forth in this Section 6 concerning the management or operation
of the Company (the "Consultation Period"). Executive hereby accepts such
engagement and agrees to perform such services for the Company upon the terms
and conditions set forth in this Agreement. Executive will perform the
Consulting Services at such times and places as the officer designated by the
Company, from time to time, shall reasonably request; provided, however, that
unless Executive agrees in advance, he shall not be required to (i) provide
more than 250 hours of Consulting Services in any calendar year or (ii)
provide Consulting Services if the provision of such services would require
travel beyond a 100 mile radius of New York City. The Company shall reasonably
cooperate with Executive to structure the Consulting Services in order not to
unreasonably interfere with Executive's full time employment. Consulting and
advising via telephone, facsimile transmission and correspondence, as well as
in person, shall constitute performance of Executive's services hereunder. The
Company will reimburse Executive for reasonable out-of-pocket expenses which
Executive incurs in the course of providing the Consulting Services.
Notwithstanding anything in this Agreement, Executive is an independent
contractor with authority to select the means and method of performing the
Consulting Services. Executive is not an employee or agent of the Company and
any action taken by Executive which is not authorized by this Agreement or any
other agreement between the Company and Executive will not bind the Company or
create any claim against the Company. Unless otherwise specifically authorized
by this Agreement or any other agreement between the Company and Executive,
Executive has no authority to transact any business or make any
representations or promises in the name of the Company.
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<PAGE>
(b) TERM. Unless terminated at an earlier date in accordance
with subsection (c) of this Section 6, the term of the consulting arrangement
shall expire as of the second anniversary of the Effective Time.
(c) TERMINATION OF CONSULTING ARRANGEMENT. Notwithstanding
any contrary provision contained elsewhere in this Agreement, this Section 6
of this Agreement and the consulting arrangement created hereunder between the
Company and Executive may be terminated prior to the expiration of the term
set forth in subsection (b) above by mutual agreement between the Company and
Executive. Upon a termination of this consultant arrangement, neither of the
parties hereto shall have any further duty or obligation under this Section 6
and Executive shall have no obligation to return any portion of the amount
paid to him pursuant to Section 10.
7. CONFIDENTIALITY.
(a) PROTECTION OF CONFIDENTIAL INFORMATION AND TRADE
SECRETS. Executive acknowledges that the business of the Company and its
subsidiaries is highly competitive and that their contracts, books, records,
and documents, their technical information concerning their services, pricing
techniques, and computer system and software, and the names of and other
information (such as credit and financial data) concerning their customers and
business affiliates, all comprise confidential business information and trade
secrets which are valuable, special, and unique assets which the Company and
its subsidiaries use in their business to obtain a competitive advantage over
their competitors. All such information belonging to the Company and its
subsidiaries is jointly referred to herein as "Confidential Information and
Trade Secrets"; provided, however, that Confidential Information and Trade
Secrets shall not include (i) information that is publicly available,
generally known to the industry as a whole or is not specific to the
operations and business of the Company and its subsidiaries and (ii)
information held or used in connection with the business and operations of
Triathlon Broadcasting Company and the Marquee Group, Inc. Effective as of the
Effective Time, Executive agrees that all Confidential Information and Trade
Secrets are the exclusive, confidential, and proprietary information and
property of the Company and, except as necessary to perform the Consulting
Services to be provided hereunder, will not be used by Executive for any other
purpose or in any other manner. Executive further acknowledges that protection
of such Confidential Information and Trade Secrets against unauthorized
disclosure and use is of critical importance to the Company and its
subsidiaries in maintaining their competitive position. Executive hereby
agrees that he will not make any unauthorized disclosure of any such
Confidential Information and Trade Secrets, or make any unauthorized use
thereof prior to the fifth anniversary of the date of the Effective Time. In
the event that Executive is requested pursuant to, or required by, applicable
law or regulation or by legal process to disclose any Confidential Information
and Trade Secrets, Executive agrees to provide the Company with prompt notice
of such request(s) to enable the Company to seek an appropriate protective
order; provided, however, that Executive shall not be prohibited from
complying with any such request unless an appropriate protective order is in
place.
