<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REGENT COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4830 31-1492857
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
50 EAST RIVERCENTER BOULEVARD
SUITE 180
COVINGTON, KENTUCKY 41011
(606) 292-0030
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TERRY S. JACOBS
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
REGENT COMMUNICATIONS, INC.
50 EAST RIVERCENTER BOULEVARD, SUITE 180
COVINGTON, KENTUCKY 41011
(606) 292-0030
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
ALAN C. ROSSER, ESQ. ANTHONY PANTALEONI, ESQ.
STRAUSS & TROY, FULBRIGHT & JAWORSKI L.L.P.
A LEGAL PROFESSIONAL ASSOCIATION 666 FIFTH AVENUE
2100 PNC CENTER, 201 EAST FIFTH STREET NEW YORK, NEW YORK 10103-3198
CINCINNATI, OHIO 45202-4186 (212) 318-3000
(513) 621-2120
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and
effectiveness of the merger (the "Merger") of Faircom Inc. ("Faircom") with and
into Regent Merger Corp., a wholly-owned subsidiary of the Registrant ("Merger
Subsidiary") pursuant to the Agreement of Merger dated as of December 5, 1997
attached as an appendix to the accompanying Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
============================================================================================================
<S> <C> <C> <C> <C>
Series C Convertible Preferred
Stock, par value $.01 per
share........................ 3,899,767 Shares(1) $6.6979163(2) $26,120,313(2) $7,705.50(2)
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01
per share.................... (3) (3) (3) (3)
=====================================================================================================
</TABLE>
(1) Represents the maximum number of shares issuable to the stockholders of
Faircom pursuant to the Merger.
(2) Solely for the purpose of calculating the registration fee, the maximum
offering price of the Series C Convertible Preferred Stock to be issued in
the Merger is based upon, pursuant to Rule 457(f)(1), the average of the
bid and asked prices on February 12, 1998 ($.921875) of the common stock of
Faircom to be canceled in the Merger.
(3) There is also registered hereunder such indeterminate number of shares of
Registrant's Common Stock as may be issued upon conversion of the Series C
Convertible Preferred Stock being registered hereunder and, pursuant to
Rule 416 under the Securities Act of 1933, as amended, such indeterminate
number of additional shares of Common Stock as may be issuable as a result
of the anti-dilution provisions thereof.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
REGENT COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE
PROXY STATEMENT/PROSPECTUS OF INFORMATION REQUIRED
BY PART I OF FORM S-4 PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION IN PROXY
ITEM STATEMENT/PROSPECTUS
- ------------------------------------------------------------ ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.............................. Forepart of Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of
Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information..................................... Summary; Certain Risk Factors;
Certain Market Price and
Dividend Information Regarding
Faircom
4. Terms of the Transaction.............................. Summary; The Merger; The Merger
Agreement; Description of
Regent Securities; Certain
Federal Income Tax
Considerations; Comparison of
Stockholder Rights
5. Pro Forma Financial Information....................... Summary; Unaudited Pro Forma
Condensed Combined Financial
Statements
6. Material Contacts with the Company Being Acquired..... Summary; Certain Risk Factors;
The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... *
8. Interests of Named Experts and Counsel................ Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ *
10. Information with Respect to S-3 Registrants........... *
11. Incorporation of Certain Information by Reference..... *
12. Information with Respect to S-2 or S-3 Registrants.... *
13. Incorporation of Certain Information by Reference..... *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants.................................... Summary; Information Concerning
Regent; Description of Regent
Securities; Index to Financial
Statements
15. Information with Respect to S-3 Companies............. *
16. Information with Respect to S-2 or S-3................ *
17. Information with Respect to Companies Other than S-3
or S-2 Companies...................................... Summary; Certain Market Price and
Dividend Information Regarding
Faircom; Information Concerning
Faircom; Information Concerning
Regent -- Security Ownership of
Certain Beneficial Owners and
Management of Regent Stock;
Index to Financial Statements
18. Information if Proxies, Consents or Authorizations are
to be Solicited....................................... Outside Front Cover Page of Proxy
Statement/Prospectus; Available
Information; Summary; General
Information Regarding Proxies
and the Special Meeting; The
Merger; Stockholder Proposals
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer........... *
</TABLE>
- ---------------
* Not Applicable
<PAGE> 3
FAIRCOM INC.
