<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) -- June 15, 1998
REGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-15392 31-1492857
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
50 EAST RIVERCENTER BOULEVARD
SUITE 180
COVINGTON, KENTUCKY 41011
(Address of principal executive offices)
(606) 292-0030
(Registrant's telephone number, including area code)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On June 15, 1998, Regent Communications, Inc. (the "Company") acquired
control of 31 radio stations located in California, Arizona, Michigan and Ohio
through acquisitions of assets or stock for cash or by way of merger
transactions. The cash needed for these transactions was provided by bank
financing from the Company's senior credit facility with Bank of Montreal,
Chicago Branch, General Electric Capital Corporation and Bank One, Indianapolis,
NA, and by the proceeds from the sale of shares of the Company's convertible
preferred stock, most of which having full voting rights. Additional shares of
the Company's convertible preferred stock with full voting rights were issued in
the merger transactions.
Prior to these transactions, approximately 51.5% of the Company's
outstanding voting stock was held by Terry S. Jacobs. As a result of these
transactions, Mr. Jacobs now holds approximately 5.8% of the outstanding voting
stock of the Company. The Company's voting stock is now dispersed among numerous
stockholders with no single stockholder holding a majority. The Company's
largest single stockholder is Blue Chip Capital Fund II Limited Partnership
("Blue Chip"), which holds 1,702,718 shares of the Series C Convertible
Preferred Stock of the Company, representing approximately 23% of the Company's
outstanding voting stock. John H. Wyant is a beneficial owner and manager of the
general partner of Blue Chip as well as a beneficial owner and manager of the
general partner of Miami Valley Venture Fund L.P. ("Miami Valley"), which holds
300,479 shares of the Series C Convertible Preferred Stock of the Company. All
of these shares of Series C Convertible Preferred Stock were issued in exchange
for shares of common stock of Faircom Inc. in the merger of Faircom Inc. with
the Company on June 15, 1998. See Item 2 below. The Faircom Inc. common stock
was acquired by Blue Chip and Miami Valley upon conversion prior to the merger
of $7,500,000 in principal amount of subordinated notes of Faircom Inc.
Together, Blue Chip and Miami Valley hold approximately 27% of the Company's
outstanding voting stock.
The Company's next largest stockholder is Waller-Sutton Media Partners,
L.P. ("Waller-Sutton"), which purchased on June 15, 1998 1,000,000 shares of the
Series F Convertible Preferred Stock of the Company for $5,000,000 and acquired
an additional 400,640 shares of the Series C Convertible Preferred Stock of the
Company by having purchased for $1,500,000 certain subordinated notes of Faircom
Inc. which were ultimately converted into the Company's Series C Convertible
Preferred Stock in the merger of Faircom with the Company. See Item 2 below.
Waller-Sutton is managed by Waller-Sutton Management Group, Inc., of which
William H. Ingram is Chairman of the Board of Directors. Mr. Ingram holds
personally 50,000 shares of the Series F Convertible Preferred Stock of the
Company which he acquired on June 15, 1998 at $5.00 per share. These combined
holdings of Waller-Sutton and Mr. Ingram constitute approximately 19.5% of the
outstanding voting shares of the Company, not including warrants held by
Waller-Sutton and Mr. Ingram to purchase a total of 660,000 shares of the
Company's common stock for $5.00 per share. The exercise of these warrants could
increase Waller-Sutton's and Mr. Ingram's combined voting interest in the
Company to approximately 26%. Waller-Sutton and Mr. Ingram have agreed, subject
to certain conditions, to purchase an additional 1,050,000 shares of the Series
F Convertible Preferred Stock of the Company at $5.00 per share to finance
future acquisitions. Should this purchase occur, Waller-Sutton's and Mr.
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Ingram's combined voting interest in the Company, assuming exercise of their
warrants in full, could increase to approximately 30.7%.
In conjunction with these transactions, holders of approximately 82% of
the outstanding voting stock of the Company entered into a Second Amended and
Restated Stockholders' Agreement (the "Stockholders' Agreement") by which the
parties to the Stockholders' Agreement agreed to vote all of their shares for
the election of a specific group of seven individuals (to be identified from
time to time) as the Board of Directors of the Company. Initially, this group
will consist of Terry S. Jacobs, William L. Stakelin, Joel M. Fairman, William
H. Ingram, Richard Patterson, R. Glen Mayfield, and John H. Wyant, and the
voting agreements contained in the Stockholders' Agreement will assure their
election. These voting agreements are to remain in effect until the Company has
completed an underwritten public offering of the Company's common stock at not
less than $12.00 per share (equitably adjusted for any stock splits, reverse
stock splits, or stock dividends) and generating not less than $25,000,000 of
gross proceeds to the Company (excluding the effect of any over-allotment
option).
Under the terms of the Stockholders' Agreement, the Company has agreed
that, for so long as Waller-Sutton and the other purchasers of the Series F
Convertible Preferred Stock of the Company, and their permitted transferees, own
10% or more of the voting stock of the Company, the Company may not take or
permit to occur (and the parties to the Stockholders' Agreement will not consent
to, authorize or vote for) any of the following events or actions, unless such
has been approved in advance, in writing, by Waller-Sutton:
(a) any merger or consolidation of the Company with any other
entity, and any merger or consolidation of any subsidiary of the Company with
any other entity other than the Company or another wholly-owned subsidiary of
the Company;
(b) the purchase or lease by the Company or any subsidiary
thereof of any business or assets, other than the purchase or lease of assets in
the ordinary course of business (not to include the purchase or lease of any
radio broadcasting station or Federal Communications Commission ("FCC")
license), or the execution of any agreement providing for the purchase, lease,
construction or management of or in respect of radio broadcasting stations
(including time brokerage agreements and local marketing agreements and the
like);
(c) the sale of any assets of the Company or any subsidiary
thereof, or the execution of any agreement in respect thereof (other than the
sale of advertising time and excess or obsolete furniture, fixtures or equipment
in the ordinary course of business);
(d) the issuance or sale of any equity or debt securities of
the Company or any subsidiary thereof or any rights to acquire any of such
equity or debt securities (including options and warrants) or the issuance or
sale of stock appreciation or other "phantom" stock rights, other than permitted
issuances pursuant to existing agreements, or the execution of any agreements in
respect thereof;
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(e) the incurrence or assumption of any indebtedness for
borrowed money, secured by a lien, or pursuant to guaranties by the Company or
any subsidiary thereof, other than indebtedness permitted under the Company's
current senior debt facility;
(f) any change of control of the Company;
(g) any amendment to the Company's 1998 Management Stock
Option Plan or the adoption of any other stock option, stock purchase or
restricted stock appreciation right plan;
(h) any amendment to the Amended and Restated Certificate of
Incorporation or By-Laws of the Company;
(i) the execution by the Company or any party to the
Stockholders' Agreement of any voting, voting trust, registration rights or
stockholders agreements with respect to the Company or any of its shares of
capital stock (other than the Stockholders' Agreement and a Registration Rights
Agreement of even date therewith); or
(j) the execution by the Company of any contract or agreement
for the construction or management of radio stations.
The Stockholders' Agreement also provides for the obligation of the
Company to repurchase shares of the Company's convertible preferred stock held
by the parties to the Stockholders' Agreement after five years from date of
issuance if Waller-Sutton requests that the Company repurchase the Eligible Put
Shares (as defined therein) held by Waller-Sutton. In the event the Company
should fail to repurchase such shares within the time requirements set forth in
the Stockholders' Agreement (from a minimum of six months to as long as one
year, depending on the circumstances), Waller-Sutton would have the right under
the Stockholders' Agreement to require the election of such additional designees
of Waller-Sutton to the Board of Directors of the Company such that, after
giving effect thereto, the designees of Waller-Sutton elected to the Board under
the terms of the Stockholders' Agreement would constitute a majority of the
members of the Board. The exercise of such "put" rights could likely result in a
change of control of the Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 15, 1998, the Company consummated the following acquisitions:
1. The Company acquired all of the outstanding capital stock of Faircom
Inc., a Delaware corporation ("Faircom"), which, through its wholly-owned
subsidiaries, owns radio stations WFNT(AM) and WCRZ(FM) in Flint, Michigan;
WWBN(FM) in Tuscola, Michigan, a community north of Flint; WMAN(AM) and WYHT(FM)
in Mansfield, Ohio and WSWR(FM) in Shelby, Ohio, adjoining Mansfield. The
acquisition was accomplished by a merger of Faircom with and into Regent Merger
Corp., a wholly-owned subsidiary of the Company. The consideration paid to the
Faircom stockholders for the Faircom stock was 3,720,620 shares of the Company's
Series C Convertible Preferred Stock (stated value $5.00 per share). Pursuant to
Rule 12g-3 promulgated under the Securities Exchange Act of 1934, the Company's
Series C Convertible Preferred Stock is deemed registered under Section 12(g) of
the Securities Exchange Act of 1934. Options outstanding at the time of the
merger for the purchase of shares of Faircom's common stock were
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converted at the time of the merger into options for the purchase, on equivalent
terms, of 274,045 shares of Regent's Series C Convertible Preferred Stock. Upon
consummation of the merger, Joel M. Fairman, President of Faircom, became a Vice
Chairman and a Director of the Company, and the Company entered into an
agreement with Mr. Fairman providing for a two-year employment period and a
one-year consulting period, with annual compensation of $190,000, discretionary
annual bonuses, discretionary stock option awards, ownership of a term life
insurance policy paid for by the Company, an automobile allowance and certain
other benefits. John H. Wyant, an affiliate of Faircom's largest stockholder at
the time of the merger, became a director of the Company upon consummation of
the merger.
2. The Company acquired all of the outstanding capital stock of The
Park Lane Group, a California corporation which, through its wholly-owned
subsidiaries, owns radio stations KQMS(AM) and KSHA(FM) in Redding, California;
KPPL(FM), KFMF(FM) and KALF(FM) in Chico, California; KVOY(AM) and KTPI(FM) in
Palmdale, California; KROY(AM) and KATJ(FM) in Victorville, California; KAAA(AM)
and KZZZ(FM) in Kingman, Arizona; KOWL(AM) and KRLT(FM) in Lake Tahoe,
California; and KVNA(AM), KVNA(FM) and KZGL(FM) in Flagstaff, Arizona. The
purchase price for the stock was $17,467,737, paid in cash to the stockholders
of The Park Lane Group. In addition, at the time of the acquisition, the Company
entered into a one-year Consulting and Non-Competition Agreement with James H.
Levy, the President of The Park Lane Group, providing for the payment of a
consulting fee of $200,000 to Mr. Levy.
3. The Company acquired all of the outstanding capital stock of Alta
California Broadcasting, Inc. ("Alta") by virtue of a merger of Alta with and
into Regent Acquisition Corp., a wholly-owned subsidiary of the Company. The
purchase price for the stock was $2,000,000, paid in the form of $1,000,000 in
cash and 200,000 shares of the Company's Series E Convertible Preferred Stock
(stated value $5.00 per share). Of the 200,000 shares of Series E Convertible
Preferred Stock, 194,750 shares were issued to the seller, Redwood Broadcasting,
Inc.(of which 20,000 shares are currently being held in escrow pursuant to an
indemnification agreement between the Company and the seller), and 5,250 shares
were issued to Miller Capital Corp. as partial payment of commissions due and
payable to it by the seller. Prior to the merger, Alta was the owner, operator
and licensee of radio station KDRG(FM) in Shingleton, California and, through
its subsidiary, Northern California Broadcasting, Inc., KNNN(FM) in Central
Valley, California. Prior to the merger, Alta also acquired from Power Surge,
Inc., an affiliate of Alta, all of the assets used in the operation of radio
stations KRRX(FM) (formerly KARZ(FM)) in Burney, California and KNRO(AM) in
Redding, California.
4. The Company (through Regent Broadcasting of Kingman, Inc., a
wholly-owned subsidiary of the Company, and its wholly-owned subsidiary, Regent
Licensee of Kingman, Inc.) acquired from Continental Radio Broadcasting, L.L.C.
the FCC licenses and related assets used in the operation of radio stations
KFLG-AM and KFLG-FM in Bullhead City, Arizona. The purchase price for these
assets (other than the accounts receivable) was approximately $3,622,000 in
cash. The Company separately acquired the accounts receivable of these stations
for an additional cash purchase price of approximately $130,000.
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5. The Company acquired all of the outstanding capital stock of Topaz
Broadcasting, Inc. ("Topaz") by virtue of a merger of Topaz with and into Regent
Broadcasting of Victorville, Inc., a wholly-owned subsidiary of the Company
("Regent-Victorville"). Immediately following the merger, Regent-Victorville
acquired the assets used in the operation of radio station KIXA(FM) in Lucerne
Valley, California pursuant to an Asset Purchase Agreement between Topaz and
RASA Communications Corp. The consideration paid for the Topaz stock was 242,592
shares of the Company's Series E Convertible Preferred Stock (stated value $5.00
per share).
6. The Company acquired, through Regent Broadcasting of Victorville,
Inc., a wholly-owned subsidiary of the Company, and Regent Licensee of
Victorville, Inc., its wholly-owned subsidiary, the FCC licenses and related
assets used in the operation of radio stations KIXW(AM) and KZXY(FM) in Apple
Valley, California. The purchase price for these stations was $5,995,500 in
cash.
The terms of each of the foregoing acquisitions were arrived at and
agreed upon through arms' length negotiations between the parties. The Company
intends to continue to use the assets acquired in the foregoing acquisitions in
a manner consistent with their use prior to their acquisition by the Company.
The sources for the cash portion of the consideration paid by the
Company in the foregoing transactions, aggregating approximately $53,650,000
(including approximately $3,400,000 of transaction costs) were $34,400,000
borrowed under the Company's Credit Agreement with Bank of Montreal, Chicago
Branch, General Electric Capital Corporation and Bank One, Indianapolis, NA
("Credit Agreement"), $18,150,000 in additional equity from the sale of the
Company's convertible preferred stock, and approximately $1,100,000 of Company
funds. See Item 5 below.
ITEM 5. OTHER EVENTS.
New Debt
In order to finance the foregoing acquisitions and to provide
additional working capital, the Company borrowed $34,400,000 under its Credit
Agreement on June 15, 1998.
Additional Equity Capitalization.
On June 15, 1998, the Company issued additional equity as follows, the
proceeds of which were used to fund the Company's acquisitions completed on that
date:
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1. The Company issued to the purchasers set forth below a total of
2,050,000 shares of its Series F Convertible Preferred Stock at a purchase price
of $5.00 per share, and in conjunction therewith, issued to such purchasers
warrants to purchase a total of 860,000 shares of the Company's Common Stock at
$5.00 per share.
<TABLE>
<CAPTION>
Number of Shares Number of Warrants
Name of Purchaser Purchased Received
<S> <C> <C>
Waller-Sutton Media Partners, L.P. 1,000,000 650,000
WPG Corporate Development
Associates V, L.P. 562,900 112,580
WPG Corporate Development
Associates (Overseas) V, L.P. 87,100 17,420
General Electric Capital Corporation 250,000 50,000
River Cities Capital Fund Limited
Partnership 100,000 20,000
William H. Ingram 50,000 10,000
</TABLE>
These purchasers also have committed to purchase, on a pro rata basis, an
additional 2,050,000 shares of the Company's Series F Convertible Preferred
Stock at $5.00 per share to fund future acquisitions by the Company.
In addition, Waller-Sutton purchased $1,500,000 of certain Class A and
Class B Faircom Subordinated Notes from Blue Chip and Miami Valley, which were
converted into shares of Faircom's common stock and then exchanged in the merger
of Faircom and Regent Merger Corp. for 400,640 shares of the Company's Series C
Convertible Preferred Stock.
2. General Electric Capital Corporation ("GE Capital") paid $3,900,000
cash to complete its purchase of shares of the Company's Series B Senior
Convertible Preferred Stock, pursuant to the terms of its Stock Purchase
Agreement and Promissory Note dated December 8, 1997. In addition, the Company
issued to GE Capital a warrant to purchase 50,000 shares of the Company's Common
Stock at $5.00 per share.
3. BMO Financial, Inc. paid $3,900,000 cash for 780,000 shares of the
Company's Series D Convertible Preferred Stock.
4. William L. Stakelin, a member of the Company's Board of Directors,
as well as its President, Chief Operating Officer and Secretary, purchased
20,000 shares of the Company's Series A Convertible Preferred Stock at a
purchase price of $5.00 per share.
In addition to the preferred stock and warrants issued as described in
paragraphs numbered 1 through 4 above and the Series E Convertible Preferred
Stock issued in the Alta and Topaz mergers as described in Item 2 above, the
Company (a) granted options effective June 15, 1998 under the Company's 1998
Management Stock Option Plan to each of Terry S. Jacobs (the Chairman of the
Board, Chief Executive Officer, Treasurer and a director of the Company) and
William L. Stakelin (the President, Chief Operating Officer, Secretary and a
director of the Company) for the purchase of 608,244 shares of the Company's
Common Stock at a purchase price of $5.00 per share, and (b) issued to River
Cities Capital Fund Limited Partnership ("River Cities") on June 15, 1998 a
five-year warrant to purchase 80,000 shares of the Company's Common Stock at an
exercise price of $5.00 per share, as an inducement for River Cities, as an
existing holder of the Company's Series A Convertible Preferred Stock, to
approve the Company's merger with Faircom and the issuance of the Company's
Series C Convertible Preferred Stock in connection therewith.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Pursuant to generally accepted accounting principles, Faircom
Inc. was deemed the "accounting acquirer" in the merger that was consummated on
June 15, 1998 between Faircom Inc. and the Company and, thus, the historical
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financial statements of Faircom Inc. have become the historical financial
statements of the Company. The Form 10-K of Faircom Inc. for the year ended
December 31, 1997 and the Form 10-Q of Faircom Inc. for the quarter ended March
31, 1998, including all exhibits thereto, as filed with the Securities and
Exchange Commission on March 30, 1998 and May 14, 1998, respectively, are
incorporated herein by this reference.
In addition, the following financial statements and notes thereto are included
in this report or, where indicated, are incorporated by reference herein:
<TABLE>
<CAPTION>
Page
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<S> <C>
REGENT COMMUNICATIONS, INC.
Consolidated Condensed Balance Sheets at March 31, 1998 (unaudited) and
December 31, 1997.......................................................F-4
Consolidated Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997 (unaudited)...............................F-5
Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited)...............................F-6
Notes to Consolidated Condensed Financial Statements......................F-7
THE PARK LANE GROUP AND SUBSIDIARIES
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997.......F-9
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997 (unaudited).....................................F-10
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited).....................................F-11
Notes to Consolidated Financial Statements................................F-12
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
Report of Independent Auditors Report.....................................F-13
Consolidated Balance Sheets at March 31, 1998 and 1997....................F-14
Consolidated Statements of Operations for the years ended March 31, 1998
and 1997................................................................F-15
Consolidated Statements of Stockholder's Deficit..........................F-16
Consolidated Statements of Cash Flows for the years ended March 31, 1998
and 1997................................................................F-17
Notes to Consolidated Financial Statements................................F-19
POWER SURGE, INC.
Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997........F-26
Statements of Operations for the three months ended March 31, 1998
and 1997 (unaudited)....................................................F-27
Statements of Cash Flows for the three months ended March 31, 1998
and 1997 (unaudited)....................................................F-28
Notes to Financial Statements.............................................F-29
CONTINENTAL RADIO BROADCASTING L.L.C.
Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997........F-30
Statements of Operations for the three months ended March 31, 1998
and 1997 (unaudited)....................................................F-31
Statements of Cash Flows for the three months ended March 31, 1998
and 1997 (unaudited)....................................................F-32
Notes to Financial Statements.............................................F-33
RADIO STATION KZXY (FM)
Report of Independent Accountants.........................................F-34
Statement of Net Assets Acquired at June 15, 1998.........................F-35
Notes to Financial Statement .............................................F-36
Statement of Revenues and Direct Expenses for the three months ended
March 31, 1998 and 1997 (unaudited).....................................F-37
Note to Statement of Revenues and Direct Expenses.........................F-38
</TABLE>
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<TABLE>
<S> <C>
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP (WYHT (FM) AND
WMAN (AM))
Report of Independent Accountants......................... *
Balance Sheets at November 30, 1996 and 1995.............. *
Statement of Partners' Deficit for the years ended
November 30, 1996 and 1995............................. *
Statement of Income for the years ended November 30, 1996
and 1995............................................... *
Statement of Cash Flows for the years ended November 30,
1996 and 1995.......................................... *
Notes to Financial Statements............................. *
Condensed Balance Sheets at May 31, 1997 and 1996
(unaudited)............................................ *
Condensed Statements of Operations for the six months
ended May 31, 1997 and 1996 (unaudited)................ *
Condensed Statements of Cash Flows for the six months
ended May 31, 1997 and 1996 (unaudited)................ *
Note to Interim Financial Statements...................... *
REGENT COMMUNICATIONS, INC.
Report of Independent Accountants......................... **
Consolidated Balance Sheets at December 31, 1997 and
1996................................................... **
Consolidated Statements of Operations for the year ended
December 31, 1997 and the period from November 5, 1996
(inception) through December 31, 1996.................. **
Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1997 and the period from
November 5, 1996 (inception) through December 31,
1996................................................... **
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the period from November 5, 1996
(inception) through December 31, 1996.................. **
Notes to Consolidated Financial Statements................ **
THE PARK LANE GROUP AND SUBSIDIARIES
Report of Independent Accountants......................... **
Consolidated Balance Sheets at December 31, 1997 and
1996................................................... **
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... **
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995... **
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... **
Notes to Consolidated Financial Statements................ **
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
Independent Auditors' Report.............................. **
Consolidated Balance Sheet at March 31, 1997.............. **
Consolidated Statement of Operations for the year ended
March 31, 1997......................................... **
Consolidated Statement of Stockholders' Equity
(Deficiency) for the year ended March 31, 1997......... **
Consolidated Statement of Cash Flows for the year ended
March 31, 1997......................................... **
Notes to Consolidated Financial Statements................ **
</TABLE>
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<TABLE>
<S> <C>
Consolidated Balance Sheet at December 31, 1997 (unaudited) **
Consolidated Statements of Operations for the nine months
ended December 31, 1996 and 1997 (unaudited)........... **
Consolidated Statement of Stockholder's Equity
(Deficiency) for the nine months ended December 31,
1997 (unaudited)....................................... **
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1996 and 1997 (unaudited)........... **
Notes to Consolidated Financial Statements................ **
POWER SURGE, INC.
Independent Auditors' Report.............................. **
Balance Sheet at December 31, 1997........................ **
Statement of Operations for the year ended December 31,
1997................................................... **
Statement of Stockholders' Equity for the year ended
December 31, 1997...................................... **
Statement of Cash Flows for the year ended December 31,
1997................................................... **
Notes to Financial Statements............................. **
CONTINENTAL RADIO BROADCASTING L.L.C.
Report of Independent Accountants......................... **
Balance Sheet at December 31, 1997........................ **
Statement of Operations for the year ended December 31,
1997................................................... **
Statement of Changes in Partners' Deficit for the year
ended December 31, 1997................................ **
Statement of Cash Flows for the year ended December 31,
1997................................................... **
Notes to Financial Statements............................. **
RADIO STATION KZXY(FM)
Report of Independent Accountants......................... **
Statement of Revenues and Direct Expenses for the years
ended December 31, 1997 and 1996....................... **
Notes to Statement of Revenues and Direct Expenses........ **
</TABLE>
* These financial statements, notes thereto and report thereon have been
previously filed, appearing under Item 7A on pages 4 through and including 23
of the Form 8-K/A, Amendment No. 2 to Current Report dated June 30, 1997
(filing date September 12, 1997), of Faircom Inc., and are incorporated herein
by this reference.
** These financial statements, notes thereto and reports thereon have been
previously filed, appearing on pages F-50 through and including F-102 and F-109
through and including F-130 of the Company's Form S-4 Registration Statement
No. 333-46435 effective May 7, 1998, and are incorporated herein by this
reference.
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REGENT COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
AT MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 223,868 $ 1,013,547
Accounts receivable, net 1,375,251 1,507,623
Deposits held in escrow for station acquisitions 1,975,000 1,975,000
Assets Held for Sale 7,500,000 7,500,000
Other current assets 358,978 226,419
----------- -----------
Total current assets 11,433,097 12,222,589
Property and equipment, net 101,383 53,792
Other assets, net 2,072,180 1,089,462
----------- -----------
Total assets $13,606,660 $13,365,843
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 587,018 $ 526,004
Accrued expenses 1,463,805 655,078
Notes payable 7,500,000 7,500,000
----------- -----------
Total current liabilities 9,550,823 8,681,082
Redeemable preferred stock:
Series B Senior convertible preferred stock,
1,000,000 shares authorized, 1,000,000
issued and outstanding, $5.00 stated
value (liquidation value: $1,208,356 and
$1,122,055), net of subscription for
780,000 shares for $3,900,000 1,208,356 1,122,055
Series D convertible preferred stock, 1,000,000
shares authorized, 220,000 issued and
outstanding, $5,00 stated value (liquidation
value: $1,123,838 and $1,104,852) 1,123,838 1,104,852
----------- -----------
Total redeemable preferred stock 2,332,194 2,226,907
Shareholders' equity:
Preferred stock, $.01 par value; 20,000,000
shares authorized:
Series A convertible preferred stock,
620,000 shares authorized, 600,000 issued
and outstanding, $5.00 stated value
(liquidation value $3,153,214
and $3,119,268) 3,000,000 3,000,000
Series C convertible preferred stock,
4,000,000 shares authorized, none
issued or outstanding, $5.00 stated
value
Series E convertible preferred stock,
5,000,000 shares authorized, none issued
or outstanding, $5.00 stated value
Common stock, $.01 par value; 30,000,000 shares
authorized; 240,000 shares issued and
outstanding 2,400 2,400
Additional paid-in capital 465,997 571,285
Deficit (1,744,754) (1,115,831)
------------ -----------
Total shareholders' equity 1,723,643 2,457,854
------------ -----------
Total liabilities and shareholders'
equity $ 13,606,660 $13,365,843
============ ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 12
REGENT COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
---------- -----------
<S> <C> <C>
Broadcast revenue $2,564,175 $ 12,536
Less agency commissions 148,417 0
----------- ----------
Net revenue 2,415,758 12,536
Broadcast operating expenses 2,374,202 12,536
Time brokerage agreement fees, net 235,000 0
Depreciation and amortization 2,364 0
Corporate general and administrative
expenses 231,095 16,838
----------- ----------
Operating loss (426,903) (16,838)
Interest expense, net 203,928 0
Other income, net 1,908 4,105
----------- ----------
Net loss $ (628,923) $ (12,733)
=========== ==========
Loss applicable to common shares:
Net loss $ (628,923) $ (12,733)
Preferred stock dividend requirements (159,250) 0
----------- ----------
Loss applicable to common shares $ (788,173) $ (12,733)
=========== ==========
Basic and diluted net loss per common share $ (3.28) $ (.05)
=========== ==========
Shares used in basic and diluted per share
calculation 240,000 240,000
=========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 13
REGENT COMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (628,923) $ (12,733)
Adjustments to reconcile net loss to net
cash used in operating activities
Barter, net 4,331 0
Depreciation 2,364 0
Changes in operating assets and liabilities:
Accounts receivable 132,373 (16,536)
Prepaid expenses and other current assets (132,559) 500
Accounts payable 61,014 3,596
Accrued expenses 385,727 1,509
----------- ----------
Net cash used in operating activities (175,673) (23,664)
----------- ----------
Cash flows from investing activities:
Cash paid for acquisition costs (559,718) (2,106)
Capital expenditures (54,288) 0
----------- ----------
Net cash used in financing activities (614,006) (2,106)
----------- ----------
Cash flows from financing activities:
Proceeds from the issuance of common stock 0 50,000
----------- ----------
Net cash provided by financing activities 0 50,000
----------- ----------
Net (decrease) increase in cash and cash
equivalents (789,679) 24,230
Cash beginning of period 1,013,547 0
----------- ----------
Cash end of period $ 223,868 $ 24,230
=========== ==========
Noncash investing and financing activities:
Accrued acquisition costs $ 423,000 $ 0
=========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited interim financial statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present
fairly, in all material respects, the financial position of Regent
Communications, Inc. and its subsidiaries (the "Company") as of March 31, 1998
and December 31, 1997 and the results of operations and cash flows for the three
months ended March 31, 1998 and 1997. Because all of the disclosures required by
generally accepted accounting principles are not included, these interim
statements should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1997. The year-end balance
sheet data was derived from the audited financial statements and does not
include all of the disclosures required by generally accepted accounting
principles. The statements of operations for the periods presented are not
necessarily indicative of results to be expected for any future period, nor for
the entire year.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is computed by dividing income (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. The Company's convertible
preferred stock was anti-dilutive and, therefore, was not included in the
diluted earnings per share computation.
2. SIGNIFICANT EVENTS
In January 1998, the Board of Directors of the Company adopted the Regent
Communications, Inc. 1998 Management Stock Option Plan (the "1998 Plan"). The
1998 Plan provides for the issuance of up to 2,000,000 common shares in
connection with the issuance of nonqualified and incentive stock options. The
Company's Board of Directors determines eligibility. The exercise price of the
options is to be not less than the fair market value at the grant date, except
for any 10% owner (as defined), for whom the option share price must be at
least 110% of fair market value at the grant date. The options expire no later
than ten years from the date of grant, or earlier in the event a participant
ceases to be an employee of the Company. The Company intends to apply the
provisions of APB Opinion 25, "Accounting for Stock Issued to Employee," in
accounting for the 1998 Plan. Under APB 25, no compensation expense is
recognized for options granted to employees at exercise prices that are equal
to the fair market value of the underlying common stock at the grant date. The
Company had not issued options as of March 31, 1998.
In February 1998 and effective with the consummation of the merger with Faircom
Inc., the Board of Directors authorized a grant of incentive stock options to
the Chief Executive Officer and Chief Operating Officer of the Company. The
options will provide each of the holders with the right to acquire approximately
608,244 shares of the Company's common stock at an expected price per share of
$5.00. Of these options, 200,000 shares will be exercisable by each holder in
equal 10% increments beginning on the grant date and on each of the following
nine anniversary dates of the grants. The balance of the options will be
exercisable in equal one-third increments at the end of each of the first three
years following the grant. All options expire on February 28, 2008.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standard Board issued Statement No. 130
(SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes standards of
disclosure and financial statement display for reporting total comprehensive
income and its individual components. Company management has determined that
comprehensive income equals Net Income as of March 31, 1998.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company may employ a
small number of financial instruments to manage its exposure to fluctuations in
interest rates. The Company does not hold or issue such financial instruments
for trading purposes. The Company will adopt SFAS No. 133, as required in the
year 2000, and does not expect the impact of adoption to be material.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for fiscal
years beginning after December 15, 1998. SOP 98-1 requires the capitalization
of certain expenditures for software that is purchased or internally developed
for use in the business. Company management believe that the prospective
implementation of SOP 98-1 in 1999 is likely to result in some additional
capitalization of software expenditures in the future. However, the amount of
such additional capitalized software expenditures can not be determined at this
time.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." The SOP provides guidance on financial reporting of costs of
start-up activities. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company believes the implementation of SOP 98-5 will not
have a material impact on its financial reporting.
4. SUBSEQUENT EVENTS
On June 15, 1998 the following acquisitions were consummated.
The Company acquired all of the outstanding common stock of Faircom Inc.
("Faircom") for 3,720,620 shares of the Company's Series C Preferred Stock. The
acquisition has been treated for accounting purposes as the acquisition of the
Company by Faircom with Faircom as the accounting acquirer (reverse
acquisition).
F-7
<PAGE> 15
Upon consummation of the Faircom Merger, the Board of Directors of the Company
adopted the Regent Communications, Inc. Faircom Conversion Stock Option Plan
which applies to those individuals previously participating in the Faircom, Inc.
Stock Option Plan (the "Faircom Plan"). In exchange for relinquishing their
options under the Faircom Plan, five former officers and/or members of Faircom's
Board of Directors were given, in total, the right to acquire 274,045 shares of
the Company's Series C Preferred Stock at exercise prices per share of $0.8865
to $3.7305.
The Company acquired all of the outstanding capital stock of The Park Lane Group
("Park Lane") for approximately $17,468,000 in cash. The acquisition was
accounting for under the purchase method of accounting and was financed through
borrowing under the Company's credit facility. The excess cost over the fair
market value of net assets acquired and FCC licenses related to this acquisition
will be amortized over a 40-year period. Park Lane owns 16 radio stations in
California and Arizona. At the time of the acquisition, the Company entered
into a one-year consulting and non-competition agreement with the President of
Park Lane, providing for the payment of a consulting fee of $200,000.
The Company acquired the FCC licenses and related assets used in the operation
of radio stations KIXW (AM) and KZXY (FM) in Apple Valley, California from Ruby
Broadcasting, Inc. ("Ruby"), an affiliate of Topaz Broadcasting, Inc. ("Topaz"),
for $5,995,500 in cash. The acquisition was financed through borrowings under
the Company's credit facility. The FCC licenses acquired will be amortized over
a 40-year period.
The Company acquired the FCC licenses and related assets used in the operation
of radio stations KFLG (AM) and KFLG (FM) in Bullhead City, Arizona from
Continental Radio Broadcasting, L.L.C. ("Continental") for approximately
$3,622,000 in cash. The Company separately acquired the accounts receivable of
these stations for an additional cash purchase price of approximately $130,000.
The acquisitions were financed through borrowings under the Company's credit
facility. The FCC licenses acquired will be amortized over a 40-year period.
The Company acquired all of the outstanding capital stock of Alta California
Broadcasting, Inc. ("Alta") for $1 million in cash and 200,000 shares of the
Company's Series E Convertible Preferred Stock at a stated value of $5.00 per
share. The acquisition was accounted for under the purchase method of accounting
and was financed through borrowings under the Company's credit facility. The
excess cost over the fair market value of net assets acquired and FCC licenses
related to this acquisition will be amortized over a 40-year period. Alta owns 4
radio stations in California.
The Company acquired all of the outstanding capital stock of Topaz and the FCC
license and operating assets of radio station KIXA (FM) in Lucerne Valley,
California for 242,592 shares of the Company's Series E Convertible Preferred
Stock at a stated value of $5.00 per share. The Topaz acquisition was accounted
for under the purchase method of accounting. The excess cost over the fair
market value of net assets acquired and FCC licenses related to this acquisition
will be amortized over a 40-year period. Topaz operated 1 radio station in
California and owned the right to purchase the station from RASA Communications.
The Company, immediately following the acquisition of Topaz, exercised this
purchase option for $275,000 cash, adjusted as defined in the agreement.
On July 10, 1998, the Company entered into an asset purchase agreement with
Oasis Radio, Inc. to acquire substantially all of the assets of radio station
KAVC (FM) located in Lancaster, California for $1.6 million in cash, subject to
adjustment as defined in the agreement. The closing is conditioned on, among
other things, receipt of FCC and other regulatory approvals. The Company has
placed a $160,000 deposit held in escrow pending the closing of the transaction.
In order to finance the foregoing acquisitions and to provide additional
working capital, the Company borrowed $34,400,000 under its Credit Agreement on
June 15, 1998.
Also on June 15, 1998, the Company issued additional equity as follows, the
proceeds of which were used to fund the aforementioned acquisitions:
The Company issued 2,050,000 shares of its Series F Convertible Preferred Stock
at a purchase price of $5.00 per share, and in conjunction therewith, issued
warrants to purchase a total of 860,000 shares of the Company's Common Stock at
$5.00 per share.
The purchasers of the Company's Series F Convertible Preferred Stock have
committed to purchase, on a pro rata basis, an additional 2,050,000 shares of
the Company's Series F Convertible Preferred Stock at $5.00 per share to fund
future acquisitions by the Company.
General Electric Capital Corporation ("GE Capital") paid $3,900,000 cash to
complete its purchase of shares of the Company's Series B Senior Convertible
Preferred Stock, pursuant to the terms of its Stock Purchase Agreement and
Promissory Note dated December 8, 1997. In addition, the Company issued to GE
Capital a warrant to purchase 50,000 shares of the Company's Common Stock at
$5.00 per share.
BMO Financial, Inc. paid $3,900,000 cash for 780,000 shares of the Company's
Series D Convertible Preferred Stock.
The Company's President, Chief Operating Officer and Secretary, purchased
20,000 shares of the Company's Series A Convertible Preferred Stock at a
purchase price of $5.00 per share.
The Company issued to River Cities Capital Fund Limited Partnership ("River
Cities") on June 15, 1998 a five-year warrant to purchase 80,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share, as an
inducement for River Cities, as an existing holder of the Company's Series A
Convertible Preferred Stock, to approve the Company's merger with Faircom and
the issuance of the Company's Series C Convertible Preferred Stock in
connection therewith.
Total costs associated with the above transactions were approximately $6.0
million.
F-8
<PAGE> 16
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------
at December 31, 1997 and March 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1997 1998
---------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 431,466 $ 334,647
Accounts receivable - trade, less allowance for doubtful accounts of
$45,414 in 1997 and $15,245 in 1998 53,009 18,490
Prepaid expenses and other current assets 83,474 109,089
------------ ------------
Total current assets 567,949 462,226
Property and equipment, net 2,502,766 2,354,199
Intangible assets, net 5,937,566 5,786,155
------------ ------------
Total assets $ 9,008,281 $ 8,602,580
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK, CONVERTIBLE
PREFERRED STOCK, COMMON STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities: $ 94,513 $ 112,919
Accounts payable
Accrued expenses:
Compensation and related expenses 86,432 21,555
Interest 45,508 49,360
Other 119,725 162,810
Notes payable to bank 70,526 ---
Notes payable to shareholders 120,000 120,000
Current portion, long-term debt 760,964 755,837
------------ ------------
Total current liabilities 1,297,668 1,222,481
Long-term debt 5,607,199 5,537,896
------------ ------------
Total liabilities 6,904,867 6,760,377
------------ ------------
Commitments
Mandatorily redeemable Series B preferred stock, $0.01 par value:
Authorized: 43,000 shares;
Issued and outstanding: 42,805 shares in 1997 and 1998 5,231,150 5,391,650
(Liquidation value: $6,344,000 in 1997 and $6,504,000 in 1998)
Mandatorily redeemable convertible Series C preferred stock, $0.01 par value:
Authorized: 13,500 shares;
Issued and outstanding: 12,021 in 1997 and 1998 1,327,101 1,357,101
(Liquidation value: $1,436,000 in 1997 and $1,466,000 in 1998)
Convertible Series A preferred stock, $0.01 par value:
Authorized: 6,117,945 shares;
Issued and outstanding: 5,595,875 shares in 1997 and 1998 5,595,875 5,595,875
(Liquidation value: $5,596,000 in 1997 and 1998)
Class B common stock, $0.01 par value:
Authorized: 3,238,828 shares;
Issued and outstanding: 3,238,821 shares in 1997 and 1998 1,163,612 1,163,612
Class C common stock, $0.01 par value:
Authorized: 1,350,000 shares;
Issued and outstanding: 1,202,100 in 1997 and 1998 80,915 80,915
Class A common stock, $0.01 par value:
Authorized: 15,000,000 shares;
Issued and outstanding: 797,225 shares in 1997 and 811,600 in 1998 389,202 386,522
Note Receivable from Shareholders (2,680)
Accumulated deficit (11,681,761) (12,133,472)
------------ ------------
Total liabilities redeemable preferred stock, convertible
preferred stock, common stock and shareholders' deficit $ 9,008,281 $ 8,602,580
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 17
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three month periods ended March 31, 1997 and 1998 (unaudited)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Revenues from broadcast operations $ 1,818,792 $ 0
Less agency commissions (139,551) 0
------------ ------------
Net revenues 1,679,241 0
Time Brokerage Agreement Fees 0 252,600
------------ ------------
Total revenues 1,679,241 252,600
------------ ------------
Broadcast operating expenses (1,412,023) 7,402
Depreciation and amortization (349,283) (299,489)
Corporate administrative expenses (202,238) (92,473)
------------ ------------
Operating loss (284,303) (131,960)
Interest expense (166,016) (148,626)
Other income, net 1,908 19,372
------------ ------------
Net loss (448,411) (261,214)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 18
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three month periods ended March 31, 1997 and 1998 (unaudited)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (448,411) $ (261,214)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 174,370 146,802
Amortization 174,913 152,686
Accounts receivable 122,141 34,519
Prepaid expenses and other assets 32,608 (25,615)
Accounts payable 11,787 18,406
Accrued expenses (25,636) (60,532)
Accrued interest (2,100) 43,085
------------ ------------
Net cash provided by operating activities 39,672 48,137
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,643) 0
------------ ------------
Net cash used in investing activities (2,643) 0
------------ ------------
Cash flows from financing activities:
(Payments on) borrowings under note payable to bank (92,116) (70,526)
Borrowing under lease line of credit 112,131 0
Principal payments on long-term debt (47,919) (74,430)
------------ ------------
Net cash provided (used) by financing activities (27,904) (144,956)
------------ ------------
Net increase (decrease) in cash and cash equivalents 9,127 (96,819)
Cash and cash equivalents, beginning of period 223,292 431,466
------------ ------------
Cash and cash equivalents, end of period 232,419 $ 334,647
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITY
Conversion of convertible notes to Series B stock $ 310,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 19
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies:
----------------------------------------------
These unaudited interim financial statements reflect all normal
recurring adjustments which are, in the opinion of management,
necessary to present fairly, in all material respects, the financial
position of The Park Lane Group and its subsidiaries as of December
31, 1997 and the results of operations and cash flows for the three
month period ended March 31, 1998 and 1997. Because all of the
disclosures required by generally accepted accounting principles are
not included, these interim statements should be read in conjunction
with the audited financial statements and notes thereto for the year
ended December 31, 1997. The year-end balance sheet data was derived
from the audited financial statements and does not include all of the
disclosures required by generally accepted accounting principles. The
statements of operations for the periods presented are not necessarily
indicative of results to be expected for any future period, nor for the
entire year.