(b) SCOPE OF PROHIBITED ACTIVITIES; REMEDIES. Executive acknowledges
that the scope of prohibited activities are reasonable and are no broader than
are necessary to protect the goodwill and legitimate business interests of the
Company and its subsidiaries. Executive also acknowledges that the provisions
of this Section 7 do not and will not impose any unreasonable burden on
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Executive. Executive further acknowledges that a violation of this Section 7
will cause irreparable damage to the Company and its subsidiaries, entitling
them to an injunction and other equitable relief in a court of competent
jurisdiction against Executive. In addition, the Company and its subsidiaries
shall be entitled to whatever other remedies they may have at law, including,
without limitation, reasonable attorneys fees and costs incurred by the
Company and its subsidiaries in enforcing the terms of this Section 7.
8. NON-COMPETITION AGREEMENT.
(a) NON-COMPETITION. Except as expressly permitted herein,
effective as of the Effective Time, Executive agrees that he shall not,
(i) until 11:59 p.m. (New York time) on the second
anniversary of the date of the Effective Time directly or indirectly
own, engage in, manage, operate, join, control, or participate in the
ownership, management, operation, or control of, or be connected as a
stockholder, director, officer, employee, agent, partner, joint
venturer, member, beneficiary, or otherwise with, any corporation,
limited liability company, partnership, sole proprietorship,
association, business, trust, or other organization, entity or
individual which in any way competes with the Company or any of its
Affiliates (which, solely for the purposes of this Section 8, shall
be deemed to include Capstar Broadcasting Corporation, Chancellor
Broadcasting Company, Evergreen Media Corporation and Chancellor
Media Corporation) in the business of owning or operating or
providing advertising or programming services for or with respect to
radio stations licensed to or having a transmitter site in any market
that the Company or any of its Affiliates is engaged in immediately
after the Effective Time (a "Competing Business"); provided, however,
that Executive will not be deemed to be in breach of this Section
8(a)(i) by (A) competing in any geographical market in which the
Company or its Affiliates no longer, at any time after the Effective
Time, owns or operates a Competing Business, (B) selling
Entertainment Business programming into a market in which the Company
or any of its Affiliates owns or operates, or provides advertising or
programming services for or with respect to, a Competing Business,
(C) engaging in joint promotions with radio stations in a market in
which the Company or any of its Affiliates owns or operates or
provides advertising or programming services for or with respect to a
Competing Business, or (D) owning an interest in an entity that
participates, or otherwise participating, in the Entertainment
Business (including, but not limited to, Delsener/Slater Holdings and
its subsidiaries), so long as such Entertainment Business does not
own or operate, or provide advertising or programming (except as
expressly provided in clause (B) above) for or with respect to, a
Competing Business; and provided further, that Executive may own,
directly or indirectly, securities of any entity traded on any
national securities exchange or listed on the National Association of
Securities Dealers Automated Quotation System that is a Competing
Business if Executive does not, directly or indirectly, own 10% or
more of any class of equity securities, or securities convertible
into or exercisable or exchangeable for 10% or more of any class of
equity securities, of such entity; and
(ii) from 11:59 p.m. (New York time) on the second
anniversary of the date of the Effective Time until 11:59 p.m. (New
York time) on the fifth anniversary of the
5
<PAGE>
date of the Effective Time directly or indirectly own, engage in,
manage, operate, join, control, or participate in the ownership,
management, operation, or control of, or be connected as a
stockholder, director, officer, employee, agent, partner, joint
venturer, member, beneficiary, or otherwise with, any corporation,
limited liability company, partnership, sole proprietorship,
association, business, trust, or other organization, entity or
individual which in any way competes with the Company or any of its
subsidiaries in the business of owning or operating or providing
advertising or programming services for or with respect to radio
stations licensed to or having a transmitter site in any market that
the Company or any of its subsidiaries is engaged in immediately
prior to the Effective Time (a "Competing Business"); provided,
however, that Executive will not be deemed to be in breach of this
Section 8(a)(ii) by (A) competing in any geographical market in which
the Company or its subsidiaries no longer, at any time after the
Effective Time, owns or operates a Competing Business, (B) selling
Entertainment Business programming into a market in which the Company
or any of its subsidiaries owns or operates or provides advertising
or programming services for or with respect to a Competing Business,
(C) engaging in joint promotions with radio stations in a market in
which the Company or any of its subsidiaries owns or operates or
provides advertising or programming services for or with respect to a
Competing Business, or (D) owning an interest in an entity that
participates, or otherwise participating, in the Entertainment
Business (including, but not limited to, Delsener/Slater Holdings and
its subsidiaries), so long as such Entertainment Business does not
own or operate, or provide advertising or programming (except as
expressly provided in clause (B) above) for or with respect to, a
Competing Business; and provided further, that Executive may own,
directly or indirectly, securities of any entity traded on any
national securities exchange or listed on the National Association of
Securities Dealers Automated Quotation System that is a Competing
Business if Executive does not, directly or indirectly, own 10% or
more of any class of equity securities, or securities convertible
into or exercisable or exchangeable for 10% or more of any class of
equity securities, of such entity.