333 GLEN HEAD ROAD
OLD BROOKVILLE, NEW YORK 11545
, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Faircom Inc. ("Faircom") to be held at at
, local time, on , 1998.
At the Special Meeting, you will be asked to consider and take action upon
a proposal to approve an Agreement of Merger, dated as of December 5, 1997 (the
"Merger Agreement"), among Faircom, Regent Communications, Inc., a Delaware
corporation ("Regent"), Regent Merger Corp., a Delaware corporation which is a
wholly-owned subsidiary of Regent ("Merger Subsidiary"), Blue Chip Capital Fund
II Limited Partnership and Miami Valley Venture Fund L.P., pursuant to which,
among other things, (a) Faircom would merge with and into Merger Subsidiary (the
"Merger"), (b) based on the number of Faircom shares currently outstanding and
issuable pursuant to outstanding options, and assuming conversion in full of
Faircom's convertible subordinated promissory notes prior to the Merger, each
share of Faircom common stock, $.01 par value per share, of Faircom ("Faircom
Common Stock") outstanding on the date of the Merger would be converted into the
right to receive approximately . of a share of $5 Series C Convertible
Preferred Stock, $.01 par value per share, of Regent ("Series C Preferred
Stock"), and (c) each option outstanding on the date of the Merger entitling the
holder to acquire Faircom Common Stock would be converted into an option
entitling the holder to acquire, on equivalent terms, the same number of shares
of Regent's Series C Preferred Stock as the holder would have been entitled to
receive in the Merger if such option had been exercised in full on or before the
date of the Merger. The Merger is structured to qualify as a reorganization for
federal income tax purposes.
Details of the proposed Merger and the Merger Agreement are set forth in
the accompanying Proxy Statement/Prospectus, which you are urged to review
carefully. A copy of the Merger Agreement is included in the Proxy
Statement/Prospectus as Appendix A.
Your Board of Directors has carefully considered and unanimously approved
the Merger proposal and has determined that the Merger is in the best interests
of Faircom and its stockholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. The Board of Directors has been advised by Hoffman Schutz Media
Capital, Inc. that, in its opinion, the consideration to be received by the
stockholders of Faircom in the Merger is fair, from a financial point of view,
to the Faircom stockholders as of the date of such opinion. A copy of such
opinion is attached to the Proxy Statement/Prospectus as Appendix D.
Your Board of Directors appreciates and encourages stockholder
participation. However, whether or not you plan to be with us at the Special
Meeting, it is important that your shares be represented. Accordingly, we
request that you sign, date and mail the enclosed proxy in the envelope provided
at your earliest convenience. If you attend the Special Meeting, you may vote in
person at that time if you so desire.
Sincerely,
JOEL M. FAIRMAN
Chairman of Board, President and
Treasurer
<PAGE> 4
FAIRCOM INC.
333 GLEN HEAD ROAD
OLD BROOKVILLE, NEW YORK 11545
------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
------------------------
A Special Meeting of Stockholders (the "Special Meeting") of Faircom Inc.,
a Delaware corporation ("Faircom"), will be held at
on at , local time, for the following
purpose:
1. To consider and vote upon a proposal to approve an Agreement of
Merger dated as of December 5, 1997 (the "Merger Agreement"), among
Faircom, Regent Communications, Inc., a Delaware corporation ("Regent"),
Regent Merger Corp., a Delaware corporation which is a wholly-owned
subsidiary of Regent ("Merger Subsidiary"), Blue Chip Capital Fund II
Limited Partnership and Miami Valley Venture Fund L.P., pursuant to which,
among other things: (a) Faircom would merge with and into Merger Subsidiary
(the "Merger"); (b) based on the number of Faircom shares currently
outstanding and issuable pursuant to outstanding options, and assuming
conversion in full of Faircom's convertible subordinated promissory notes
prior to the Merger, each share of Faircom common stock, $.01 par value per
share ("Faircom Common Stock"), outstanding on the date of the Merger would
be converted into the right to receive approximately . of a share of $5
Series C Convertible Preferred Stock, $.01 par value per share, of Regent
("Series C Preferred Stock"); and (c) each option outstanding on the date
of the Merger entitling the holder to acquire Faircom Common Stock would be
converted into an option entitling the holder to acquire, on equivalent
terms, the same number of shares of Regent's Series C Preferred Stock as
the holder would have been entitled to receive in the Merger if such option
had been exercised in full on or before the date of the Merger; and
2. To consider and vote upon such matters as may properly come before
the Special Meeting which are incident to the conduct of the Special
Meeting, or any adjournment or adjournments thereof.