2. STOCK SALE AGREEMENT
--------------------
In August 1997, the Company entered into an arrangement with Regent
Communications, Inc. ("Regent") for the acquisition of all the
outstanding capital stock of the Company (the "acquisition"). The
transaction closed on June 15, 1998. Effective August 17, 1997, the
Company also entered into an operating agreement with Regent under
which most of the operations of the Company's radio stations are
managed by Regent and the Company receives a monthly fee based on their
performance subject to a guaranteed minimum.
F-12
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Alta California Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of Alta California
Broadcasting, Inc. (a wholly-owned subsidiary of Redwood Broadcasting, Inc.) and
subsidiary as of March 31, 1998 and 1997 and the related consolidated statements
of operations, stockholder's deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alta California Broadcasting, Inc.
and subsidiary as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ STOCKMAN KAST RYAN & SCRUGGS, P.C.
- --------------------------------------
Colorado Springs, Colorado
July 10, 1998
F-13
<PAGE> 21
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6) $ 31,143 $ 37,754
Accounts receivable, net (Note 1) 48,024 121,560
Receivable from related parties (Note 5) 6,139 38,286
Receivable from bid settlement (Note 9) 45,000
Receivable from sale of stations (Note 2) 633,000
Other current assets 11,059 10,807
----------- -----------
Total current assets 141,365 841,407
PROPERTY AND EQUIPMENT, net (Notes 3 and 6) 227,249 213,472
INTANGIBLE ASSETS, net (Notes 4 and 6) 915,716 996,584
DEPOSIT ON PURCHASE OF STATIONS (Notes 2 and 10) 973,000
NOTE RECEIVABLE (Note 2) 200,000
OTHER ASSETS 37,666 37,963
----------- -----------
TOTAL $ 2,294,996 $ 2,289,426
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Payable to Redwood Broadcasting, Inc.
(Note 5) $ 1,613,493 $ 1,292,025
Accounts payable 81,233 143,500
Accrued liabilities 74,258 194,365
Payables to related parties (Note 5) 43,848 14,500
Current portion of notes payable (Note 6) 97,940 34,517
Current portion of notes payable to related parties (Note 5) 165,064 25,000
Capital lease obligations 11,994
----------- -----------
Total current liabilities 2,075,836 1,715,901
NOTES PAYABLE (Note 6) 428,371 605,208
NOTES PAYABLE TO RELATED PARTIES (Note 5) 130,949
----------- -----------
TOTAL LIABILITIES 2,504,207 2,452,058
----------- -----------
STOCKHOLDER'S DEFICIT
Common stock, no par value; 1,000,000
shares authorized; 30,000 shares issued
and outstanding 225,000 225,000
Accumulated deficit (434,211) (387,632)
----------- -----------
Total stockholder's deficit (209,211) (162,632)
----------- -----------
TOTAL $ 2,294,996 $ 2,289,426
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-14
<PAGE> 22
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUE
Broadcast revenue $ 830,724 $ 545,185
Less agency commissions 73,638 37,268
--------- ---------
NET REVENUE 757,086 507,917
--------- ---------
OPERATING EXPENSE
Selling, general and administrative 453,175 408,859
Broadcasting 333,110 339,499
Depreciation and amortization 133,877 151,544
--------- ---------
Total 920,162 899,902
--------- ---------
LOSS FROM OPERATIONS (163,076) (391,985)
--------- ---------
OTHER INCOME (EXPENSE)
Gain on sale of stations (Note 2) 678,206
Loss on sale of land (Note 2) (80,000)
Interest expense (Note 5) (37,960) (104,731)
Other income - net (Notes 2 and 9) 154,457 59,664
--------- ---------
Other income, net 116,497 553,139
--------- ---------
NET INCOME (LOSS) $ (46,579) $ 161,154
========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (1.55) $ 5.37
========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 30,000 30,000
========= =========
</TABLE>
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
F-15
<PAGE> 23
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
<S> <C> <C> <C> <C>
BALANCES,
APRIL 1, 1996 30,000 $ 225,000 $(548,786) $(323,786)
Net income 161,154 161,154
--------- --------- --------- ---------
BALANCES,
MARCH 31, 1997 30,000 225,000 (387,632) (162,632)
Net loss (46,579) (46,579)
--------- --------- --------- ---------
BALANCES,
MARCH 31, 1998 30,000 $ 225,000 $(434,211) $(209,211)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-16
<PAGE> 24
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (46,579) $ 161,154
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 133,877 151,544
Gain on bid settlement (36,205)
Gain on sale of stations (678,206)
Loss on sale of land 80,000
Changes in operating assets and liabilities:
Accounts receivable 73,536 (46,998)
Other current assets (252) (3,961)
Accounts payable and accrued expenses (182,374) (40,658)
Other assets (8,498) 14,854
--------- ---------
Net cash used in operating activities (66,495) (362,271)
--------- ---------
INVESTING ACTIVITIES
Purchases of station assets (66,786) (448,920)
Collection of receivable from sale of stations 833,000
Proceeds from sale of stations, net of commissions paid 588,333
Proceeds from sale of land 370,000
--------- ---------
Net cash provided by investing activities 766,214 509,413
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings under related party
notes 155,000 273,675
Proceeds from borrowings under notes 82,403 170,000
Borrowings from (repayments to) Redwood Broadcasting, Inc. (751,532) 651,257
Principal payments on notes to related parties (45,885) (529,900)
Principal payments on notes (195,817) (445,275)
Decrease (increase) in net payable to related
parties 61,495 (215,481)
Payments on capital lease obligations (11,994) (13,664)
--------- ---------
Net cash used in financing activities (706,330) (109,388)
--------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (6,611) 37,754
CASH AND CASH EQUIVALENTS,
Beginning of period 37,754 --
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 31,143 $ 37,754
========= =========
(continued)
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-17
<PAGE> 25
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
SUPPLEMENTAL NONCASH INVESTING
AND FINANCING ACTIVITIES
Increase in payable to Redwood Broadcasting, Inc.
for deposit on purchase of stations $ 973,000
Assumption of note payable to related party by
Redwood Broadcasting, Inc. (Note 5) 100,000
Promissory note received for sale of stations $ 200,000
Receivable for sale of stations 633,000
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest 80,556 103,577
</TABLE>
(concluded)
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-18
<PAGE> 26
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Alta California Broadcasting, Inc. (Alta) and its
subsidiary, Northern California Broadcasting, Inc. (Northern)
(collectively, the Company), operate in the radio broadcasting
industry. Alta is a wholly-owned subsidiary of Redwood Broadcasting,
Inc. (Redwood) which, in turn, is a majority-owned subsidiary of
Redwood MicroCap Fund, Inc. (MicroCap). Organized for the purpose of
acquiring and/or developing undervalued radio broadcasting properties
located in small to medium sized markets, the Company has embarked upon
an aggressive acquisition and development program and currently
operates radio stations in Northern California.
The accompanying financial statements for the year ended March 31, 1997
only include the operations of radio stations KRDG-FM and KNNN-FM. The
accompanying financial statements for the year ended March 31, 1998
include the operations of radio stations KRDG-FM, KNNN-FM, KNRO-AM and
KRRX-FM through October 10, 1997, at which time, Alta entered into an
agreement to sell such stations and a Local Management Agreement (LMA)
with the acquiror. See Notes 2 and 10.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Alta and its wholly-owned subsidiary, Northern.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
ACCOUNTS RECEIVABLE - The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts
receivable. At March 31, 1998 and 1997, the allowance was $8,250 and
$3,200, respectively.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at fair
value as of the date of acquisition of the related station or cost if
purchased subsequently. Depreciation is provided on a straight line
basis over the estimated useful lives of the assets as follows:
buildings and improvements - 10 years; transmitter - 20 years; computer
equipment - 3 years; and technical equipment and furniture and fixtures
- 5 to 7 years. The recoverability of the carrying value of property
and equipment is evaluated periodically in relation to the estimated
value of the radio stations based on their operating performance and
cash flows.
INTANGIBLE ASSETS - Intangible assets include the radio station
purchase price allocations to license costs and the noncompete
agreement. License costs are amortized on a straight line basis over a
period of 20 years and the noncompete agreement is amortized on a
straight line basis over the three-year period of the agreement. The
recoverability of the carrying value of intangible assets is evaluated
periodically in relation to the estimated value of the radio stations
based on their operating performance and cash flows.
REVENUE RECOGNITION - The Company's primary source of revenue is the
sale of air time to advertisers. Revenue from the sale of air time is
recorded when the advertisements are broadcast.
F-19
<PAGE> 27
BARTER TRANSACTIONS - Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized based on the
fair value of the goods or services received when the advertisements
are broadcast. Goods and services received are recognized when used.
INCOME TAXES - The Company accounts for income taxes using the asset
and liability method. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. The effect on deferred taxes of a
change in tax rate is recognized in the period that includes the
enactment date.
PER SHARE AMOUNTS - Per share amounts are based upon the net income or
loss applicable to common shares and upon the weighted average of
common shares outstanding during the period.
USE OF ESTIMATES - The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows,
highly liquid investments, maturing within three months of acquisition,
are considered to be cash equivalents.
CONCENTRATIONS OF RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and receivables. Also, the Company's radio
stations broadcast in Northern California, which results in a risk to
the Company due to the concentration in one geographic area.
2. RADIO STATION ACQUISITIONS AND DISPOSITIONS
The following radio station acquisitions and sales have been completed
by Alta:
KHSL AM/FM - In 1994, Alta acquired radio stations KHSL-AM/FM licensed
to Chico and Paradise, California, respectively. Subsequent to its
acquisition by Alta, KHSL-AM changed its call letters to KNSN-AM.
In March 1996, Alta entered into separate Asset Sale Agreements to sell
the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for
$1,466,333. Concurrently with signing the Asset Sale Agreements, Alta
entered into a LMA with the prospective purchaser until the sale closed
on March 31, 1997, at which time the LMA terminated. Included in other
income for the year ended March 31, 1997 is $46,033 resulting from LMA
fees from the prospective purchaser.
Alta received $633,333 cash and a $200,000 promissory note, bearing
interest at a rate of 7%. Alta was also to receive $633,000 in cash no
later than April 30, 1997 for KNSN-AM; however, pursuant to the Asset
Purchase Agreement, the buyer of KNSN-AM had the option to defer
payment of such amount for monthly option fees of $10,000 or $15,000.
Included in other income for the year ended March 31, 1998 is $70,000
resulting from monthly option fees collected. As of March 31, 1998, all
amounts receivable from the sale of KHSL-AM/FM had been collected.
F-20
<PAGE> 28
A gain on the sale of $678,206 has been recorded in the accompanying
statement of operations for the year ended March 31, 1997.
In April 1996, the parcel of land was sold to an unrelated party for
$370,000. A loss on the sale of $80,000 has been recorded in the
accompanying statement of operations for the year ended March 31, 1997.
KRDG-FM (F/K/A KHZL AND KCFM) - In March 1995, Alta entered into a LMA
with an option to purchase radio station KCFM-FM licensed to
Shingletown, California, which began commercial broadcasting in August
1995. KCFM-FM primarily serves the Redding, California market. In
September 1995, KCFM-FM changed its call letters to KHZL-FM. In July
1996, Alta completed the acquisition of KHZL-FM, thereby terminating
the LMA. Alta paid $65,000 cash and issued a $155,000 promissory note
as consideration for KHZL-FM (see Note 6). The acquisition was recorded
using the purchase method and the $220,000 purchase price was recorded
as license costs as no other assets of KHZL-FM were acquired. Effective
September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.
KNNN-FM - In May 1996, Alta entered into an Asset Purchase Agreement to
acquire KNNN-FM licensed to Central Valley, California. The Asset
Purchase Agreement was subsequently assigned to Northern. KNNN-FM
primarily serves the Redding, California market. In August 1996, Alta
began operating KNNN-FM under a LMA pending approval of the transfer of
ownership by the FCC. The purchase price for KNNN-FM was $825,000,
$325,000 of which was paid in cash at closing, and the balance of which
was in the form of a promissory note (see Note 6). Pursuant to the
Asset Purchase Agreement, the seller of KNNN-FM agreed to not compete
in the Redding, California market for a period of three years. The
acquisition was recorded using the purchase method and the purchase
price was allocated to property and equipment, the noncompete agreement
and license costs, based on estimated fair values.
KLXR-FM - In May 1996, Alta entered into an Asset Purchase Agreement to
acquire KLXR-AM, licensed to Redding, California, for a total purchase
price of $100,000. In February 1997, Alta entered into a LMA with the
seller and, in April 1998, Alta completed the purchase of KLXR for
$100,000 cash.
KNRO-AM AND KRRX-FM (F/K/A KARZ-FM) - Effective April 1, 1997, the
Company acquired an option to purchase radio stations KNRO-AM and
KARZ-FM (KNRO/KARZ) licensed in Redding, California from Power Surge,
Inc. (Power Surge), a wholly-owned subsidiary of Power Curve, Inc.
(Power Curve). Power Surge and Power Curve are both controlled by the
Company's President. Power Curve acquired KNRO/KARZ on January 31, 1997
for $480,000 in cash and a $720,000 promissory note. Power Surge
operated the stations form February 1, 1997 through March 31, 1997 and
received the licenses from Power Curve on March 31, 1997. Under the
terms of the option agreement, the Company can either (1) purchase
KNRO/KARZ for $1,200,000 in cash or (2) issue 1,000,000 shares of
Redwood's common stock in exchange for all of the issued and
outstanding shares of common stock of Power Surge. Also effective April
1, 1997, Alta entered into a LMA with Power Surge for a period of one
year. Alta operated KNRO/KARZ through October 10, 1997 and was
obligated to pay Power Surge a monthly LMA fee of $5,000. Effective May
16, 1997, KARZ-FM changed its call letters to KRRX-FM. As of March 31,
1998, Redwood made cash payments of $733,000 and issued 200,000 shares
of its common stock, with an agreed-upon value of $240,000, to Power
Curve on behalf of Alta as deposits on the purchases. Alta has
reflected such amounts as a deposit on purchase the purchase
F-21
<PAGE> 29
of the stations with a corresponding increase in its payable to Redwood
in the accompanying March 31, 1998 balance sheet. Subsequent to
year-end the option agreement and LMA were extended, the option price
was increased to $1,235,000, and Alta exercised its option on June 15,
1998. Immediately thereafter, the stations, along with KRDG-FM and
KNNN-FM were sold to Regent Communications, Inc. (Regent) (see Note 10).
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Buildings and improvements $ 54,098 $ 29,437
Equipment 220,107 181,360
Furniture and fixtures 43,719 40,341
------------ -------------
Total property and equipment 317,924 251,138
Less accumulated depreciation 90,675 37,666
------------ -------------
Property and equipment - net $ 227,249 $ 213,472
============ =============
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
License costs $ 950,489 $ 950,489
Noncompete agreement 100,000 100,000
------------- --------------
Total intangible assets 1,050,489 1,050,489
Less accumulated amortization 134,773 53,905
------------- --------------
Intangible assets - net $ 915,716 $ 996,584
============= ==============
</TABLE>
F-22
<PAGE> 30
5. RELATED PARTY TRANSACTIONS
Notes payable to related parties consist of the following at March 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unsecured notes payable to related entities with
interest at 8.25% and principal and interest
due on June 30, 1998 $ 155,000
Unsecured notes payable to stockholders of Redwood
with interest at 8% and principal and interest
due on March 31, 1999 10,064 $ 30,949
Unsecured note payable to a related entity
controlled by an officer and stockholder of
Redwood (see below) 100,000
Unsecured note payable to a related entity with
interest at 12% and principal and interest
due on demand 25,000
------------ -------------
Total 165,064 155,949
Less current portion 165,064 25,000
------------ -------------
Total $ - $ 130,949
============ =============
</TABLE>
Management believes that the fair values of its notes payable to
related parties are not materially different from their carrying values
based on the terms and varying characteristics of the notes.
The $100,000 note payable to a related entity as of March 31, 1997 was
assumed by Redwood during the year ended March 31, 1998, resulting in a
corresponding increase in the Company's payable to Redwood in the
accompanying balance sheet as of such date. The Company has noninterest
bearing payables to Redwood of $1,613,493 and $1,292,025 as of March
31, 1998 and 1997, respectively, which have no set repayment terms. The
Company recorded interest expense on the related party notes of
approximately $13,000 and $62,000 for the years ended March 31, 1998
and 1997, respectively.
The Company has receivables from and payables to entities controlled by
an officer and stockholder of Redwood. The receivables and payables
total $6,139 and $43,848, respectively, as of March 31, 1998 and
$38,286 and $14,500, respectively, as of March 31, 1997.
F-23
<PAGE> 31
6. NOTES PAYABLE
Notes payable consist of the following as of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to seller of KNNN-FM with interest at 8.5%, collateralized
by the common stock of Northern, payable in monthly principal and
interest installments of $6,199 through October 2001 with the
remaining balance due
at that date $ 450,208 $ 484,725
Note payable to bank with interest rates ranging from 8% to 11%,
partially collateralized by cash equivalents and equipment,
interest payable monthly and principal due in varying amounts
from April 1, 1998 through September 2, 2000 76,103
Note payable to seller of KRDG-FM with interest at 8.25% and payable
semi-annually, principal payable on July 21, 2004, collateralized
by property and equipment, guaranteed by MicroCap 155,000
------------ -------------
Total 526,311 639,725
Less current portion 97,940 34,517
------------ -------------
Total $ 428,371 $ 605,208
============ =============
</TABLE>
Under the terms of the promissory note agreements, future minimum
annual principal payments during the fiscal years ending March 31 are
as follows: 1999 - $97,940; 2000 - $53,621; 2001 - $47,502; and 2002 -
$327,248.
Management believes that the fair values of its notes payable are not
materially different from their carrying values based on the terms and
varying characteristics of the notes.
7. LEASE AGREEMENTS
The Company leases land and equipment under operating lease agreements
expiring in various years through 2002. Lease expense under the
operating lease agreements totalled $30,263 and $74,039 for the years
ended March 31, 1998 and 1997, respectively.
Pursuant to the LMA between Alta and Regent (see Note 2), the Company
was reimbursed for all operating lease payments subsequent to October
10, 1997. The lease agreements were assumed by Regent upon the closing
of the sales agreement with Regent on June 15, 1998.
F-24
<PAGE> 32
8. INCOME TAXES
The Company's operations are included in the consolidated federal and
state income tax returns of Redwood. Under Redwood's tax allocation
method, a tax provision is allocated to the Company based upon a
calculation of income taxes as if the Company filed separate income tax
returns.
As of March 31, 1998, Redwood has approximately $540,000 of
consolidated net operating loss carryovers of which approximately
$240,000 were attributable to the Company. The carryovers expire in
various years through 2013 and result in deferred income tax assets of
approximately $80,000. However, because of the uncertainty regarding
future realization of the deferred income tax assets, the Company has
established a valuation allowance of $80,000 as of March 31, 1998. The
valuation allowance increased (decreased) by $12,000 and $(52,000)
during the years ended March 31, 1998 and 1997, respectively.
9. OTHER INCOME
Included in other income for the year ended March 31, 1998 is a
$36,205 gain resulting from a FCC license auction and settlement
agreement.
10. SUBSEQUENT EVENT
On June 15, 1998, Alta exercised its option to acquire KNRO-FM and
KRRX-FM (see Note 2). Alta was simultaneously sold to Regent with
Redwood receiving as consideration approximately $950,000 cash and
200,000 shares of Regent's Series E preferred stock. Regent also
assumed approximately $1,500,000 of the Company's liabilities. Regent
operated such stations through June 15, 1998 under a LMA which was
effective on October 10, 1997.
- --------------------------------------------------------------------------------
F-25
<PAGE> 33
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
BALANCE SHEETS
AT MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ (45) $ 82
Accounts receivable, net 18,735 0
Income taxes receivable 4,000 4,000
Receivable from related party 61,537 65,137
----------- -----------
Total current assets 84,227 69,219
PROPERTY AND EQUIPMENT, net 148,202 152,273
INTANGIBLE ASSETS, net 929,726 953,477
----------- -----------
TOTAL $ 1,162,155 $ 1,174,969
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Payable to Power Curve, Inc. $ 2,883 $ 2,133
Accounts payable 117 117
----------- -----------
Total current liabilities 3,000 2,250
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, no par value; 1,500
shares authorized; 1,250 shares issued
and outstanding 1,202,500 1,202,500
Accumulated deficit (43,345) (29,781)
----------- -----------
Total stockholder's equity 1,159,155 1,172,719
----------- -----------
TOTAL $ 1,162,155 $ 1,174,969
=========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-26
<PAGE> 34
<TABLE>
<CAPTION>
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
REVENUE
Broadcast revenue $ 0 $ 74,704
Less agency commissions 0 5,893
-------- ---------
Net revenue 0 68,811
-------- ---------
OPERATING EXPENSE
Selling, general and administrative 744 24,203
Broadcasting 0 32,438
Depreciation and amortization 27,822 19,094
-------- ---------
Total 28,566 75,735
-------- ---------
LOSS FROM OPERATIONS (28,566) (6,924)
-------- ---------
Other income, net 15,003 0
-------- ---------
LOSS BEFORE INCOME TAXES (13,563) (6,924)
INCOME TAXES 0 0
-------- ---------
NET LOSS $(13,563) $ (6,924)
======== =========
</TABLE>
See notes to financial statements
- -------------------------------------------------------------------------------
F-27
<PAGE> 35
<TABLE>
<CAPTION>
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES 1998 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net loss $ (13,563) $ (6,924)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 27,822 19,094
Changes in operating assets and
liabilities:
Accounts receivable (18,736) (50,679)
Receivable from related party 3,600 0
Accounts payable and accrued expenses 750 41,596
----------- -----------
Net cash provided by (used in)
operating activities (127) 3,087
----------- -----------
FINANCING ACTIVITIES
Borrowings from Power Curve, Inc. 0 11,000
----------- -----------
Net cash provided by financing activities 0 11,000
----------- -----------
NET INCREASE IN CASH (127) 14,087
CASH, Beginning of period 82 0
----------- -----------
CASH, End of period $ (45) $ 14,087
=========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-28
<PAGE> 36
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- These unaudited
interim financial statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary to present fairly,
in all material respects, the financial position of its subsidiaries as
of December 31, 1997 and the results of operations and cash flows for
the three month period ended March 31, 1998 and 1997. Because all of
the disclosures required by generally accepted accounting principles
are not included, these interim statements should be read in
conjunction with the audited financial statements and notes thereto for
the year ended December 31, 1997. The year end balance sheet data was
derived from the audited financial statements. The statements of
operations for the periods presented are not necessarily indicative of
results to be expected for any future period or for the entire year.
2. RADIO STATION ACQUISITIONS
On January 31, 1997, Power Curve acquired radio stations KNRO-AM (KNRO)
and KARZ-FM (KARZ), licensed in Redding, California, for $480,000 in
cash and a $720,000 promissory note. Power Surge operated the stations
from February 1, 1997 through March 31, 1997 under a Local Marketing
Agreement (LMA) with Power Curve. On March 31, 1997, the stations were
contributed to Power Surge by Power Curve. This contribution was
recorded as contributed capital of $1,200,000 and was allocated to
accounts receivable, property and equipment, noncompete agreement and
license costs based on their respective estimated fair estimated
values. Since Power Curve is the parent company of Power Surge and it
was the intention to have Power Surge own and operate the stations upon
acquisition, the accompanying financial statements have been prepared
as if Power Surge owned the stations during the period from February 1,
1997 through March 31, 1997 (the date of the contribution).
Effective April 1, 1997, Alta California Broadcasting, Inc. (Alta), an
affiliated entity under common control, acquired an option to purchase
KNRO and KARZ from Power Surge. Under the terms of the option
agreement, Alta can either (1) purchase the stations for $1,200,000 in
cash or (2) issue 1,000,000 shares of its common stock in exchange for
all of the issued and outstanding shares of common stock of Power
Surge. The option terminates on March 31, 1998. Concurrently, Alta
entered into a LMA with Power Surge for a period of one year. Under the
terms of the LMA, Alta is operating KNRO and KARZ and is obligated to
pay Power Surge a monthly fee of $5,000. Accordingly, the operating
activities of the radio stations from April 1, 1997 through September
30, 1997 are not reflected in the accompanying financial statements.
Effective May 16, 1997, KARZ changed its call letters to KRRX-FM.
3. STOCK SALE AGREEMENT
Effective October 10, 1997, Alta entered into an agreement to merge
with Regent Acquisition Corp., a subsidiary of Regent Communications,
Inc. (Regent). In conjunction with this agreement and effective October
10, 1997, Redwood Broadcasting Inc. entered into an operating agreement
with Regent under which the operations of KNRO and KRRX are managed by
Regent and Power Surge receives a monthly fee. Alta is required to
exercise its option and complete its acquisition of KNRO and KRRX from
Power Surge prior to the closing of the merger.
F-29
<PAGE> 37
CONTINENTAL RADIO BROADCASTING, L.L.C.
BALANCE SHEET
at March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 0 $ 373
Trade accounts receivable, less allowance for doubtful
accounts of $14,144 in 1998 and $26,000 in 1997 162,350 172,345
Other receivables 13,428 7,544
Prepaid expenses 3,319 4,125
------------- --------------
Total current assets 179,097 184,507
Property, plant and equipment, net 280,226 303,560
Intangible assets, net 1,056,895 948,647
Other assets, net 4,143 127,527
------------- --------------
Total assets $ 1,520,361 $ 1,564,241
============= ==============
LIABILITIES AND PARTNER'S DEFICIT
Current liabilities:
Accounts payable $ 53,290 $ 46,683
Book overdraft 18,589 8,950
Accrued expenses 73,729 69,066
Current portion of long-term debt 1,725,000 1,670,000
------------- --------------
Total current liabilities 1,870,608 1,794,699
Long-term debt 0 90,000
------------- --------------
Total liabilities 1,870,608 1,884,699
------------- --------------
Commitments and contingencies
Partner's Deficit:
Capital contributions $ 10,000 $ 10,000
Deficit (360,247) (330,458)
------------- --------------
Total partner's deficit (350,247) (320,458)
------------- --------------
Total liabilities and partner's deficit $ 1,520,361 $ 1,564,241
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 38
CONTINENTAL RADIO BROADCASTING, L.L.C.
STATEMENT OF OPERATIONS
for the three months ended March 31, 1998 and March 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Broadcast revenue $ 253,054 $ 220,233
Less agency commissions 14,407 14,048
------------- -----------
Net revenue 238,647 206,185
Broadcast operating expenses 173,484 128,056
Depreciation and amortization 50,999 67,911
------------- -----------
Operating income 14,164 10,218
Interest expense 43,954 46,424
------------- -----------
Net loss $ (29,032) $ (36,206)
============= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 39
CONTINENTAL RADIO BROADCASTING, L.L.C.
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1998 and March 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (29,032) $ (36,206)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 26,081 40,686
Amortization 24,918 27,225
Changes in operating assets and liabilities:
Accounts receivable 10,115 7,272
Other receivables, prepaid expenses and other assets (14,860) (14,398)
Accounts payable 16,688 (20,999)
Accrued expenses 4,663 729
Other (1,199) 0
------------- -------------
Net cash provided by operating activities 37,374 4,309
------------- -------------
Cash flows from investing activities:
Capital expenditures (2,747) (28,405)
------------- -------------
Net cash used in investing activities (2,747) (28,405)
Cash flows from financing activities:
Borrowings of long term debt 0 10,500
Payments of long term debt (35,000) (35,000)
------------- -------------
Net cash used in financing activities (35,000) (24,500)
------------- -------------
Net decrease in cash (373) (48,592)
------------- -------------
Cash, beginning of period 373 74,927
------------- -------------
Cash, end of period $ 0 $ 26,331
============= =============
</TABLE>
The accompanying notes are integral part of the financial statements.
F-32
<PAGE> 40
CONTINENTAL RADIO BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES:
----------------------------------------------
These unaudited interim financial statements reflect all norma
recurring adjustments which are, in the opinion of management,
necessary to present fairly, in all material respects, the financial
position of The Park Lane Group and its subsidiaries as of December 31,
1997 and the results of operations and cash flows for the three month
period ended March 31, 1998 and 1997. Because all of the disclosures
required by generally accepted accounting principles are not included,
these interim statements should be read in conjunction with the audited
financial statements and does not include all of the disclosures
required by generally accepted accounting principles. The statements of
operations for the periods presented are not necessarily indicative of
results to be expected for any future period, not for the entire year.
2. ASSET SALE AGREEMENT:
---------------------
On December 9, 1997, the Company entered into an agreement to sell
substantially all of the assets of radio stations KFLG (FM) and KFLG
(AM) to Regent Communications, Inc. for approximately $3,600,000 in
cash, subject to adjustment. The closing is conditioned on, among
other things, receipt of FCC and other regulatory approvals.
F-33
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To Ruby Broadcasting, Inc.
In our opinion, the accompanying Statement of Net Assets Acquired of radio
station KZXY (FM) ("KZXY") presents fairly, in all material respects, the net
assets acquired of KZXY at June 15, 1998 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management, our responsibility is to express an opinion on
this financial statement based on our audits. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Cincinnati, Ohio
June 15, 1998
F-34
<PAGE> 42
RADIO STATION KZXY (FM)
STATEMENT OF NET ASSETS ACQUIRED
June 15, 1998
Assets Acquired:
Property and equipment $ 289,000
Intangible assets 5,129,000
----------
Total assets acquired $5,418,000
==========
The accompanying notes are an integral part of this financial statement.
F-35
<PAGE> 43
RADIO STATION KZXY (FM)
NOTES TO FINANCIAL STATEMENT
1. BASIS OF PRESENTATION, ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
a. ORGANIZATION AND BUSINESS: KZXY (FM), a radio station located in
Apple Valley, California, is owned and operated by Ruby
Broadcasting, Inc., a Delaware corporation.
In December 1997, Ruby entered into an agreement to sell the FCC
license and related operating assets of this station to Regent
Communications, Inc. ("Regent") for $5,000,000 in cash, subject to
adjustment. The transaction was consummated on June 15, 1998.
b. BASIS OF PRESENTATION: The transaction has been accounted for under
the purchase method of accounting and the purchase price allocated
to the assets acquired on the basis of their fair market value. A
statement of net assets acquired for radio station KZXY (FM) has
not been presented on a historical cost basis because not all of
the required financial information is available.
c. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts to revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
2. PROPERTY EQUIPMENT:
Property equipment acquired consist of the following:
Leasehold improvements $ 5,457
Office equipment 14,030
Broadcast equipment 229,305
Furniture and fixtures 26,563
Vehicles 13,645
----------
$ 289,000
==========
3. INTANGIBLE ASSETS:
Intangible assets acquired consists of the following:
Acquisition cost allocated to FCC license $5,129,000
==========
F-36
<PAGE> 44
RADIO STATION KZXY (FM)
STATEMENT OF REVENUES AND DIRECT EXPENSES
for the three months ended March 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Broadcast revenue $ 0 $ 276,321
Time Brokerage Fees 56,500 0
Less agency commissions 0 (9,379)
----------- -----------
Net revenue 56,500 266,942
Broadcast operating expenses 5,078 115,406
Depreciation and amortization 7,621 6,617
General and administrative expenses 0 97,895
----------- -----------
Total direct expenses 12,699 219,918
Excess of revenues over direct expenses $ 43,801 $ 47,024
=========== ===========
</TABLE>
The accompanying note is an integral part of this financial statement.
F-37
<PAGE> 45
RADIO STATION KZXY (FM)
NOTE TO STATEMENT OF REVENUES AND DIRECT EXPENSES
1. BASIS OF PRESENTATION, ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
ORGANIZATION AND BUSINESS: KZXY (FM), a radio station located in Apple
Valley, California, is owned and operated by Ruby Broadcasting, Inc.
("Ruby"), a Delaware corporation. The Statement of Revenues and Direct
Expenses includes certain costs shared with other stations under common
ownership. These amounts primarily cover administrative and production
support, facility costs, repairs and supplies. These costs have generally
been allocated among the affiliated stations based on estimated time spent,
space or volume of use. Management believes that these allocation methods
are reasonable. As a result of the allocations, however, the financial
statements presented may not be indicative of the results achieved had the
Company operated as a nonaffiliated entity.
In December 1997, Ruby entered into an agreement to sell the FCC license and
related operating assets of this station and radio station KIXW (AM) to
Regent Communications, Inc. ("Regent") for $6,000,000 in cash, subject to
adjustment. The closing is conditioned on, among other things, receipt of
FCC and other regulatory approvals. Additionally, on January 1, 1998, Ruby
entered into a time brokerage agreement with Regent Communications, Inc.
related to radio stations KZXY (FM) and KIXW (AM).
F-38
<PAGE> 46
(b) PROFORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
are included in this report or, where indicated, are incorporated by reference
herein:
Page
----
Pro Forma Condensed Combined Financial Statements Introduction........ P-2
Pro Forma Condensed Combined Balance Sheet at March 31, 1998.......... P-3
Pro Forma Condensed Combining Statement of operations for the
Three Months Ended March 31, 1998................................... P-4
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.......................................................... P-5
Pro Forma Condensed Combined Financial Statements Introduction........ *
Pro Forma Condensed Combined Balance Sheet at December 31, 1997....... *
Condensed Combining Statement of Operations for the
Year Ended December 31, 1997........................................ *
Notes to Pro Forma Condensed Combined Financial Statements............ *
* This pro forma financial information, appearing under the heading
"Unaudited Pro Forma Condensed Combined Financial Statements of Regent
Communications, Inc." on pages 56 through and including 63 of the Company's
Form S-4 Registration Statement No. 333-46435 effective May 7, 1998, are
incorporated herein by this reference.
P-1
<PAGE> 47
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC.
INTRODUCTION
The following unaudited pro forma condensed combined financial statements
reflect the effect of the Merger between Regent and Faircom consummated on June
15, 1998 and the effects of Regent's significant acquisitions of radio stations
owned by The Park Lane Group ("Park Lane"), Alta California Broadcasting, Inc.
("Alta"), Power Surge, Inc. ("Power Surge"), Continental Radio Broadcasting
L.L.C. ("Continental") and Ruby Broadcasting, Inc. ("Ruby" or "KZXY(FM)") (the
"Included Transactions"), and the related financing transactions also
consummated on June 15, 1998. Regent acquired all of the outstanding common
stock of Faircom in the Merger. For accounting purposes, the Merger is being
accounted for under the purchase method of accounting as a reverse merger since
the shareholders of Faircom are receiving the larger shareholding in the merged
company. The Included Transactions are also being accounted for under the
purchase method of accounting with Regent being identified as the acquiror.
The unaudited pro forma condensed combined balance sheet gives effect to
the Merger and the Included Transactions as if they had occurred on March 31,
1998. The unaudited pro forma condensed combined statements of operations gives
effect to these transactions as if they had occurred on January 1, 1997. The
purchase price of each acquisition has been allocated to the acquirees'
historical assets and liabilities based on their respective fair market values.
The fair value of assets acquired was determined based on a detailed analysis
prepared by an independent appraisal for each consummated transaction.
The unaudited pro forma condensed combined financial statements do not
purport to present the actual financial position or results of operations of
Regent had the transactions and events assumed therein in fact occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The unaudited pro forma financial
information is based on certain assumptions and adjustments described in the
notes to the unaudited pro forma condensed combined financial statements and
should be read in conjunction therewith.
No pro forma adjustments have been made to reflect Regent's acquisitions
of radio stations KIXA(FM) in Lucerne Valley, California and KIXW(AM) in Apple
Valley, California because Regent has determined that the impact of such
transactions was not material to Regent's results of operations or financial
condition. In addition, historical balance sheet data has not been included in
the Condensed Combined Balance Sheet to reflect Regent's acquisition of radio
station KZXY(FM) in Apple Valley, California because the required financial
information cannot be obtained. However, the Pro Forma Condensed Combined
Balance Sheet does reflect the fair value of assets acquired for KZXY(FM).