(b) EXCEPTIONS. Notwithstanding the foregoing, the Company
acknowledges that Executive has an ongoing relationship with Triathlon
Broadcasting Company and The Marquee Group, Inc. and their subsidiaries and
that such ongoing relationship (including, without limitation, his ownership
of securities of and service as an officer, director or consultant of such
companies or their successors) shall not be deemed to be a breach of this
Agreement.
(c) LEGAL ADVICE. Executive has obtained advice, including
advice from attorneys, accountants, or other advisers which he deems necessary
regarding this Agreement. Executive acknowledges that he fully understands
this Agreement and its legal effect and binding nature.
(d) SCOPE OF PROHIBITED ACTIVITIES; REMEDIES. Executive
acknowledges that the geographic boundaries, scope of prohibited activities,
and time duration of this Section 8 are reasonable in nature and are no
broader than are necessary to maintain the confidentiality and the goodwill of
the Company's proprietary information, plans and services and to protect the
other legitimate business interests of the Company. Executive also
acknowledges that the provisions of this Section 8 do not and will not impose
any unreasonable burden on Executive. Executive further acknowledges that
violation of this Section 8 will cause irreparable damage to the Company and
its
6
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subsidiaries, entitling them to an injunction and other equitable relief in a
court of competent jurisdiction against Executive. In addition, the Company
and its subsidiaries shall be entitled to whatever other remedies they may
have at law, including, without limitation, reasonable attorneys fees and
costs incurred by the Company and its subsidiaries in enforcing the terms of
this Section 8.
9. Intentionally omitted.
10. CONSIDERATION. Contemporaneously with the Effective Time, the
Company shall pay Executive, by wire transfer of immediately available funds
the following amounts: (a) $2 million ($2,000,000) in respect of Executive's
obligations arising under Section 6 and (b) $23 million ($23,000,000) in
respect of Executive's obligations arising under Section 8.
11. SURVIVAL. The provisions of Sections 4, 7, 8, 9 and 11 shall
survive any termination of the consulting arrangement created pursuant to
Section 6 of this Agreement.
12. RIGHT TO MATCH. In the event that the Company should give notice
under Section 7.01(c) of the Merger Agreement of its election to terminate the
Merger Agreement, then, as requested by Parent, the Company and Executive
shall, in connection with any amendment to the Merger Agreement or other
proposal made by Parent in response to such notice and that is accepted by the
Company, amend or terminate this Agreement or enter into such other agreements
or arrangements substantially similar to those as proposed to be entered into
with Executive in connection with the Superior Proposal described in such
notice; provided that such right or obligation shall only be applicable to a
Second Transaction that the Stockholder would be obligated to vote for
pursuant to that certain Stockholder Agreement by and between Stockholder, the
Company, SBI Holding Corporation and SBI Radio Acquisition Corporation.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. Executive agrees that this Agreement and
the obligations hereunder shall be binding upon his heirs, guardians,
administrators or successors.
(c) AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(d) NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail, postage
prepaid, return receipt requested) or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
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If to Executive: At the addresses set forth on signature pages hereto
Robert F. X. Sillerman
207 East 61st Street
New York, New York 10022
Telecopy: (212) 753-3973
copies to: Dornbush Mensch Mandelstam & Schaefer LLP
747 Third Avenue, 11th Floor
New York, New York 10017-2803
Telecopy: (212) 753-7673
Attn: Richard J. Schaeffer
and
Howard J. Tytel
150 East 58th Street, 19th Floor
New York, New York 10155
Telecopy: (212) 753-3188
If to the Company:
SFX Broadcasting, Inc.