P-2
<PAGE> 48
REGENT COMMUNICATIONS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA INCLUDED TRANSACTIONS
ADJUSTMENTS REGENT -------------------------
FOR THE AS ADJUSTED
HISTORICAL HISTORICAL MERGER FOR THE HISTORICAL HISTORICAL
REGENT FAIRCOM (NOTE 3) MERGER PARK LANE ALTA
----------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ $ 223,868 $ 524,181 $ 748,049 $ 334,647 $ 31,143
Accounts receivable......... 1,375,251 1,086,206 2,461,457 18,490 99,163
Prepaid expenses and
other..................... 9,833,978 59,048 9,893,026 109,089 11,059
----------- ----------- ----------- ----------- ----------- -----------
Total current
assets.............. 11,433,097 1,669,435 13,102,532 462,226 141,365
Property and equipment, net... 101,383 2,299,151 2,400,534 2,354,199 227,249
Intangible assets, net........ 8,605,826 $ 650,668 9,256,494 5,786,155 915,716
Deferred charges and other.... 2,072,180 1,311,147 ($ 1,470,668) 1,912,659 0 1,010,666
----------- ----------- ----------- ----------- ----------- -----------
Total assets.......... $13,606,660 $13,885,559 ($ 820,000) $26,672,219 $ 8,602,580 $ 2,294,996
=========== =========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Account payable, accrued
liabilities and other..... $2,050,823 $ 650,392 $2,701,215 $ 346,644 $ 1,812,832
Notes payable............... 7,500,000 7,500,000 120,000 263,004
Current portion of long-term
debt...................... 460,012 ($ 460,012) 755,837
----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities......... 9,550,823 1,110,404 (460,012) 10,201,215 1,222,481 2,075,836
Long-term debt, net of current
maturities.................. 22,886,652 (9,539,988) 13,346,664 5,537,896 428,371
Other......................... 611,919 611,919
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities..... 9,550,823 24,608,975 (10,000,000) 24,159,798 6,760,377 2,504,207
Redeemable preferred stock.... 2,332,194 2,332,194 6,748,751
Shareholders' equity:
Preferred stock............. 3,000,000 1,723,643 4,723,643 5,595,875
Common stock................ 2,400 73,782 (73,782) 2,400 1,631,049 225,000
Additional paid-in
capital................... 465,997 2,605,813 6,982,385 10,054,195
Retained earnings
(deficit)................. (1,744,754) (13,403,011) 547,754 (14,600,011) (12,133,472) (434,211)
----------- ----------- ----------- ----------- ----------- -----------
Total shareholders'
equity (deficit).... 1,723,643 (10,723,416) 9,180,000 180,227 (4,906,548) (209,211)
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity.............. $13,606,660 $13,885,559 ($ 820,000) $26,672,219 $ 8,602,580 $ 2,294,996
=========== =========== =========== =========== =========== ===========
<CAPTION>
PRO FORMA PRO FORMA
INCLUDED TRANSACTIONS ADJUSTMENTS ADJUSTMENTS
------------------------ FOR THE FOR
HISTORICAL INCLUDED FINANCING
POWER HISTORICAL TRANSACTIONS TRANSACTIONS COMBINED
SURGE CONTINENTAL (NOTE 3) (NOTE 3) PRO FORMA
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ ($ 45) ($ 1,000,000) $ 113,794
Accounts receivable......... 80,272 $ 175,778 (175,778) 2,659,782
Prepaid expenses and
other..................... 4,000 3,319 (1,928,319) 8,092,174
----------- ----------- ------------ ------------ -----------
Total current
assets.............. 84,227 179,097 (3,104,097) 10,865,350
Property and equipment, net... 148,202 280,226 3,412,637 8,823,047
Intangible assets, net........ 929,726 1,056,895 25,416,508 43,361,494
Deferred charges and other.... 4,143 (42,143) 2,885,325
----------- ----------- ------------ ------------ -----------
Total assets.......... $ 1,162,155 $ 1,520,361 25,682,905 $ 0 $65,935,216
=========== =========== ============ ============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Account payable, accrued
liabilities and other..... $ 3,000 $ 145,608 ($ 1,168,608) $ 3,840,691
Notes payable............... (383,004) 7,500,000
Current portion of long-term
debt...................... 1,725,000 (2,480,837) 0
----------- ----------- ------------ ------------ -----------
Total current
liabilities......... 3,000 1,870,608 (4,032,449) 11,340,691
Long-term debt, net of current
maturities.................. 31,229,254 $(15,900,000) 34,642,185
Other......................... 2,580,000 3,191,919
----------- ----------- ------------ ------------ -----------
Total liabilities..... 3,000 1,870,608 27,196,805 (13,320,000) 49,174,795
Redeemable preferred stock.... (6,748,751) 16,360,000 18,692,194
Shareholders' equity:
Preferred stock............. (4,595,875) (3,000,000) 2,723,643
Common stock................ 1,202,500 (3,058,549) 2,400
Additional paid-in
capital................... 10,000 (10,000) (40,000) 10,014,195
Retained earnings
(deficit)................. (43,345) (360,247) 12,899,275 (14,672,011)
----------- ----------- ------------ ------------ -----------
Total shareholders'
equity (deficit).... 1,159,155 (350,247) 5,234,851 (3,040,000) (1,931,773)
----------- ----------- ------------ ------------ -----------
Total liabilities and
shareholders'
equity.............. $ 1,162,155 $ 1,520,361 $ 25,682,905 $ 0 $65,935,216
=========== =========== ============ ============ ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
P-3
<PAGE> 49
REGENT COMMUNICATIONS, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS REGENT INCLUDED TRANSACTIONS
FOR THE MERGER AS ADJUSTED ------------------------
AND HISTORICAL FOR THE MERGER
HISTORICAL HISTORICAL ACQUISITION AND HISTORICAL HISTORICAL HISTORICAL
REGENT FAIRCOM (NOTE 4) ACQUISITION PARK LANE ALTA
----------- ----------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ 2,415,758 $ 1,465,077 $ 3,880,835 $ 12,787
Broadcast operating expenses............ 2,374,202 1,098,911 3,473,113 $ (7,402) 34,752
Time brokerage agreement fees, net...... 235,000 235,000 (252,600)
Depreciation and amortization........... 2,364 290,548 $ 3,250 296,162 299,489 34,230
Corporate general and administrative
expenses.............................. 231,095 113,528 130,000 474,623 92,473
----------- ----------- ----------- ----------- ----------- ---------
Operating income (loss)............. (426,903) (37,910) (133,250) (598,063) (131,960) (56,195)
Interest expense........................ 203,928 503,770 707,698 148,626 9,747
Other income (expense), net............. 1,908 12,152 14,060 19,372 (1,570)
----------- ----------- ----------- ----------- ----------- ---------
Income (loss) from continuing operations
before income taxes................... (628,923) (529,528) (133,250) (1,291,701) (261,214) (67,512)
Provision (benefit) for income taxes.... 12,000 (12,000)
----------- ----------- ----------- ----------- ----------- ---------
Income (loss) from continuing
operations............................ $ (628,923) $ (541,528) $ (121,250) $(1,291,701) $ (261,214) $ (67,512)
=========== =========== =========== =========== =========== =========
Earnings per share data:
Loss from continuing operations..... (628,923) (1,291,701)
=========== ===========
Preferred stock dividend
requirements...................... (159,250) (484,804)
Preferred stock accretion........... 0 0
----------- -----------
Loss applicable to common
shares.......................... (788,173) (1,776,505)
=========== ===========
Basic and diluted loss per common
share............................. $ (3.28) $ (7.40)
=========== ===========
Weighted average shares
outstanding....................... 240,000 240,000
=========== ===========
<CAPTION>
PRO FORMA
INCLUDED TRANSACTIONS ADJUSTMENTS
------------------------------------- FOR THE
HISTORICAL INCLUDED
POWER HISTORICAL HISTORICAL TRANSACTIONS COMBINED
SURGE CONTINENTAL KZXY(FM) (NOTE 4) PRO FORMA
---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. $ 238,647 $ 4,132,269
Broadcast operating expenses............ $ 745 173,484 $ 5,078 3,679,770
Time brokerage agreement fees, net...... (15,000) (56,500) $ 89,100 0
Depreciation and amortization........... 27,822 50,999 7,621 14,000 730,323
Corporate general and administrative
expenses.............................. (181,573) 385,523
--------- ---------- ---------- ----------- ------------
Operating income (loss)............. (13,567) 14,164 43,801 78,473 (663,347)
Interest expense........................ 954 (92,000) 818,025
Other income (expense), net............. 3 31,865
--------- ---------- ---------- ----------- ------------
Income (loss) from continuing operations
before income taxes................... (13,564) (29,032) 43,801 170,473 (1,449,507)
Provision (benefit) for income taxes.... 0
--------- ---------- ---------- ----------- ------------
Income (loss) from continuing
operations............................ $ (13,564) $ (29,032) $ 43,801 $ 170,473 $ (1,449,507)
========= ========== ========== =========== ============
Earnings per share data:
Loss from continuing operations..... (1,449,507)
============
Preferred stock dividend
requirements...................... (828,555)
Preferred stock accretion........... (232,845)
------------
Loss applicable to common
shares.......................... (2,510,907)
============
Basic and diluted loss per common
share............................. $ (10.46)
============
Weighted average shares
outstanding....................... 240,000
============
</TABLE>
- ---------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
P-4
<PAGE> 50
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC.
1. GENERAL
The Merger will be accounted for under the purchase method of accounting as
a reverse merger since the shareholders of Faircom are receiving the larger
portion of voting rights in the merged company. The Included Transactions will
also be accounted for under the purchase method of accounting with Regent being
identified as the acquiror.
The historical financial statements reflect the financial position and
results of operations of Regent, Faircom, and the other Included Transactions
(the "Pro Forma Companies") and were derived from the respective entities
financial statements.
2. THE MERGER AND INCLUDED TRANSACTIONS:
The following table sets forth the consideration to be paid in cash and
shares of Regent's Preferred Stock to the common stockholders of Faircom and the
owners of each of the Included Transactions, the allocation of the consideration
to net assets acquired, station licenses and the resulting goodwill. For
purposes of computing the estimated purchase price for accounting purposes, the
value of shares issued is determined using the estimated fair value of net
assets received.
The purchase price of each acquisition has been allocated to the acquirees'
assets and liabilities based on their respective fair market values. The fair
value of assets acquired was determined based on an independent appraisal for
each consummated transaction.
<TABLE>
<CAPTION>
Total Consideration(a)
--------------------------------------------
FAIR CASH EXCLUDING
MARKET VALUE LIABILITIES ADJUSTED STATION
ACQUISITION SHARES OF STOCK ASSUMED(b) TOTAL NET ASSETS(c) LICENSES GOODWILL
----------- --------- ------------ -------------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merger:
Regent................ 3,720,620 $ 1,723,643(d) $ 1,723,643 $ 1,072,975 $ 650,668
Included Transactions:
Park Lane............. $18,228,000 18,228,000 (1,725,000) $18,131,000 1,822,000
Alta/Power Surge...... 200,000 1,000,000 1,387,000 2,387,000 (388,000) 3,369,000 406,000
Continental........... 3,995,000 3,995,000 562,000 3,140,000 293,000
KZXY(FM).............. 5,418,000 5,418,000 289,000 4,662,000 464,000
--------- ----------- ----------- ----------- ----------- ----------- ----------
3,920,620 $ 2,723,643 $29,028,000 $31,751,643 $ (189,025) $28,302,000 $3,635,668
========= =========== =========== =========== =========== =========== ==========
</TABLE>
- ---------------
(a) Amounts include estimated acquisition costs and closing adjustments.
(b) Does not include $6,880,000 of liabilities assumed in the Park Lane stock
purchase transaction and $1,500,000 of liabilities assumed in the Alta/Power
Surge stock purchase transaction.
(c) Net of certain assets which will not be acquired and certain liabilities
which will not be assumed, including pre-existing intangible assets. See
Note 3.
(d) Represents the assigned value under reverse merger purchase accounting based
on the fair value of Regent's net assets as of March 31, 1998.
P-5
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC. -- (CONTINUED)
3. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combined
balance sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA INCLUDED TRANSACTIONS ADJUSTMENTS
MERGER ADJUSTMENTS ADJUSTMENTS ---------------------------------
(A) (B) MERGER (C) (D)
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... ($1,000,000)
Accounts receivable................ (175,778)
Prepaid expenses and other......... (1,928,319)
------------ ------------ ------------ ------------ -----------
Total current assets............. (3,104,097)
Property and equipment, net........ 3,123,637 $ 289,000
Intangible assets, net............. $ 650,668 $ 650,668 20,287,508 5,129,000
Deferred charges and other
assets........................... (1,470,668) (1,470,668) 95,857 (138,000)
------------ ------------ ------------ ------------ -----------
Total assets..................... $ 0 ($820,000) ($820,000) $20,402,905 $5,280,000
============ ============ ============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and other current
liabilities...................... ($1,168,608)
Notes payable...................... (383,004)
Current portion of long term
debt............................. ($460,012) ($460,012) (2,480,837)
------------ ------------ ------------ ------------ -----------
Total current liabilities........ (460,012) (460,012) (4,032,449)
Long-term debt, net of current
maturities......................... ($10,000,000) 460,012 (9,539,988) 25,949,254 $5,280,000
Other...............................
------------ ------------ ------------ ------------ -----------
Total liabilities................ (10,000,000) (10,000,000) 21,916,805 5,280,000
Redeemable preferred stock.......... (6,748,751)
Shareholders' equity:
Preferred stock.................... 1,723,643 1,723,643 (4,595,875)
Common stock....................... 190,120 (263,902) (73,782) (3,058,549)
Additional paid-in capital......... 10,234,880 (3,252,495) 6,982,385 (10,000)
Retained earnings (deficit)........ (425,000) 972,754 547,754 12,899,275
------------ ------------ ------------ ------------ -----------
Total shareholders' equity
(deficit)...................... 10,000,000 (820,000) 9,180,000 5,234,851
------------ ------------ ------------ ------------ -----------
Total liabilities and
shareholders' equity
(deficit)...................... $0 ($820,000) ($820,000) $20,402,905 $5,280,000
============ ============ ============ ============ ===========
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR THE FINANCING TRANSACTIONS FOR
INCLUDED ------------------------- FINANCING
TRANSACTIONS (E) (F) TRANSACTIONS
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... ($1,000,000)
Accounts receivable................ (175,778)
Prepaid expenses and other......... (1,928,319)
----------- ------------ ----------- -----------
Total current assets............. (3,104,097)
Property and equipment, net........ 3,412,637
Intangible assets, net............. 25,416,508
Deferred charges and other
assets........................... (42,143)
----------- ------------ ----------- -----------
Total assets..................... $25,682,905 $ 0 $ 0 $ 0
=========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and other current
liabilities...................... $(1,168,608)
Notes payable...................... (383,004)
Current portion of long term
debt............................. (2,480,837)
----------- ------------ ----------- -----------
Total current liabilities........ (4,032,449)
Long-term debt, net of current
maturities......................... 31,229,254 $ (7,800,000) $ (8,100,000) $(15,900,000)
Other............................... 0 2,580,000 2,580,000
----------- ------------ ----------- -----------
Total liabilities................ 27,196,805 (7,800,000) (5,520,000) (13,320,000)
Redeemable preferred stock.......... (6,748,751) 7,800,000 8,560,000 16,360,000
Shareholders' equity:
Preferred stock.................... (4,595,875) (3,000,000) (3,000,000)
Common stock....................... (3,058,549) (40,000) (40,000)
Additional paid-in capital......... (10,000)
Retained earnings (deficit)........ 12,899,275
----------- ------------ ----------- -----------
Total shareholders' equity
(deficit)...................... 5,234,851 (3,040,000) (3,040,000)
----------- ------------ ----------- -----------
Total liabilities and
shareholders' equity
(deficit)...................... $25,682,905 $ 0 $ 0 $ 0
=========== ============ =========== ===========
</TABLE>
P-6
<PAGE> 52
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED
- ---------------
(A) Records the conversion of Class A and Class B Faircom Subordinated Notes
into Faircom Common Stock immediately precedent to the Merger in the
aggregate amount of $10,000,000.
Also records a non-recurring charge to reflect the issuance of additional
stock options to certain Faircom executives to purchase 1,118,700 shares of
Faircom common stock conditional on the conversion of Class A and Class B
Faircom Subordinated Notes into Faircom Common Stock in conjunction with
the Merger. The total estimated non-recurring charge is approximately
$425,000.
(B) Records the reverse merger transaction, consisting of 3,720,796 shares of
preferred stock valued based on Regent's fair value of approximately
$1,723,643 at March 31, 1998, including acquisition costs. The excess
purchase price over the fair value of the net assets acquired is
approximately $651,000.
Also records non-recurring charges related to the write-off of Faircom's
deferred financing costs and recognize fees associated with the early
extinguishment of Faircom's debt.
(C) Records the purchase of the Included Transactions, except for KZXY (FM)
(See Note D), consisting of approximately $23,610,000 in cash and 200,000
shares of preferred stock valued at $1,000,000, for a total estimated
purchase price of $24,610,000. Adjustment reflects $164,651 of certain
assets which will not be acquired and $352,019 of certain liabilities which
will not be assumed in the Included Transactions. Adjustment also reflects
the elimination of existing goodwill and other intangible assets. The
excess purchase price over the fair value of the net assets acquired is
$26,161,000. The cash portion of the purchase price was funded through
the use of existing cash, that is in excess of operating needs, a bank
credit facility and the issuance of additional equity securities. See Notes
E and F. Adjustment also includes a credit facility fee of $1.2 million,
which is reflected in Deferred Charges and Other in the Pro Forma Condensed
Combined Balance Sheet.
(D) Records the purchase transaction of KZXY(FM) from Ruby for a total
estimated purchase price of $5,418,000. Adjustment reflects the appraised
values of assets acquired. A historical balance sheet does not appear
in the Form 8-K because the required financial information cannot be
obtained.
(E) Records final proceeds of $3,900,000 related to the original issuance of
1,000,000 shares of Series B Preferred Stock and the issuance of 780,000
shares of Series D Preferred Stock in the amount of $3,900,000 in
conjunction with the Included Transactions. Proceeds from the issuances
were used to reduce bank credit facility borrowings.
(F) Records the issuance of Series F Preferred Stock in the aggregate amount of
$10,250,000, the issuance of Series A in the aggregate amount of $100,000
and the issuance of 860,000, 80,000, and 50,000 warrants to the holders of
Series F Preferred Stock, Series A Preferred Stock, and Series B Preferred
Stock, respectively, in conjunction with the Included Transactions. Holders
of Series F Preferred Stock (and warrants related thereto) may put their
respective shares of Series F Preferred Stock to Regent; therefore, the
Series F Preferred Stock has been classified outside of equity. Shares of
the Series A, B and D Preferred Stock (but not the Series C and E Preferred
Stock) will be entitled to put to Regent for mandatory redemption on the
same basis if the put rights related to the Series F Preferred Stock are
exercised. Consequently, the Series A Preferred Stock has been reclassified
to be excluded from equity to reflect such anticipated "put rights." The
860,000 Put Warrants issued to holders of Series F Preferred Stock have
been assigned a fair value of $2,580,000 and have been classified as a
long-term liability. The 80,000 and 50,000 Warrants issued to holders of
Series A and Series B Preferred Stock have been assigned a fair value of
$160,000 and $100,000, respectively. Both amounts have been classified as
additional paid-in capital. Issuance fees of approximately $1,950,000
related to the Series A, B, D, and F Preferred Stock have been deducted
from the proceeds. Issuance fees of approximately $300,000 related to
Series C Preferred Stock have been presented as a reduction of
Shareholders' Equity.
P-7
<PAGE> 53
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS --
CONTINUED
OF REGENT COMMUNICATIONS, INC.
4. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combining
statement of operations adjustments:
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
MERGER ADJUSTMENTS FOR THE MERGER INCLUDED TRANSACTIONS
------------------------------------- AND HISTORICAL -----------------------
(A) (B) (C) ACQUISITION (D) (E)
-------- -------- --------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...............................
Broadcast operating expenses..............
Time brokerage agreement fees, net........
Depreciation and amortization............. $ 3,250 $ 3,250 $ 14,000
Corporate general and administrative
expenses................................ $ 130,000 130,000
-------- -------- --------- ----------- ------- ---------
Operating income (loss)............... (3,250) (130,000) (133,250) (14,000)
Interest expense.......................... $ (92,000)
Other income (expense), net...............
-------- -------- --------- ----------- ------- ---------
Loss from continuing operations before
income taxes............................ (3,250) (130,000) (133,250) (14,000) 92,000
Provision (benefit) for income taxes...... $(12,000) (12,000)
-------- -------- --------- ----------- ------- ---------
Income (loss) from continuing
operations.............................. $ (3,250) $ 12,000 $(130,000) $ (121,250) $(14,000) $ 92,000
======== ======== ========= =========== ======= =========
<CAPTION>
PRO FORMA
ADJUSTMENTS
INCLUDED TRANSACTIONS FOR THE
--------------------------------- INCLUDED
(F) (G) TRANSACTIONS
------- --------- ------------
<S> <C> <C> <C>
Net revenue............................... $ 0
Broadcast operating expenses.............. 0
Time brokerage agreement fees, net........ $ 89,100 89,100
Depreciation and amortization............. 14,000
Corporate general and administrative
expenses................................ $(92,473) (89,100) (181,573)
-------- --------- ------------
Operating income (loss)............... 92,473 0 78,473
Interest expense.......................... (92,000)
Other income (expense), net............... 0
-------- --------- ------------
Loss from continuing operations before
income taxes............................ 92,473 170,473
Provision (benefit) for income taxes...... 0
-------- --------- ------------
Income (loss) from continuing
operations.............................. $ 92,473 $ 0 $ 170,473
======== ========= ============
</TABLE>
- ---------------
(A) Reflects the amortization of intangible assets to be recorded as a result of
the Merger over 40 year estimated lives.
(B) Reflects the reduction in federal and state income taxes assuming a
consolidated return basis of reporting. No deferred income tax assets have
been recorded due to the uncertainty of the ultimate realization of future
benefits from such assets.
(C) Reflects the incremental compensation expense related to certain employment
agreements effective upon the Merger. A nonrecurring charge to reflect the
issuance of additional stock options to certain Faircom executives to
purchase 1,118,700 shares of Faircom Common Stock conditional on the
conversion of Class A and Class B Faircom Subordinated Notes into Faircom
Common Stock in conjunction with the Merger has not been reflected in the
Unaudited Pro Forma Condensed Combining Statement of Operations. The total
estimated nonrecurring charge is approximately $425,000.
(D) Reflects the amortization of intangible assets to be recorded as a result of
the Included Transactions over 40-year estimated lives less historical
amortization of goodwill and other intangible assets.
(E) Reflects a $196,000 reduction in interest expense associated with the
borrowings under a bank credit facility necessary to complete the Included
Transactions using an assumed rate of 8.25%. A 1/8% change in the interest
rate under the Credit Agreement would result in a further reduction in
interest expense of approximately $110,000 for the three months ended March
31, 1998. Adjustment also reflects amortization of estimated deferred
financing costs over the seven year loan period of approximately $54,000 for
the three months ended March 31, 1998. In conjunction with refinancing
existing debt obligations related to the Merger, Regent will incur a
prepayment penalty of approximately $370,000, and will write-off
approximately $800,000 of deferred financing costs. These items will be
accounted for as extraordinary items in the debt extinguishment period. The
Unaudited Pro forma Condensed Combined Balance Sheet as of March 31, 1998
reflects the issuance of 820,000 Put Warrants to the holders of Series F
Preferred Stock. Interest expense has been adjusted by $50,000 to reflect an
estimated change in fair value for such warrants during the three month
period ended March 31, 1998 using an assumed change in market value for
Regent's Common Stock of 10%. A 0% and 20% change in Regent's Common Stock
would result in a $80,000 decrease and $67,500 increase in interest expense,
respectively, for the three months ended March 31, 1998. Once such Warrants
have been issued, a valuation will be obtained on a quarterly basis and any
resulting change in value will be properly treated as an adjustment to
interest expense.
P-8
<PAGE> 54
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED
5. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS ADJUSTMENTS
The pro forma earnings per share calculation is based on the weighted-
average number of shares of common stock of Regent outstanding as of March 31,
1998. The preferred shares to be issued in conjunction with the Merger and the
Included Transactions have not been considered since their effect would be
antidilutive. The preferred stock dividend used in computing loss applicable to
common shares is based on the following Regent preferred shares being issued in
conjunction with the Merger and the Included Transactions as of January 1,
1997: (i) 3,720,796 shares of Series C Preferred Stock and 20,000 shares of
Series A Preferred Stock in conjunction with the Merger; and (ii) 780,000
shares each of Series B and D Preferred Stock, 200,000 shares of Series E
Preferred Stock and 2,050,000 shares of Series F Preferred Stock in conjunction
with the Included Transactions. Loss applicable to common shares has been
adjusted to reflect the accretion of Series A, B, D and F Preferred Stock to
their redemption value based on the earliest redemption date for each
respective Series of Preferred Stock.
P-9
<PAGE> 55
(c) EXHIBITS.
The Exhibit Index following the signature page hereof constitutes a
list of all Exhibits filed with or incorporated by reference in this Form 8-K/A.
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REGENT COMMUNICATIONS, INC.
Date: September 3, 1998 By: /s/ TERRY S. JACOBS
------------------------------------
Terry S. Jacobs, Chairman of the Board and
Chief Executive Officer
<PAGE> 57
EXHIBIT INDEX
The following exhibits are filed, or incorporated by reference where
indicated, as part of this Current Report of Form 8-K:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(a)* Agreement of Merger among Faircom Inc., Regent Merger Corp.,
Regent Communications, Inc., Blue Chip Capital Fund II Limited
Partnership and Miami Valley Venture Fund L.P. dated as of
December 5, 1997, as amended (previously filed as Exhibit 2(a)
to the Registrant's Form S-4 Registration Statement No.
333-46435 effective May 7, 1998 and incorporated herein by
this reference).
The following exhibits to the foregoing Agreement of Merger
are omitted as not material; the Company will furnish
supplementally a copy of any omitted schedule to the
Commission upon request:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1(j) Faircom Licenses
1(k) Faircom Senior Debt
1(x) Form of Amended and Restated Certificate of Incorporation of Regent
Communications, Inc.
1(bb) Regent Licenses
1(ff) Regent Subsidiaries
4(a) Certificate of Incorporation of Subsidiary
4(b) By-Laws of Subsidiary
10(a) Form of Regent Option Agreement
12B Rule 145 Letter
13(b)(3) Form of Redemption and Warrant Agreement
21(a) Capital Stock of Faircom Subsidiaries
21(b) Faircom Options
21(f) Faircom Affiliates
21(g) Rights to Acquire Securities (Faircom)
21(i) Title to Faircom Broadcast Assets
21(k-1) Faircom Contracts
21(m-1) Faircom Key Employees
21(m-2) Faircom Accounts and Safe Deposit Boxes
21(o) Faircom Related Transactions
21(p) Faircom Taxes
21(q) Faircom Employee Benefit Plans
21(r) Faircom Compliance with Commission Regulations
21(s) Faircom Tangible Personal Property
21(t) Faircom Real Property
21(u) Faircom Environmental
</TABLE>
E-1
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
21(v) Faircom Insurance
21(bb) Faircom Litigation
21(ee) Faircom Intellectual Property
21(hh) Certain Changes (Faircom)
21(ii) Faircom Personnel
21(kk) Faircom Outstanding Debt
22(a) Information Regarding Regent Subsidiaries
22(f) Regent Affiliates
22(g) Rights to Acquire Securities (Regent)
22(i) Title to Regent Assets
22(k-1) Regent Contracts
22(m-1) Regent Key Employees
22(o) Regent Related Transactions
22(p) Regent Taxes
22(q) Regent Employee Benefit Plans
22(r) Regent Compliance with Commission Regulations
22(s) Regent Tangible Personal Property
22(t) Regent Real Property
22(u) Regent Environmental
22(v) Regent Insurance
22(bb) Regent Litigation
22(dd) Regent Required Consents
22(ee) Regent Intellectual Property
22(hh) Certain Changes (Regent)
22(ii) Regent Personnel
22(kk) Regent Outstanding Debt
22(ll) Exceptions to Negative Covenants
27c) Form of Opinion of Fulbright & Jaworski L.L.P.
28(b) Form of Opinion of Strauss & Troy
34 Form of Employment Agreement
</TABLE>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(b)* Agreement of Merger dated as of December 17, 1997 among Regent
Communications, Inc., Regent Broadcasting of Victorville, Inc.
and Topaz Broadcasting, Inc. (previously filed as Exhibit 2(b)
to the Registrant's Form S-4 Registration Statement No.
333-46435 effective May 7, 1998 and incorporated herein by
this reference).
E-2
<PAGE> 59
The following schedules to the foregoing Agreement of Merger
are omitted as not material; the Company will furnish
supplementally a copy of any omitted schedule to the
Commission upon request:
Schedule Description
1(c)(ix) Excluded Assets
1(f) Attributes of Series E Preferred Stock
20(f) Interests in Other Businesses
20(g) Rights to Acquire Securities
20(j) Financials
20(k-1) Contracts
20(k-2) Trade Agreements
20(m-1) Employees with Annual Compensation over
$20,000
20(m-2) Topaz Bank Accounts
20(o) Debts and Obligations to Stockholder
20(p) Tax Exceptions
20(q) Employee Benefit Plans and Other
Arrangement
20(s) Tangible Personal Property
20(t) Environmental
20(u) Insurance
20(v) Compliance with Law
20(z) Litigation
20(cc) Intellectual Property
20(ff) Employees
20(gg) Debt of Topaz
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(c)* Asset Purchase Agreement dated December 17, 1997 between
Regent Broadcasting of Victorville, Inc. and Ruby
Broadcasting, Inc. (previously filed as Exhibit 2(c) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
The following schedules to the foregoing Asset Purchase
Agreement are omitted as not material; the Company will
furnish supplementally a copy of any omitted schedule to the
Commission upon request:
Schedule Description
1.2.9 Miscellaneous Excluded Assets
7.4 FCC Licenses and Exceptions
7.7 Personal Property
E-3
<PAGE> 60
Schedule Description
7.8 Leases and Real Property Exceptions
7.9 Assumed Contracts
7.11 Environmental Matters
7.12 Intellectual Property
7.13 Financial Statements
7.14 Employees
7.15 Litigation
7.16 Compliance with Law
7.17 Employee Benefit Plans and Other Arrangements
7.19 Changes Not in the Ordinary Course
A Deposit Escrow Agreement
B Time Brokerage Agreement
C Assignment and Assumption Agreement
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(d)* Asset Purchase Agreement dated December 9, 1997 between Regent
Broadcasting of Kingman, Inc. and Continental Radio
Broadcasting, L.L.C. (previously filed as Exhibit 2(d) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
The following schedules and exhibits to the foregoing Asset
Purchase Agreement are omitted as not material; the Company
will furnish supplementally a copy of any omitted schedule to
the Commission upon request:
Schedule Description
1.2.9 Miscellaneous Excluded Assets
7.4 Stations Licenses, Etc.
7.7 Tangible Personal Property
7.8 Real Property
7.9 Contracts (including identification
of Material Contracts)
7.11 Environmental Matters
7.12 Intellectual Property
7.13 Financial Statements
7.14 Personnel Information
7.15 Litigation
7.16 Compliance With Laws
7.17 Employee Benefit Plans
E-4
<PAGE> 61
Exhibit Description
A Indemnification Escrow Agreement
B Deposit Escrow Agreement
C Agreement re Allocation of Purchase Price
D Assignment and Assumption Agreement
E Opinion of Seller's Corporate Counsel
F Opinion of Seller's FCC Counsel
G Opinion of Buyer's Counsel
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(e)* Stock Purchase Agreement dated as of June 16, 1997 among
Regent Communications, Inc. and the shareholders of The Park
Lane Group, as amended (previously filed as Exhibit 2(e) to
the Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
The following exhibits to the foregoing Stock Purchase
Agreement are omitted as not material; the Company will
furnish supplementally a copy of any omitted schedule to the
Commission upon request:
Exhibit Description
A Deposit Escrow Agreement
C Opinion of Counsel for Sellers
D Form of FCC Opinion
E Opinion of Counsel for Buyer
F Consulting and Non-Competition Agreement
G Time Brokerage Agreement
H Required Consents
2(f)* Agreement of Merger among Alta California Broadcasting, Inc.,
Regent Acquisition Corp. and Regent Communications, Inc. dated
October 10, 1997 (previously filed as Exhibit 2(f) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
The following exhibits to the foregoing Agreement of Merger
are omitted as not material; the Company will furnish
supplementally a copy of any omitted schedule to the
Commission upon request:
E-5
<PAGE> 62
Exhibit Description
1(c)(x) Exceptions to Broadcast Assets
1(d) Consolidated 1997 Budget Projections
1(k) Licenses
20(f) Affiliates of Alta
20(g) Exceptions to Rights to Acquire Securities
20(i) Exceptions to Title to Broadcast Assets
20(k-1) List of Contracts Relative to the Stations
20(k-2) List of Balances of Trade Accounts
20(k-3) Percentages
20(m-1) Employees exceeding $20,000
20(m-2) Bank Accounts of Alta
20(o) Related Transactions
20(p) Taxes
20(q) Employee Benefit Plans
20(x) Compliance with FCC Regulations
20(s) Personal Property
20(t) Real Property
20(u) Environmental Matters
20(v) Insurance
20(bb) Litigation
20(ee) Intellectual Property
20(ii) Personnel Information
20(jj) Outstanding Debt
20(kk) Certain Negative Covenants
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4(a)# Amended and Restated Certificate of Incorporation of Regent
Communications, Inc.
4(b)* Amended and Restated By-Laws of Regent Communications, Inc.
(previously filed as Exhibit 3(b) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(c)# Second Amended and Restated Stockholders' Agreement dated as
of June 15, 1998 among Regent Communications, Inc., Terry S.
Jacobs, William L. Stakelin, Waller-Sutton Media Partners,
L.P., William H. Ingram, WGP Corporate Development Associates
V, L.P., WGP Corporate Development Associates (Overseas) V,
L.P., River Cities Capital Fund Limited Partnership, BMO
Financial, Inc., General Electric Capital Corporation, Joel M.
Fairman, Miami Valley Venture Fund II Limited Partnership, and
Blue Chip Capital Fund II Limited Partnership (excluding
exhibits not deemed material or filed separately in executed
form).
E-6
<PAGE> 63
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4(d)# Stock Purchase Agreement dated June 15, 1998 among Regent
Communications, Inc., Waller-Sutton Media Partners, L.P., WPG
Corporate Development Associates V, L.P., WPG Corporate
Development Associates (Overseas) V, L.P., General Electric
Capital Corporation, River Cites Capital Fund Limited
Partnership and William H. Ingram (excluding exhibits not
deemed material or filed separately in executed form).
4(e)# Registration Rights Agreement dated June 15, 1998 among Regent
Communications, Inc., PNC Bank, N.A., Trustee, Waller-Sutton
Media Partners, L.P., WPG Corporate Development Associates V,
L.P., WPG Corporate Development Associates (Overseas) V, L.P.,
BMO Financial, Inc., General Electric Capital Corporation,
River Cites Capital Fund Limited Partnership, Terry S. Jacobs,
William L. Stakelin, William H. Ingram, Blue Chip Capital Fund
II Limited Partnership, Miami Valley Venture Fund L.P. and
Thomas Gammon (excluding exhibits not deemed material or filed
separately in executed form).
4(f)# Warrant for the Purchase of 650,000 Shares of Common Stock
issued by Regent Communications, Inc. to Waller-Sutton Media
Partners, L.P. dated June 15, 1998 (See Note 1 below).
4(g)# Warrant for the Purchase of 50,000 Shares of Common Stock
issued by Regent Communications, Inc. to General Electric
Capital Corporation dated June 15, 1998.
4(h)# Agreement to Issue Warrant dated as of June 15, 1998 between
Regent Communications, Inc. and General Electric Capital
Corporation (excluding exhibits not deemed material or filed
separately in executed form).
4(i)* Grant of Incentive Stock Option effective June 15, 1998 in
favor of Terry S. Jacobs (previously filed as Exhibit 4(i)
to the Registrant's Form 10-Q filed on August 19, 1998 and
incorporated herein by this reference).
4(j)* Grant of Incentive Stock Option effective June 15, 1998 in
favor of William S. Stakelin (previously filed as Exhibit 4(j)
to the Registrant's Form 10-Q filed on August 19, 1998 and
incorporated herein by this reference).
4(k)* Warrant for the Purchase of 80,000 Shares of Common Stock
issued by Regent Communications, Inc. to River Cities
Capital Fund Limited Partnership dated June 15, 1998
(previously filed as Exhibit 4(k) to the Registrant's
Form 10-Q filed on August 19, 1998 and incorporated herein by
this reference).
4(l)* Stock Purchase Agreement dated as of May 20, 1997 between
Terry S. Jacobs and Regent Communications, Inc. (previously
filed as Exhibit 4(b) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998
and incorporated herein by this reference).
4(m)* Stock Purchase Agreement dated as of May 20, 1997 between
River Cities Capital Fund Limited Partnership and Regent
Communications, Inc. (previously filed as Exhibit 4(c) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
4(n)* Stock Purchase Agreement dated as of November 26, 1997 and
Terry S. Jacobs and Regent Communications, Inc. (previously
filed as Exhibit 4(d) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998
and incorporated herein by this reference).
4(o)* Stock Purchase Agreement dated as of December 1, 1997
between William L. Stakelin and Regent Communications,
Inc. (previously filed as Exhibit 4(e) to the Registrant's
Form S-4 Registration Statement No. 333-46435 effective
May 7, 1998 and incorporated herein by this reference).
4(p)* Stock Purchase Agreement dated as of December 8, 1997
between Regent Communications, Inc. and General Electric
Capital Corporation (previously filed as Exhibit 4(f) to
the Registrant's Form S-4 Registration Statement No.
333-46435 effective May 7, 1998 and incorporated herein by
this reference).
4(q)* Stock Purchase Agreement dated as of December 8, 1997
between Regent Communications, Inc. and BMO Financial,
Inc. (previously filed as Exhibit 4(g) to the Registrant's
Form S-4 Registration Statement No. 333-46435 effective
May 7, 1998 and incorporated herein by this reference).
4(r)* Amended and Restated Redemption and Warrant Agreement
dated as of March 31, 1998 among Regent Communications,
Inc., Blue Chip Capital Fund II Limited Partnership,
Miami Valley Venture Fund L.P. and Faircom Inc. (previously
filed as Exhibit 4(i) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998
and incorporated herein by this reference).
E-7
<PAGE> 64
4(s)* Credit Agreement dated as of November 14, 1997 among
Regent Communications, Inc., the lenders listed therein,
as Lenders, General Electric Capital Corporation, as
Documentation Agent and Bank of Montreal, Chicago Branch,
as Agent (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit
4(j) to the Registrant's Form S-4 Registration Statement
No. 333-46435 effective May 7, 1998 and incorporated herein
by this reference).
4(t)* Revolving Note issued by Regent Communications, Inc. to
Bank of Montreal, Chicago Branch dated November 14, 1997
in the principal amount of $20,000,000 (See Note 2 below)
(previously filed as Exhibit 4(k) to the Registrant's Form
S-4 Registration Statement No. 333-46435 effective May 7,
1998 and incorporated herein by this reference).
4(u)* Agreement to Issue Warrant dated as of March 25, 1998
between Regent Communications, Inc. and River Cities
Capital Fund Limited Partnership (previously filed as
Exhibit 4(l) to the Registrant's Form S-4 Registration
Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(v)* Regent Communications, Inc. Faircom Conversion Stock
Option Plan (previously filed as Exhibit 4(m) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
4(w) First Amendment to Credit Agreement dated as of February 16,
1998 among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch as Agent.
4(x) Second Amendment and Limited Waiver to Credit Agreement
dated as of June 10, 1998 among Regent Communications, Inc.
the financial institutions listed therein, as lenders,
General Electric Capital Corporation, as Documentation
Agent, and Bank of Montreal, Chicago Branch as Agent.
20(a)# Form 10-K of Faircom Inc. for the year ended December 31,
1997, including all exhibits thereto, as filed with the
Securities and Exchange Commission on March 30, 1998.
20(b)# Form 10-Q of Faircom Inc. for the quarter ended March 31,
1998, including all exhibits thereto, as filed with the
Securities and Exchange Commission on May 14, 1998.
20(c)# Executive Employment Agreement dated June 15, 1998 between
Regent Communications, Inc. and Joel M. Fairman (excluding
exhibits not deemed material or filed separately in
executed form).
20(d)# Consulting and Non-Competition Agreement between Regent
Communications, Inc. and James H. Levy.
23(a) Consent of PricewaterhouseCoopers LLP
23(b) Consent of PricewaterhouseCoopers LLP
23(c) Consent of PricewaterhouseCoopers LLP
23(d) Consent of PricewaterhouseCoopers LLP
23(e) Consent of Stockman Kast Ryan & Scruggs, P.C.
E-8
<PAGE> 65
99(a) The following financial statements appearing on pages F-50
through and including F-102 and pages F-109 through and
including F-130 of the Registrant's Form S-4 Registration
Statement No. 333-46435 effective May 7, 1998, have been
incorporated by reference in this Form 8-K/A and copies of
which are filed as this Exhibit 99(a):
REGENT COMMUNICATIONS, INC.
Report of Independent Accountants.
Consolidated Balance Sheets at December 31, 1997 and
1996.
Consolidated Statements of Operations for the year ended
December 31, 1997 and the period from November 5, 1996
(inception) through December 31, 1996
Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1997 and the period from
November 5, 1996 (inception) through December 31,
1996.
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the period from November 5, 1996
(inception) through December 31, 1996
Notes to Consolidated Financial Statements
THE PARK LANE GROUP AND SUBSIDIARIES
Report of Independent Accountants.
Consolidated Balance Sheets at December 31, 1997 and
1996.
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
Independent Auditors' Report
Consolidated Balance Sheet at March 31, 1997
Consolidated Statement of Operations for the year ended
March 31, 1997
Consolidated Statement of Stockholder's Equity
(Deficiency) for the year ended March 31, 1997
Consolidated Statement of Cash Flows for the year ended
March 31, 1997
Notes to Consolidated Financial Statements
Consolidated Balance Sheet at December 31, 1997.
Consolidated Statements of Operations for the nine months
ended December 31, 1996 and 1997.
Consolidated Statement of Stockholder's Equity
(Deficiency) for the nine months ended December 31,
1997.
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1996 and 1997.
Notes to Consolidated Financial Statements
POWER SURGE, INC.
Independent Auditors' Report
Balance Sheet at December 31, 1997
Statement of Operations for the year ended December 31,
1997.
Statement of Stockholders' Equity for the year ended
December 31, 1997
Statement of Cash Flows for the year ended December 31,
1997.
Notes to Financial Statements.
CONTINENTAL RADIO BROADCASTING L.L.C.
Report of Independent Accountants.
Balance Sheet at December 31, 1997
Statement of Operations for the year ended December 31,
1997.
Statement of Changes in Partners' Deficit for the year
ended December 31, 1997
Statement of Cash Flows for the year ended December 31,
1997.
Notes to Financial Statements.
RADIO STATION KZXY(FM)
Report of Independent Accountants.
Statement of Revenues and Direct Expenses for the years
ended December 31, 1997 and 1996.
Notes to Statement of Revenues and Direct Expenses
99(b) The following financial statements appearing under Item 7A on
pages 4 through and including 23 of the Form 8-K/A, Amendment
No. 2 to Current Report dated June 30, 1997 (filing date
September 12, 1997) of Faircom Inc. have been incorporated by
reference in this Form 8-K/A and copies of which are filed as
this Exhibit 99(b):
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP (WYHT (FM) AND
WMAN (AM))
Report of Independent Accountants
Balance Sheets at November 30, 1996 and 1995
Statement of Partners' Deficit for the years ended
November 30, 1996 and 1995.
Statement of Income for the years ended November 30, 1996
and 1995.
Statement of Cash Flows for the years ended November 30,
1996 and 1995
Notes to Financial Statements.
Condensed Balance Sheets at May 31, 1997 and 1996.
Condensed Statements of Operations for the six months ended
May 31, 1997 and 1996
Condensed Statements of Cash Flows for the six months ended
May 31, 1997 and 1996
Note to Interim Financial Statements
99(c) The following pro forma financial information, appearing
under the heading "Unaudited Pro Forma Condensed Combined
Financial Statements of Regent Communications, Inc." on pages
56 through and including 63 of the Company's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998,
has been incorporated by reference in this Form 8-K/A and
copies of which are filed as this Exhibit 99(c):
Pro Forma Condensed Combined Financial Statements
Introduction
Pro Forma Condensed Combined Balance Sheet at December 31,
1997
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997
Notes to Pro Forma Condensed Combined Financial Statements
E-9
<PAGE> 66
*Incorporated by reference as indicated.
#Previously filed as an exhibit to the initial Form 8-K which this form
8-K/A amends and incorporated herein by this reference.
Notes:
1. Six substantially identical Warrants for the purchase of shares of
Registrant's common stock were issued as follows:
Waller-Sutton Media Partners, L.P. 650,000
WPG Corporate Development Associates V, L.P. 112,580
WPG Corporate Development Associates (Overseas) V, L.P. 17,420
General Electric Capital Corporation 50,000
River Cites Capital Fund Limited Partnership 20,000
William H. Ingram 10,000
2. Two substantially identical notes were issued to Bank of Montreal,
Chicago Branch, in the principal amounts of $15,000,000
and $20,000,000.
E-10
<PAGE> 1
Exhibit 4(w)
REGENT COMMUNICATIONS, INC.
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of
February 16, 1998 and entered into by and among Regent Communications, Inc., a
Delaware corporation ("COMPANY"), the financial institutions listed on the
signature pages hereof ("LENDERS"), General Electric Capital Corporation, as
documentation agent ("DOCUMENTATION AGENT") and Bank of Montreal, Chicago
Branch, as agent for Lenders ("AGENT"), and, for purposes of Section 3 hereof,
the Credit Support Parties (as defined in Section 6 hereof) listed on the
signature pages hereof, and is made with reference to that certain Credit
Agreement dated as of November 14, 1997 (as so amended, the "CREDIT AGREEMENT"),
by and among Company, Lenders and Agent. Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit Agreement to make
certain amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. AMENDMENTS TO SECTION 1: DEFINITIONS
CERTAIN DEFINED TERMS. Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the reference to "March 31, 1998" contained therein and
substituting "June 30, 1998" therefor.
B. AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
1. COMMITMENTS. Subsection 2.1A of the Credit Agreement is hereby amended
by deleting the reference to "March 31, 1998" contained therein and substituting
"June 30, 1998" therefor.
2. SCHEDULED REDUCTIONS OF REVOLVING LOAN COMMITMENTS. Subsection 2.4A of
the Credit Agreement is hereby amended by restating the table set forth therein
in its entirety as follow:
<TABLE>
<CAPTION>
================================================================================
QUARTER SCHEDULED REDUCTION
ENDING OF REVOLVING
LOAN COMMITMENTS
- --------------------------------------------------------------------------------
<S> <C>
March 31, 1999 $ 687,500
- --------------------------------------------------------------------------------
June 30, 1999 $ 687,500
- --------------------------------------------------------------------------------
September 30, 1999 $ 687,500
- --------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 2
<TABLE>
<CAPTION>
================================================================================
QUARTER SCHEDULED REDUCTION
ENDING OF REVOLVING
LOAN COMMITMENTS
- --------------------------------------------------------------------------------
<S> <C>
December 31, 1999 $ 687,500
- --------------------------------------------------------------------------------
March 31, 2000 $ 1,718,750
- --------------------------------------------------------------------------------
June 30, 2000 $ 1,718,750
- --------------------------------------------------------------------------------
September 30, 2000 $ 1,718,750
- --------------------------------------------------------------------------------
December 31, 2000 $ 1,718,750
- --------------------------------------------------------------------------------
March 31, 2001 $ 2,062,500
- --------------------------------------------------------------------------------
June 30, 2001 $ 2,062,500
- --------------------------------------------------------------------------------
September 30, 2001 $ 2,062,500
- --------------------------------------------------------------------------------
December 31, 2001 $ 2,062,500
- --------------------------------------------------------------------------------
March 31, 2002 $ 2,406,250
- --------------------------------------------------------------------------------
June 30, 2002 $ 2,406,250
- --------------------------------------------------------------------------------
September 30, 2002 $ 2,406,250
- --------------------------------------------------------------------------------
December 31, 2002 $ 2,406,250
- --------------------------------------------------------------------------------
March 31, 2003 $ 2,406,250
- --------------------------------------------------------------------------------
June 30, 2003 $ 2,406,250
- --------------------------------------------------------------------------------
September 30, 2003 $ 2,406,250
- --------------------------------------------------------------------------------
December 31, 2003 $2,406,250
- --------------------------------------------------------------------------------
March 31, 2004 $2,750,000
- --------------------------------------------------------------------------------
June 30, 2004 $2,750,000
- --------------------------------------------------------------------------------
September 30, 2004 $2,750,000
- --------------------------------------------------------------------------------
December 31, 2004 $2,750,000
- --------------------------------------------------------------------------------
March 31, 2005 $6,875,000
================================================================================
</TABLE>
C. AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS
OFFICERS' AND COMPLIANCE CERTIFICATES. Subsection 6.1(iv) of the Credit
Agreement is hereby amended by deleting the reference to "March 31, 1998"
contained therein and substituting "June 30, 1998" therefor.
D. AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS
MAXIMUM CONSOLIDATED TOTAL DEBT RATIO. Subsection 7.6C of the Credit
Agreement is hereby amended by restating the table set forth therein in its
entirety as follow:
<TABLE>
<CAPTION>
============================================================================================
MAXIMUM
FISCAL YEAR LEVERAGE RATIO
- --------------------------------------------------------------------------------------------
<S> <C>
Closing Date - September 30, 1998 6.00:1.00
- --------------------------------------------------------------------------------------------
October 1, 1998 - December 31, 1998 5.50:1.00
- --------------------------------------------------------------------------------------------
January 1, 1999 - March 31, 1999 5.25:1.00
- --------------------------------------------------------------------------------------------
April 1, 1999 - September 30, 1999 5.00:1.00
- --------------------------------------------------------------------------------------------
October 1, 1999 - March 31, 2000 4.75:1.00
- --------------------------------------------------------------------------------------------
April 1, 2000 - September 30, 2000 4.50:1.00
- --------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE> 3
<TABLE>
<CAPTION>
============================================================================================
MAXIMUM
FISCAL YEAR LEVERAGE RATIO
- --------------------------------------------------------------------------------------------
<S> <C>
October 1, 2000 - March 31, 2001 4.00:1.00
- --------------------------------------------------------------------------------------------
April 1, 2001 and thereafter 3.50:1.00
============================================================================================
</TABLE>
E. AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT
Subsection 8.16 of the Credit Agreement is hereby amended by deleting the
reference to "March 31, 1998" contained therein and substituting "June 30, 1998"
therefor.
SECTION 2. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, Company represents and warrants
to each Lender that the following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power
and authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the Credit Agreement as
amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of Company .
C. NO CONFLICT. The execution and delivery by Company of this Amendment and
the performance by Company of the Amended Agreement do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Company or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on Company
or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company or any of its Subsidiaries, or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this
Amendment and the performance by Company of the Amended Agreement do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any federal, state or other governmental authority
or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been
duly executed and delivered by Company and are the legally valid and binding
obligations of Company, enforceable against Company in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.
The representations and warranties contained in Section 5 of the Credit
Agreement are and will be true, correct and complete in all material respects on
and as of the First Amendment Effective Date (as defined below) to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that
Page 3
<PAGE> 4
would constitute an Event of Default or a Potential Event of Default.
SECTION 3. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Pledge and Security Agreement and the Collateral
Account Agreement, in each case as amended through the First Amendment Effective
Date, pursuant to which Company has created Liens in favor of Agent on certain
Collateral to secure the Obligations. Each of the Subsidiaries is a party to the
Subsidiary Guaranty and the Pledge and Security Agreement, in each case as
amended through the First Amendment Effective Date, pursuant to which the
Subsidiaries have (i) guarantied the Obligations and (ii) created Liens in favor
of Agent on certain Collateral and pledged certain Collateral to Agent to secure
the obligations of Subsidiaries under the Subsidiary Guaranty. Terry S. Jacobs
is a party to the Jacobs Guaranty, as amended through the First Amendment
Effective Date, pursuant to which Terry S. Jacobs has guarantied the
Obligations. Company, each Subsidiary and Terry S. Jacobs are collectively
referred to herein as the "CREDIT SUPPORT PARTIES", and the Subsidiary Guaranty,
the Jacobs Guaranty, the Pledge and Security Agreement and the Collateral
Account Agreement are collectively referred to herein as the "CREDIT SUPPORT
DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement effected pursuant to this Amendment. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations", "Guarantied
Obligations" and "Secured Obligations", as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations", "Guarantied
Obligations" or "Secured Obligations", as the case may be, in respect of the
Obligations of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the Credit
Support Documents to which it is a party or otherwise bound shall continue in
full force and effect and that all of its obligations thereunder shall be valid
and enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Credit Support Party represents and
warrants that all representations and warranties contained in the Amended
Agreement and the Credit Support Documents to which it is a party or otherwise
bound are true, correct and complete in all material respects on and as of the
First Amendment Effective Date to the same extent as though made on and as of
that date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and complete in
all material respects on and as of such earlier date.
Each Credit Support Party (other than Company) acknowledges and agrees that
(i) notwithstanding the conditions to effectiveness set forth in this Amendment,
such Credit Support Party is not required by the terms of the Credit Agreement
or any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Credit Support Party to any future amendments to the Credit Agreement.
SECTION 4. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the First Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Credit Agreement, and each
reference in the
Page 4
<PAGE> 5
other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. HEADINGS. Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the execution of a
counterpart hereof by Company, Lenders and each of the Credit Support Parties
and receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof (the "FIRST AMENDMENT EFFECTIVE
DATE").
[Remainder of page intentionally left blank]
Page 5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
REGENT COMMUNICATIONS, INC.
By: /s/
-------------------------------
Name:
Title:
Page 6
<PAGE> 7
REGENT BROADCASTING OF SAN DIEGO,INC., REGENT
BROADCASTING OF DAYTON, INC., REGENT
BROADCASTING OF CHICO, INC., REGENT
BROADCASTING OF FLAGSTAFF, INC., REGENT
BROADCASTING OF KINGMAN, INC., REGENT
BROADCASTING OF LAKE TAHOE, INC., REGENT
BROADCASTING OF PALMDALE, INC., REGENT
BROADCASTING OF REDDING, INC., REGENT
BROADCASTING OF VICTORVILLE, INC.,, REGENT
ACQUISITION CORP., REGENT MERGER CORP., each a
Delaware corporation (for purposes of Section
3 only) as a Credit Support Party
By: /s/
-------------------------------
Name:
Title:
of each of the forgoing
REGENT LICENSEE OF SAN DIEGO, INC.,
REGENT LICENSEE OF DAYTON, INC.,
each a Delaware corporation
(for purposes of Section 3 only) as a
Credit Support Party
By: /s/
-------------------------------
Name:
Title:
of each of the forgoing
Page 7
<PAGE> 8
TERRY S. JACOBS, an individual
(for purposes of Section 3 only) as a
Credit Support Party
/s/
-----------------------------------
Terry S. Jacobs
Page 8
<PAGE> 9
BANK OF MONTREAL, CHICAGO BRANCH,
individually and as Agent
By: /s/
-------------------------------
Name:
Title:
Page 9
<PAGE> 10
GENERAL ELECTRIC CAPITAL CORPORATION,
individually and as Documentation Agent
By: /s/
-------------------------------
Name:
Title:
Page 10
<PAGE> 11
BANK ONE, INDIANAPOLIS, NA,
By: /s/
-------------------------------
Name:
Title:
Page 11
<PAGE> 1
Exhibit 4(x)
REGENT COMMUNICATIONS, INC.
SECOND AMENDMENT AND LIMITED WAIVER
TO CREDIT AGREEMENT
This SECOND AMENDMENT AND LIMITED WAIVER TO CREDIT AGREEMENT (this
"AMENDMENT") is dated as of June 10, 1998 and entered into by and among Regent
Communications, Inc., a Delaware corporation ("COMPANY"), the financial
institutions listed on the signature pages hereof ("LENDERS"), General Electric
Capital Corporation, as documentation agent ("DOCUMENTATION AGENT") and Bank of
Montreal, Chicago Branch, as agent for Lenders ("AGENT"), and, for purposes of
Section 5 hereof, the Credit Support Parties (as defined in Section 5 hereof)
listed on the signature pages hereof, and is made with reference to that certain
Credit Agreement dated as of November 14, 1997, as amended by that certain First
Amendment to Credit Agreement dated as of February 16, 1998 (as so amended, the
"CREDIT AGREEMENT"), by and among Company, Lenders and Agent. Capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to waive compliance with the provisions
of subsection 4.3H of the Credit Agreement and to amend the Credit Agreement to
make certain amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. AMENDMENTS TO SECTION 1: DEFINITIONS
(i) Subsection 1.1 is hereby amended by restating the definition of
"Adjusted Consolidated Operating Cash Flow" in its entirety as follows:
""ADJUSTED CONSOLIDATED OPERATING CASH FLOW" means Consolidated Operating
Cash Flow; provided that (A) for any relevant period through September 30,
1998, to the extent that the operating cash flow on a trailing 12 month
basis relating to the Flagstaff and Kingman Stations (on a combined basis
in accordance with GAAP) included in the calculation of Consolidated
Operating Cash Flow for any such period is negative, such negative combined
operating cash flow for such period shall be deemed to be zero for purposes
of calculating Adjusted Consolidated Operating Cash Flow hereunder
(provided, however, that no more than $300,000 in the aggregate of negative
combined operating cash flow for all such Stations may be excluded in any
such period) and (B) for any relevant period during the first consecutive
twelve months following the pre-Closing Date programming format change for
Station KIXA(FM), licensed to Lucerne Valley, California, implemented on
March 15, 1998, and Station KNRO(AM), licensed to Redding, California,
implemented on December 1, 1997, to the extent the operating cash flow on a
trailing 12- month basis for any such Station (on a stand-alone basis)
included in Consolidated Operating Cash Flow for any such period is
negative, such negative combined operating cash flow for such period shall
be deemed to be zero for purposes of calculating Adjusted
Page 1
<PAGE> 2
Consolidated Operating Cash Flow hereunder (provided, however that the
aggregate amount of negative operating cash flow that may be so excluded
pursuant to the immediately preceding proviso shall not exceed $140,000 for
KIXA(FM) and $92,000 for KNRO(AM))."
(ii) Subsection 1.1 is hereby further amended by adding the following
proviso to the end of the definition of "Consolidated Operating Cash Flow":
"; provided that for any period in which any Credit Party has acquired, or
disposed of, a Station, Consolidated Operating Cash Flow shall be
calculated on a pro forma basis as if such acquisition or disposition had
occurred on the first date of such period and shall be adjusted to give
effect to any cost savings arising from the consolidation or automation of
operations or elimination of redundancies resulting from such transaction,
all of the foregoing pro forma calculations and adjustments to be
satisfactory to Agent in the case of aggregate adjustments not exceeding
$100,000 and satisfactory to Requisite Lenders in the case of aggregate
adjustments in excess of such amount; provided further that the foregoing
adjustments resulting from Permitted Acquisitions occurring on the Closing
Date shall not exceed $1,475,000."
SECTION 2. WAIVER
Lenders hereby waive compliance with the provisions of subsection 4.3H of
the Credit Agreement requiring that the Acquisition FCC Consent with respect to
radio stations KNNN(FM), KRDG(FM), KRRX(FM) and KNRO(AM) (collectively, the
"ALTA STATIONS") shall have become a Final Order on or before the Permitted
Acquisition Closing Date with respect to the Alta Stations; provided that if the
FCC takes action to prevent such Acquisition FCC Consent from becoming a Final
Order, or if such Acquisition FCC Consent shall not be a Final Order, for any
reason, as of July 10, 1998, then, in either event, an Event of Default shall be
deemed to have occurred.
SECTION 3. LIMITATION OF AMENDMENT AND WAIVER
Without limiting the generality of the provisions of subsection 10.6 of the
Credit Agreement, the amendment and waiver set forth above shall be limited
precisely as written and relate solely to the matters expressly set forth in
Sections 1 and 2 hereof, in the manner and to the extent described above, and
nothing in this Amendment shall be deemed to:
(a) constitute a waiver of compliance by Company with respect to any
other term, provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein; or
(b) prejudice any right or remedy that Agent or any Lender may now
have (except to the extent such right or remedy was based upon
noncompliance or defaults that will not exist after giving effect to this
Amendment) or may have in the future under or in connection with the Credit
Agreement or any other instrument or agreement referred to therein.
Except as expressly set forth herein, the terms, provisions and conditions
of the Credit Agreement and the other Loan Documents shall remain in full force
and effect and in all other respects are hereby ratified and confirmed.
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment, Company hereby
represents and warrants that after giving effect to this Amendment:
(a) there exists no Event of Default or Potential Event of Default
under the Credit Agreement;
Page 2
<PAGE> 3
(b) all representations and warranties contained in the Credit
Agreement and the other Loan Documents are true, correct and complete in
all material respects on and as of the date hereof except to the extent
such representations and warranties specifically relate to an earlier date,
in which case they were true, correct and complete in all material respects
on and as of such earlier date; and
(c) Company has performed all agreements to be performed on its part
as set forth in the Credit Agreement.
SECTION 5. ACKNOWLEDGEMENT AND CONSENT
Each of the Company, the Subsidiaries, and Terry S. Jacobs (each
individually a "Credit Support Party" and collectively, the "CREDIT SUPPORT
PARTIES") hereby acknowledges that it has reviewed the terms and provisions of
the Credit Agreement and this Amendment and consents to the amendment of the
Credit Agreement effected pursuant to this Amendment. The Pledge and Security
Agreement, the Collateral Account Agreement, the Subsidiary Guaranty and the
Jacobs Guaranty are collectively referred to herein as the "CREDIT SUPPORT
DOCUMENTS". Each Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all Collateral encumbered
thereby will continue to guaranty or secure, as the case may be, to the fullest
extent possible the payment and performance of all "Guarantied Obligations" and
"Secured Obligations", as the case may be (in each case as such terms are
defined in the applicable Credit Support Document), including without limitation
the payment and performance of all such "Guarantied Obligations" and "Secured
Obligations", as the case may be, in respect of the Obligations of Company now
or hereafter existing under or in respect of the Credit Agreement and the Notes.
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Second Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement, and
each reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. HEADINGS. Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
Page 3
<PAGE> 4
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the execution of a
counterpart hereof by Company, Lenders and each of the Credit Support Parties
and receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof (the "SECOND AMENDMENT EFFECTIVE
DATE").
[Remainder of page intentionally left blank]
Page 4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
REGENT COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title:
Page 5
<PAGE> 6
REGENT BROADCASTING OF SAN DIEGO,INC.,
REGENT BROADCASTING OF DAYTON, INC.,
REGENT BROADCASTING OF CHICO, INC.,
REGENT BROADCASTING OF FLAGSTAFF, INC.,
REGENT BROADCASTING OF KINGMAN, INC.,
REGENT BROADCASTING OF LAKE TAHOE, INC.,
REGENT BROADCASTING OF PALMDALE, INC.,
REGENT BROADCASTING OF REDDING, INC.,
REGENT BROADCASTING OF VICTORVILLE, INC.,,
REGENT ACQUISITION CORP., REGENT MERGER CORP.,
each a Delaware corporation (for purposes of
Section 5 only) as a Credit Support Party
By:
-----------------------------------------
Name:
Title:
of each of the forgoing
REGENT LICENSEE OF SAN DIEGO, INC.,
REGENT LICENSEE OF DAYTON, INC.,
each a Delaware corporation
(for purposes of Section 5 only) as a
Credit Support Party
By:
-----------------------------------------
Name:
Title:
of each of the foregoing
Page 6
<PAGE> 7
TERRY S. JACOBS, an individual
(for purposes of Section 5 only) as a
Credit Support Party
-----------------------------------
Terry S. Jacobs
Page 7
<PAGE> 8
BANK OF MONTREAL, CHICAGO BRANCH,
individually and as Agent
By:
-----------------------------------------
Name:
Title:
Page 8
<PAGE> 9
GENERAL ELECTRIC CAPITAL CORPORATION,
individually and as Documentation Agent
By:
-----------------------------------------
Name:
Title:
Page 9
<PAGE> 10
BANK ONE, INDIANAPOLIS, NA,
By:
-----------------------------------------
Name:
Title:
Page 10
<PAGE> 1
Exhibit 23(a)
We consent to the incorporation by reference in this Form 8-K/A of our report
dated January 30, 1998, on our audit of the consolidated financial statements
of Regent Communications, Inc. as of December 31, 1997 and 1996, and for the
three years in the period ending December 31, 1997, appearing in the
registration statement on Form S-4 (SEC File No. 333-46435) of Regent
Communications, Inc. filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
January 30, 1998
<PAGE> 1
Exhibit 23(b)
We consent to the incorporation by reference in this Form 8-K/A of our report
dated February 16, 1998, on our audit of the consolidated financial statements
The Park Lane Group and Subsidiaries as of December 31, 1997 and 1996, and for
the three years in the period ending December 31, 1997, appearing in the
registration statement on Form S-4 (SEC File No. 333-46435) of Regent
Communications, Inc. filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933.
PricewaterhouseCoopers LLP
Menlo Park, California
February 16, 1998
<PAGE> 1
Exhibit 23(c)
We consent to the incorporation by reference in this Form 8-K/A of our report
dated February 10, 1998, on our audit of the consolidated financial statements
of Continental Radio Broadcasting, L.L.C. as of December 31, 1997 and for the
year then ended, appearing in the registration statement on Form S-4 (SEC File
No. 333-46435) of Regent Communications, Inc. filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 10, 1998
<PAGE> 1
Exhibit 23(d)
We consent to the incorporation by reference in this Form 8-K/A of our report
dated January 9, 1998, on our audit of the Statement of Revenues and Direct
Expenses of Radio Station KZXY (FM) for the years ended December 31, 1997 and
1996, appearing in the registration statement on Form S-4 (SEC File No.
333-46435) of Regent Communications, Inc. filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
January 9, 1998
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
Exhibit 23(e)
We consent to the incorporation by reference in this Form 8-K/A under the
Securities Act of 1934 of Regent Communications, Inc. of our report dated
March 13, 1998 relating to the financial statements of Power Surge, Inc. for
the year ended December 31, 1997, and of our report dated June 25, 1997 and
October 10, 1997 relating to the financial statements of Alta California
Broadcasting, Inc. and Subsidiary for the year ended March 31, 1997, contained
in Registration Statement No. 333-46435 of Regent Communications, Inc. on Form
S-4 under the Securities Act of 1933.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
September 1, 1998
<PAGE> 1
REPORT of INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Regent Communications, Inc.
We have audited the accompanying consolidated balance sheets of Regent
Communications, Inc. and Subsidiaries (the "Company") as of December 31, 1997
and 1996 and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year ended December 31, 1997 and for the period
from November 5, 1996 (inception) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Regent
Communications, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1997 and for the period from November 5,1996 (inception) through
December 31, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Cincinnati, Ohio
January 30, 1998
F-50
<PAGE> 2
REGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
as of December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash $ 1,013,547 $ 592
Accounts receivable, less allowance for doubtful
accounts of $86,000 in 1997 1,507,623 -
Other receivables 197,639 -
Other current assets 28,780 -
Deposits held in escrow for station acquisitions 1,975,000 -
Assets held for sale 7,500,000 -
------------ ----------
Total current assets 12,222,589 592
Property, plant and equipment, net 53,792 -
Other assets, net 1,089,462 -
------------ ----------
Total assets $ 13,365,843 $ 592
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 526,004 $ 500
Accounts payable, shareholders - 11,906
Accrued expenses 655,078
Notes payable 7,500,000
------------ ----------
Total current liabilities 8,681,082 12,406
Redeemable preferred stock:
Series B Senior convertible preferred stock, 1,000,000 shares authorized, 1,000,000 issued
and outstanding, $5.00 stated value (liquidation value; $1,122,055), net of
subscription for 780,000 shares for $3,900,000 1,122,055 -
Series D convertible preferred stock, 1,000,000 shares authorized, 220,000 issued
and outstanding , $5.00 stated value (liquidation value; $1,104,852) 1,104,852 -
------------ ----------
Total redeemable preferred stock 2,226,907 -
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value: 20,000,000 shares authorized:
Series A convertible preferred stock, 620,000 shares authorized,
600,000 issued and outstanding, $5.00 stated value 3,000,000 -
(liquidation value: $3,119,268)
Series C convertible preferred stock, 4,000,000 shares authorized, none issued - -
or outstanding, $5.00 stated value
Series E convertible preferred stock, 5,000,000 shares authorized,
none issued or outstanding, $5.00 stated value - -
Common stock, $.01 par value; 30,000,000 shares
authorized; 240,000 shares issued and outstanding 2,400 2,400
Additional paid-in capital 571,285 (1,808)
Deficit (1,115,831) (12,406)
------------ ----------
Total shareholders' equity (deficit) 2,457,854 (11,814)
------------ ----------
Total liabilities and shareholders' equity $ 13,365,843 $ 592
============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-51
<PAGE> 3
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the year ended December 31, 1997 and the period from November 5,1996
(inception) through December 31, 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Broadcast revenue $ 5,302,603 $ -
Less agency commissions (386,598) -
----------- -----------
Net revenue 4,916,005 -
Broadcast operating expenses 4,167,002 -
Time brokerage agreement fees, net 1,223,054 -
Depreciation and amortization expense 655 -
Corporate general and administrative expenses 517,486 12,406
----------- -----------
Operating loss (992,192) (12,406)
Interest expense, net 73,901 -
Other expense, net 37,332 -
----------- -----------
Net loss $(1,103,425) $ (12,406)
=========== ===========
Loss applicable to common shares:
Net loss (1,103,425) (12,406)
Preferred stock dividend requirements (146,175) -
----------- -----------
Loss applicable to common shares $(1,249,600) $ (12,406)
=========== ===========
Basic and diluted net loss per common share $ (5.21) $ (0.05)
=========== ===========
Shares used in basic and diluted per share calculation 240,000 240,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-52
<PAGE> 4
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the year ended December 31, 1997 and the period November 5, 1996 (inception)
through December 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
COMMON STOCK PREFERRED STOCK CAPITAL DEFICIT TOTAL
---------------------- -------------------------- ------------ ----------- ------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 5, 1996 - - - - - - -
(inception)
Issuance of common stock 240,000 $ 2,400 $ (1,808) $ 592
Net loss $ (12,406) (12,406)
---------- ---------- ------------ ------------ ------------ ----------- ------------
Balance December 31, 1996 240,000 2,400 (1,808) (12,406) (11,814)
Contribution from common shareholders 600,000 600,000
Issuance of Series A 600,000 $ 3,000,000
preferred stock 3,000,000
Preferred dividends on Series B and D
redeemable stock (26,907) (26,907)
Net loss (1,103,425) (1,103,425)
---------- ---------- ------------ ------------ ------------ ----------- ------------
Balances, December 31, 1997 240,000 $ 2,400 600,000 $ 3,000,000 $ 571,285 $(1,115,831) $ 2,457,854
========== ========== ============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-53
<PAGE> 5
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended December 31, 1997 and the period November 5, 1996 (inception)
through December 31, 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,103,425) $ (12,406)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for bad debts 86,000 -
Net barter expense 25,976 -
Depreciation expense 361 -
Amortization expense 294 -
Changes in operating assets and liabilities:
Accounts receivable (1,593,623) -
Other receivables and other current assets (252,395) -
Accounts payable 513,598 12,406
Accrued expenses 655,078 -
----------- -----------
Net cash used in operating activities (1,668,136) -
----------- -----------
Cash flows used in investing activities:
Cash paid for acquisitions costs (774,762) -
Cash paid for organizational costs (17,637)
Deposits held in escrow for station acquisitions (1,975,000) -
Capital expenditures (54,153) -
----------- -----------
Net cash used in investing activities (2,821,552) -
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock 5,200,000 -
Proceeds from the issuance of common stock - 592
Contributions from common shareholders 600,000 -
Payments for financing costs (297,357) -
----------- -----------
Net cash provided by financing activities 5,502,643 592
----------- -----------
Net increase in cash and cash equivalents 1,012,955 592
----------- -----------
Cash, beginning of period 592 -
----------- -----------
Cash, end of period $ 1,013,547 $ 592
=========== ===========
Cash paid for interest $ 35,000 $ -
=========== ===========
Cash paid for fees under time brokerage agreements $ 1,287,808 $ -
=========== ===========
Noncash investing and financing activities:
Issuance of notes payable for acquisitions $ 7,500,000 $ -
=========== ===========
Issuance of preferred stock for note receivable $ 3,900,000 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-54
<PAGE> 6
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
a. ORGANIZATION: JS Communications, Inc., a Delaware corporation, was
established in November 1996. In March 1997, JS Communications, Inc.
changed its name to Regent Communications, Inc. (the "Company"). The
Company was formed to acquire, own and operate radio stations in small
and medium-sized markets in the United States. At December 31, 1997,
the Company owned one radio station and provided programming and
other services to 21 radio stations located in 9 markets. See Note 2.
The Company began its broadcasting activities on March 1, 1997 by
providing programming and other services to radio station KBCQ (FM) in
San Diego under a time brokerage agreement and has continued to
operate it as an owned station from and after June 6, 1997. Throughout
the year, the Company also provided programming to 26 other stations
over different periods of time: WEZL (FM) and WXLY (FM) in Charleston,
South Carolina from June 1 to August 31; WXZZ (FM) in Lexington,
Kentucky from July 1 to August 22; WLRO (FM) and WLTO (FM) in
Lexington, Kentucky from September 1 to November 18; the 16 stations
of The Park Lane Group from August 18 to December 31; KRDG (FM), KNNN
(FM), KRRX (FM), and KNRO (FM) in Redding, California from October 10
to December 31; and WSSP (FM) in Charleston, South Carolina from
December 5 to December 31.
b. BASIS OF PRESENTATION: The accompanying consolidated financial
statements include the accounts of Regent Communications, Inc. and its
subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
c. BROADCAST REVENUE: Broadcast revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
d. BARTER TRANSACTIONS: Barter transactions (advertising provided in
exchange for goods and services) are reported at the estimated fair
value of the product or services received. Revenue from barter
transactions is recognized when advertisements are broadcast and
merchandise or services received are charged to expense when received
or used. If merchandise or services are received prior to the
broadcast of the advertising, a liability (deferred barter revenue) is
recorded. If advertising is broadcast before the receipt of the goods
or services, a receivable is recorded. For the year ended December 31,
1997, barter revenue was approximately $492,000, and barter expense
was approximately $518,000.
e. CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of accounts receivable. The credit risk is limited due to
the large number of customers comprising the Company's customer base
and their dispersion across several different geographic areas of the
country.
F-55
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, CONTINUED:
f. PROPERTY, PLANT AND EQUIPMENT: Property and equipment are stated at
cost and depreciated on the straight-line basis over 5 - 10 years for
equipment and 6 years for furniture.
g. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
h. PER SHARE DATA: The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 requires the presentation of basic and diluted
earnings per share. Basic earnings per share is computed by dividing
income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. The Company's
convertible preferred stock was anti-dilutive and, therefore, was not
included in the diluted earnings per share computation.
i. TIME BROKERAGE AGREEMENTS: At December 31, 1997, the Company operated
21 radio stations under the terms of time brokerage agreements
(hereafter referred to as "TBA's"). Revenues and expenses related to
such stations are included in operations since the effective dates of
the agreements. Fees paid and received under such agreements are
included in time brokerage agreement fees in the accompanying
Consolidated Statements of Operations.
2. STATION TRANSACTIONS AND PENDING ACQUISITIONS:
On June 6, 1997, the Company acquired substantially all of the assets of
radio station KCBQ(AM) in San Diego, California for $6,000,000, subject
to a 5-year term note payable to the seller. See Note 9. Upon completion
of the purchase, the Company's TBA with the seller, effective since March
1, 1997, was terminated. Pursuant to the TBA and the Asset Purchase
Agreement, the seller has agreed to reimburse the Company for operating
losses incurred by KCBQ (AM) from March 1, 1997 through December 31,
1997. Such operating losses amounted to approximately $136,000.
Additionally, the seller has agreed to reimburse the Company for all
operating losses subsequent to December 31, 1997, while the station is
held for sale. See Note 6. The results of operations of the acquired
business is included in the Company's financial statements since the date
of acquisition.
F-56
<PAGE> 8
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. STATION TRANSACTIONS AND PENDING ACQUISITIONS, CONTINUED:
On June 16, 1997, the Company entered into a stock purchase agreement to
acquire all of the outstanding capital stock of The Park Lane Group, a
California corporation which owns 16 radio stations. The purchase price
for the stock is $23,075,000 in cash, subject to adjustment as defined in
the agreement. In addition, the Company entered into a TBA with the Park
Lane Group, effective August 18, 1997, which will end upon consummation
of the acquisition described above or upon termination of the related
stock purchase agreement. The Company paid approximately $827,000 in TBA
fees related to the Park Lane Group during 1997. The Company received
Federal Communications Commission (FCC) approval in November 1997 and
expects to close the transaction prior to May 1998. At December 31, 1997,
the Company had placed a $1,175,000 deposit held in escrow pending the
closing of the Park Lane Group transaction.
On June 1, 1997, the Company entered into a TBA with WEZL(FM) and
WXLY(FM) located in Charleston, South Carolina. The TBA was terminated on
August 31, 1997. The Company paid TBA fees of approximately $413,009
related to these stations.
On August 22, 1997, the Company entered into an asset purchase agreement
to acquire substantially all of the assets of radio stations WLRO(FM) and
WLTO(FM) located in Richmond and Nicholasville, Kentucky, respectively,
for $4.5 million in cash. Simultaneously with the execution of the asset
purchase agreement, the Company entered into a TBA with respect to
WLRO(FM) and WLTO(FM), whereby the Company operated the stations from
September 1, 1997 through November 18, 1997 and the Company paid TBA fees
of approximately $45,000 related to these stations. Simultaneously with
the previously mentioned agreements, the Company entered into an
Assignment and Assumption Agreement with HMH Broadcasting ("HMH"),
whereby the Company assigned to HMH all of its rights, title and interest
in, to and under the original asset purchase agreement for WLRO(FM) and
WLTO(FM).
In August 1997, the Company entered into an agreement to acquire the
assets of two radio stations, WRFQ (FM) and WSUY (FM) (collectively,
"Charleston/FMs") in Charleston, South Carolina for $4.5 million. In
December 1997, after it was determined that the Company would be unable
to purchase additional stations in the market, the Company consummated
the acquisitions of the Charleston/FMs subject to a note payable, and
immediately sold the two radio stations to a third-party at no gain or
loss, in exchange for cancellation of the note payable.
F-57
<PAGE> 9
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. STATION TRANSACTIONS AND PENDING ACQUISITIONS, CONTINUED:
On August 22, 1997, the Company acquired substantially all of the assets
of WXZZ (FM) located in Georgetown, Kentucky for $3,450,000, subject to a
note payable with a third party. A TBA effective July 1, 1997, with WXZZ
(FM) was terminated upon consummation of the purchase. On August 22,
1997, the Company entered into an agreement to sell WXZZ (FM) to HMH
Broadcasting ("HMH") for $3,450,000, in exchange for cancellation of the
previously mentioned $3,450,000 note payable. In conjunction with this
agreement, the Company also entered into a TBA with HMH effective August
22, 1997, with respect to WXZZ (FM) which was terminated on November 12,
1997, upon consummation of the sale of the station by the Company to HMH.
The Company received TBA fees of approximately $62,254 related to the HMH
TBA.
On October 10, 1997, the Company entered into an Agreement of Merger,
pursuant to which the Company will acquire all of the outstanding capital
stock of Alta California Broadcasting, Inc. ("Alta") (a wholly-owned
subsidiary of Redwood Broadcasting, Inc.), which owns and operates radio
stations KRDG (FM) and KNNN (FM) located in Redding, California. The
purchase price for the stock consists of $1 million in cash and 200,000
shares of the Company's Series E Preferred Stock at a stated value of $1
million, subject to adjustment as defined in the agreement. The closing
is conditioned on, among other things, receipt of FCC and other
regulatory approvals. Additionally, Alta holds an option to purchase, and
is required to purchase prior to closing, all of the assets held by Power
Surge, Inc. for use in the operation of radio stations KRRX (FM) and KNRO
(AM) located in Redding, California. In conjunction with this agreement
and effective October 10, 1997, the Company entered into a TBA with
Redwood Broadcasting, Inc. related to radio stations KRDG (FM), KNNN
(FM), KRRX (FM) and KNRO (AM); payments under the TBA approximated $2,500
during 1997. The TBA will end upon closing of the merger described above
or upon termination of the Agreement of Merger. At December 31, 1997, the
Company has placed a $175,000 deposit held in escrow pending the closing
of the Alta transaction.
On December 5, 1997, the Company entered into an Agreement of Merger with
Faircom, Inc. ("Faircom"), pursuant to which Faircom will be merged with
and into the Company. At the effective date of the merger, each then
outstanding share of Faircom common stock will be exchanged for
approximately 3,850,000 shares of the Company's Series C preferred stock,
subject to adjustment as defined in the agreement. Approximately
300,000 shares of such Series C stock will be subject to the right of the
holder to put such shares to the Company for redemption. Additionally,
the holders of Faircom common stock options at the time of the merger
will receive substitute stock options for the Company's Series C
preferred stock under the Regent Communications, Inc. Faircom Conversion
Stock Option Plan. The closing is conditioned on, among other things,
receipt of FCC and other regulatory approvals, Faircom shareholder
approval, closing of the Park Lane Group acquisition previously
discussed, effectiveness of a Registration Statement to be filed by the
Company, and the conversion of certain Faircom Subordinated Notes into
Faircom Common Stock.