150 East 58th Street
New York, New York 10155
Telecopy: (212) 753-3188
Attn: Executive Vice President
copies to: Baker & McKenzie
805 Third Avenue
New York, New York 10022
Telecopy: (212) 759-9133
Attn: Amar Budarapu
and
Morgan Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Telecopy: (212) 309-6273
Attn: Howard L. Shecter
If to Parent:
SBI Holding Corporation
200 Crescent Court, Suite 1600
Dallas, Texas 75201
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Telecopy: (214) 740-7313
Attn: Lawrence D. Stuart, Jr.
copies to: Hicks Muse Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telecopy: (214) 740-7313
Attn: Lawrence D. Stuart, jr.
and
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Telecopy: (214) 220-7716
Attn: Michael D. Wortley
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(e) SEVERABILITY. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
(f) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be entitled,
at law or in equity.
(g) REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(h) NO WAIVER. The failure of any party hereto to exercise
any right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon compliance
by any other party hereto with its obligations hereunder, and any
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custom or practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(i) NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(j) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(k) JURISDICTION. Each party hereby irrevocably submits to
the exclusive juris diction of the Court of Chancery in the State of Delaware
in any action, suit or proceeding arising in connection with this Agreement,
and agrees that any such action, suit or proceeding shall be brought only in
such court (and waives any objection based on forum non conveniens or any
other objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this paragraph (k) and
shall not be deemed to be a general submission to the jurisdiction of said
Court or in the State of Delaware other than for such purposes. Each party
hereto hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
(l) DESCRIPTIVE HEADINGS. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
(m) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same Agreement.
(n) WITHHOLDINGS. As may be appropriate, the Company shall
report the payments made hereunder by (i) filing the appropriate 1099 forms
for this amount, and (ii) making any other reports required by law.
(o) TAXES. Executive agrees to comply, on a timely basis,
with all tax reporting requirements applicable to the receipt of the payments
and other compensation received hereunder and to timely pay all taxes due with
respect to such amounts.
14. TERMINATION. This Agreement shall terminate upon the termination
of the Merger Agreement without any further action on the part of any party
hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
ROBERT F.X. SILLERMAN
/s/ Robert F.X. Sillerman
------------------------------------
SFX BROADCASTING, INC.
By: /s/ Robert F.X. Sillerman
--------------------------------
Name: Robert F.X. Sillerman
Title:Executive Chairman
SBI HOLDING CORPORATION
By:/s/ Eric Neuman
---------------------------------
Name:
-------------------------------
Title:
------------------------------
11
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SFX BROADCASTING, INC.
DIRECTOR DEFERRED STOCK OWNERSHIP PLAN
1. NAME OF PLAN. This plan shall be known as the "SFX
Broadcasting, Inc. Director Deferred Stock Ownership Plan" and is hereinafter
referred to as the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to enable
SFX Broadcasting, Inc., a Delaware corporation (the "Company"), to attract and
retain qualified persons to serve as Directors, to enhance the equity interest
of Directors in the Company, to solidify the common interests of its Directors
and stockholders, and to encourage the highest level of Director performance
by providing such Directors with an ongoing proprietary interest in the
Company's performance and progress, by crediting them annually with shares of
the Company's Class A Common Stock, par value $.01 per share (the "Common
Stock").
3. EFFECTIVE DATE AND TERM. The Plan shall be effective as
of January 1, 1997. The Plan shall remain in effect until terminated by action
of the Board, or until no shares of Common Stock remain available under the
Plan, if earlier.
4. DEFINITIONS. The following terms shall have the meanings
set forth below:
"Applicable Delivery Period" has the meaning set forth in
Section 7(b).
"Change of Control" means any of the following events:
(a) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding, for this purpose, the Company or its subsidiaries, or any employee
benefit plan of the Company or its subsidiaries, or Robert F.X. Sillerman or
any of his affiliates) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of Common Stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote generally in the
election of directors; or
(b) Individuals who, as of the date hereof, constitute the
Board of Directors (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors, provided
that any person becoming a Director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the Directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms
<PAGE>
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board; or
(c) Approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own,
directly or indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of Directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or substantially all of the
assets of the Company.
"Change of Control Consideration" means, with respect to
each share of Common Stock credited to a Deferred Stock Account, (i) the
amount of any cash, plus the value of any securities and other noncash
consideration, constituting the highest consideration per share of Common
Stock paid to any shareholder in the transaction or series of transactions
that results in a Change of Control or (ii) if no consideration per share of
Common Stock is paid to any shareholder in the transaction or series of
transactions that results in a Change of Control, the highest reported sales
price, regular way, of a share of Common Stock in any transaction reported on
the Nasdaq Stock Market or on any national exchange on which such shares are
listed during the 60-day period prior to and including the date of a Change of
Control. To the extent that such consideration consists all or in part of
securities or other noncash consideration, the value of such securities or
other noncash consideration shall be determined by the Committee in good
faith.