F-58
<PAGE> 10
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. STATION TRANSACTIONS AND PENDING ACQUISITIONS, CONTINUED:
On December 8, 1997, the Company entered into an asset purchase agreement
with Continental Radio Broadcasting L.L.C. to acquire substantially all
of the assets of radio stations KFLG(AM) and KFLG(FM) located in Bullhead
City, Arizona for $3.6 million in cash, subject to adjustment as defined
in the agreement. The closing is conditioned on, among other things,
receipt of FCC and other regulatory approvals. At December 31, 1997, the
Company has placed a $175,000 deposit held in escrow pending the closing
of the transaction.
On December 17, 1997, the Company entered into an asset purchase
agreement to acquire substantially all of the assets of radio stations
KIXW (AM) and KZXY (FM) located in Apple Valley, California for $6
million in cash, subject to adjustment as defined in the agreement. The
stations are owned by Ruby Broadcasting, Inc. ("Ruby"), a sister
corporation and affiliate of Topaz Broadcasting, Inc. ("Topaz"). The
closing is conditioned on, among other things, receipt of FCC and other
regulatory approvals. The closing is also conditioned on the prior
occurrence of a closing between the Company and Topaz (see below).
Effective January 1, 1998 the Company entered into a TBA with respect to
radio stations KIXW (AM) and KZXY (FM), which will end upon closing of
the acquisition described above or upon the termination of the asset
purchase agreement.
On December 17, 1997, the Company entered into an Agreement of Merger,
pursuant to which the Company will acquire all of the outstanding capital
stock of Topaz. The purchase price for the stock consists of 400,000
shares of the Company's Series E preferred stock at a stated value of $2
million, subject to adjustment as defined in the agreement. The closing
is conditioned on, among other things, receipt of FCC and other
regulatory approvals. Additionally, Topaz is a party to an asset purchase
agreement, and is required to purchase the assets of radio station KIXA
(FM) located in Lucerne Valley, California, prior to closing of the
Agreement of Merger with the Company. In conjunction with this agreement
and effective January 1, 1998, the Company entered into a TBA with Topaz,
including radio station KIXA (FM), which will end upon closing of the
merger described above or upon termination of the Agreement of Merger. At
December 31, 1997, the Company has placed a $400,000 deposit held in
escrow pending the closing of the Ruby and Topaz transactions.
In December 1997, the Company acquired an option to purchase
substantially all of the assets of radio station WSSP (FM) located in
Goose Creek, South Carolina. The purchase price for the option was $1.5
million, subject to a 5 year term note payable to a third party. See Note
9. The term of the option is one year. Due to a lack of complimentary
stations in the market, the Company is currently seeking a buyer for the
option. At December 31, 1997, the cost of the option is included in
Assets Held for Sale in the accompanying Consolidated Balance Sheet. The
Company also entered into a TBA with respect to WSSP (FM) effective
December 5, 1997.
F-59
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Equipment $ 12,520 $ -
Furniture & Fixtures 968 -
Equipment under installation 40,665 -
---------------- ----------------
54,153 -
Less accumulated depreciation (361) -
---------------- ----------------
$ 53,792 $ -
================ ================
</TABLE>
4. OTHER ASSETS:
Other assets consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred finance costs $ 297,357 $ -
Organizational costs 17,637 -
Deferred acquisition costs 774,762 -
---------------- ----------------
1,089,756
Less accumulated amortization (294) -
---------------- ----------------
$ 1,089,462 $ -
================ ================
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Accrued payroll $ 34,496
Accrued license fees 78,779
Accrued property and other taxes 82,318
Accrued commissions 149,576
Accrued professional services 227,350
Accrued other 82,559
----------------
$ 655,078
================
</TABLE>
F-60
<PAGE> 12
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. PENDING DISPOSITION:
On December 16, 1997, the Company signed a Letter of Intent with a third
party to sell substantially all of the assets of radio station KCBQ (AM)
located in San Diego, California for $6.5 million in cash. The Company is
currently involved in negotiating a definitive agreement and anticipates
the sale will close prior to July 31, 1998. At December 31, 1997, the
KCBQ (AM) assets are stated at cost and are included in Assets Held for
Sale in the accompanying Consolidated Balance Sheet. Net broadcast
revenue of approximately $66,000 and broadcast expenses of approximately
$202,000 related to KCBQ (AM) were included in the Consolidated Statement
of Operations for the year ended December 31, 1997.
7. CAPITAL STOCK:
The Company's Amended and Restated Certificate of Incorporation
authorizes 30,000,000 shares of common stock and 20,000,000 shares of
preferred stock and designates 620,000 shares as Series A Convertible
Preferred Stock ("Series A"), 1,000,000 shares as Series B Senior
Convertible Preferred Stock ("Series B"), 4,300,000 shares as Series C
Convertible Preferred Stock ("Series C"), 1,000,000 shares as Series D
Convertible Preferred Stock ("Series D"), and 5,000,000 shares as Series
E Convertible Preferred Stock ("Series E"). The stated value of all
series of preferred stock is $5 per share.
Series A, Series C, and Series E have the same voting rights as common
stock and may be converted at the option of the holder into one share of
common stock, subject to adjustment, as defined. The Company's Board of
Directors also has the right to require conversion of all shares of
Series A, C and E upon the occurrence of certain events, as defined.
Series B and Series D have no voting power except for specific events, as
defined. Series A, Series C, Series D and Series E have equal rights for
the payment of dividends and the distribution of assets and rights upon
liquidation, dissolution or winding up of the Company. Series B ranks
senior to all other series of preferred stock and may be converted at the
option of the holder into one-half share of common stock, subject to
adjustment, as defined. The Company's Board of Directors also has the
right to require conversion of all shares of Series B and D upon the
occurrence of certain events, as defined.
F-61
<PAGE> 13
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. CAPITAL STOCK, CONTINUED:
Upon liquidation of the Company, no distribution shall be made (a) to
holders of stock ranking junior to the Series B unless the holders of the
Series B have received the stated value per share, plus an amount equal
to all unpaid dividends or (b) to the holders of stock ranking on a
parity with the Series B, except distributions made ratably on the Series
B and all other such parity stock. Dividends accrue on all series of
preferred stock at a cumulative annual rate of $.35 per share. The
Company may redeem Series A, B, and D at the stated value, plus an amount
equal to all unpaid dividends to the date of redemption, whether or not
declared. The Company is also required to redeem all shares of Series B
and D in the event the closing of the Faircom merger and Park Lane Group
acquisition is terminated or has not occurred on or before June 30, 1998,
at the stated value plus an amount equal to all unpaid dividends to the
date of redemption, whether or not declared. Undeclared dividends in
arrears on all outstanding series of preferred stock amounted to $146,175
at December 31, 1997.
In connection with the issuance of 1,000,000 shares of the Company's
Series B senior convertible preferred stock, the Company received cash
proceeds of $1,100,000 and a promissory note for $3,900,000. The note is
due upon consummation of the Faircom merger as described in Note 2. The
note bears interest at 7%; provided that to the extent dividends have
accrued on the Series B shares but have not been paid, such interest will
be offset against the amount of such accrued but unpaid dividends.
Under the terms of a Stock Purchase Agreement dated December 1, 1997, the
Chief Operating Officer of the Company has agreed to purchase 20,000
shares of Series A Convertible Preferred Stock for $100,000 on or before
the closing of the Company's Park Lane Group acquisition. See Note 2.
Under the terms of a Stock Purchase Agreement dated December 8, 1997, an
existing shareholder of the Company has agreed to purchase 780,000 shares
of Series D Convertible Preferred Stock for $3,900,000 on or before the
closing of the merger with Faircom discussed in Note 2.
8. INCOME TAXES:
The Company recorded no income tax expense or benefit for the years ended
December 31, 1997 and 1996.
F-62
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES, CONTINUED:
Components of the Company's deferred tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforward $ 465,219 $ -
Accounts receivable 27,844 -
Other miscellaneous accruals 33,220 -
---------------- ----------------
526,283 -
Valuation allowance (430,360) -
---------------- ----------------
95,923 -
Deferred tax liabilities:
Depreciation (95,923) -
---------------- ----------------
Net $ - $ -
================ ================
</TABLE>
The Company has cumulative federal and state tax loss carryforwards of
approximately $1,163,000 at December 31, 1997. The loss carryforwards
will expire in the year 2012.
9. NOTES PAYABLE:
Notes payable at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Promissory note $ 6,000,000
Promissory note 1,500,000
---------------
$ 7,500,000
===============
</TABLE>
In connection with the acquisition of radio station KCBQ (AM), the
Company issued to the seller a promissory note for $6,000,000, which is
collateralized by the assets of the station. See Note 2. The note matures
on the earlier of June 6, 2002 or upon the sale of the KCBQ (AM) assets
to a third party. The note does not bear interest prior to the maturity
date, as defined. Interest on the unpaid principal after maturity bears
interest at 10%. As discussed in Note 6, the Company is currently
negotiating the terms of a definitive agreement to sell KCBQ (AM) to an
unrelated third party. As a result, the unpaid principal balance of $6
million has been classified as a current liability at December 31, 1997
in the accompanying Consolidated Balance Sheet.
F-63
<PAGE> 15
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. NOTES PAYABLE, CONTINUED:
In connection with the acquisition of an option to acquire radio station
WSSP (FM), the Company issued a 5 year term promissory note for $1.5
million to a third party. The terms of the promissory note obligate the
Company to pay the lesser of the principal amount of the note or the
proceeds from a sale of the option to acquire WSSP(FM). The note is
collateralized by the Company's option to acquire WSSP (FM) and matures
on the earlier of December 3, 2002 or upon the sale of the WSSP (FM)
assets to a third party. The note does not bear interest prior to the
maturity date, as defined. Interest on the unpaid principal after
maturity bears interest at 10%. Because the Company is currently
searching for a buyer of its option to acquire WSSP (FM), the unpaid
principal balance of $1.5 million has been classified as a current
liability at December 31, 1997 in the accompanying Consolidated Balance
Sheet. See Note 2.
10. BANK CREDIT FACILITY:
In November 1997, the Company entered into an agreement with a group of
lenders (the "Credit Agreement") which provides for a senior reducing
revolving credit facility with a commitment of up to $55,000,000 expiring
in March 2005 (the "Revolver"). The Credit Agreement is available for
working capital and acquisitions, including related acquisition expenses.
In addition, the Company may request from time to time that the lenders
issue Letters of Credit in accordance with the same provisions as the
Revolver. At December 31, 1997, no revolving loans were outstanding under
the Credit Agreement.
The Credit Agreement requires that the commitment under the Revolver be
reduced quarterly for each of the four quarters in the period ending
December 31, 1999 and by increasing quarterly amounts thereafter, and,
under certain circumstances, requires mandatory prepayments of any
outstanding loans and further commitment reductions. The indebtedness of
the Company under the Credit Agreement is collateralized by liens on
substantially all of the assets of the Company and its operating and
license subsidiaries and by a pledge of the operating and license
subsidiaries' stock, and is guaranteed by those subsidiaries. The Credit
Agreement contains restrictions pertaining to the maintenance of
financial ratios, capital expenditures, payment of dividends or
distributions of capital stock and incurrence of additional indebtedness.
F-64
<PAGE> 16
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. BANK CREDIT FACILITY, CONTINUED:
Interest under the Credit Agreement is payable, at the option of the
Company, at alternative rates equal to the LIBOR rate (5.75% at December
31, 1997) plus 1.25% to 2.50% or the base rate announced by the Bank of
Montreal plus 0% to 1.25%. The spreads over the LIBOR rate and such base
rate vary from time to time, depending upon the Company's financial
leverage. The Company will pay quarterly commitment fees equal to 3/8% to
1/2% per annum, depending upon the Company's financial leverage, and the
aggregate unused portion of the aggregate commitment under the Credit
Agreement. The Company also is required to pay certain other fees to the
agent and the lenders for the administration of the facilities and the
use of the credit facility. At December 31, 1997, the Company had paid
nonrefundable fees totaling approximately $275,000 which are classified
as other assets in the accompanying Consolidated Balance Sheet. In
addition, the Company is committed to pay the remaining facility fee in
the amount of approximately $500,000 upon the completion of the merger
between the Company and Faircom. See Note 2.
11. LEASES:
The Company and its subsidiaries lease certain equipment and facilities
used in their operations. Future minimum rentals under all noncancelable
operating leases as of December 31, 1997 are payable as follows,
including lease commitments under fine brokerage agreements.
<TABLE>
<S> <C>
1998 $ 557,208
1999 185,594
2000 104,210
2001 96,135
2002 47,868
Thereafter 120,799
</TABLE>
Rental expense was approximately $214,692 and $0 for the years ended
December 31, 1997 and 1996, respectively, including lease rental payments
under time brokerage agreements.
12. EMPLOYEE BENEFIT PLAN
On December 15, 1997 the Company adopted a 401(k) plan effective January
1, 1997 which covers all eligible employees. The Company may make a
matching contribution in any year at the discretion of the Board of
Directors. The Company did not make any such contributions in 1997.
F-65
<PAGE> 17
Notes to CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. RECENT PRONOUNCEMENTS:
In June, 1997 the Financial Accounting Standards Board issued Statement
No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes
standards of disclosure and financial statement display for reporting
total comprehensive income and its individual components. It is effective
for the Company in 1998.
14. SUBSEQUENT EVENTS:
In January 1998, the Board of Directors of the Company adopted the Regent
Communications, Inc. 1998 Management Stock Option Plan (the "1998" Plan).
The 1998 Plan provides for the issuance of up to 2,000,000 common shares
in connection with the issuance of nonqualified and incentive stock
options and eligibility is determined by the Company's Board of
Directors. The exercise price of the options is to be not less than the
fair market value at the grant date, except for any 10% owner (as
defined), for whom the option share price must be at least 110% of fair
market value at the grant date. The options expire no later than ten
years from the date of grant, or earlier in the event a participant
ceases to be an employee of the Company. The Company intends to apply the
provisions of APB Opinion 25, "Accounting for Stock Issued to Employees,"
in accounting for the 1998 Plan. Under APB 25, no compensation expense is
recognized for options granted to employees at exercise prices which are
equal to the fair market value of the underlying common stock at the
grant date.
In February 1998 and effective upon consummation of the Faircom merger,
the Board of Directors authorized a grant of incentive stock options to
the Chief Executive Officer and Chief Operating Officer of the Company.
The options will provide the holders with the right to acquire up to
733,333 shares of the Company's common stock at an expected price per
share of $5.00. Of these options, that portion providing for the purchase
of shares having a total fair market value on the grant date of $1
million will be exercisable by each holder in equal 10% increments
beginning on the grant date and on each of the following nine anniversary
dates of the grants. The balance of the options will be exercisable in
equal one-third increments at the end of each of the first three years
following the grant. All options expire on February 28, 2008.
ADDITIONAL UNAUDITED ITEMS:
In March 1998, Waller-Sutton Media Partners, L.P. ("Waller-Sutton")
entered into a commitment letter with Regent which provides for the
investment by Waller-Sutton, subject to negotiation of definitive
agreements and the satisfaction of certain conditions, of at least
$11,500,000 in convertible preferred stock of Regent. This investment
would consist of the purchase from Regent of $10,000,000 of its Series F
Preferred Stock and the acquisition from Blue Chip Capital Fund II, L.P.
and Miami Valley Venture Fund, L.P. of $1,500,000 in principal amount of
Class A and Class B Faircom Subordinated Notes that would be converted to
Faircom Common Stock and exchanged for Series C Preferred Stock in the
Faircom Merger. Waller-Sutton would receive, as part of this investment,
warrants to purchase 820,000 shares of Regent Common Stock at an exercise
price of $5.00 per share. Waller-Sutton has reserved the right to assign
up to $3,500,000 of its investment commitment and an unspecified portion
of its warrant rights to partners or affiliates of Waller-Sutton and/or
other purchasers of Series F Preferred Stock and to so reduce its
investment commitment in respect of the first $3,500,000 of Series F
Preferred Stock purchased by others. One of the conditions precedent to
Waller-Sutton investment in Regent is the consummation of the Faircom
Merger. Upon making its investment, Waller-Sutton will have the right to
elect two members to Regent's Board of Directors.
The Waller-Sutton commitment letter provides that the terms of the Series
F Preferred Stock to be acquired by it will include the right of the
holders to require Regent to repurchase the Series F Preferred Stock at
any time after five years at a price equal to the greater of its fair
market value or the sum of its stated value of $5.00 per share and all
accrued but unpaid dividends thereon (as well as any warrants held by
such holders at a price equal to the fair market value of the Regent
Common Stock less the exercise price). Holders of the Series A, Series B
and Series D Preferred Stock would have similar "put" rights only if the
holders of the Series F Preferred Stock were to exercise their "put"
rights. The Series C and Series E Preferred Stock will not have these
tag-along "put" rights.
In order to induce River Cities Capital Fund Limited Partnership ("River
Cities"), as a holder of Regent's Series A Preferred Stock, to approve
the Faircom Merger, Regent agreed to issue to River Cities, upon
consummation of the Faircom Merger, five-year warrants to purchase 80,000
shares of Regent Common Stock at an exercise price of $5.00 per share. R.
Glen Mayfield, a member of Regent's Board of Directors, serves as the
general partner of River Cities Management Limited Partnership, which is
the general partner of River Cities.
In order to induce General Electric Capital Corporation ("GE Capital"),
as a holder of Regent's Series B Preferred Stock, to approve the addition
of mandatory conversion rights to the terms of the Series B Preferred
Stock in conjunction with issuance of the Series F Preferred Stock,
Regent has agreed to issue to GE Capital, upon issuance of the Series F
Preferred Stock, warrants to purchase 50,000 shares of Regent Common
Stock at an exercise price of $5.00 per share. It is contemplated the
terms of these warrants will be substantially the same as those which are
to be issued to River Cities upon consummation of the Faircom Merger.
F-66
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
The Park Lane Group
Menlo Park, California
We have audited the accompanying consolidated balance sheets of The Park Lane
Group and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' deficit and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Park Lane
Group and Subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Coopers and Lybrand L.L.P.
Menlo Park, California
February 16, 1998
F-67
<PAGE> 19
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
-------
<TABLE>
<CAPTION>
ASSETS 1996 1997
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 223,292 $ 431,466
Accounts receivable - trade, less allowance for doubtful accounts of
$45,414 in 1997 and $62,375 in 1996 1,292,543 53,009
Prepaid expenses and other current assets 100,201 83,474
--------------- ---------------
Total current assets 1,616,036 567,949
Property and equipment, net 3,156,578 2,502,766
Intangible assets, net 6,515,270 5,937,566
--------------- ---------------
Total assets $ 11,287,884 $ 9,008,281
=============== ===============
LIABILITIES, REDEEMABLE PREFERRED STOCK, CONVERTIBLE
PREFERRED STOCK, COMMON STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 547,675 $ 94,513
Accrued expenses:
Compensation and related expenses 163,679 86,432
Interest 69,556 45,508
Other 11,521 119,725
Note payable to bank 650,800 70,526
Notes payable to shareholders 120,000 120,000
Current portion, long-term debt 253,809 760,964
--------------- ---------------
Total current liabilities 1,817,040 1,297,668
Long-term debt 6,353,299 5,607,199
--------------- ---------------
Total liabilities 8,170,339 6,904,867
--------------- ---------------
Commitments (Note 6).
Mandatorily redeemable Series B preferred stock, $0.01 par value:
Authorized: 43,000 shares;
Issued and outstanding: 42,805 shares in 1997 and 1996 4,187,127 5,231,150
(Liquidation value: $6,343,735 in 1997 and $5,384,004 in 1996)
Mandatorily redeemable convertible Series C preferred stock, $0.01 par value:
Authorized: 13,500 shares;
Issued and outstanding: 12,021 in 1997 and none in 1996 1,165,849
(Liquidation value: $1,435,656 in 1997 and $1,301,917 in 1996) 1,327,101
--------------- ---------------
Convertible Series A preferred stock, $0.01 par value: 5,352,976 6,558,251
Authorized: 6,117,945 shares;
Issued and outstanding: 5,595,875 shares in 1997 and 1996 5,595,875 5,595,875
(Liquidation value: $5,595,875 in 1997 and 1996)
Class B common stock, $0.01 par value:
Authorized: 3,238,828 shares;
Issued and outstanding: 3,238,821 shares in 1997 and 1996 1,163,612 1,163,612
Class C common stock, $0.01 par value:
Authorized: 1,350,000 shares;
Issued and outstanding: 1,202,100 in 1997 and in 1996 80,915 80,915
Class A common stock, $0.01 par value:
Authorized: 15,000,000 shares;
Issued and outstanding: 797,225 shares in 1997 and 758,944 shares in
1996 386,522 389,202
Note receivable from shareholders - (2,680)
Accumulated deficit (9,462,355) (11,681,761)
--------------- ---------------
Total convertible preferred stock, common stock and other
shareholders' deficit (2,235,431) (4,454,837)
--------------- ---------------
Total liabilities, redeemable preferred stock, convertible
preferred stock, common stock and shareholders' deficit $ 11,287,884 $ 9,008,281
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 20
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
-------
<TABLE>
<CAPTION>
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $ 8,752,202 $ 8,927,500 $ 6,602,650
Less agency commissions (627,219) (588,833) (386,611)
--------------- ---------------- ----------------
Net revenues 8,124,983 8,338,667 6,216,039
--------------- ---------------- ----------------
Operating expenses:
Programming 1,572,305 1,609,415 980,325
Sales and promotion 2,213,329 2,118,918 1,415,164
Engineering 379,988 403,686 264,246
General and administrative 2,877,936 2,827,557 1,680,882
Depreciation and amortization 1,277,833 1,494,636 1,421,198
Corporate administrative expenses 879,652 670,177 746,878
--------------- ---------------- ----------------
Total operating expenses 9,201,043 9,124,389 6,508,693
Operating loss (1,076,060) (785,722) (292,654)
Interest expense (668,504) (695,899) (678,315)
Other expense, net (4,850) (4,850) (43,162)
--------------- ---------------- ----------------
Net loss before accretion (1,749,414) (1,486,471) (1,014,131)
--------------- ---------------- ----------------
Dividends and accretion for redemption on mandatorily
redeemable preferred stock (556,337) (1,154,436) (1,205,275)
--------------- ---------------- ----------------
Net loss available to common shareholders $ (2,305,751) $ (332,035) $ (2,219,406)
=============== ================ ================
Shares used in basic per share calculation 2,567,209 4,973,115 5,202,555
=============== ================ ================
Shares used in diluted per share calculation 2,567,209 4,973,115 5,202,555
=============== ================ ================
Basic net loss per share $ (0.90) $ (0.07) $ (0.43)
=============== ================ ================
Diluted net loss per share $ (0.90) $ (0.07) $ (0.43)
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 21
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
for the years ended December 31, 1997, 1996, and 1995
-------
<TABLE>
<CAPTION>
Series A Class A Class B
Preferred Stock Common Stock Common Stock
------------------------ -------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 758,944 $ 386,522 1,067,152 $ 477,803
Issuance of class B common stock 1,361,965 631,307
Preferred stock accretion
Preferred stock dividend
Net loss
---------- ----------- ------- --------- --------- -----------
Balances, December 31, 1995 758,944 386,522 2,429,117 1,109,110
Issuance of Class B common stock special delivery
in connection with issuance of Series C stock 809,704 54,502
less $2,177 issuance costs
Issuance of class C common stock
Reclassification of Series A preferred stock to
shareholders deficit due to removal of 5,595,875 $ 5,595,875
redemption requirement
Preferred stock accretion
Preferred stock dividend
Net loss
---------- ----------- ------- --------- --------- -----------
Balances, December 31, 1996 5,595,875 5,595,875 758,944 386,522 3,238,821 1,163,612
Issuance of Class A Common Stock upon exercise of
stock options in exchange for shareholder note 38,281 2,680
Preferred stock accretion
Preferred stock dividend
Net loss
---------- ----------- ------- --------- --------- -----------
Balances, December 31, 1997 5,595,875 $ 5,595,875 797,225 $ 389,202 3,238,821 $1,163,612
========== =========== ======= ========= ========= ===========
<CAPTION>
Class C Note
Common Stock Receivable
--------------------- from Accumulated
Shares Amount Shareholders Deficit Total
--------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995 $(6,824,569) $(5,960,244)
Issuance of class B common stock 631,307
Preferred stock accretion (104,662) (104,662)
Preferred stock dividend (451,675) (451,675)
Net loss (1,749,414) (1,749,414)
------------ ------------
Balances, December 31, 1995 (9,130,320) (7,634,688)
Issuance of Class B common stock special delivery
in connection with issuance of Series C stock 54,502
less $2,177 issuance costs
Issuance of class C common stock 1,202,100 $ 80,915 80,915
Reclassification of Series A preferred stock to
shareholders deficit due to removal of 5,595,875
redemption requirement
Preferred stock accretion 1,881,082 1,881,082
Preferred stock dividend (726,646) (726,646)
Net loss (1,486,471) (1,486,471)
--------- -------- ------------ ------------
Balances, December 31, 1996 1,202,100 80,915 (9,462,355) (2,235,431)
Issuance of Class A Common Stock upon exercise of
stock options in exchange for shareholder note $ (2,680) -
Preferred stock accretion (216,650) (216,650)
Preferred stock dividend (988,625) (988,625)
Net loss (1,014,131) (1,014,131)
--------- -------- ---------- ------------ ------------
Balances, December 31, 1997 1,202,100 $ 80,915 $ (2,680) $(11,681,761) $(4,454,837)
========= ======== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 22
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, and 1995
-------
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,749,414) $(1,486,471) $(1,014,131)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 631,113 794,982 779,839
Amortization 646,720 700,955 641,359
Provision for (recovery of) doubtful accounts 158,441 148,959 (16,961)
Deferred interest on convertible note 91,944 101,138 111,027
Accounts receivable (114,738) (135,971) 1,256,495
Prepaid expenses and other assets 133,611 (33,399) 16,727
Accounts payable 46 16,266 (453,162)
Accrued expenses (38,272) 537 30,957
Accrued interest 25,167 (49,829) (24,048)
----------- ----------- -----------
Net cash provided by (used in) operating activities (215,382) 57,167 1,328,102
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of radio stations (3,163,963) -
Purchases of property and equipment (189,079) (211,612) (126,027)
Acquisition of other assets (63,655)
----------- ----------- -----------
Net cash used in investing activities (3,353,042) (211,612) (189,682)
----------- ----------- -----------
Cash flows from financing activities:
(Payments on) borrowings under note payable to bank 179,800 (16,000) (580,274)
Proceeds from issuance of convertible notes 310,000
Proceeds from issuance of Series A stock
Proceeds from issuance of Series B stock 3,318,685 5,920
Proceeds from issuance of Series C stock 862,202
Borrowings under long-term debt and capital leases 3,840,721
Principal payments on long-term debt and capital leases (404,233) (825,926) (4,190,693)
----------- ----------- -----------
Net cash provided by (used in) financing activities 3,404,252 26,196 (930,246)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (164,172) (128,249) 208,174
Cash and cash equivalents, beginning of year 515,713 351,541 223,292
----------- ----------- -----------
Cash and cash equivalents, end of year $ 351,541 $ 223,292 $ 431,466
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITY
Conversion of deferred interest to convertible note $ 91,944 $ 101,138
Conversion of convertible notes to Series A preferred stock $ 20,000
Conversion of convertible notes to Series B stock $ 310,000
Financing of acquisitions through notes payable $ 1,086,350
DISCLOSURE OF EQUITY ITEMS:
Property and equipment acquired under capital leases $ 307,750 $ 112,131
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 552,629 $ 646,592 $ 590,451
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 23
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. Organization and Business:
--------------------------
The Park Lane Group and Subsidiaries (the Company or Park Lane) own and
operate commercial radio stations in California and Arizona. The Company
was formed in 1990 and through December 31, 1997, had acquired 16 stations
in seven markets. The Company's subsidiaries include the following wholly
owned entities: Park Lane Redding Radio, Inc., Park Lane Regency Radio,
Inc., Park Lane Chico, Inc., Park Lane High Desert, Inc., Park Lane
Northern Arizona, Inc.
The Company's primary customers are local retailers and service providers
who purchase advertising time to promote their goods and services. The
Company's stations also receive a portion of their advertising revenues
from regional and national advertisers such as fast food franchisers,
banks, automotive suppliers and grocery chains who have local outlets in
the Company's markets. No one advertiser at any of the Company's stations
represents a material portion of the station's total advertising revenue
or of accounts receivable in 1997, 1996 or 1995.
In August 1997, the Company entered into an arrangement with Regent
Communications, Inc. (Regent) for the acquisition of all of the
outstanding capital stock of the Company (the acquisition). The
transaction is subject to certain conditions before closing. There can be
no assurance that the transaction will close. Effective August 17, 1997,
the Company also entered into an operating agreement with Regent under
which most of the operations of the Company's radio stations are managed
by Regent and the Company receives a monthly fee based on their
performance, subject to a guaranteed minimum.
2. Summary of Significant Accounting Policies:
-------------------------------------------
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the
accounts of the corporate office and of the radio stations KPPL,
KTPI/KVOY, KSHA/KQMS, KAAA/KZZZ, KRLT/KOWL, KZGL, KFMF, KALF, KATJ/KROY
and KVNA A/F. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Continued
F-72
<PAGE> 24
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost less accumulated
depreciation. These assets are depreciated on a straight-line basis
over their estimated useful lives of three to 25 years. When assets are
retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts and any gain or loss from
disposal is included in the results of operations. Assets under capital
leases are amortized over the lesser of their useful lives or the term
of the lease.
Maintenance and repairs are charged to expense as incurred. Major
renewals and betterments are charged to the asset accounts.
INTANGIBLE ASSETS:
Included in intangible assets are goodwill, FCC licenses, noncompete
agreements and tower leases. Goodwill, which represents the excess of
cost of purchased assets over their fair value at the date of
acquisition, is amortized over 15 to 30 years. FCC licenses are
amortized over 15 years. Noncompete agreements are amortized over the
terms of the related agreements which range from six months to 10
years. Tower leases are amortized over the period of the related lease
term, which range from seven to 25 years. Intangible assets are
evaluated for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable.
LONG-TERM INDEBTEDNESS:
The fair value of the Company's long-term indebtedness is based upon
estimates using standard pricing models that take into account the
present value of future cash flows.
REVENUE:
Revenue from the sale of air time is recognized at the time the program
or advertisement is broadcast. Income receivable under the operating
agreement with Regent is recognized on an accrual basis.
Continued
F-73
<PAGE> 25
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies, continued:
-------------------------------------------
BARTER TRANSACTIONS:
The Company participates in barter transactions in which advertising
time is exchanged for goods or services. These exchanges are recorded
at the fair market value of the goods or services received for the
value of the advertising time provided, whichever is more clearly
determinable. Revenues from barter transactions are recognized as
income when advertisements are broadcast. Expenses are recognized when
goods or services are received. Barter transactions totaled
approximately $1,068,776, $1,088,884 and $741,978 in 1995, 1996, and
1997, respectively.
ADVERTISING COSTS:
Advertising costs are expensed to operations as incurred. Advertising
costs were $371,748, $751,770, and $519,271 for the years ended
December 31, 1995, 1996, and 1997, respectively.
INCOME TAXES:
The Company accounts for income taxes using the liability method to
calculate deferred income taxes. The realization of deferred tax assets
under this method is based on historical tax positions and expectations
about future taxable income. A valuation allowance has been provided
for deferred tax asset amounts in excess of the amount that can be
realized from existing taxable temporary differences.
CONCENTRATIONS OF CREDIT RISK:
The Company maintains its cash and short-term investments in deposits
with one major U.S. bank; these deposits, therefore, bear the credit
risk associated with these financial institutions.
The Company's radio station customer base consists principally of
businesses located in California and Arizona. Collateral, such as
letters of credit and bank guarantees, are not generally required from
customers. The Company maintains an allowance for potential credit
losses associated with its trade accounts receivable.
Continued
F-74
<PAGE> 26
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
CONCENTRATIONS OF CREDIT RISK, continued:
Under the operating agreement with Regent, the Company's sole source of
income since August 17, 1997 is from Regent Communications who are
responsible for most of the operations of the Company's radio stations.
The Company could be adversely affected by a deterioration in the
financial position of Regent.
EMPLOYEE STOCK PLANS:
The Company accounts for its stock option plan in accordance with
provisions of the Accounting Principles Board's Opinion No. 25 (APB
25), "Accounting For Stock Issued to Employees." In 1995, the Financial
Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (FAS), "Accounting for Stock-Based
Compensation." FAS 123 provides an alternative to APB 25. As allowed
under FAS 123, the Company continues to account for its employee stock
plan in accordance with the provisions of APB 25.
RECENT PRONOUNCEMENT:
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130 (SFAS), Reporting Comprehensive Income. SFAS 130 establishes
standards of disclosure and financial statement display for reporting
total comprehensive income and its individual components. It is
effective for the Company's fiscal year 1998.
Also in June 1997, the Financial Accounting Standards Board issued
Statement No. 131 (SFAS 131), Disclosures About Segments of an
Enterprise and Related Information. SFAS 131 changes current practice
under SFAS 14 by establishing a new framework on which to base segment
reporting (referred to as the management approach) and also requires
interim reporting of segment information. It is effective for the
Company's fiscal year 1998.
The Company is studying the implications of these new statements and
the impact of their implementation on the financial statements.
Continued
F-75
<PAGE> 27
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
3. Balance Sheet Detail:
---------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Land and buildings $ 960,507 $ 975,564
Transmitter equipment 1,332,770 1,359,972
Studio and technical equipment 1,812,033 1,912,017
Tower and antenna systems 415,901 415,901
Office furniture and equipment 720,057 738,106
Other 175,980 141,715
---------------- ----------------
5,417,248 5,543,275
Less accumulated depreciation and amortization (2,260,670) (3,040,509)
---------------- ----------------
$ 3,156,578 $ 2,502,766
================ ================
</TABLE>
The Company leases property and equipment under capital lease agreements
(See Note 6). Leased assets included above are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Equipment under capital leases $ 647,516 $ 530,135
Less accumulated amortization (388,505) (278,483)
---------------- ----------------
$ 259,011 $ 251,652
================ ================
</TABLE>
Intangible assets consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Goodwill and other $ 6,447,237 $ 6,510,892
Noncompete agreements 772,015 772,015
FCC licenses 1,846,950 1,846,950
---------------- ----------------
9,066,202 9,129,857
Less accumulated amortization (2,550,932) (3,192,291)
---------------- ----------------
$ 6,515,270 $ 5,937,566
================ ================
</TABLE>
Continued
F-76
<PAGE> 28
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
4. Note Payable to Bank:
---------------------
The Company has a revolving line of credit with a bank to borrow up to
$800,000 at an annual rate of prime plus 1.50% (payable monthly) based on
a percentage of certain radio stations' eligible receivables. At December
31, 1997, $70,526 was outstanding under the line of credit. The revolving
line of credit is subject to certain affirmative and negative covenants,
including minimum broadcast cash flow requirements on a periodic basis.
5. Long-Term Debt and Notes Payable:
---------------------------------
LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Long-term notes payable $ 4,862,598 $ 4,685,307
9.875% promissory notes 1,124,163 1,235,190
Capital leases (note 6) 423,612 312,070
Other 196,735 135,596
--------------- ---------------
6,607,108 6,368,163
Less current portion (253,809) (760,964)
--------------- ---------------
$ 6,353,299 $ 5,607,199
=============== ===============
</TABLE>
Long-term notes payable at December 31, 1997, consist of a term loan
with Michigan National Bank, and three notes payable of original
principal amounts $310,000, $600,000 and $200,000, relating to the
acquisition of radio stations KTPI/KVOY, KALF and KROY/KATJ.
In March 1997, the Company entered into a refinancing arrangement with
Michigan National Bank which facilitated the consolidation of certain
of the Company's debt obligations. Under the arrangement, the Company
borrowed $3,800,000 under a term loan facility. At December 31, 1997,
$3,619,048 was outstanding under the term loan. The loan bears interest
at LIBOR rate plus 2.75% to 3.75% depending on the leverage of the
Company. The term loan is due in 84 monthly installments of $45,238,
final payment due September 30, 2004.
Continued
F-77
<PAGE> 29
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. Long-Term Debt and Notes Payable, continued:
--------------------------------
LONG-TERM DEBT, continued:
The $310,000 note bears interest at 8%, payable monthly. The principal
is payable in monthly installments from July 1997 to June 2002 at the
rate of 1/120 of the principal balance. The balance is due June 2002.
The note is collateralized by substantially all of the assets of
KTPI/KVOY. In connection with the refinancing discussed below, the note
was made subordinate to the new term loan and line of credit received.
At December 31, 1997, $294,819 was outstanding under the note.
The $600,000 note bears interest at 8%, payable quarterly, and is due
in quarterly installments from August 2000 to May 2005 at the rate of
1/40 of the principal balance. The balance is due May 2005. The note is
collateralized by the assets of KALF, but subordinated to all senior
indebtedness (present or future) of the Company.
The $200,000 note bears interest at 8.50% interest, payable monthly,
and is due in quarterly installments from February 1997 to May 2002 at
the rate of 1/28 of the principal balance. The balance is due May 2002.
The note is collateralized by the assets of KROY/KATJ, but subordinated
to all senior indebtedness (present or future) of the Company. At
December 31, 1997, $171,440 was outstanding under the note.
Repayments of long-term debt, excluding capital leases, (Note 6)
required over each of the years following December 31, 1997 consist of:
<TABLE>
<S> <C>
1998 $ 651,323
1999 1,892,439
2000 664,012
2001 690,976
2002 633,856
Thereafter 1,523,487
---------------
$ 6,056,093
===============
</TABLE>
The weighted average interest rate on short term borrowing as of
December 31, 1997 was 8.5%
Continued
F-78
<PAGE> 30
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. Long-Term Debt and Notes Payable, continued:
--------------------------------
SHAREHOLDER NOTES PAYABLE:
In March 1994, the Company issued a 7% subordinated promissory note for
$120,000, due to a shareholder, which is payable upon demand. Subject
to approval of Series B preferred shareholders and certain performance
criteria the noteholder has the option to demand payment of the notes
with accrued interest on some future date to be determined by mutual
agreement of the parties.
In connection with a Series A convertible redeemable preferred stock
issuance in 1993, the Company issued an $800,000, 9.875% subordinated
promissory note. Interest is payable at the maturity date of the note.
Total interest payable at December 31, 1997 was $435,190 included in
the balance due under the note. The note has been treated as though due
in fiscal 1999 since the Company's current projections do not allow for
earlier redemption and as repayment is subject to the mutual agreement
of BancBoston, the shareholders and the Company under the terms of the
Inter-Investor Agreement dated October 3, 1994.
6. Lease Commitments:
------------------
The Company leases various facilities and equipment under noncancelable
operating leases expiring through 2015. Certain operating leases are
renewable at the end of the lease term. Future minimum lease payments
under noncancelable operating leases and capital leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------------- ----------------
<S> <C> <C>
1998 $ 131,951 $ 333,837
1999 109,309 237,969
2000 75,124 139,299
2001 34,575 121,963
2002 5,201 108,564
Thereafter 295,652
---------------- ----------------
Total minimum lease payments 356,160 $ 1,237,284
================
Less amount representing future interest (44,090)
----------------
Present value of minimum capital lease payments 312,070
Current portion 109,641
----------------
$ 202,429
================
</TABLE>
Continued
F-79
<PAGE> 31
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
6. Lease Commitments, continued:
-----------------
Rent expense was approximately $394,340, $434,403, and $288,642 for the
years ended December 31, 1995, 1996 and 1997, respectively. In 1997 the
Company entered into an operating agreement with Regent (Note 1) under
which the Company receives reimbursement for certain ongoing rental
expenses.