The "Committee" means the committee that administers the
Plan, as more fully defined in Section 12.
"Common Stock" has the meaning set forth in Section 2.
The "Company" has the meaning set forth in Section 2.
"Deferred Stock Account" means a bookkeeping account
maintained by the Company for a Director representing an unfunded and
unsecured promise to deliver the shares credited to such account pursuant to
Section 6.
"Delivery Date" has the meaning set forth in Section 7(a).
"Director" means an individual who is a member of the Board
of Directors of the Company.
The "Dividend Equivalent" for a given dividend or
distribution means the fraction of a share of Common Stock (rounded to the
nearest one-thousandth) with a value based on the closing sales price of a
share of Common Stock on the date immediately preceding the payment date for
such dividend, equal to the amount of cash, plus the fair market value on the
date of distribution
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of any property, that is distributed with respect to one share of Common Stock
pursuant to such dividend or distribution.
The "Fraction," with respect to a person who was a
Participant during part, but not all, of a calendar year, means the amount
obtained by dividing (i) the number of calendar months during such calendar
year that such person was a Participant by (ii) 12; provided, that for
purposes of the foregoing a partial calendar month shall be treated as a whole
month.
"Installment Delivery Election" has the meaning set forth in
Section 7(b).
"Participant" has the meaning set forth in Section 5.
"Plan Year" means the calendar year; provided, that the last
Plan Year with respect to a Director who ceases to be a Participant during a
calendar year, shall begin on the first day of such calendar year and end on
the day such Director ceases to be a Participant.
The "Value" of a share of Common Stock as of the last day of
a given Plan Year shall mean the closing price of a share of Common Stock on
the last trading day of such Plan Year as reported on the Nasdaq Stock Market
(or, if the Common Stock is not listed on the Nasdaq Stock Market, on any
national securities exchange on which the Common Stock is listed).
5. ELIGIBLE PARTICIPANTS. Each individual who is a Director
on January 1, 1997, and each individual who becomes a Director of, but is not
otherwise employed by the Company or any of its subsidiaries, thereafter
during the term of the Plan, shall be a participant ("Participant") in the
Plan, in each case during such period as such individual remains a Director.
6. ACCOUNTS; CREDIT OF SHARES. (a) The Company shall
maintain a Deferred Stock Account for each Participant. As part of the
compensation payable to each Participant for service on the Board, the
Deferred Stock Account of each Participant shall be credited with shares of
Common Stock as set forth in this Section 6.
(b) As of the last day of each Plan Year, the Deferred Stock
Account of each Director who was a Participant at any time during such Plan
Year shall be credited with (i) a number of shares of Common Stock having a
Value equal to Twenty Thousand Dollars ($20,000) multiplied by the applicable
Fraction; plus (ii) a number of shares equal to (A) the number of shares
credited as of that date pursuant to clause (i) multiplied by (B) the Dividend
Equivalent for each dividend paid or other distribution made with respect to
the Common Stock, the record date for which occurred during such Plan Year and
at a time when such Participant was a Participant; provided that the Deferred
Stock Account of each three Participants as of January 1, 1997 shall be
credited with six hundred and seventy-three (673) shares of Common Stock.
(c) In addition, as of the last day of each Plan Year, each
Deferred Stock Account that has not, as of such date, been delivered in full
pursuant to Section 7 shall be credited with a
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<PAGE>
number of shares equal to (i) the number of shares of Common Stock in such
Deferred Stock Account as of such date (before taking into account any amounts
that are credited as of such date pursuant to Section 6(b) above) multiplied
by (ii) the Dividend Equivalent for each dividend paid or other distribution
made with respect to the Common Stock, the record date for which occurred
during such Plan Year and at a time when such Participant was a Participant.