7. Capital Stock:
--------------
SERIES C FINANCING:
On January 5, 1996, the Company entered into a Securities Purchase
Agreement with Nazem & Company III, L.P. (Nazem), BancBoston Ventures,
Inc. (BancBoston) and certain other investors that provided for up to
$1,363,500 in equity capital. The Company amended its Articles of
Incorporation effective December 22, 1995 to authorize the issuance of
Series C mandatorily redeemable convertible preferred stock and Class C
common stock which are the securities that were sold to the investors
listed above. A Series C unit is comprised of one share of Series C
mandatorily redeemable convertible preferred stock and one hundred
shares of Class C common at a rate of $101 per unit. The Series C
financing also resulted in the Series A class of preferred stock being
reclassified as no longer redeemable at the option of the holder.
Accordingly, amounts previously accreted to the carrying value of the
stock of $2,074,163 were reversed to reduce the Series A preferred
carrying value to the redemption value of the issue in the year ended
December 31, 1996.
Certain terms and conditions of the Series B Securities Purchase
Agreement with BancBoston were also amended. The rights and preferences
of the Series B shares discussed below have been updated to reflect the
amended terms. In addition, under the terms of the BancBoston agreement
809,704 shares of Class B common stock were issued in conjunction with
the first closing of the Series C financing on January 5, 1996 at a
price of $0.01 per share.
COMMON STOCK:
The Class B common stock has special voting rights which provide that
the Company shall not, without first obtaining the approval of a
majority of the then outstanding shares of Class B common stock, (i)
amend or supplement the Articles of Incorporation, (ii) merge,
consolidate, liquidate, or dissolve the Company, (iii) declare a
dividend on Series A convertible preferred, or (iv) purchase the shares
of capital stock of the Company, except in connection with the
Company's 1992 Stock Option Plan and the Series A convertible preferred
agreements.
Continued
F-80
<PAGE> 32
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
COMMON STOCK, continued:
The holders of Class B common stock also have the right to elect that
the Company purchase their shares of common stock, on or after
September 30, 2000 or earlier upon the occurrence of certain events of
default, at a price defined as the greater of fair market value or the
Formula Value per Share (as defined in the Series B Securities Purchase
Agreement). The Company has the right to elect to purchase all the
outstanding shares of Class B common stock, at any one time after
September 30, 2002, at the same price as specified above. The holders
of Class B common stock have the option at any time to convert
outstanding shares into Class A common shares on a one-for-one basis.
At December 31, 1997, 3,238,821 shares of Class A common stock had been
reserved for conversion. The Class B common shareholders also have
certain demand registration rights.
Holders of Class C common - (1) have the right to elect that the
Company purchase their shares of common stock, on or after September
30, 2000, at a price defined as the greater of fair market value or the
Formula Value per Share (as defined in the Series C Securities Purchase
Agreement), and (2) have the right to convert outstanding shares of
Class C common to Class A common on a one-for-one basis. At December
31, 1997, 1,202,100 shares of Class A common stock had been reserved
for conversion.
In connection with the closing of the acquisition of the Company by
Regent only, common stock holders have agreed to waive certain of these
rights.
PREFERRED STOCK:
The Company's preferred stock terms and values at December 31, 1997 are
listed below:
<TABLE>
<CAPTION>
Class A
Common
Reserved
Authorized Outstanding for
Shares Shares Conversion
-------------- -------------- --------------
<S> <C> <C> <C>
Series A preferred 6,117,945 5,595,875 5,595,875
Series B preferred 43,000 42,805
Series C preferred 13,500 12,021
-------------- -------------- --------------
6,174,445 5,650,701 5,595,875
============== ============== ==============
</TABLE>
Continued
F-81
<PAGE> 33
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
PREFERRED STOCK, continued:
The holders of the Series A convertible preferred stock have certain
demand registration rights commencing six months following the
effective date of an underwritten initial public offering. The Company
is prohibited from issuing any shares of any class of stock, other than
the investor securities to be issued in accordance with the Series C
Securities Purchase Agreement and shares in respect of the outstanding
warrants and the Company's 1992 Stock Option Plan, so long as any
shares of Series B redeemable preferred, or at least 55% of the Class B
common remain outstanding. Once this limitation on issuing capital
stock has been eliminated, the holders of the Series A convertible
preferred stock have rights of first refusal to purchase new
securities. As discussed above, the redemption rights of the Series A
preferred stock were removed in conjunction with the Series C
financing. Other rights are discussed below.
The Series B mandatorily redeemable preferred stockholders have special
voting rights which provide that the Company shall not, without first
obtaining the approval of the majority of the shareholders of the then
outstanding shares of Series B preferred, (i) create any new class of
stock having a preference over Series B preferred, (ii) amend or repeal
the Company's Articles of Incorporation, or (iii) purchase, redeem, or
retire any shares of the capital stock ranking junior to the Series B
redeemable preferred.
The holders of the Series B preferred shares are entitled to receive
dividends at a rate of $15 per share per annum. All dividends are
cumulative and accrue, whether or not declared. When and if no shares
of Series B or Series C preferred remain outstanding, the holders of
the outstanding Series A convertible preferred stock are entitled to
receive noncumulative dividends of $0.08 per share per annum, which are
in preference to any common stock dividends, whenever funds are legally
available and when and if declared by the Board of Directors.
Continued
F-82
<PAGE> 34
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
PREFERRED STOCK, continued:
The holders of Series B preferred shares have a liquidation preference
of an amount equal to $100 per share plus any accrued but unpaid
dividends thereon, before any payment shall be made in respect of the
Series C mandatorily redeemable convertible preferred stock, the Series
A convertible preferred stock or the common stock. After payment to the
holders of Series B and Series C preferred stock, the holders of the
Series A preferred stock have liquidation preferences of an amount
equal to the original issue price of $1.00 per share plus any declared
and unpaid dividends thereon, before any payment shall be made in
respect to the common stock. Upon completion of the distribution
described above, all remaining assets of the Company shall be
distributed to all holders of common stock on a pro rata basis
dependent upon the number of shares of common stock held. In certain
situations specified in the Amended and Restated Articles of
Incorporation, a consolidation or merger of the Company or sale of all
or substantially all of its assets may be deemed to be a liquidation
for purposes of the liquidation preferences.
The Company shall redeem all of the Series B mandatorily redeemable
preferred stock outstanding on September 30, 2001, in the amount of
$100 per share plus any accrued but unpaid dividends thereon. Any time
after September 30, 1999, the Company may at its option redeem all, but
not less than all, of the Series B preferred shares outstanding at the
redemption price stated above.
Holders of Series C mandatorily redeemable convertible preferred stock
- (1) have the right to convert their number of shares held into shares
(or other units) of any subsequent securities as may be issued by the
Company in the first transaction occurring after January 5, 1996, 2)
have special voting rights identical to the rights described below for
the Series B redeemable preferred shares, 3) are entitled to receive
dividends at a rate of $10 per share per annum which are cumulative and
accrue, whether or not declared, 4) have a liquidation preference of an
amount equal to $100 per share plus any accrued but unpaid dividends
thereon, before any payment shall be made in respect of the Series A
convertible preferred stock or the common stock, and 5) have a
mandatory redemption feature which requires the Company to purchase all
of the shares of the Series C preferred stock outstanding on September
30, 2001, in the amount of $100 per share plus any accrued but unpaid
dividends thereon.
The Company is accreting the expected redemption value of Series B and
Series C preferred stock over the period ending when redemption is
estimated to occur.
In connection with the closing of the acquisition of the Company by
Regent only, preferred stock holders have agreed to waive certain of
these rights.
Continued
F-83
<PAGE> 35
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
STOCK OPTIONS, continued:
Under the Company's 1992 Stock Option Plan (the Plan), a total of
1,800,000 shares of Class A common stock have been reserved for
issuance to employees, officers, directors and consultants. Incentive
stock options to purchase shares of the Company's common stock under
the Plan may be granted at not less than 100% of the fair value of the
stock as determined by the Board of Directors, on the date granted. The
options generally have a term of ten years and are generally
exercisable either immediately or over periods of up to four years, as
determined by the Board of Directors.
Activity in the Company's stock option plan consists of the following:
<TABLE>
<CAPTION>
Options
Available Options Exercise
for Grant Outstanding Price Amount
---------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994 257,882 1,530,000 $0.50-$0.55 $ 810,000
Options granted (140,000) 140,000 $0.50 70,000
Options canceled 150,000 (150,000) $0.50 (75,000)
---------- ------------- ------------
Balances, December 31, 1995 267,882 1,520,000 $0.50-$0.55 805,000
Options granted (822,882) 822,882 $0.07 145,250
Options canceled 717,882 (717,882) $0.07-$0.55 (836,500)
---------- ------------- ------------
Balances, December 31, 1996 162,882 1,625,000 $0.07 113,750
Options canceled 121,719 (121,719) $0.07 (8,520)
Options exercised - (38,281) $0.07 (2,680)
---------- ------------- ------------
Balances, December 31, 1997 284,601 1,465,000 $0.07 $ 102,550
========== ============= ============
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
------------------------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
---------------------- ------------ ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$0.07 1,465,000 6.03 $0.07 1,165,417 $0.07
</TABLE>
Continued
F-84
<PAGE> 36
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
PRO FORMA COMPENSATION EXPENSE, continued:
During 1996 and following the dilution to holders of Series A common
stock caused by the Series C financing described above, the Company
repriced all of the outstanding stock options to a revised fair value
of $0.07. All unexercised options were effectively canceled and
regranted. No other terms of the options were altered.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Plans been
determined based on the fair value at the grant date for awards in
1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share would have been
reduced to the proforma amounts as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net loss - as reported $ 1,749,414 $ 1,486,471 $ 1,014,131
=============== =============== ===============
Net loss - proforma $ 1,752,908 $ 1,504,018 $ 1,018,631
=============== =============== ===============
Basic and diluted net loss - as reported $ (0.90) $ (0.07) $ (0.43)
=============== =============== ===============
Basic and diluted net loss - proforma $ (0.90) $ (0.07) $ (0.43)
=============== =============== ===============
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the minimum value method with the following weighted average
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 6.28%
Expected life (years) 4
Expected dividends none
Expected volatility zero
</TABLE>
The weighted average expected life was calculated based on the vesting
period and the exercise behavior. The risk-free interest rate was
calculated in accordance with the grant date and expected life
calculated for each subgroup.
Continued
F-85
<PAGE> 37
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Capital Stock, continued:
-------------
WARRANTS:
The Company has issued warrants to purchase Series A preferred stock at
$1.00 per share as follows:
<TABLE>
<CAPTION>
Number Aggregate Exercise
of Shares Price Period
------------- ------------- -------------------------
<S> <C> <C>
63,000 $ 63,000 Through February 1998
42,000 42,000 Through March 1998
22,500 22,500 Through April 1998
240,000 240,000 Through May 1998
75,195 75,195 Through March 1999
45,000 45,000 Through August 1999
34,375 34,375 Through November 2002
------------- -------------
522,070 $ 522,070
============= =============
</TABLE>
The holders of these warrants have agreed not to exercise their purchase
rights in conjunction with the acquisition of the Company by Regent only.
Continued
F-86
<PAGE> 38
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. Net income (loss) per share:
----------------------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128") effective
December 31, 1997. SFAS 128 requires the presentation of basic and diluted
net income (loss) per share. Basic net income (loss) per share is computed
by dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding for that period. Diluted
income (loss) per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental common shares issuable upon
exercise of stock options and warrants, and conversion of preferred stock
for all periods. All prior period net income (loss) per share amounts have
been restated to comply with SFAS 128.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS USED IN BASIC AND DILUTED PER SHARE
CALCULATIONS:
Net loss before accretion $(1,749,414) $(1,486,471) $(1,014,131)
Dividends and accretion for redemption on mandatorily
redeemable preferred stock (556,337) 1,154,436 (1,205,275)
----------- ----------- -----------
Net loss available to common stockholders for basic and
diluted net loss per share $(2,305,751) $ (332,035) $(2,219,406)
=========== =========== ===========
RECONCILIATION OF SHARES USED IN BASIC AND DILUTED PER
SHARE CALCULATIONS:
Basic net loss per share
Weighted average shares of common stock outstanding 2,567,209 4,973,115 5,202,555
----------- ----------- -----------
Shares used in basic net loss per share calculation 2,567,209 4,973,115 5,202,555
=========== =========== ===========
Basic net loss per share ($0.90) ($0.07) ($0.43)
=========== =========== ===========
Diluted net loss per share
Weighted average shares of common stock outstanding 2,567,209 4,973,115 5,202,555
Dilutive effect of stock options and warrants - - -
Dilutive effect of convertible preferred stock - - -
----------- ----------- -----------
Shares used in diluted net loss per share calculation 2,567,209 4,973,115 5,202,555
=========== =========== ===========
Diluted net loss per share ($0.90) ($0.07) ($0.43)
=========== =========== ===========
</TABLE>
F-87
<PAGE> 39
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9 Income Taxes:
-------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 25,000 $ 18,000
Net operating loss carryforwards 2,448,000 2,730,000
Accrued liabilities 19,000 35,000
Other 2,000 -
----------- -----------
Total deferred tax assets 2,494,000 2,783,000
Deferred tax liabilities - property, plant and
equipment, principally due to differences in (104,000) (96,000)
depreciation
Valuation allowance (2,390,000) (2,687,000)
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
The change in the valuation allowance was an increase in the allowance of
$543,000, $539,000 and $297,000 in 1995, 1996 and 1997, respectively.
The Company's effective tax rate in 1997 differs from the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
Income tax benefit at statutory rate (34.0)% (34.0) % (34.0)%
Net operating loss not benefited 34.0 34.0 34.0
------ ------- ------
Effective tax rate - % - % - %
====== ======= ======
</TABLE>
The Company has approximately $7,300,000 and $3,000,000 of federal and
state net operating loss carryforwards available to reduce future taxable
income, respectively. These carryforwards generally expire by 2010 for
federal purposes and 1999 for state purposes, if not utilized, and
represent the losses incurred subsequent to May 1992, the date the Company
began operations as a Subchapter C corporation.
The Tax Reform Act of 1986 substantially changed the rules relative to net
operating loss and tax credit carryforwards in the case of an "ownership
change" of a corporation. Any ownership change, as defined, may restrict
utilization of carryforwards.
F-88
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
Alta California Broadcasting, Inc.
We have audited the accompanying consolidated balance sheet of Alta California
Broadcasting, Inc. (a wholly-owned subsidiary of Redwood Broadcasting, Inc.) and
subsidiary as of March 31, 1997 and the related consolidated statements of
operations, stockholder's deficiency and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alta California Broadcasting, Inc.
and subsidiary as of March 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
June 25, 1997 (October 10, 1997 as to the matter discussed
in the second and third paragraphs of Note 9)
F-89
<PAGE> 41
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 37,754 $ 11,261
Accounts receivable, net 121,560 212,805
Receivable from related parties (Note 5) 38,286 28,738
Receivable from sale of stations (Note 2) 633,000
Prepaid expenses 10,807 16,113
------------- --------------
Total current assets 841,407 268,917
PROPERTY AND EQUIPMENT, net (Notes 3 and 6) 213,472 208,523
INTANGIBLE ASSETS, net (Note 4) 996,584 935,933
NOTE RECEIVABLE (Note 2) 200,000
OTHER ASSETS 37,963 45,530
------------- --------------
TOTAL $ 2,289,426 $ 1,458,903
============= ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Payable to Redwood Broadcasting, Inc. (Note 5) $ 1,292,025 $ 624,113
Accounts payable 143,500 119,979
Accrued liabilities 194,365 46,617
Payables to related parties (Note 5) 14,500 65,137
Bank borrowings (Note 6) 78,804
Current portion of notes payable (Note 6) 34,517 36,781
Current portion of notes payable to related parties (Note 5) 25,000 25,000
Capital lease obligations (Note 7) 11,994
------------- --------------
Total current liabilities 1,715,901 996,431
NOTES PAYABLE (Note 6) 605,208 577,332
NOTES PAYABLE TO RELATED PARTIES (Note 5) 130,949 26,839
------------- --------------
Total liabilities 2,452,058 1,600,602
------------- --------------
COMMITMENTS (Note 7)
STOCKHOLDER'S EQUITY (DEFICIENCY)
Common stock, no par value; 1,000,000
shares authorized; 30,000 shares issued
and outstanding 225,000 225,000
Accumulated deficit (387,632) (366,699)
------------- --------------
Total stockholder's equity (deficiency) (162,632) (141,699)
------------- --------------
TOTAL $ 2,289,426 $ 1,458,903
============= ==============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-90
<PAGE> 42
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUE
Broadcast revenue $ 545,185 $ 278,902 $ 819,038
Less agency commissions 37,268 22,964 74,739
-------------- ------------- --------------
NET REVENUE 507,917 255,938 744,299
-------------- ------------- --------------
OPERATING EXPENSE
Selling, general and administrative 408,859 217,959 337,262
Broadcasting 339,499 257,457 414,271
Depreciation and amortization 151,544 66,562 99,647
-------------- ------------- --------------
Total 899,902 541,978 851,180
-------------- ------------- --------------
LOSS FROM OPERATIONS (391,985) (286,040) (106,881)
-------------- ------------- --------------
OTHER INCOME (EXPENSE)
Gain on sale of stations (Note 2) 678,206
Loss on sale of land (Note 2) (80,000) (80,000)
Interest expense (104,731) (71,029) (28,213)
Other income - net 59,664 44,873 156,027
-------------- ------------- --------------
Other income (expense), net 553,139 (106,156) 127,814
-------------- ------------- --------------
NET INCOME (LOSS) $ 161,154 $ (392,196) $ 20,933
============== ============= ==============
NET INCOME (LOSS) PER
COMMON SHARE $ 5.37 $ (13.07) $ 0.70
============== ============= ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 30,000 30,000 30,000
============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-91
<PAGE> 43
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDER'S
-------------------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIENCY)
<S> <C> <C> <C> <C>
BALANCES,
APRIL 1, 1996 30,000 $ 225,000 $ (548,786) $ (323,786)
Net income 161,154 161,154
---------- ------------ ------------- ---------------
BALANCES,
MARCH 31, 1997 30,000 225,000 (387,632) (162,632)
Net income (unaudited) 20,933 20,933
---------- ------------ ------------- ---------------
BALANCES,
DECEMBER 31, 1997
(unaudited) 30,000 $ 225,000 $ (366,699) $ (141,699)
========== ============ ============= ===============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-92
<PAGE> 44
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 161,154 $ (392,196) $ 20,933
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 151,544 66,562 99,647
Gain on sale of stations (678,206)
Loss on sale of land 80,000 80,000
Changes in operating assets and liabilities:
Accounts receivable (46,998) (19,041) (91,245)
Other current assets (3,961) 40,012 (5,306)
Accounts payable and accrued expenses (40,658) (11,193) (171,269)
Other assets 14,854 (78,109) (7,567)
------------- ------------ -----------
Net cash used in operating activities (362,271) (313,965) (154,807)
------------- ------------ -----------
INVESTING ACTIVITIES
Proceeds from sale of stations, net of commissions
paid 588,333
Proceeds from sale of land 370,000 370,000
Purchases of station assets (448,920) (405,159) (34,047)
Increase in receivable from sale of stations (17,000)
Collection of receivable from sale of stations 850,000
------------- ------------ -----------
Net cash provided by (used in) investing activities 509,413 (35,159) 798,953
------------- ------------ -----------
FINANCING ACTIVITIES
Proceeds from borrowings under related party notes 273,675
Proceeds from borrowings under notes 170,000
Borrowings from (repayments to) Redwood Broadcasting, Inc. 651,257 775,516 (767,912)
Principal payments on notes to related parties (529,900) (239,801) (4,110)
Principal payments on notes (445,275) (286,975) (25,612)
Decrease (increase) in net payable to related
parties (215,481) 114,415 60,185
Payments on capital lease obligations (13,664) (10,014) (11,994)
Proceeds from bank borrowings 78,804
------------- ------------ -----------
Net cash provided by (used in) financing
activities (109,388) 353,141 (670,639)
------------- ------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 37,754 4,017 (26,493)
CASH AND CASH EQUIVALENTS,
Beginning of period -- -- 37,754
------------- ------------ -----------
CASH AND CASH EQUIVALENTS,
End of period $ 37,754 $ 4,017 $ 11,261
============= ============ ===========
(continued)
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-93
<PAGE> 45
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL NONCASH INVESTING
AND FINANCING ACTIVITIES
Promissory note received for sale of stations $ 200,000
Receivable for sale of stations 633,000
Assumption of note payable to related party by
Redwood Broadcasting, Inc. (Note 5) $ 100,000
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 103,577 $ 93,320 $ 48,282
(concluded)
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-94
<PAGE> 46
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS
UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Alta California Broadcasting, Inc. (Alta) and its
subsidiary, Northern California Broadcasting, Inc. (Northern)
(collectively, the Company), operate in the radio broadcasting
industry. Alta is a wholly-owned subsidiary of Redwood Broadcasting,
Inc. (Redwood) which, in turn, is a majority-owned subsidiary of
Redwood MicroCap Fund, Inc. (MicroCap). Organized for the purpose of
acquiring and/or developing undervalued radio broadcasting properties
located in small to medium sized markets, the Company has embarked upon
an aggressive acquisition and development program and currently
operates radio stations in Northern California.
The accompanying financial statements for the year ended March 31, 1997
only include the operations of radio stations KRDG-FM and KNNN-FM. The
accompanying financial statements for the nine months ended December
31, 1997 include the operations of radio stations KRDG-FM, KNNN-FM,
KNRO-AM and KRRX-FM through October 10, 1997, at which time, Alta
entered into an agreement to sell such stations and a Local Management
Agreement (LMA) with the acquiror. The accompanying financial
statements for the nine months ended December 31, 1996 include the
operations of KRDG-FM and KNNN-FM (beginning in August 1996). See Notes
2 and 9.
INTERIM FINANCIAL STATEMENTS -- The accompanying financial statements
for the nine months ended December 31, 1996 and 1997 are unaudited. In
management's opinion, the financial statements reflect all adjustments
necessary for a fair presentation of the results of these periods, all
adjustments being of a normal and recurring nature.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Alta and its wholly-owned subsidiary, Northern.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
ACCOUNTS RECEIVABLE -- The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts
receivable. At March 31, 1997, the allowance was $3,200.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at fair
value as of the date of acquisition of the related station or cost if
purchased subsequently. Depreciation is provided on a straight line
basis over the estimated useful lives of the assets as follow:
buildings and improvements - 10 years; transmitter - 20 years; computer
equipment - 3 years; and technical equipment and furniture and fixtures
- 5 to 7 years. The recoverability of the carrying value of property
and equipment is evaluated periodically in relation to the estimated
value of the radio stations based on their operating performance and
cash flows.
INTANGIBLE ASSETS -- Intangible assets include the radio station
purchase price allocations to license costs and the noncompete
agreement. License costs are amortized over a period of 20 years and
F-95
<PAGE> 47
the noncompete agreement is amortized over the three-year period of the
agreement. The recoverability of the carrying value of intangible
assets is evaluated periodically in relation to the estimated value of
the radio stations based on their operating performance and cash flows.
REVENUE RECOGNITION -- The Company's primary source of revenue is the
sale of air time to advertisers. Revenue from the sale of air time is
recorded when the advertisements are broadcast.
BARTER TRANSACTIONS -- Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized based on the
fair value of the goods or services received when the advertisements
are broadcast. Goods and services received are recognized when used.
INCOME TAXES -- The Company accounts for income taxes using the asset
and liability method. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. The effect on deferred taxes of a
change in tax rate is recognized in the period that includes the
enactment date.
PER SHARE AMOUNTS -- Per share amounts are based upon the net income or
loss applicable to common shares and upon the weighted average of
common shares outstanding during the period.
USE OF ESTIMATES -- The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS -- For purposes of the statement of cash flows,
highly liquid investments, maturing within three months of acquisition,
are considered to be cash equivalents.
CONCENTRATIONS OF RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and receivables. Also, the Company's radio
stations broadcast in Northern California, which results in a risk to
the Company due to the concentration in one geographic area.
2. RADIO STATION ACQUISITIONS AND SALES
The following radio station acquisitions and sales have been completed
by Alta:
KHSL AM/FM -- In 1994, Alta acquired radio stations KHSL-AM/FM licensed
to Chico and Paradise, California, respectively. Subsequent to its
acquisition by Alta, KHSL-AM changed its call letters to KNSN-AM.
In March 1996, Alta entered into separate Asset Sale Agreements to sell
the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for
$1,466,333. Simultaneously with signing the Asset Sale Agreements, Alta
entered into a LMA with the purchaser until the sale closed on March
31, 1997, at which time the LMA terminated.
F-96
<PAGE> 48
Alta received $633,333 cash and a $200,000 promissory note, bearing
interest at a rate of 7%. As of December 31, 1997, all amounts
receivable from the sale of KHSL-AM/FM had been collected. A gain on
the sale of $678,206 has been recorded in the accompanying statement of
operations for the year ended March 31, 1997.
Management believes that the fair values of its receivables relating to
the sale of the stations are not materially different from their
carrying values.
In April 1996, the parcel of land was sold to an unrelated party for
$370,000. A loss on the sale of $80,000 has been recorded in the
accompanying statement of operations for the year ended March 31, 1997.
KRDG-FM (F/K/A KHZL AND KCFM) -- In March 1995, Alta entered into a LMA
with an option to purchase radio station KCFM-FM licensed to
Shingletown, California, which began commercial broadcasting in August
1995. KCFM-FM primarily serves the Redding, California market. In
September 1995, KCFM-FM changed its call letters to KHZL-FM. In July
1996, Alta completed the acquisition of KHZL-FM, thereby terminating
the LMA. Alta paid $65,000 cash and issued a $155,000 promissory note
as consideration for KHZL-FM (see Note 6). The acquisition was recorded
using the purchase method and the $220,000 purchase price was recorded
as license costs as no other assets of KHZL-FM were acquired. Effective
September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM.
KNNN-FM -- In May 1996, Alta entered into an Asset Purchase Agreement
to acquire KNNN-FM licensed to Central Valley, California. The Asset
Purchase Agreement was subsequently assigned to Northern. KNNN-FM
primarily serves the Redding, California market. In August 1996, Alta
began operating KNNN-FM under a LMA pending approval of the transfer of
ownership by the FCC. The purchase price for KNNN-FM was $825,000,
$325,000 of which was paid in cash at closing, and the balance of which
was in the form of a promissory note (see Note 6). Pursuant to the
Asset Purchase Agreement, the seller of KNNN-FM agreed to not compete
in the Redding, California market for a period of three years. The
acquisition was recorded using the purchase method and the purchase
price was allocated to property and equipment, noncompete agreement and
license costs, based on estimated fair values.
KLXR-FM -- In May 1996, Alta entered into an Asset Purchase Agreement
to acquire KLXR-AM, licensed to Redding, California, for a total
purchase price of $100,000. In February 1997, Alta entered into a LMA
with the seller until the purchase is completed, at which time, the LMA
will terminate. The purchase has not yet been completed. Prior to the
closing of the merger (see Note 9), it is anticipated that Alta will
assign its interests in the KLXR agreements to Redwood.
F-97
<PAGE> 49
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
<S> <C> <C>
Buildings and improvements $ 29,437 $ 35,859
Equipment 181,360 208,241
Furniture and fixtures 40,341 40,341
------------ -------------
Total property and equipment 251,138 284,441
Less accumulated depreciation 37,666 75,918
------------ -------------
Property and equipment-- net $ 213,472 $ 208,523
============ =============
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
<S> <C> <C>
License costs $ 950,489 $ 950,489
Noncompete agreement 100,000 100,000
------------- --------------
Total intangible assets 1,050,489 1,050,489
Less accumulated amortization 53,905 114,556
------------- --------------
Intangible assets-- net $ 996,584 $ 935,933
============= ==============
</TABLE>
F-98
<PAGE> 50
5. RELATED PARTY TRANSACTIONS
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
<S> <C> <C>
Unsecured note payable to an affiliated entity
controlled by an officer and stockholder of
Redwood (see below) $ 100,000
Unsecured note payable to an affiliated entity
controlled by an officer and stockholder of
Redwood with interest at 12% and principal
and interest due on demand 25,000 $ 25,000
Unsecured notes payable to stockholders of Redwood
with interest at 8% and principal and interest
due on March 31, 1999 30,949 26,839
------------ -------------
Total 155,949 51,839
Less current portion 25,000 25,000
------------ -------------
Total $ 130,949 $ 26,839
============ =============
</TABLE>
Management believes that the fair values of its notes payable to
related parties are not materially different from their carrying values
based on the terms and varying characteristics of the notes.
The $100,000 note payable to an affiliated entity was assumed by
Redwood during the nine months ended December 31, 1997, resulting in a
corresponding increase in the Company's payable to Redwood in the
accompanying balance sheet as of such date. The Company has noninterest
bearing payables to Redwood of $1,292,025 and $624,113 as of March 31,
1997 and December 31, 1997, respectively, which have no set repayment
terms. The Company recorded interest expense on the related party notes
of approximately $62,000 for the year ended March 31, 1997.
The Company has receivables from and payables to entities controlled by
an officer and stockholder of Redwood. The receivables and payables
total $38,286 and $14,500, respectively, as of March 31, 1997 and
$28,738 and $65,137, respectively, as of December 31, 1997. Such
balances do not bear interest and have no set repayment terms.
F-99
<PAGE> 51
6. NOTES PAYABLE AND BANK BORROWINGS
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
<S> <C> <C>
Note payable to seller of KNNN-FM with interest at 8.5%, collateralized
by the common stock of Northern, payable in monthly principal and
interest installments of $6,199 through October 2001 with the
remaining balance due at that date $ 484,725 $ 459,113
Note payable to seller of KRDG-FM with interest at 8.25% and payable
semi-annually, principal payable on July 21, 2004, collateralized
by property and equipment, guaranteed by MicroCap 155,000 155,000
------------ -------------
Total 639,725 614,113
Less current portion 34,517 36,781
------------ -------------
Total $ 605,208 $ 577,332
============ =============
</TABLE>
Under the terms of the promissory note agreements, including notes
payable to related parties (see Note 5), future minimum annual
principal payments during the next five fiscal years ending March 31
are as follows: 1998 - $59,517 (including $25,000 note payable on
demand); 1999 - $168,517; 2000 - $40,889; 2001 - $44,503; and 2002 -
$327,248.
As of March 31, 1997 and December 31, 1997, the Company has a $25,000
line of credit agreement with a bank which expires on April 1, 1998.
Bank borrowings under the line of credit agreement bear interest at a
rate of 7.9%, are collateralized by a certificate of deposit of
MicroCap, and are guaranteed by MicroCap. There were no borrowings
under the line of credit agreement as of March 31, 1997. As of December
31, 1997, $25,000 was outstanding under the agreement.
As of December 31, 1997, the Company has a $25,000 line of credit
agreement which expires July 1, 1998. Bank borrowings under the line of
credit agreement bear interest at the prime rate plus 2.5%, are
unsecured and are guaranteed by MicroCap. As of December 31, 1997,
$25,000 was outstanding under the agreement.
As of December 31, 1997, the Company has a note payable to a bank with
a principal balance of $28,804 which is payable in monthly installments
of $900 plus interest through September 2, 2000 when all outstanding
principal and interest is due. The note bears interest at the prime
rate plus 2.5%, is collateralized by equipment and is guaranteed by
Redwood and MicroCap.
Management believes that the fair values of its notes payable are not
materially different from their carrying values based on the terms and
varying characteristics of the notes.
F-100
<PAGE> 52
7. LEASE AGREEMENTS
The Company leases land and equipment under operating lease agreements
expiring in various years through 2001 and leases equipment under a
capital lease agreement expiring in 1998. Lease expense under the
operating lease agreements totalled $74,039 for the year ended March
31, 1997.
At March 31, 1997, future minimum lease payments under the lease
agreements are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
<S> <C> <C>
Fiscal year ending March 31:
1998 $ 13,858 $ 33,501
1999 16,812
2000 32,944
---------- ----------
Total minimum lease payments 13,858 $ 83,257
==========
Less amount representing interest 1,864
----------
Capital lease obligation $ 11,994
==========
</TABLE>
The equipment under capital lease is as follows at March 31, 1997:
<TABLE>
<S> <C>
Equipment $ 42,416
Less accumulated depreciation 3,361
----------
Net $ 39,055
==========
</TABLE>
F-101
<PAGE> 53
8. INCOME TAXES
The Company's operations are included in the consolidated federal and
state income tax returns of Redwood. Under Redwood's tax allocation
method, a tax provision is allocated to the Company based upon a
calculation of income taxes as if the Company filed separate income tax
returns.
As of March 31, 1997, Redwood has approximately $375,000 of
consolidated net operating loss carryovers of which approximately
$200,000 were attributable to the Company. The carryovers expire in
various years through 2012 and result in deferred income tax assets of
approximately $68,000. However, because of the uncertainty regarding
future realization of the deferred income tax assets, the Company has
established a valuation allowance of $68,000 as of March 31, 1997. The
valuation allowance decreased by $56,000 during the year ended March
31, 1997.
9. SUBSEQUENT EVENTS
Effective April 1, 1997, the Company acquired an option to purchase
radio stations KNRO-AM and KARZ-FM (KNRO/KARZ) licensed in Redding,
California from Power Surge, Inc. (Power Surge), a wholly-owned
subsidiary of Power Curve, Inc. (Power Curve). Power Surge and Power
Curve are both controlled by Redwood's President. Power Curve acquired
KNRO/KARZ on January 31, 1997 for $480,000 in cash and a $720,000
promissory note. Power Surge operated the stations from February 1,
1997 through March 31, 1997 and received the licenses from Power Curve
on March 31, 1997. Under the terms of the option agreement, the Company
can either (1) purchase KNRO/KARZ for $1,200,000 in cash or (2) issue
1,000,000 shares of its common stock in exchange for all of the issued
and outstanding shares of common stock of Power Surge. The option, as
extended, expires March 31, 1998. Also effective April 1, 1997, the
Company entered into a LMA with Power Surge for a period of one year.
Under the terms of the LMA, the Company is operating KNRO/KARZ and is
obligated to pay Power Surge a monthly fee of $5,000. Effective May 16,
1997, KARZ-FM changed its call letters to KRRX-FM.
On October 10, 1997, Alta entered into an agreement to merge with
Regent Acquisition Corp., a subsidiary of Regent Communications, Inc.
(Regent). Upon closing of the merger, all of the outstanding shares of
common stock of Alta will be redeemed and cancelled. As consideration
for the Alta common stock, Redwood will receive $1,000,000 cash and
200,000 shares of Series E preferred stock in Regent, subject to
certain adjustments at closing. Alta is required to acquire KNRO-AM and
KRRX-FM from Power Surge prior to the closing of the merger. The merger
agreement provides for the formation of a joint venture by Redwood and
Regent to construct an antenna tower which is intended to be leased by
Regent from the joint venture. In the event that these provisions have
not been satisfied prior to closing, the consideration at closing will
be reduced to $975,000 cash and 195,000 shares of stock. If such
provisions are satisfied subsequent to closing, the agreement provides
that Redwood will receive the additional consideration at that time.
- --------------------------------------------------------------------------------
F-102
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
We have audited the accompanying balance sheet of KARZ/KNRO (A Division of Merit
Broadcasting Corporation) as of December 31, 1996 and the related statements of
operations and of cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of KARZ/KNRO at December 31,1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
May 9, 1997
F-103
<PAGE> 55
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 4,661
Accounts receivable - net of allowance for
doubtful accounts of $23,074 92,834
Prepaid expenses 10,000
---------
Total 107,495
OPERATING PROPERTY AND EQUIPMENT - Net (Note 3) 70,280
---------
TOTAL $ 177,775
=========
LIABILITIES AND NET LIABILITIES OF DIVISION
CURRENT LIABILITIES
Accounts payable $ 10,178
Accrued liabilities 699
Accrued interest payable to related parties (Note 2) 85,458
Line of credit borrowings (Note 4) 1,617
---------
Total 97,952
DEBT TO RELATED PARTIES (Note 2) 164,297
NET LIABILITIES OF DIVISION (84,474)
---------
TOTAL $ 177,775
=========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-104
<PAGE> 56
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
STATEMENT OF OPERATIONS AND NET LIABILITIES OF DIVISION
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUE
Broadcasting $588,339
Less agency commissions 38,042
--------
Net revenue 550,297
--------
COSTS AND EXPENSES
General and administrative 298,701
Programming and technical 152,611
Sales 104,014
--------
Total 555,326
--------
LOSS FROM OPERATIONS 5,029
INTEREST EXPENSE (Note 2) 17,526
--------
NET LOSS 22,555
TRANSFERS TO OTHER DIVISIONS 8,551
NET LIABILITIES OF DIVISION, Beginning of year 53,368
--------
NET LIABILITIES OF DIVISION, End of year $ 84,474
========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-105
<PAGE> 57
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $(22,555)
Adjustments to reconcile net loss to
net cash provided by activities:
Depreciation 8,887
Changes in operating assets and liabilities:
Accounts receivable 20,256
Accounts payable and accrued liabilities (7,854)
Accrued interest payable to related parties 16,930
--------
Net cash provided by operating activities 15,664
--------
FINANClNG ACTIVITIES
Repayment of line of credit borrowings (17,383)
Transfers to other divisions (8,551)
--------
Net cash used in financing activities (25,934)
--------
NET DECREASE IN CASH (10,270)
CASH, Beginning of year 14,931
--------
CASH, End of year $ 4,661
========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 1,058
========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-106
<PAGE> 58
KARZ/KNRO (A Division of Merit Broadcasting Corporation)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Merit Broadcasting Corporation (the Company) owned and operated
radio stations KARZ-FM and KNRO-AM (together, KARZ/KNRO) in Redding,
California through January 31, 1997, at which time KARZ/KNRO was acquired
by Power Curve, Inc.
The Company owns and operates two other radio stations and accounts for the
activities of the stations as separate divisions. The accompanying
financial statements include only the accounts of the KARZ/KNRO division of
the Company.
Accounts Receivable - Concentrations of credit risk with respect to
receivables are limited due to the large number of customers in diverse
industries and generally short payment terms. Due to these factors, no
additional credit risk beyond amounts provided for collection losses is
believed inherent in the accounts receivable of KARZ/KNRO.
Operating Property and Equipment - Property and equipment is recorded at
cost and is depreciated using accelerated methods over lives as follows:
buildings - 35 years; vehicles - 5 years; towers and improvements - 5 to 10
years; and other equipment - 5 to 7 years. The recoverability of the
carrying value of operating property and equipment is evaluated
periodically in relation to the estimated value of the radio stations based
on their operating performance and non-discounted cash flows.
Income Taxes -- As a division of the Company, KARZ/KNRO is not a taxable
entity. Accordingly, no provision or credit for income taxes has been made
in the accompanying financial statements.
Statement of Cash Flows - For purposes of the statement of cash flows,
highly liquid accounts maturing within three months of acquisition are
considered to be cash equivalents.
Use of Estimates - The preparation of KARZ/KNRO's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.
Geographic Area - KARZ/KNRO broadcasts in Northern California. This results
in a risk to the Company due to the concentration in one geographic area.
F-107
<PAGE> 59
2. RELATED PARTY TRANSACTIONS
The Company has debt to its shareholders totalling $164,297 as of December
31, 1996. The debt is unsecured, bears interest at 10% and has no maturity
date. Accrued interest on such debt was $85,458 as of December 31, 1996.
Such debt and the related accrued interest have been recorded in the
accompanying financial statements of KARZ/KNRO as it relates to the
acquisition of assets of KARZ/KNRO.