7. DELIVERY OF SHARES. (a) The shares of Common Stock in a
Director's Deferred Stock Account as of the date the Director ceases to be a
Director for any reason (the "Delivery Date") shall be delivered or begin to
be delivered in accordance with this Section 7 as soon as practicable after
the Delivery Date. Such shares shall be delivered at one time; provided, that
if the number of shares so credited includes a fractional share, such number
shall be rounded to the nearest whole number of shares; and provided, further,
that if the Director has in effect a valid Installment Delivery Election
pursuant to Section 7(b) below, then such shares shall be delivered in equal
yearly installments over the Applicable Delivery Period, with the first such
installment being delivered on the Delivery Date; provided, that if in order
to equalize such installments, fractional shares would have to be delivered,
such installments shall be adjusted by rounding to the nearest whole share. If
any such shares are to be delivered after the Director has died or become
legally incompetent, they shall be delivered to the Director's estate or legal
guardian, as the case may be, in accordance with the foregoing; provided, that
if the Director dies with a valid Installment Delivery Election in effect, the
Committee shall deliver all remaining undelivered shares to the Director's
estate immediately. References to a Director in this Plan shall be deemed to
refer to the Director's estate or legal guardian, where appropriate.
(b) An Installment Delivery Election means a written
election by a Participant, to receive delivery of shares of Common Stock in
installments over a period of up to four years from the Delivery Date (the
"Applicable Delivery Period"), as more fully described in paragraph (a) above.
Once made, an Installment Delivery Election may be superseded by another
Installment Delivery Election or revoked in writing by the Participant.
However, in order for any initial or superseding Installment Delivery Election
or revocation thereof to be valid, it must be received by the Committee prior
to the time that the Participant ceases to be a Director. In the case of
multiple Installment Delivery Elections and/or revocations by any Participant,
the most recent valid Installment Delivery Election or revocation in effect as
of the Delivery Date shall be controlling.
8. SHARE CERTIFICATES; VOTING AND OTHER RIGHTS. The
certificates for shares delivered to a Director pursuant to Section 7 above
shall be issued in the name of the Director, and the Director shall be
entitled to all rights of a shareholder with respect to Common Stock for all
such shares issued in his or her name, including the right to vote the shares,
and the Director shall receive all dividends and other distributions paid or
made with respect thereto.
9. GENERAL RESTRICTIONS. (a) Notwithstanding any other
provision of the Plan or agreements made pursuant thereto, the Company shall
not be required to issue or deliver any certificate or certificates for shares
of Common Stock under the Plan prior to fulfillment of all of the following
conditions:
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<PAGE>
(i) Listing or approval for listing upon official notice of
issuance of such shares on the Nasdaq Stock Market, or such other
securities exchange as such shares of Common Stock shall trade;
(ii) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
(iii) Obtaining any other consent, approval, or permit from
any state or federal governmental agency which the Committee shall,
in its absolute discretion after receiving the advice of counsel,
determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company
from adopting other or additional compensation arrangements for the
Participants.
(c) No Common Stock delivered to a Director pursuant to the
Plan may be sold until at least six months after the date that the Director
ceases to be a Director.
10. SHARES AVAILABLE. Subject to Section 11 below, the
maximum number of shares of Common Stock which may be credited to Deferred
Stock Accounts pursuant to the Plan is 50,000. Shares of Common stock issuable
under the Plan may be taken from authorized but unissued or treasury shares of
the Company or purchased on the open market.
11. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In
the event that there is, at any time after the Board adopts the Plan, any
change in the Common Stock by reason of any stock dividend, stock split,
combination of shares, exchange of shares, warrants or rights offering to
purchase Common Stock at a price below its fair market value,
reclassification, recapitalization, merger, consolidation, spin-off or other
change in capitalization of the Company, appropriate adjustment shall be made
in the number and kind of shares or other property subject to the Plan and the
number and kind of shares or other property held in the Deferred Stock
Accounts, and any other relevant provisions of the Plan by the Committee,
whose determination shall be binding and conclusive on all persons.
(b) Without limiting the generality of the foregoing, and
notwithstanding any other provision of this Plan, in the event of a Change of
Control, the following shall occur on the date of the Change of Control (the
"Change of Control Date"): (i) the last day of the then current Plan Year
shall be deemed to occur on the Change of Control Date; (ii) the Deferred
Stock Accounts shall be credited with shares of Common Stock pursuant to
Section 6 above, as if, for this purpose, the Participants ceased to be
Participants on the Change of Control Date; (iii) the Company shall
immediately pay to each Director in a lump sum the Change of Control
Consideration multiplied by the number of shares of Common Stock held in each
Director's Deferred Stock Account immediately
- 5 -
<PAGE>
before such Change of Control (including shares of Common Stock credited to
each Directors Deferred Stock Account pursuant to clause (ii) above); and (iv)
the Plan shall be terminated.