The Company has debt to a former shareholder totalling $644,825 as of
December 31, 1996. Accrued interest on such debt was $45,867 as of December
31, 1996. Since such debt was incurred for the purchase of treasury stock
of the Company, it has been recorded at the corporate level and has not
been recorded on the accompanying KARZ/KNRO financial statements. Had such
debt been recorded on the accompanying KARZ/KNRO financial statements as of
December 31, 1996, net liabilities would have increased by $690,692 and net
loss would have increased by $29,917.
3. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consists of the following at December 31,
1996:
<TABLE>
<S> <C>
Land $ 23,000
Building 22,644
Towers and improvements 126,099
Equipment 191,856
Vehicles 26,914
--------
Total 390,513
Less accumulated depreciation 320,233
--------
Operating property and equipment -- net $ 70,280
========
</TABLE>
4. LINE OF CREDIT
The Company has a $50,000 line of credit agreement with a bank which is
unsecured, bears interest at the bank's index rate plus 1.5% and matured on
February 15, 1997. The Company borrowed $19,000 under the line of credit
agreement in 1995 for the purchase of equipment for KARZ/KNRO. Accordingly,
such borrowings have been recorded on the KARZ/KNRO financial statements.
As of December 31, 1996, the outstanding borrowings under the agreement
totalled $1,617.
5. BUILDING LEASE
KARZ/KNRO leases its offices under a month-to-month operating lease
agreement. Lease expense totalled $19,908 during 1996.
- --------------------------------------------------------------------------------
F-108
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
Power Surge, Inc.
We have audited the accompanying balance sheet of Power Surge, Inc. (a
subsidiary of Power Curve, Inc.) as of December 31, 1997 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Power Surge, Inc. as of December 31, 1997,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
March 13, 1998
F-109
<PAGE> 61
POWER SURGE, INC.
(A SUBSIDIARY OF POWER CURVE, INC.)
BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 82
Income taxes receivable from Power Curve, Inc. (Note 5) 4,000
Receivable from related party (Note 7) 65,137
-----------
Total current assets 69,219
PROPERTY AND EQUIPMENT, net (Notes 2 and 3) 152,273
INTANGIBLE ASSETS, net (Notes 2 and 4) 953,477
-----------
TOTAL $ 1,174,969
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to related party (Note 7) $ 2,133
Accounts payable 117
-----------
Total current liabilities 2,250
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,500
shares authorized; 1,250 shares issued
and outstanding 1,202,500
Accumulated deficit (29,781)
-----------
Total stockholders' equity 1,172,719
-----------
TOTAL $ 1,174,969
===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-110
<PAGE> 62
POWER SURGE, INC.
(A SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Broadcast revenue $ 74,704
Less agency commissions 5,893
---------
Net revenue 68,811
---------
OPERATING EXPENSE
Selling, general and administrative 66,410
Broadcasting 20,622
Depreciation and amortization 106,314
---------
Total 193,346
---------
LOSS FROM OPERATIONS (124,535)
OTHER INCOME (Notes 7 and 8) 90,754
---------
LOSS BEFORE INCOME TAX BENEFIT (33,781)
INCOME TAX BENEFIT (Note 5) 4,000
---------
NET LOSS $ (29,781)
=========
NET LOSS PER COMMON SHARE $ (23.82)
=========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,250
</TABLE> =========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-111
<PAGE> 63
POWER SURGE, INC.
(A SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
<S> <C> <C> <C> <C>
Issuance of common stock 1,250 $ 2,500 $ 2,500
Contribution of radio station
assets (Note 2) 1,200,000 1,200,000
Net loss for year ended
December 31, 1997 $ (29,781) (29,781)
-------- -------------- ------------- ---------------
BALANCES,
DECEMBER 31, 1997 1,250 $ 1,202,500 $ (29,781) $ 1,172,719
======== ============== ============= ===============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-112
<PAGE> 64
POWER SURGE, INC.
(A SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (29,781)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 106,314
Changes in operating assets and liabilities:
Accounts receivable 9,436
Income taxes receivable (4,000)
Receivable from related party (65,137)
Payable to related party 2,133
Accounts payable and accrued expenses 117
-----------
Net cash provided by operating activities 19,082
INVESTING ACTIVITIES-- Purchase of property and equipment (21,500)
FINANCING ACTIVITIES-- Issuance of common stock 2,500
-----------
NET INCREASE IN CASH 82
CASH, Beginning of year --
-----------
CASH, End of year $ 82
===========
SUPPLEMENTAL NONCASH INVESTING
AND FINANCING ACTIVITY
Contribution of radio station assets (Note 2):
License cost $ 890,564
Property and equipment 150,000
Noncompete agreement 150,000
Accounts receivable 9,436
-----------
Total $ 1,200,000
===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-113
<PAGE> 65
POWER SURGE, INC.
(A SUBSIDIARY OF POWER CURVE, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Power Surge, Inc. (the Company), a Delaware
corporation, operates in the radio broadcasting industry. The Company
is 80% owned by Power Curve, Inc. (Power Curve) and 20% owned by
Redwood Broadcasting, Inc. (Redwood Broadcasting) as of December 31,
1997. The Company was incorporated on October 16, 1996, however, the
Company did not have any operations prior to 1997.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at fair
value as of the date of acquisition of the related station or cost if
purchased subsequently. Depreciation is provided on a straight line
basis over the estimated useful lives of the assets as follow:
buildings and improvements - 10 years; transmitter - 20 years; computer
equipment - 3 years; technical equipment - 7 years; furniture and
fixtures - 5 years; and vehicles - 5 years. The recoverability of the
carrying value of property and equipment is evaluated periodically in
relation to the estimated value of the radio stations based on their
operating performance and cash flows.
INTANGIBLE ASSETS -- Intangible assets include the radio station
purchase price allocations to license costs and the noncompete
agreement. License costs are amortized over a period of 20 years and
the noncompete agreement is amortized over the three-year period of the
agreement. The recoverability of the carrying value of intangible
assets is evaluated periodically in relation to the estimated value of
the radio stations based on their operating performance and cash flows.
REVENUE RECOGNITION -- Revenue from the sale of air time is recorded
when the advertisements are broadcast.
BARTER TRANSACTIONS -- Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized based on the
fair value of the goods or services received when the advertisements
are broadcast. Goods and services received are recognized when used.
INCOME TAXES -- The Company accounts for income taxes using the asset
and liability method. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. The effect on deferred taxes of a
change in tax rate is recognized in the period that includes the
enactment date.
LOSS PER COMMON SHARE -- Loss per common share is based upon the net
loss applicable to common shares and the weighted average of common
shares outstanding during the period.
USE OF ESTIMATES -- The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
F-114
<PAGE> 66
STATEMENT OF CASH FLOWS -- For purposes of the statement of cash flows,
highly liquid investments, maturing within three months of acquisition,
are considered to be cash equivalents.
2. RADIO STATION ACQUISITIONS
On January 31, 1997, Power Curve acquired radio stations KNRO-AM (KNRO)
and KARZ-FM (KARZ), licensed in Redding, California, from Merit
Broadcasting Corporation for $480,000 in cash and a $720,000 promissory
note. the Company operated the stations from February 1, 1997 through
March 31, 1997 under a Local Marketing Agreement (LMA) with Power
Curve. On March 31, 1997, the stations were contributed to the Company
by Power Curve. This contribution was recorded as contributed capital
of $1,200,000 and was allocated to accounts receivable, property and
equipment, noncompete agreement and license costs based on their
respective estimated fair values. Since Power Curve is the parent
company of the Company and it was the intention to have the Company own
and operate the stations upon acquisition, the accompanying financial
statements have been prepared as if the Company owned the stations
during the period from February 1, 1997 through March 31, 1997 (the
date of the contribution).
The following represents the unaudited pro forma results of operations
for the year ended December 31, 1997 as if the acquisition of KNRO and
KARZ had occurred on January 1, 1997: net revenue - $106,160; loss from
operations - $151,394; net loss - $56,640; and, net loss per common
share - $45.31.
Effective April 1, 1997, Alta California Broadcasting, Inc. (Alta), a
wholly-owned subsidiary of Redwood Broadcasting, acquired an option to
purchase KNRO and KARZ from the Company. Under the terms of the option
agreement, Alta can either (1) purchase the stations for $1,200,000 in
cash or (2) issue 1,000,000 shares of its common stock in exchange for
all of the issued and outstanding shares of common stock of the
Company. The option terminates on March 31, 1998. Concurrently, Alta
entered into a LMA with the Company for a period of one year. Under the
terms of the LMA, Alta is operating KNRO and KARZ and is obligated to
pay Power Surge a monthly fee of $5,000. Accordingly, the operating
activities of the radio stations from April 1, 1997 through December
31, 1997 are not reflected in the accompanying financial statements.
Effective May 16, 1997, KARZ changed its call letters to KRRX-FM.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Buildings and improvements $ 75,000
Equipment 40,000
Transmitter 30,000
Vehicle 21,500
Furniture and fixtures 5,000
-------------
Total property and equipment 171,500
Less accumulated depreciation 19,227
-------------
Property and equipment-- net $ 152,273
=============
</TABLE>
F-115
<PAGE> 67
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<S> <C>
License costs $ 890,564
Noncompete agreement 150,000
--------------
Total intangible assets 1,040,564
Less accumulated amortization 87,087
--------------
Intangible assets-- net $ 953,477
==============
</TABLE>
5. INCOME TAXES
The Company's operations are included in the consolidated federal and
state income tax returns of Power Curve. Under Power Curve's tax
allocation method, a tax provision is allocated to the Company based
upon a calculation of income taxes as if the Company filed separate
income tax returns.
The tax effects of temporary differences that give rise to deferred
income taxes at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred income tax asset -- difference between book
and tax basis of intangible assets $ 9,400
Valuation allowance (9,400)
-----------
Net deferred income taxes $ --
===========
</TABLE>
The valuation allowance increased by $9,400 during 1997.
The following summary reconciles income taxes computed at the federal
statutory rate with the income tax benefit:
<TABLE>
<S> <C>
Federal income tax benefit computed at statutory rate $ 11,486
Tax effect of:
State income taxes, net of federal benefit 1,914
Establishment of valuation allowance (9,400)
-----------
Income tax benefit $ 4,000
===========
</TABLE>
6. ALTA MERGER AGREEMENT
Effective October 10, 1997, Alta entered into an agreement to merge
with Regent Acquisition Corp., a subsidiary of Regent Communications,
Inc. Alta is required to exercise its option and complete its
acquisition of KNRO and KRRX from the Company prior to the closing of
the merger.
F-116
<PAGE> 68
7. RELATED PARTY TRANSACTIONS
The Company has a receivable from Alta and a payable to an entity under
common control of $65,137 and $2,133, respectively, as of December 31,
1997. The Company recorded income under its LMA with Alta (see Note 2)
totalling $45,000 which is included in other income in the accompanying
statement of operations.
8. OTHER INCOME
During 1997, the Company entered into a purchase agreement to acquire
stations KVVQ-AM and KVVQ-FM in Hesperia, California. As the result of
an upset bid for the stations by a third party, the Company waived its
rights under the purchase agreement and received compensation of
$50,000, which has been recorded as other income in the accompanying
statement of operations.
- --------------------------------------------------------------------------------
F-117
<PAGE> 69
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of Continental Radio Broadcasting, L.L.C.
We have audited the accompanying balance sheet of Continental Radio
Broadcasting, L.L.C. ("the Company") as of December 31, 1997 and the related
statement of operations, partner's deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997, and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Cincinnati, Ohio
February 10, 1998
F-118
<PAGE> 70
CONTINENTAL RADIO BROADCASTING, L.L.C.
BALANCE SHEET
as of December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 373
Trade accounts receivable, less allowance for doubtful accounts of $26,000 172,465
Other receivables 7,544
Prepaid expenses 4,125
--------------
Total current assets 184,507
Property, plant and equipment, net 303,560
Intangible assets, net 948,647
Other assets, net 127,527
--------------
Total assets $ 1,564,241
==============
LIABILITIES AND PARTNER'S DEFICIT
Current liabilities:
Accounts payable $ 46,683
Book overdraft 8,950
Accrued expenses 69,066
Current portion of long-term debt 1,670,000
--------------
Total current liabilities 1,794,699
Long-term debt 90,000
--------------
Total liabilities 1,884,699
--------------
Commitments and contingencies
Partner's Deficit:
Capital contributions $ 10,000
Deficit (330,458)
--------------
Total partner's deficit (320,458)
--------------
Total liabilities and partner's deficit $ 1,564,241
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-119
<PAGE> 71
CONTINENTAL RADIO BROADCASTING, L.L.C.
STATEMENT OF OPERATIONS
for the year ended December 31, 1997
<TABLE>
<S> <C>
Broadcast revenue $ 1,095,761
Less agency commissions 73,905
-------------
Net revenue 1,021,856
Broadcast operating expenses 438,482
Corporate general and administrative expenses 346,055
Depreciation and amortization 241,744
-------------
Operating loss (4,425)
Interest expense 186,127
Loss on disposal of fixed assets 73,219
-------------
Net loss $ (263,771)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-120
<PAGE> 72
CONTINENTAL RADIO BROADCASTING, L.L.C.
STATEMENT OF PARTNER'S DEFICIT
for the year ended December 31, 1997
<TABLE>
<CAPTION>
CAPITAL
CONTRIBUTION DEFICIT TOTAL
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balances, December 31, 1996 $ 10,000 $ (66,687) $ (56,687)
Net loss (263,771) (263,771)
--------------- ---------------- ----------------
Balances, December 31, 1997 $ 10,000 $ (330,458) $ (320,458)
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-121
<PAGE> 73
CONTINENTAL RADIO BROADCASTING, L.L.C.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (263,771)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 141,855
Amortization 99,889
Loss on disposal of fixed assets 73,219
Changes in operating assets and liabilities:
Accounts receivable (51,477)
Other receivables, prepaid expenses and other assets (9,302)
Accounts payable 23,400
Accrued expenses 55,663
-------------
Net cash provided by operating activities 69,476
Cash flows from investing activities:
Capital expenditures (37,480)
Proceeds from sale of equipment 24,500
-------------
Net cash used in investing activities (12,980)
Cash flows from financing activities:
Borrowings of long term debt 30,000
Payments of long term debt (170,000)
Book overdraft 8,950
-------------
Net cash used in financing activities (131,050)
-------------
Net decrease in cash (74,554)
-------------
Cash, beginning of period 74,927
-------------
Cash, end of period $ 373
=============
Cash paid for interest $ 142,589
=============
</TABLE>
The accompanying notes are integral part of the financial statements.
F-122
<PAGE> 74
CONTINENTAL RADIO BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
a. ORGANIZATION: Continental Radio Broadcasting, L.L.C. (the Company), an
Arizona corporation, owns and operates radio stations KFLG (FM) and
KFLG (AM) located in Bullhead City, Arizona.
b. BROADCAST REVENUE: Broadcast revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
c. BARTER TRANSACTIONS: Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized as income
when advertisements are broadcast, and merchandise or services
received are charged to expense when received or used. If merchandise
or services are received prior to the broadcast of the advertising, a
liability (deferred barter revenue) is recorded. If advertising is
broadcast before the receipt of the goods or services, a receivable is
recorded. For the year ended December 31, 1997, barter revenue was
approximately $118,708 and barter expense was approximately $114,545.
d. CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of accounts receivable. The credit risk is limited due to
the large number of customers comprising the Company's customer base.
e. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation is provided using accelerated methods based upon the
estimated useful lives of the respective assets, ranging from five to
seven years. When assets are retired or otherwise disposed of, the
cost of the asset and the related accumulated depreciation are removed
from their respective accounts and any resulting gain or loss is
recognized.
f. INTANGIBLE ASSETS: Intangible assets are stated at cost and amortized
on the straight line basis over fifteen years. The carrying value of
intangible assets is reviewed by the Company when events or
circumstances indicate that the recoverability of an asset may be
impaired. If this review indicates that goodwill and licenses will not
be recoverable, as determined based on the undiscounted cash flows of
the entity over the remaining amortization period, the carrying value
of the goodwill and licenses will be reduced accordingly.
g. OTHER ASSETS: Other assets consist primarily of a non-compete
agreement, which is being amortized on the straight line method over 5
years. See Note 5.
F-123
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, CONTINUED:
h. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
i. INCOME TAXES: Federal and state income taxes are not provided for in
the accompanying financial statements, as the partners are taxed at
federal and state levels individually on their share of earnings.
2. ASSET SALE AGREEMENT:
On December 9, 1997, the Company entered into an agreement to sell
substantially all of the assets of radio stations KFLG (FM) and KFLG (AM)
to Regent Communications, Inc. for approximately $3,600,000 in cash,
subject to adjustment. The closing is conditioned on, among other things,
receipt of FCC and other regulatory approvals.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Equipment $ 398,430
Furniture and fixtures 63,597
------------
462,027
Less accumulated depreciation (158,467)
------------
$ 303,560
============
</TABLE>
F-124
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. INTANGIBLE ASSETS:
Intangible Assets at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Broadcast intangibles $ 662,000
Goodwill 360,500
------------
1,022,500
Less accumulated amortization (73,853)
------------
$ 948,647
============
</TABLE>
5. OTHER ASSETS:
Other assets at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Non-compete agreement $ 150,000
Other 11,643
------------
161,643
Less accumulated amortization (34,116)
------------
$ 127,527
============
</TABLE>
6. LONG-TERM DEBT:
Long-term debt at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Variable rate term loan (10.5% December 31, 1997),
collateralized by substantially all assets of
the Company $ 1,260,000
Subordinated notes payable (12.0% at December 31, 1997) 380,000
Non-compete obligation 120,000
-------------
1,760,000
Less current maturities (1,670,000)
-------------
Long-term debt $ 90,000
=============
</TABLE>
F-125
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. LONG-TERM DEBT:, CONTINUED
Borrowings under the variable rate term loan bear interest at the bank's
prime rate plus the Floating Rate Spread, as defined in the agreement
(ranging from 1.5% to 5%) and the loan matures on December 31, 2003 and
has been personally guaranteed by a partner in the Company. The credit
agreement requires mandatory repayment of up to 50% of Excess Cash Flow,
as defined, within 120 days after the Company's year end. The Company may
prepay the note, in whole or in part, subject to a premium ranging from
1% to 3% prior to December 31, 2000. Subsequent prepayments may be made
without premium or penalty. The Credit Agreement contains certain
restrictive covenants which, among other things, requires the Company to
meet certain financial tests. During 1997, the Company was not in
compliance with certain covenants included in its Credit Agreement. As a
result, the outstanding principal balance has been classified as a
current liability at December 31, 1997 in the accompanying Balance Sheet.
The subordinated promissory notes bear interest at 12% and mature on
September 30, 2004. Interest is payable annually to the extent of Net
Cash Available, as defined. The Company may prepay the notes at any time
without premium or penalty. All principal and interest related to the
notes becomes due and payable in the event of the sale of the assets of
the Company. As discussed in Note 2, the Company entered into an Asset
Sale Agreement on December 9, 1997, which is expected to close prior to
May 1998. As a result, the outstanding principal and interest due under
the subordinated notes has been classified as a current liability at
December 31, 1997.
In connection with the acquisition of radio stations KFLG (FM) and (AM)
on December 1, 1996, the Company entered into a non-compete agreement
with the former owner of the stations, which requires the Company to pay
the former owner $30,000 per year for five years beginning on December 1,
1997.
7. LEASES:
The Company leases certain equipment and facilities used in their
operations. Future minimum rentals under all noncancelable operating
leases as of December 31, 1997 are payable as follows:
<TABLE>
<S> <C>
1998 $ 36,820
1999 31,774
2000 24,200
2001 24,200
2002 24,200
</TABLE>
Rental expense was approximately $34,000 for the year ended December 31, 1997.
8. RELATED PARTY TRANSACTIONS:
During 1996, the Company issued $350,000 of subordinated promissory
notes to a partner in the Company.
During 1997, the Company issued a $30,000 subordinated promissory
note to a partner in the Company.
F-126
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To Ruby Broadcasting, Inc.
We have audited the accompanying Statement of Revenues and Direct Expenses of
Radio Station KZXY (FM)("KZXY") for the years ended December 31, 1997 and 1996.
This Statement of Revenues and Direct Expenses is the responsibility of KZXY's
management. Our responsibility is to express an opinion on the Statement of
Revenues and Direct Expenses based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenues and Direct Expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Statement
of Revenues and Direct Expenses. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying statement was prepared to present the Revenue and Direct
Expenses of KZXY and is not intended to be a complete presentation of KZXY's
results of operations.
In our opinion, the accompanying Statement of Revenues and Direct Expenses
presents fairly, in all material respects, the revenues and direct expenses of
KZXY for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Cincinnati, Ohio
January 9, 1998
F-127
<PAGE> 79
RADIO STATION KZXY(FM)
STATEMENT OF REVENUES AND DIRECT EXPENSES
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Broadcast revenue $ 1,235,560 $ 1,278,968
Less agency commissions (43,974) (63,662)
----------- -----------
Net revenue 1,191,586 1,215,306
Broadcast operating expenses 500,486 475,917
Depreciation and amortization 26,467 26,467
General and administrative expenses 345,175 332,019
----------- -----------
Total direct expenses 872,128 834,403
----------- -----------
Excess of revenues over direct expenses $ 319,458 $ 380,903
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-128
<PAGE> 80
RADIO STATION KZXY(FM)
NOTES TO STATEMENT OF REVENUES AND DIRECT EXPENSES
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
A. BASIS OF PRESENTATION AND ORGANIZATION: KZXY(FM), a radio station
located in Apple Valley, California, is owned and operated by Ruby
Broadcasting, Inc. ("Ruby"), a Delaware corporation. The Statement
of Revenues and Direct Expenses includes certain costs shared with
other stations under common ownership. These amounts primarily
cover administrative and production support, facility costs,
repairs and supplies. These costs have generally been allocated
among the affiliated stations based on estimated time spent, space
or volume of use. Management believes that these allocation
methods are reasonable. As a result of the allocations, however,
the financial statements presented may not be indicative of the
results achieved had the Company operated as a nonaffiliated
entity.
In December 1997, Ruby entered into an agreement to sell the FCC
license and related operating assets of this station and radio
station KIXW(AM) to Regent Communications, Inc. for $6,000,000 in
cash, subject to adjustment. The closing is conditioned on, among
other things, receipt of FCC and other regulatory approvals.
Additionally, on January 1, 1998, Ruby entered into a time
brokerage agreement with Regent Communications, Inc. related to
radio stations KZXY(FM) and KIXW(AM).
A statement of net assets acquired for radio station KZXY (FM) has
not been presented because not all of the required financial
information is available. The assets to be acquired consist
primarily of prepaid expenses, radio station operating assets, and
related intangible assets.
B. BROADCAST REVENUE: Broadcast revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
C. BARTER TRANSACTIONS: Barter transactions (advertising provided in
exchange for goods and services) are reported at the estimated
fair value of the product or services received. Revenue from
barter transactions is recognized when advertisements are
broadcast and merchandise or services received are charged to
expense when received or used. For the years ended December 31,
1997 and 1996, barter revenue was approximately $109,000 and
$116,000, respectively, and barter expense was approximately
$115,000 and $100,000, respectively.
D. DEPRECIATION: Depreciation is provided using accelerated methods
based upon the estimated useful lives of the respective assets as
follows:
Leasehold improvements 7 to 31 years
Furniture and fixtures 5 to 7 years
Broadcast equipment 5 to 15 years
Depreciation expense for the years ended December 31, 1997 and
1996 was approximately $16,500.
E. AMORTIZATION: Intangible assets are amortized on the straight line
method over 2 to 40 years. Amortization expense for the years
ended December 31, 1997 and 1996 was approximately $10,000.
F. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts to revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
F-129
<PAGE> 1
K & W LOGO
Exhibit 99(b)
TREASURE RADIO ASSOCIATES
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
(See Independent Auditors' Report)
3
<PAGE> 2
K & W LOGO
INDEPENDENT AUDITORS' REPORT
Partners
Treasure Radio Associates
Limited Partnership
Cleveland, Ohio
We have audited the accompanying balance sheets of Treasure Radio Associates
Limited Partnership as of November 30, 1996 and 1995 and the related statements
of income, partners' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Treasure Radio Associates
Limited Partnership as of November 30, 1996 and 1995, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Kopperman & Wolf Co.
January 9, 1997
4
<PAGE> 3
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS (Note 5)
Cash and cash equivalents............................................. $ 233,827 $ 332,174
Accounts receivable, net of allowance for doubtful accounts of
$15,000 for 1996 and 1995............................................ 265,353 257,909
Investments........................................................... 345,308 0
Prepaid expenses...................................................... 13,234 6,943
------------ -----------
TOTAL CURRENT ASSETS............................................... 857,722 597,026
PROPERTY AND EQUIPMENT--AT COST (Notes 3 and 5)
Land.................................................................. 160,713 160,713
Office furniture and equipment........................................ 316,017 303,441
Technical equipment................................................... 917,926 914,096
Buildings and antenna systems......................................... 1,265,008 1,246,781
Music, records and tapes.............................................. 295,116 295,116
Vehicles.............................................................. 15,421 15,421
------------ -----------
2,970,201 2,935,568
Less accumulated depreciation......................................... 2,020,508 1,855,542
------------ -----------
949,693 1,080,026
OTHER ASSETS (Note 5)
Radio station licenses, call letters and goodwill..................... 323,336 354,175
Loan fees............................................................. 48,981 29,845
------------ -----------
372,317 384,020
------------ -----------
$2,179,732 $2,061,072
============ ===========
</TABLE>
See Notes to the Financial Statements
5
<PAGE> 4
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET (CONTINUED)
NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C>
CURRENT LIABILITES
Accounts payable--trade......................................... $ 11,409 $ 27,240
Accrued payroll and related taxes............................... 85,673 65,689
Current portion of long-term liabilities (Note 5)............... 343,822 241,495
Accrued interest................................................ 40,530 60,421
Advance payable--Interstate Management Consultants, Inc.
(Note 8)....................................................... 15,670 15,670
Accrued management fee (Note 8)................................. 39,900 39,900
Other accrued expenses.......................................... 29,078 13,183
------------- -------------
TOTAL CURRENT LIABILITIES.................................... 566,082 463,598
LONG-TERM LIABILITIES, Net of Current Portion (Note 5) .......... 2,816,463 3,151,566
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6 and 10)
PARTNERS' DEFICIT................................................ (1,202,813) (1,554,092)
------------- -------------
$ 2,179,732 $ 2,061,072
============= =============
</TABLE>
See Notes to the Financial Statements
6
<PAGE> 5
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Balance, Beginning $(1,554,092) $(1,689,791)
Net Income 351,279 135,699
-------------- --------------
Balance, Ending $(1,202,813) $(1,554,092)
============== ==============
</TABLE>
See Notes to the Financial Statements
7
<PAGE> 6
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF INCOME
YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
BROADCAST REVENUES, NET OF AGENCY COMMISSIONS $2,256,075 $1,934,983
OPERATING EXPENSES
Administrative 450,466 395,120
Program 425,053 409,925
Sales 468,572 388,660
Technical 53,734 58,403
------------ ------------
Total Operating Expenses 1,397,825 1,252,108
------------ ------------
Operating Income 858,250 682,875
OTHER INCOME
Rental (note 6) 4,968 3,196
Miscellaneous 10,810 7,403
------------ ------------
15,778 10,599
OTHER EXPENSES
Interest 261,222 304,363
Depreciation 164,966 165,688
Amortization 66,561 57,724
Management fee (note 8) 30,000 30,000
------------ ------------
522,749 557,775
------------ ------------
NET INCOME $ 351,279 $ 135,699
============ ============
</TABLE>
See Notes to the Financial Statements
8
<PAGE> 7
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $2,158,769 $1,839,543
Cash paid to employees (771,953) (688,963)
Cash paid for services and supplies (552,253) (502,524)
Interest paid (280,914) (275,995)
Rent and interest received 15,579 5,974
------------ ------------
Net Cash Provided by Operating Activities 569,228 378,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of investments (455,308) 0
Proceeds from redemption of investments 110,000 0
Payments for purchases of property and equipment (24,370) (13,426)
------------ ------------
Net Cash Used by Investing Activities (369,678) (13,426)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term liabilities - net (243,039) (179,467)
Payments for loan refinancing (54,858) 0
------------ ------------
Net Cash Used by Financing Activities (297,897) (179,467)
------------ ------------
(Decrease) Increase in Cash (98,347) 185,142
Cash and Cash Equivalents, Beginning 332,174 147,032
------------ ------------
Cash and Cash Equivalents, Ending $ 233,827 $ 332,174
============ ============
</TABLE>
(Continued)
See Notes to the Financial Statements
9
<PAGE> 8
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $351,279 $135,699
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 164,966 165,688
Amortization 66,561 57,724
Barter transactions (595) 2,419
Changes in assets and liabilities:
Increase in accounts receivable (6,849) (36,548)
(Increase) decrease in prepaid expenses (6,291) 5,551
(Decrease) increase in accounts payable (15,831) 1,744
Increase in accrued payroll and related
taxes 19,984 18,366
(Decrease) increase in accrued interest (19,891) 28,368
Increase (decrease) in other accrued
expenses 15,895 (976)
---------- ----------
Net Cash Provided by Operations $569,228 $378,035
========== ==========
OTHER TRANSACTIONS NOT AFFECTING CASH:
Revenues recognized from barter activities $ 90,457 $ 64,697
========== ==========
Expenses recognized from barter activities $ 89,862 $ 67,116
========== ==========
Assets acquired from barter activity $ 0 $ 5,448
========== ==========
Decrease in barter receivables $ (595) $ (2,419)
========== ==========
Assets acquired under capital lease $ 10,263 $ 0
========== ==========
</TABLE>
See Notes to the Financial Statements
10
<PAGE> 9
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 1--NATURE OF OPERATIONS
Treasure Radio Associates Limited Partnership (the Partnership) was organized
as an Ohio limited partnership on January 5, 1987, with Treasure Radio, Inc. as
its general partner. The Partnership operates both an AM radio station, WMAN,
and an FM radio station, WYHT, in Mansfield, Ohio.
WYHT-FM and WMAN-AM are currently operating under licenses from the Federal
Communications Commission that must be renewed prior to October 1, 2003.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Partnership are as follows:
Cash and Cash Equivalents--Included in cash and cash equivalents in 1995 is a
certificate of deposit with a maturity of less than three months. In 1996, a
highly liquid money market fund is also included in cash and cash equivalents.
Accounts Receivable and Bad Debts--Provisions for bad debts on accounts
receivable are made in amounts required to maintain an adequate allowance to
cover potential losses. Accounts determined to be uncollectible during the year
are charged against this allowance or directly to bad debt expense in a manner
to maintain an adequate allowance. Bad debt expense was $23,932 and $9,814 for
the years ended November 30, 1996 and 1995, respectively.
Investments--Investments consist of three United States Treasury Notes
maturing in February, April and August 1997. Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Debt and Equity Securities,";
requires that these investments be recorded at market value; however, the
difference between the cost and market value of these investments is immaterial.
Depreciation--Depreciation of property and equipment is computed on the
straight-line method at rates based on the expected useful lives of the assets,
as follows:
<TABLE>
<CAPTION>
ASSETS LIFE
- ---------------------------------- ------------
<S> <C>
Office furniture and equipment 5 years
Technical equipment 10 years
Buildings and antenna systems 20 years
Music, records and tapes 5 years
Vehicles 3 years
</TABLE>
11
<PAGE> 10
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization--Amortization of other assets is computed on the straight-line
method at appropriate rates, based on the stated or expected lives of the
related assets, as follows:
<TABLE>
<CAPTION>
OTHER ASSETS LIFE
- ------------------------------------------------ ------------
<S> <C>
Radio station licenses, call letters and goodwill 20 years
Loan fees 7 years
</TABLE>
Barter Contracts--The Partnership provides commercial air time in exchange
for goods and services. All transactions are recorded based on the fair market
value of the goods and services received. Revenue is recognized when the
advertising is broadcast and the value of the goods and services is recorded
when they are received or used.
Taxes on Income--The individual partners are required to report their share
of the Partnership's taxable income or loss on their respective tax returns.
Therefore, no provision for taxes on income is made in the accompanying
financial statements (Note 7).
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3--ASSETS ACQUIRED BY CAPITAL LEASE
The Partnership leases various assets that have been capitalized in
accordance with Financial Accounting Standards Board Statement No. 13 (Note 5).
Following is a schedule of the assets acquired under capital leases which are
included under property and equipment on the balance sheet.
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Office equipment $ 19,995 $ 9,732
Technical equipment 19,096 19,096
Buildings and antennas 384,465 384,465
---------- ---------
423,556 413,293
Less accumulated depreciation 192,435 168,330
---------- ---------
$231,121 $244,963
========== =========
</TABLE>
12
<PAGE> 11
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 4--COVENANTS NOT TO COMPETE
As part of the purchase agreements for the radio stations, the Partnership
agreed to make specified future payments to the sellers in return for their
covenants not to compete. These payments were discounted at the Partnership's
incremental borrowing rate to determine the values of the intangible assets and
the related liabilities (Note 5) that were recorded on the balance sheet.
Both of the covenants were restructured during the year ended November 30,
1993. One of the covenants not to compete had an original term of five years
which expired May 8, 1992. The remaining unpaid obligation under this
non-compete agreement has been amended to postpone the quarterly installments
for a period of four years. The quarterly payments will resume on July 1, 1997
and continue through July, 2001 (Note 5). The other covenant not to compete had
a term of seven years which expired June 16, 1994. As discussed in Note 5,
modifications have been made to extend installment payments. The monthly
payments for the period June 20, 1993 through May 20, 1997 were reduced to
$1,667 and the final payment, due June 16, 1994, was replaced by 48 monthly
installments of $3,092.
13
<PAGE> 12
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES
Long term debt consists of a note payable to Star Bank, capital leases,
covenants and management fees (Note 9). The note payable to Star Bank is the
result of a refinancing of the Partnership's previous loan agreement with Bank
of America during the year ended November 30, 1996. Following is a description
of the Star Bank note payable, in accordance with the terms of the agreement
dated May 13, 1996:
The Star Bank note payable, initially amounting to $2,350,000, is an
eighty-four month term loan with payments commencing July 1, 1996 and ending
June 1, 2003. Monthly principal payments are due in the amount of $25,000 from
July 1, 1996 through June 1, 1999, $29,167 from July 1, 1999 through June 1,
2002 and $33,333 from July 1, 2002 through May 1, 2003. All remaining principal,
along with any accrued interest, is due June 1, 2003.
Interest is payable monthly on the outstanding loan balance at a rate of
9.05% per annum until May, 2000. At that time, the Partnership will be able to
select either the bank's "Prime Based Rate" or "Cost of Funds
Based Rate" on which the remaining interest payments will be based.
The Star Bank loan agreement contains various loan covenants including
assurance of the maintenance and continuance of the business, maintenance of
various financial ratios, reporting requirements and limitations on loans,
investments, partner distributions, capital expenditures, lease obligations and
management fees. The loan is collateralized by essentially all assets of the
Partnership and each limited partner's interest in the Partnership and is
guaranteed by the general partner of the Partnership (Note 8).
If prepaid, this loan is subject to a fee equal to the difference between the
net present value of the prepaid amount, including interest, and the principal
amount of the prepayment on the date of payment.
Following is a schedule of long-term debt:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Star Bank $2,225,000 $ 0
Bank of America--paid in full in May,
1996 with proceeds from Star Bank loan 0 2,418,314
Richland, Inc.--payments due under
covenant not to compete (Note 4);
effective interest rate 2.41%; per
modified agreement, monthly payments
of $1,667 beginning June 20, 1993
through May 20, 1997, and for the
period June 20, 1997 through May 20,
2001, monthly payments $3,092;
subordinated to the Star Bank debt 150,936 167,087
Capital Lease Obligation--Madison
Leasing--incurred in connection with
the acquisition of equipment;
effective interest rate at November
30, 1996 was 16.33%; payable in
monthly payments of $251, including
interest through February, 2001;
collateral, equipment 9,177 0
------------ -----------
Balance Carried Forward $2,385,113 $2,585,401
</TABLE>
14
<PAGE> 13
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance Brought Forward $2,385,113 $2,585,401
Greater Mansfield Broadcasting Company--payments under covenant not
to compete (Note 4); effective interest rate, 3.18%; per modified
agreement, payments deferred until July 1, 1997 at which time
quarterly payments of $6,250 will be due for a period of four
years; secured by property and equipment; subordinated to the Star
Bank debt 91,362 88,507
Capital Lease Obligation--payments due under a capital lease of
transmitter sites; discounted at the Partnership's incremental
borrowing rate at date of acquisition, yielding an effective
interest rate of 7.045%; payable in monthly payments of $2,500
through May, 1997, monthly payments of $2,782 from June 7, 1997
through May 7, 2001 when a final payment of $265,000 is due 319,948 327,130
Capital Lease Obligation--Fuerst & Co.--incurred in connection with
the acquisition of equipment; effective interest rate at November
30, 1996 and 1995 was 14.18%; payable in monthly payments of $141,
including interest through June of 1997; collateral, equipment 942 2,387
Loan Facility Fee Payable--Bank of America--$75,000 fee payable at
maturity on the Bank of America loan (September 30, 1997); if loan
were prepaid by December 31, 1995, the fee due was $25,000; if loan
were prepaid by December 31, 1996, the fee due was $50,000; this
loan was prepaid in May, 1996, at which time the Partnership paid a
negotiated fee of $25,000 0 25,000
Interstate Management Consultants, Inc. (Note 8)--payments due under
a promissory note; interest rate, 10%; interest is due annually on
February 1st beginning in 1989; subordinated to the Star Bank debt 50,000 50,000
Capital Lease Obligation--Reserve Management, Inc.--incurred in
connection with the acquisition of equipment; effective interest
rate at November 30, 1996 and 1995 was 14.9%; payable in monthly
payments of $189, including interest through March, 1998;
collateral, equipment 2,720 4,436
------------ ------------
Balance Carried Forward $2,850,085 $3,082,861
</TABLE>
15
<PAGE> 14
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 5--LONG-TERM LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance Brought Forward $2,850,085 $3,082,861
Interstate Management Consultants, Inc. (Note 8)--payments due
for unpaid management fees, reclassified to non-current since
debt is subordinated to the Star Bank debt; non-interest
bearing; unsecured 310,200 310,200
------------ ------------
Total Long-Term Liabilities 3,160,285 3,393,061
Less Current Portion 343,822 241,495
------------ ------------
Long-Term Liabilities, Net of Current Portion $2,816,463 $3,151,566
============ ============
</TABLE>
Following is a schedule of the maturities of long-term liabilities, including
capital lease obligations as of November 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
YEARS ENDING PAYMENTS FUTURE MINIMUM MANAGEMENT
NOVEMBER 30, ON NOTES LEASE PAYMENTS FEES
- -------------------------------------- ------------ -------------- ------------
<S> <C> <C> <C>
1997 $ 327,000 $ 37,910 $ 0
1998 356,870 37,154 0
1999 379,268 36,401 0
2000 410,044 36,401 0
2001 389,959 280,018 0
Thereafter 654,157 0 310,200
------------ -------------- ------------
427,884
Less amounts representing interest and
maintenance fees 95,097
--------------
Total notes payable $2,517,298
============
Present value of net lease payments $332,787
==============
Accrued management fees $310,200
============
Total Long-Term Liabilities $3,160,285
============
</TABLE>
16
<PAGE> 15
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 6--COMMITMENTS AND CONTINGENCIES
As part of the original purchase on May 8, 1987, the Partnership also
acquired the leases of two houses. As of November 30, 1996, both of these houses
are being subleased under month-to-month leases. The net rental income for 1996
and 1995 under these leases amounted to $4,967 and $3,196, respectively. There
are no future minimum rents due under these arrangements.
NOTE 7--TAXABLE INCOME
The individual partners are required to report their share of the
Partnership's taxable income on their respective tax returns. Following is a
reconciliation of the Partnership's net income for financial reporting purposes
to its taxable income for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net Income for Financial Reporting $351,279 $135,699
Permanent Differences:
Non-deductible amortization 30,838 30,838
Other 3,777 2,878
---------- ----------
34,615 33,716
Timing Differences:
Depreciation differences 84,910 81,575
Real estate taxes accrued but not paid 200 100
Accrued vacation pay 1,704 (1,471)
Allowance for doubtful accounts 0 2,000
Accrued compensation 0 (7,360)
Accrued interest 5,000 5,000
Accrued commissions 1,184 (471)
Capital lease differences (895) 0
---------- ----------
92,103 79,373
---------- ----------
Taxable Income $477,997 $248,788
========== ==========
</TABLE>
17
<PAGE> 16
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 8--RELATED PARTY TRANSACTIONS
Treasure Radio, Inc. is the sole general partner of the Partnership, and has
a 60.5% interest in the Partnership. Treasure Radio, Inc. is a wholly-owned
subsidiary of Interstate Management Consultants, Inc. (Interstate).
Interstate provides management services to the Partnership. In return, the
Partnership has agreed to pay a management fee to Interstate equal to 15% of the
Partnership's net income before the management fee, depreciation, amortization,
interest expense and income taxes. The parties, in order to comply with
stipulations of the bank agreements, agreed to a reduced management fee of
$30,000 for 1996 and 1995 which was paid in each of those years.
Interstate also paid organization and start-up costs amounting to $57,835 on
behalf of the Partnership. During 1987, the Partnership repaid $42,165 leaving a
balance due to Interstate of $15,670.
The sole shareholder of Interstate is an attorney who is associated with a
law firm that provides legal services to the Partnership. Amounts incurred for
services provided by attorneys of this law firm, other than the sole shareholder
(for whose services no charge was made), for 1996 and 1995 totaled $17,688 and
$4,361, respectively. Of the $17,688 incurred in 1996, $13,182 was capitalized
and is being amortized in connection with the refinancing of the Partnership's
loan agreement (Note 5).
The sole shareholder of Interstate is also the owner of another company with
which the Partnership has a capital lease agreement. This lease agreement has a
term of five years, and expires in 1997 (Note 5).
During the year ended November 30, 1988, Interstate loaned the Partnership an
additional $50,000 (Note 5).
NOTE 9--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value under Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments.
CASH, ACCOUNTS RECEIVABLE, INVESTMENTS AND PREPAID EXPENSES--The carrying
amount approximates fair value because of the short maturity of those
instruments.
ADVANCE PAYABLE, ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES--The carrying
amount approximates fair value because of the short maturity of those
instruments.
LOAN PAYABLE, BANK--the carrying amount approximates fair value because the
interest rate charged approximates current market rates.
NOTE PAYABLE INTERSTATE MANAGEMENT CONSULTANTS, INC.--The carrying amount
approximates fair value because the interest rate being charged approximates the
Partnership's incremental borrowing rate.
18
<PAGE> 17
K & W LOGO
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
NOTE 9--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COVENANTS NOT TO COMPETE--The carrying amounts of the Richland Incorporated
and Greater Mansfield Broadcasting Company covenants not to compete do not
approximate fair value because the interest rates implicit in these agreements
are 2.41% and 3.18%, respectively (Note 5). In order to estimate the fair value
of these covenants, the expected future cash flows have been discounted at the
Partnership's incremental borrowing rate.
The fair values of the covenants not to compete which do not approximate
carrying value are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
---------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Payments due under covenants not to compete:
Richland, Inc. $150,936 $129,080
Greater Mansfield Broadcasting Company 91,362 81,722
---------- ----------
$242,298 $210,802
========== ==========
</TABLE>
It is not practicable to estimate the fair value of a liability representing
unpaid management fees in the amount of $310,200. This liability, as discussed
in Note 5, is non-interest bearing and unsecured. The liability is also
subordinate to the Star Bank loan agreement and would probably be subordinate to
any future senior debt. Because of this subordination, it is impracticable to
estimate a future repayment schedule and therefore a term over which future cash
flows can be discounted.
NOTE 10--SALE OF BUSINESS
On January 23, 1997, the Partnership entered into an Asset Purchase Agreement
to sell substantially all of the assets of the radio stations, excluding cash
and accounts receivable. The sales price is $7,350,000, subject to customary
contingencies and post closing adjustments. An escrow deposit of $400,000 was
made by the buyer upon execution of the Agreement. Closing of the sale is
contingent upon Federal Communications Commission approval. The balance of the
purchase price is due at closing, except for a $200,000 eighteen month holdback.
Concurrent with the closing, non-compete agreements will be executed by
Treasure Radio, Inc. (general partner) and the sole shareholder of Interstate
Management, Inc. (the owner of Treasure Radio, Inc.).
19
<PAGE> 18
Treasure Radio Associates Limited Partnership
Condensed Balance Sheets
May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 200,765 $ 387,986
Accounts receivable, net of allowance for doubtful accounts 287,735 316,410
Investments 490,529 --
Prepaid expenses and other current assets 3,348 7,468
----------- -----------
Total current assets 982,377 711,864
----------- -----------
Property and equipment 868,321 1,010,401
----------- -----------
Other assets:
Radio station, licenses, call letters and goodwill 307,918 338,755
Loan fees 45,050 35,499
----------- -----------
352,968 374,254
----------- -----------
$ 2,203,666 $ 2,096,519
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable - trade $ 13,252 $ 43,570
Accrued payroll and related taxes 82,587 68,997
Current portion of long-term liabilities 300,000 300,000
Accrued interest 26,250 33,485
Other current liabilities 43,259 56,219
----------- -----------
Total current liabilities 465,348 502,271
Long-term liabilities, net of current portion 2,695,636 2,993,887
Partners' deficit (957,318) (1,399,639)
----------- -----------
$ 2,203,666 $ 2,096,519
=========== ===========
</TABLE>
20
<PAGE> 19
Treasure Radio Associates Limited Partnership
Condensed Statements of Operations
Six Months Ended May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net broadcasting revenues $ 1,160,579 $ 1,059,546
----------- -----------
Operating expenses:
Programming and technical expenses 263,868 251,212
Selling, general and administrative expenses 450,148 398,075
Depreciation and amortization 102,449 111,061
Corporate expenses 15,000 15,000
----------- -----------
Total operating expenses 831,465 775,348
----------- -----------
Income from operations 329,114 284,198
Interest expense (98,096) (135,698)
Other income 14,477 5,953
----------- -----------
Income before taxes on income 245,495 154,453
Taxes on income -- --
----------- -----------
Net income $ 245,495 $ 154,453
=========== ===========
</TABLE>
21
<PAGE> 20
Treasure Radio Associates Limited Partnership
Condensed Statements of Cash Flows
Six Months Ended May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 245,495 $ 154,453
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 102,449 111,061
Changes in assets and liabilities:
Increase in accounts receivable (22,382) (58,501)
Decrease (increase) in prepaid expenses 9,886 (525)
Increase in accounts payable 1,843 16,330
(Decrease) increase in accrued payroll and related taxes (3,086) 3,308
Decrease in accrued interest (14,280) (26,936)
Decrease in other current liabilities (41,389) (12,534)
--------- ---------
Net cash provided by operating activities 278,536 186,656
--------- ---------
Cash flows from investing activities:
Payments for purchases of investments (380,583) --
Proceeds from redemption of investments 235,362 --
Payments for purchases of property and equipment (1,728) (12,575)
--------- ---------
Net cash used in investing activities (146,949) (12,575)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term liabilities (164,649) (99,174)
Payments for loan refinancing -- (19,095)
--------- ---------
Net cash used in financing activities (164,649) (118,269)
--------- ---------
(Decrease) increase in cash and cash equivalents (33,062) 55,812
Cash and cash equivalents, beginning 233,827 332,174
--------- ---------
Cash and cash equivalents, ending $ 200,765 $ 387,986
========= =========
</TABLE>
22
<PAGE> 21
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
NOTE TO INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for completed financial
statements. In the opinion of management, the statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The results of
operations for any interim period are not necessarily indicative of the results
for a full year.
It is suggested that these interim financial statements be read in
conjunction with the financial statements and notes thereto included in the
Treasure Radio Associates Limited Partnership's audited financial statements for
the fiscal years ended November 30, 1996 and 1995.
23
<PAGE> 1
Exhibit 99(c)
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC.
INTRODUCTION
The following unaudited pro forma condensed combined financial statements
reflect the effect of the Merger between Regent and Faircom, including the
effect of Faircom's acquisition of stations WMAN(AM) and WYHT(FM) in June 1997,
and the effects of Regent's significant pending acquisition of radio stations
owned by The Park Lane Group ("Park Lane"), Alta California Broadcasting, Inc.
("Alta"), Power Surge, Inc. ("Power Surge"), Continental Radio Broadcasting
L.L.C. ("Continental") and Ruby Broadcasting, Inc. ("Ruby" or "KZXY(FM)") (the
"Included Transactions"), and the related financing transactions. Regent will
acquire all of the outstanding common stock of Faircom in the Merger. For
accounting purposes, the Merger will be accounted for under the purchase method
of accounting as a reverse merger since the shareholders of Faircom are
receiving the larger shareholding in the merged company. The Included
Transactions will also be accounted for under the purchase method of accounting
with Regent being identified as the acquiror.
The unaudited pro forma condensed combined balance sheet gives effect to
the Merger and the Included Transactions as if they had occurred on December 31,
1997. The unaudited pro forma condensed combined statements of operations gives
effect to these transactions as if they had occurred on January 1, 1997. The
purchase price of each acquisition has been allocated to the acquirees'
historical assets and liabilities based on their respective carrying values,
with the exception of station licenses, as these carrying values are deemed to
materially represent the fair market value of these assets and liabilities. The
fair value of station licenses was determined based on a detailed analysis
prepared by Regent. Regent has not allocated any of the purchase price to other
intangible assets as these assets, if any, are deemed to have nominal value and
are not considered material to the pro forma financial statements. The
allocation of the purchase price is considered preliminary until such time as
the Closing of the Merger and consummation of the Included Transactions. At such
time, an independent appraisal will be performed for each consummated
transaction to ascertain the fair market value of all assets acquired.
The unaudited pro forma condensed combined financial statements do not
purport to present the actual financial position or results of operations of
Regent had the transactions and events assumed therein in fact occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The unaudited pro forma financial
information is based on certain assumptions and adjustments described in the
notes to the unaudited pro forma condensed combined financial statements and
should be read in conjunction therewith.
No pro forma adjustments have been made to reflect Regent's pending
acquisitions of radio stations KIXA(FM) in Lucerne Valley, California and
KIXW(AM) in Apple Valley, California because Regent has determined that the
impact of such transactions was not material to Regent's results of operations
or financial condition. In addition, no pro forma adjustments have been made to
reflect Faircom's recent acquisition of radio station WSWR(FM) in Shelby, Ohio
because Faircom has determined that the impact of such transaction was not
material to Faircom's results of operations or financial condition. Historical
balance sheet data has not been included in the Condensed Combined Balance Sheet
to reflect Regent's pending acquisition of radio station KZXY(FM) in Apple
Valley, California because the required financial information cannot be
obtained. However, the Pro Forma Condensed Combined Balance Sheet does reflect
the fair value of assets to be acquired for KZXY(FM).
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus. See "Risk Factors" and
"Information Concerning Regent -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
56
<PAGE> 2
REGENT COMMUNICATIONS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA INCLUDED TRANSACTIONS
ADJUSTMENTS REGENT -------------------------
FOR THE AS ADJUSTED
HISTORICAL HISTORICAL MERGER FOR THE HISTORICAL HISTORICAL
REGENT FAIRCOM (NOTE 3) MERGER PARK LANE ALTA
----------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ $ 1,013,547 $ 535,312 $ 1,548,859 $ 431,466 $ 11,261
Accounts receivable......... 1,507,623 1,358,002 2,865,625 53,009 241,543
Prepaid expenses and
other..................... 9,701,419 25,918 9,727,337 83,474 16,113
----------- ------------ ------------ ------------ ------------ ----------
Total current
assets.............. 12,222,589 1,919,232 14,141,821 567,949 268,917
Property and equipment, net... 53,792 2,156,244 2,210,036 2,502,766 208,523
Intangible assets, net........ 7,701,341 $ 525,668 8,227,009 5,937,566 935,933
Deferred charges and other.... 1,089,462 1,233,737 (525,668) 1,797,531 45,530
----------- ------------ ------------ ------------ ------------ ----------
Total assets.......... $13,365,843 $ 13,010,554 $ 0 $ 26,376,397 $ 9,008,281 $1,458,903
=========== ============ ============ ============ ============ ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Account payable, accrued
liabilities and other..... $ 1,181,082 $ 429,626 $ 1,610,708 $ 346,178 $ 934,650
Notes payable............... 7,500,000 7,500,000 190,526
Current portion of long-term
debt...................... 430,005 430,005 760,964 61,781
----------- ------------ ------------ ------------ ------------ ----------
Total current
liabilities......... 8,681,082 859,631 9,540,713 1,297,668 996,431
Long-term debt, net of current
maturities.................. 21,911,661 $(10,000,000) 11,911,661 5,607,199 604,171
Other......................... 421,050 421,050
----------- ------------ ------------ ------------ ------------ ----------
Total liabilities..... 8,681,082 23,192,342 (10,000,000) 21,873,424 6,904,867 1,600,602
Redeemable preferred stock 2,226,907 2,226,907 6,558,251
Shareholders' equity:
Preferred stock............. 3,000,000 2,457,854 5,457,854 5,595,875
Common stock................ 2,400 73,782 (73,782) 2,400 1,633,729 225,000
Additional paid-in
capital................... 571,285 2,605,813 6,850,097 10,027,195 (2,680)
Retained earnings
(deficit)................. (1,115,831) (12,861,383) 765,831 (13,211,383) (11,681,761) (366,699)
----------- ------------ ------------ ------------ ------------ ----------
Total shareholders'
equity (deficit).... 2,457,854 (10,181,788) 10,000,000 2,276,066 (4,454,837) (141,699)
----------- ------------ ------------ ------------ ------------ ----------
Total liabilities and
shareholders'
equity.............. $13,365,843 $ 13,010,554 $ 0 $ 26,376,397 $ 9,008,281 $1,458,903
=========== ============ ============ ============ ============ ==========
<CAPTION>
PRO FORMA PRO FORMA
INCLUDED TRANSACTIONS ADJUSTMENTS ADJUSTMENTS
------------------------ FOR THE FOR
HISTORICAL INCLUDED FINANCING
POWER HISTORICAL TRANSACTIONS TRANSACTIONS COMBINED
SURGE CONTINENTAL (NOTE 3) (NOTE 3) PRO FORMA
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ $ 82 $ 373 $(1,000,373) $ 991,668
Accounts receivable......... 65,137 172,465 (172,465) 3,225,314
Prepaid expenses and
other..................... 4,000 11,669 (7,930,234) 1,912,359
---------- ---------- ------------ ------------ ------------
Total current
assets.............. 69,219 184,507 (9,103,072) 6,129,341
Property and equipment, net... 152,273 303,560 237,157 5,614,315
Intangible assets, net........ 953,477 948,647 24,504,359 41,506,991
Deferred charges and other.... 127,527 348,044 2,318,632
---------- ---------- ------------ ------------ ------------
Total assets.......... $1,174,969 $1,564,241 $15,986,488 $ 0 $ 55,569,279
========== ========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Account payable, accrued
liabilities and other..... $ 2,250 $ 124,699 $ (124,699) $ 2,893,786
Notes payable............... (6,190,526) 1,500,000
Current portion of long-term
debt...................... 1,670,000 (2,492,745) 430,005
---------- ---------- ------------ ------------ ------------
Total current
liabilities......... 2,250 1,794,699 (8,807,970) 4,823,791
Long-term debt, net of current
maturities.................. 90,000 26,608,434 $(16,500,000) 28,321,465
Other......................... 2,460,000 2,881,050
---------- ---------- ------------ ------------ ------------
Total liabilities..... 2,250 1,884,699 17,800,464 (14,040,000) 36,026,306
Redeemable preferred stock (6,558,251) 17,080,000 19,306,907
Shareholders' equity:
Preferred stock............. (4,595,875) (3,000,000) 3,457,854
Common stock................ 1,202,500 (3,061,229) 2,400
Additional paid-in
capital................... 10,000 (7,320) (40,000) 9,987,195
Retained earnings
(deficit)................. (29,781) (330,458) 12,408,699 (13,211,383)
---------- ---------- ------------ ------------ ------------
Total shareholders'
equity (deficit).... 1,172,719 (320,458) 4,744,275 (3,040,000) 236,066
---------- ---------- ------------ ------------ ------------
Total liabilities and
shareholders'
equity.............. $1,174,969 $1,564,241 $15,986,488 $ 0 $ 55,569,279
========== ========== ============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
57
<PAGE> 3
REGENT COMMUNICATIONS, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS REGENT INCLUDED TRANSACTIONS
FOR THE MERGER AS ADJUSTED ------------------------
AND HISTORICAL FOR THE MERGER
HISTORICAL HISTORICAL ACQUISITION AND HISTORICAL HISTORICAL HISTORICAL
REGENT FAIRCOM (NOTE 4) ACQUISITION PARK LANE ALTA
----------- ----------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ 4,916,005 $ 5,993,291 $ 1,160,579 $12,069,875 $ 6,216,039 $ 996,278
Broadcast operating expenses............ 4,167,002 3,860,331 714,016 8,741,349 4,340,617 1,024,475
Time brokerage agreement fees, net...... 1,223,054 1,223,054
Depreciation and amortization........... 655 726,564 384,000 1,111,219 1,421,198 184,629
Corporate general and administrative
expenses.............................. 517,486 391,252 535,000 1,443,738 746,878
----------- ----------- ----------- ----------- ----------- ---------
Operating income (loss)............. (992,192) 1,015,144 (472,437) (449,485) (292,654) (212,826)
Interest expense........................ 73,901 1,330,676 353,736 1,758,313 678,315 61,915
Other income (expense), net............. (37,332) 24,537 14,477 1,682 (43,162) 849,024
----------- ----------- ----------- ----------- ----------- ---------
Income (loss) from continuing operations
before income taxes................... (1,103,425) (290,995) (811,696) (2,206,116) (1,014,131) 574,283
Provision (benefit) for income taxes.... 71,542 (71,542)
----------- ----------- ----------- ----------- ----------- ---------
Income (loss) from continuing
operations............................ $(1,103,425) $ (362,537) $ (740,154) $(2,206,116) $(1,014,131) $ 574,283
=========== =========== =========== =========== =========== =========
Earnings per share data:
Loss from continuing operations..... $(1,103,425) $(2,206,116)
=========== ===========
Preferred stock dividend
requirements...................... (146,175) (1,448,454)
Preferred stock accretion...........
----------- -----------
Loss applicable to common
shares.......................... (1,249,600) (3,654,570)
=========== ===========
Basic and diluted loss per common
share............................. $ (5.21) $ (15.23)
=========== ===========
Weighted average shares
outstanding....................... 240,000 240,000
=========== ===========
<CAPTION>
PRO FORMA
INCLUDED TRANSACTIONS ADJUSTMENTS
------------------------------------- FOR THE
HISTORICAL INCLUDED
POWER HISTORICAL HISTORICAL TRANSACTIONS COMBINED
SURGE CONTINENTAL KZXY(FM) (NOTE 4) PRO FORMA
---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. $ 68,811 $1,021,856 $1,191,586 $(1,405,416) $ 20,159,029
Broadcast operating expenses............ 87,032 784,537 845,661 (493,659) 15,330,012
Time brokerage agreement fees, net...... (827,000) 396,054
Depreciation and amortization........... 106,314 241,744 26,467 56,500 3,148,071
Corporate general and administrative
expenses.............................. 2,190,616
--------- ---------- ---------- ----------- ------------
Operating income (loss)............. (124,535) (4,425) 319,458 (141,257) (905,724)
Interest expense........................ 186,127 641,746 3,326,416
Other income (expense), net............. 90,754 (73,219) 825,079
--------- ---------- ---------- ----------- ------------
Income (loss) from continuing operations
before income taxes................... (33,781) (263,771) 319,458 (783,003) (3,407,061)
Provision (benefit) for income taxes.... (4,000) 4,000
--------- ---------- ---------- ----------- ------------
Income (loss) from continuing
operations............................ $ (29,781) $ (263,771) $ 319,458 $ (787,003) $ (3,407,061)
========= ========== ========== =========== ============
Earnings per share data:
Loss from continuing operations..... $ (3,407,061)
============
Preferred stock dividend
requirements...................... (3,064,454)
Preferred stock accretion........... (744,000)
------------
Loss applicable to common
shares.......................... (7,215,515)
============
Basic and diluted loss per common
share............................. $ (30.06)
============
Weighted average shares
outstanding....................... 240,000
============
</TABLE>
- ---------------
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
58
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC.
1. GENERAL
The Merger will be accounted for under the purchase method of accounting as
a reverse merger since the shareholders of Faircom are receiving the larger
portion of voting rights in the merged company. The Included Transactions will
also be accounted for under the purchase method of accounting with Regent being
identified as the acquiror.
The historical financial statements reflect the financial position and
results of operations of Regent, Faircom, and the other Included Transactions
(the "Pro Forma Companies") and were derived from the respective entities
financial statements included elsewhere in this Proxy Statement/Prospectus.
Faircom's acquisition of Treasure Radio Associates Limited Partnership
("Treasure") (WMAN(AM) and WYHT(FM)) in June 1997, accounted for under the
purchase method of accounting, was previously reported in Faircom's Form 8-K/A,
dated June 30, 1997, and Form 10-K filed for the year ended December 31, 1997.
2. THE MERGER AND INCLUDED TRANSACTIONS:
The following table sets forth the consideration to be paid in cash and
shares of Regent's Preferred Stock to the common stockholders of Faircom and the
owners of each of the Included Transactions, the allocation of the consideration
to net assets acquired, station licenses and the resulting goodwill. For
purposes of computing the estimated purchase price for accounting purposes, the
value of shares issued is determined using the estimated fair value of net
assets received.
The purchase price of each acquisition has been allocated to the acquirees'
historical assets and liabilities based on their respective carrying values,
with the exception of station licenses, as these carrying values are deemed to
materially represent the fair market value of these assets and liabilities. The
fair value of station licenses was determined based on a detailed analysis
prepared by Regent. Regent has not allocated any of the purchase price to other
identified intangible assets such as contracts and noncompete agreements, as
these assets are deemed to have nominal value and are not considered material.
The allocation of the purchase price is considered preliminary until such time
as the Closing of the Merger and the Included Transactions. At such time, an
independent appraisal will be performed for each consummated transaction to
ascertain the fair market value of all assets acquired.
<TABLE>
<CAPTION>
Total Consideration(a)
--------------------------------------------
FAIR CASH EXCLUDING
MARKET VALUE LIABILITIES ADJUSTED STATION
ACQUISITION SHARES OF STOCK ASSUMED(B) TOTAL NET ASSETS(C) LICENSES GOODWILL
----------- --------- ------------ -------------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merger:
Regent................ 3,720,796 $ 2,457,854(d) $ 2,457,854 $ 1,932,186 $ 525,668
Included Transactions:
Park Lane............. $17,900,000 17,900,000 (3,829,285) $21,383,910 345,375
Alta/Power Surge...... 200,000 1,000,000 1,150,000 2,150,000 (858,390) 3,008,390 0
Continental........... 3,792,000 3,792,000 303,560 3,097,500 390,940
KZXY(FM).............. 5,286,000 5,286,000 237,000 4,725,837 323,163
--------- ----------- ----------- ----------- ----------- ----------- ----------
3,920,796 $ 3,457,854 $28,128,000 $31,585,854 $(2,214,929) $32,215,637 $1,585,146
========= =========== =========== =========== =========== =========== ==========
</TABLE>
- ---------------
(a) Amounts include estimated acquisition costs and closing adjustments.
(b) Does not include $6,900,000 of liabilities assumed in the Park Lane stock
purchase transaction and $1,500,000 of liabilities assumed in the Alta/Power
Surge stock purchase transaction.
(c) Net of certain assets which will not be acquired and certain liabilities
which will not be assumed, including pre-existing intangible assets. See
Note 3.
(d) Represents the assigned value under reverse merger purchase accounting based
on the estimated fair value of Regent's net assets as of December 31, 1997.
59
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF REGENT COMMUNICATIONS, INC. -- (CONTINUED)
3. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combined
balance sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA
MERGER ADJUSTMENTS ADJUSTMENTS INCLUDED TRANSACTIONS ADJUSTMENTS
--------------------------- FOR THE ----------------------------------------
(A) (B) MERGER (C) (D) (E)
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ (1,000,373)
Accounts receivable................ (172,465)
Prepaid expenses and other......... (1,936,669) $ 6,435 $(6,000,000)
------------ ------------ ------------ ------------ ----------- -----------
Total current assets............. (3,109,507) 6,435 (6,000,000)
Property and equipment, net........ 237,157
Intangible assets, net............. $ 525,668 $ 525,668 19,462,522 5,041,837
Deferred charges and other
assets........................... (525,668) (525,668) 347,473 571
------------ ------------ ------------ ------------ ----------- -----------
Total assets..................... $ 0 $ 0 $ 0 $ 16,700,488 $ 5,286,000 ($6,000,000)
============ ============ ============ ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and other current
liabilities...................... $ (124,699)
Notes payable...................... (190,526) $(6,000,000)
Current portion of long term
debt............................. (2,492,745)
------------ ------------ ------------ ------------ ----------- -----------
Total current liabilities........ (2,807,970) (6,000,000)
Long-term debt, net of current
maturities......................... $(10,000,000) $(10,000,000) 21,322,434 $ 5,286,000
Other...............................
------------ ------------ ------------ ------------ ----------- -----------
Total liabilities................ (10,000,000) (10,000,000) 18,514,464 5,286,000 (6,000,000)
Redeemable preferred stock.......... (6,558,251)
Shareholders' equity:
Preferred stock.................... $ 2,457,854 2,457,854 (4,595,875)
Common stock....................... 190,120 (263,902) (73,782) (3,061,229)
Additional paid-in capital......... 10,159,880 (3,309,783) 6,850,097 (7,320)
Retained earnings (deficit)........ (350,000) 1,115,831 765,831 12,408,699
------------ ------------ ------------ ------------ ----------- -----------
Total shareholders' equity
(deficit)...................... 10,000,000 10,000,000 4,744,275
------------ ------------ ------------ ------------ ----------- -----------
Total liabilities and
shareholders' equity
(deficit)...................... $ 0 $ 0 $ 0 $ 16,700,488 $ 5,286,000 $(6,000,000)
============ ============ ============ ============ =========== ===========
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR THE FINANCING TRANSACTIONS FOR
INCLUDED ------------------------- FINANCING
TRANSACTIONS (F) (G) TRANSACTIONS
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ (1,000,373)
Accounts receivable................ (172,465)
Prepaid expenses and other......... (7,930,234)
------------ ----------- ----------- ------------
Total current assets............. (9,103,072)
Property and equipment, net........ 237,157
Intangible assets, net............. 24,504,359
Deferred charges and other
assets........................... 348,044
------------ ----------- ----------- ------------
Total assets..................... $ 15,986,488 $ 0 $ 0 $ 0
============ =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and other current
liabilities...................... $ (124,699)
Notes payable...................... (6,190,526)
Current portion of long term
debt............................. (2,492,745)
------------ ----------- ----------- ------------
Total current liabilities........ (8,807,970)
Long-term debt, net of current
maturities......................... 26,608,434 $(7,800,000) $(8,700,000) $(16,500,000)
Other............................... 2,460,000 2,460,000
------------ ----------- ----------- ------------
Total liabilities................ 17,800,464 (7,800,000) (6,240,000) (14,040,000)
Redeemable preferred stock.......... (6,558,251) 7,800,000 9,280,000 17,080,000
Shareholders' equity:
Preferred stock.................... (4,595,875) (3,000,000) (3,000,000)
Common stock....................... (3,061,229)
Additional paid-in capital......... (7,320) (40,000) (40,000)
Retained earnings (deficit)........ 12,408,699
------------ ----------- ----------- ------------
Total shareholders' equity
(deficit)...................... 4,744,275 (3,040,000) (3,040,000)
------------ ----------- ----------- ------------
Total liabilities and
shareholders' equity
(deficit)...................... $ 15,986,488 $ 0 $ 0 $ 0
============ =========== =========== ============
</TABLE>
60
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED
- ---------------
(A) Records the conversion of Class A and Class B Faircom Subordinated Notes
into Faircom Common Stock immediately precedent to the Merger in the
aggregate amount of $10,000,000.
The assumption that the Class A and Class B Faircom Subordinated Notes
will be converted in full into Faircom Common Stock prior to the Merger is
based on the facts that: (i) such conversion of $7,500,000 of the
$10,000,000 principal amount is mandatory pursuant to the terms of the
Merger Agreement; and (ii) holders of the Class A and Class B Faircom
Subordinated Notes have agreed in writing to convert 100% of the principal
amount of those notes. If the expected equity investment in Regent by
Waller-Sutton is not completed, 300,000 shares of Series C Preferred Stock
would be subject to redemption by the holder and, therefore, the
corresponding investment would be presented outside of permanent equity;
see 'The Merger, Consideration to be paid for the Faircom Stock.'
Also records a non-recurring charge to reflect the issuance of additional
stock options to certain Faircom executives to purchase 1,118,700 shares
of Faircom common stock conditional on the conversion of Class A and Class
B Faircom Subordinated Notes into Faircom Common Stock in conjunction with
the Merger. The total estimated non-recurring charge is approximately
$350,000. The amount of the charge may differ as a result of changes in
the stock price.
(B) Records the reverse merger transaction, consisting of 3,720,796 shares of
preferred stock valued based on Regent's fair value of approximately
$2,458,000 at December 31, 1997, including acquisition costs. The excess
purchase price over the fair value of the net assets acquired is
approximately $526,000.
(C) Records the purchase of the Included Transactions, except for KZXY (FM)
(See Note D), consisting of approximately $22,842,000 in cash and 200,000
shares of preferred stock valued at $1,000,000, for a total estimated
purchase price of $23,842,000. Adjustment reflects $312,034 of certain
assets which will not be acquired and $1,884,699 of certain liabilities
which will not be assumed in the Included Transactions. Adjustment also
reflects the elimination of existing goodwill and other intangible assets.
The excess purchase price over the fair value of the net assets acquired is
$28,226,115. The cash portion of the purchase price will be funded through
the use of existing cash, that is in excess of operating needs, a bank
credit facility and the issuance of additional equity securities. See Notes
F and G. Adjustment also includes a credit facility fee of $475,000, which
is reflected in Deferred Charges and Other in the Pro Forma Condensed
Combined Balance Sheet. See Note E.
(D) Records the purchase transaction of KZXY(FM) from Ruby for a total
estimated purchase price of $5,286,000. Adjustment reflects the appraised
values of assets to be acquired. A historical balance sheet does not appear
in the Condensed Combined Balance Sheet nor elsewhere in this Proxy
Statement/Prospectus because the required financial information cannot be
obtained. Unaudited assets to be acquired, on a historical basis, are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31: 1997 1996
------------------ ------- -------
<S> <C> <C>
Prepaid expenses.......................................... $13,042 $13,042
Property and equipment, net............................... 38,783 32,182
Intangible assets, net.................................... 10,875 16,676
------- -------
Net assets to be acquired............................... $62,700 $61,900
======= =======
</TABLE>
(E) Records the effects of Regent's pending divestiture of a radio station in
San Diego, California, (KCBQ/AM). Regent has entered into a letter of
intent to dispose of the San Diego station during 1998.
(F) Records the collection of the promissory note for $3,900,000 related to
the issuance of 1,000,000 shares of Series B Preferred Stock and the
issuance of 780,000 shares of Series D Preferred Stock in the amount of
$3,900,000 in conjunction with the Included Transactions. Proceeds from
the issuances will be used to reduce bank credit facility borrowings. See
Note G.
(G) Records the issuance of Series F Preferred Stock in the aggregate amount of
$10,000,000 and the issuance of 820,000, 80,000, and 50,000 warrants to the
holders of Series F Preferred Stock, Series A Preferred Stock, and Series B
Preferred Stock, respectively, in conjunction with the Included
Transactions. Regent believes that the Waller-Sutton investment is
factually supportable based on the terms of the Commitment Letter dated
March 19, 1998. Holders of Series F Preferred Stock (and warrants related
thereto) may put their respective shares of Series F Preferred Stock to
Regent; therefore, the Series F Preferred Stock has been classified outside
of equity. Shares of the Series A, B and D Preferred Stock (but not the
Series C and E Preferred Stock) will be entitled to put to Regent for
mandatory redemption on the same basis if the put rights related to the
Series F Preferred Stock are exercised. Consequently, the Series A
Preferred Stock has been reclassified to be excluded from equity to reflect
such anticipated "put rights." The 820,000 Put Warrants issued to holders
of Series F Preferred Stock have been assigned a fair value of $2,460,000
and have been classified as a long-term liability. The 80,000 and 50,000
Warrants issued to holders of Series A and Series B Preferred Stock have
been assigned a fair value of $160,000 and $100,000, respectively. Both
amounts have been classified as additional paid-in capital. Issuance fees
of approximately $1,000,000 related to the Series A, B, D, and F Preferred
Stock have been deducted from the proceeds. Issuance fees of approximately
$300,000 related to Series C Preferred Stock have been presented as a
reduction of Shareholders' Equity.
61
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS --
CONTINUED
OF REGENT COMMUNICATIONS, INC.
4. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combining
statement of operations adjustments:
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
MERGER ADJUSTMENTS FOR THE MERGER INCLUDED TRANSACTIONS
-------------------------------------------- AND HISTORICAL ---------------------
(A) (B) (C) (D) ACQUISITION (E) (F)
-------- -------- ---------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............................... $1,160,579 $ 1,160,579
Broadcast operating expenses.............. 714,016 714,016
Time brokerage agreement fees, net........
Depreciation and amortization............. $ 13,000 371,000 384,000 $ 56,500
Corporate general and administrative
expenses................................ 15,000 $ 520,000 535,000
-------- -------- ---------- --------- ----------- --------- ---------
Operating income (loss)............... (13,000) 60,563 (520,000) (472,437) (56,500)
Interest expense.......................... 353,736 353,736 $ 704,000
Other income (expense), net............... 14,477 14,477
-------- -------- ---------- --------- ----------- --------- ---------
Loss from continuing operations before
income taxes............................ (13,000) (278,696) (520,000) (811,696) (56,500) (704,000)
Provision (benefit) for income taxes...... $(71,542) (71,542)
-------- -------- ---------- --------- ----------- --------- ---------
Income (loss) from continuing
operations.............................. $(13,000) $ 71,542 $ (278,696) $(520,000) $ (740,154) $ (56,500) $(704,000)
======== ======== ========== ========= =========== ========= =========
<CAPTION>
PRO FORMA
ADJUSTMENTS
INCLUDED TRANSACTIONS
--------------------------------- INCLUDED
(G) (H) (I) TRANSACTIONS
------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Net revenue............................... $ (578,416) $(827,000) $(1,405,416)
Broadcast operating expenses.............. (493,659) (493,659)
Time brokerage agreement fees, net........ (827,000) (827,000)
Depreciation and amortization............. 56,500
Corporate general and administrative
expenses................................
------- ----------- --------- -----------
Operating income (loss)............... (84,757) (141,257)
Interest expense.......................... (62,254) 641,746
Other income (expense), net...............
------- ----------- --------- -----------
Loss from continuing operations before
income taxes............................ (22,503) (783,003)
Provision (benefit) for income taxes...... $ 4,000 4,000
------- ----------- --------- -----------
Income (loss) from continuing
operations.............................. $(4,000) $ (22,503) $ (787,003)
======= =========== ========= ===========
</TABLE>
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(A) Reflects the amortization of intangible assets to be recorded as a result of
the Merger over 40 year estimated lives.
(B) Reflects the reduction in federal and state income taxes assuming a
consolidated return basis of reporting. No deferred income tax assets have
been recorded due to the uncertainty of the ultimate realization of future
benefits from such assets.
(C) Reflects the historical operating results of Treasure Radio Associates
Limited Partnership from the beginning of the period through the date of
acquisition (June 1997), adjusted for the effect of the purchase transaction
and the related financing transaction assuming that the acquisition took
place on January 1, 1997. The purchase transaction consisted of $7,650,000
in cash, including $300,000 in consideration of a five year non-compete
agreement. The excess purchase price over the fair value of the net assets
acquired was approximately $6,562,000. Adjustment reflects the amortization
of intangible assets recorded as a result of the acquisition over 5-15
years. Adjustment also reflects the additional interest expense attributable
to financing of the acquisition.
(D) Reflects the incremental compensation expense related to certain employment
agreements effective upon the Merger. A nonrecurring charge to reflect the
issuance of additional stock options to certain Faircom executives to
purchase 1,118,700 shares of Faircom Common Stock conditional on the
conversion of Class A and Class B Faircom Subordinated Notes into Faircom
Common Stock in conjunction with the Merger has not been reflected in the
Unaudited Pro Forma Condensed Combining Statement of Operations. The total
estimated nonrecurring charge is approximately $350,000. The amount of the
charge may differ as a result of changes in the stock price.
(E) Reflects the amortization of intangible assets to be recorded as a result of
the Pending Transactions over 40-year estimated lives less historical
amortization of goodwill and other intangible assets.
(F) Reflects $400,000 in additional interest expense associated with the
borrowings under a bank credit facility necessary to complete the Included
Transactions using an assumed rate of 8.25%. A 1/8% change in the interest
rate under the Credit Agreement would result in a change in interest expense
of approximately $20,000 for the year ended December 31, 1997. Adjustment
also reflects amortization of estimated deferred financing costs over the
seven year loan period of approximately $107,000 for the year ended December
31, 1997. In conjunction with refinancing existing debt obligations related
to the Merger, Regent will incur a prepayment penalty of approximately
$370,000 which will be accounted for as an extraordinary loss in the debt
extinguishment period. The Unaudited Pro forma Condensed Combined Balance
Sheet as of December 31, 1997 reflects the issuance of 820,000 Put Warrants
to the holders of Series F Preferred Stock. Interest expense has been
adjusted by $197,000 to reflect an estimated change in fair value for such
warrants during 1997 using an assumed change in market value for Regent's
Common Stock of 10%. A 0% and 20% change in Regent's Common Stock would
result in a $320,000 decrease and $270,000 increase in interest expense,
respectively, for the year ended December 31, 1997. Once such Warrants have
been issued, a valuation will be obtained on a quarterly basis and any
resulting change in value will be properly treated as an adjustment to
interest expense. See 'Information Concerning Regent -- Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
(G) Reflects the increase in federal and state income taxes assuming a
consolidated return basis of reporting. No deferred income tax assets have
been recorded due to the uncertainty of the ultimate realization of future
benefits from such assets.
(H) Reflects the effect of Regent's completed and pending divestitures of one
radio station located in Lexington, Kentucky (WXZZ/FM) and one station in
San Diego, California (KCBQ/AM), respectively, at no gain or loss. The
station in Lexington was disposed of in November 1997, and Regent has
entered into a letter of intent to dispose of the San Diego station during
1998.
(I) Reflects the elimination of time brokerage agreement fees in consolidation.
62
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED
5. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS ADJUSTMENTS
The pro forma earnings per share calculation is based on the
weighted-average number of shares of common stock of Regent outstanding as of
December 31, 1997. The preferred shares to be issued in conjunction with the
Merger and the Included Transactions have not been considered since their effect
would be antidilutive. The preferred stock dividend used in computing loss
applicable to common shares is based on the following Regent preferred shares
being issued in conjunction with the Merger and the Included Transactions as of
January 1, 1997: (i) 3,720,796 shares of Series C Preferred Stock in conjunction
with the Merger; and (ii) 780,000 shares each of Series B and D Preferred Stock,
200,000 shares of Series E Preferred Stock and 2,000,000 shares of Series F
Preferred Stock in conjunction with the Included Transactions. Loss applicable
to common shares has been adjusted to reflect the accretion of Series A, B, D
and F Preferred Stock to their redemption value based on the earliest redemption
date for each respective Series of Preferred Stock.
63