(c) If the shares of Common Stock credited to the Deferred
Stock Accounts are converted pursuant to this Section 11 into another form of
property, references in the Plan to the Common Stock shall be deemed, where
appropriate, to refer to such other form of property, with such other
modifications as may be required for the Plan to operate in accordance with
its purposes. Without limiting the generality of the foregoing, references to
delivery of certificates for shares of Common Shares shall be deemed to refer
to delivery of cash and the incidents of ownership of any other property held
in the Deferred Stock Accounts.
12. ADMINISTRATION; AMENDMENT. (a) The Plan shall be
administered by a committee consisting of directors who are not eligible to
participate in the Plan (the "Committee"), which shall have full authority to
construe and interpret the Plan, to establish, amend and rescind rules and
regulations relating to the Plan, and to take all such actions and make all
such determinations in connection with the Plan as it may deem necessary or
desirable.
(b) The Board may from time to time make such amendments to
the Plan as it may deem proper and in the best interest of the Company. No
amendment to the Plan shall be made more than once in any six-month period
that would change the amount, price or timing of the grants of Common Stock
hereunder other than to comport with changes in the Internal Revenue Code of
1986, as amended, the Employee Retirement Income Security Act of 1974, as
amended, or the regulations thereunder.
(c) The Board may terminate the Plan at any time.
(d) Notwithstanding any other provision of the Plan, neither
the Board nor the Committee shall be authorized to exercise any discretion
with respect to the selection of persons to receive credits of shares of
Common Stock under the Plan or concerning the amount or timing of such credits
under the Plan, and no amendment or termination of the Plan shall adversely
affect any Director's Deferred Stock Account without that Director's express
written consent.
13. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed
to create any obligation on the part of the Board to nominate any Director for
reelection by the Company's shareholders or to limit the rights of the
shareholders to remove any Director.
(b) The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock pursuant to the Plan,
that a Director make arrangements satisfactory to the Committee for the
withholding of any taxes required by law to be withheld with respect to the
issuance or delivery of such shares, including without limitation by the
withholding of shares that would otherwise be so issued or delivered, by
withholding from any other payment due to the Director, or by a cash payment
to the Company by the Director.
- 6 -
<PAGE>
14. GOVERNING LAW. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware.
- 7 -
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
EXHIBIT 11.1
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
Three Months Ended September 30,
1997 1996
--------------- ---------------
<S><C>
Primary and Fully Diluted:
Average shares outstanding.................................... 9,526,694 7,288,023
---------------- ----------------
Total................................................ 9,526,694 7,288,023
================ =================
Net loss .................................................... $ (11,993) $ (2,244)
Less: preferred stock dividends and accretion................. 9,926 2,584
--------------- -----------------
Net loss attributable to common shareholders.................. (21,919) (4,828)
=============== =================
Net loss per common shares.................................... $ (2.30) $ (0.66)
=============== =================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---------------- -----------------
<S> <C> <C>
Primary and Fully Diluted:
Average shares outstanding.................................... 9,364,089 7,394,238
---------------- -----------------
Total................................................ 9,364,089 7,394,238
================ =================
Net loss ..................................................... $ (15,405) $ (45,303)
Less: preferred stock dividends and accretion................. 27,723 3,551
--------------- -----------------
Net loss attributable to common shareholders.................. (43,128) (48,854)
=============== =================
Net loss per common shares.................................... $ (4.61) $ (6.61)
=============== =================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,192,000
<SECURITIES> 0
<RECEIVABLES> 71,813,000
<ALLOWANCES> 2,634,000
<INVENTORY> 0
<CURRENT-ASSETS> 97,846,000
<PP&E> 157,737,000
<DEPRECIATION> 19,267,000
<TOTAL-ASSETS> 1,392,887,000
<CURRENT-LIABILITIES> 62,899,000
<BONDS> 782,544,000
367,837,000
0
<COMMON> 99,000
<OTHER-SE> 69,455,000
<TOTAL-LIABILITY-AND-EQUITY> 1,392,887,000
<SALES> 0
<TOTAL-REVENUES> 264,724,000
<CGS> 0
<TOTAL-COSTS> 235,538,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,438,000
<INCOME-PRETAX> (14,560,000)
<INCOME-TAX> 845,000
<INCOME-CONTINUING> (15,405,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,128,000)
<EPS-PRIMARY> (4.61)
<EPS-DILUTED> 0
</TABLE>