The Board of Directors of Faircom (the "Faircom Board") has unanimously
approved the Merger and has determined that the Merger is in the best interests
of Faircom and its stockholders. Accordingly, the Faircom Board unanimously
recommends that you vote FOR approval of the Merger Agreement.
Stockholders of record at the close of business on , 1998
are entitled to notice of, and to vote at, the Special Meeting, or any
adjournment or postponement thereof.
Details of the Merger and other important information concerning Faircom
and Regent are described in the accompanying Proxy Statement/Prospectus. Please
give this information your careful consideration.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
FILL IN, DATE AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF FAIRCOM, AND TO MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR
PROXY AND VOTE YOUR SHARES PERSONALLY.
By Order of the Board of Directors
ANTHONY PANTALEONI
Secretary
Old Brookville, New York
, 1998
<PAGE> 5
PRELIMINARY COPY
PROXY STATEMENT
OF
FAIRCOM INC.
FOR A SPECIAL MEETING OF ITS STOCKHOLDERS
TO BE HELD , 1998
AND
PROSPECTUS
OF
REGENT COMMUNICATIONS, INC.
COVERING SHARES OF ITS SERIES C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE,
TO BE ISSUED IN CONNECTION WITH A PROPOSED MERGER OF FAIRCOM INC.
INTO A WHOLLY-OWNED SUBSIDIARY OF
REGENT COMMUNICATIONS, INC.
This Proxy Statement/Prospectus is being furnished by Faircom Inc., a
Delaware corporation ("Faircom"), to the holders of shares of its common stock,
par value $.01 per share ("Faircom Common Stock"), in connection with the
solicitation of proxies by the Board of Directors of Faircom ("Faircom Board")
for use at a Special Meeting of Stockholders of Faircom to be held on
, 1998 at , , commencing at
.M., local time, and at any adjournments or postponements thereof
("Special Meeting"). This Proxy Statement/Prospectus is also being furnished to
holders of Faircom's Class A Convertible Subordinated Promissory Notes and Class
B Convertible Subordinated Promissory Notes (together with Faircom's Class C
Subordinated Promissory Note, the "Faircom Subordinated Notes") and to the
holders of outstanding options to purchase shares of Faircom Common Stock
("Faircom Options"). See "General Information Regarding Proxies and the Special
Meeting."
The Special Meeting is being called to consider and vote upon the approval
and adoption of an Agreement of Merger dated as of December 5, 1997 ("Merger
Agreement"), among Faircom, Regent Communications, Inc., a Delaware corporation
("Regent"), Regent Merger Corp., a Delaware corporation formed as a wholly-owned
subsidiary of Regent ("Merger Subsidiary"), Blue Chip Capital Fund II Limited
Partnership ("Blue Chip") and Miami Valley Venture Fund L.P. ("Miami Valley").
Pursuant to the Merger Agreement, Faircom would be merged with and into Merger
Subsidiary, which would be the surviving corporation and which would continue to
be a wholly-owned subsidiary of Regent (the "Merger"). See "The Merger."
This Proxy Statement/Prospectus also constitutes the prospectus of Regent
with respect to shares of its Series C Convertible Preferred Stock, par value
$.01 per share ("Series C Preferred Stock"), to be issued in the Merger in
exchange for outstanding shares of Faircom Common Stock. The Series C Preferred
Stock has full voting rights, provides for annual cumulative dividends of 7%,
and is convertible on a one-for-one basis (subject to adjustment in certain
events) into the common stock, $.01 par value per share, of Regent ("Regent
Common Stock"). The Series C Preferred Stock is subject to mandatory conversion
under certain circumstances. See "Description of Regent Securities." In the
Merger, the outstanding shares of Faircom Common Stock will be exchanged for
fully paid and nonassessable shares of Series C Preferred Stock, and each
outstanding Faircom Option will be converted into an option ("Regent Option")
entitling the holder to acquire, on equivalent terms, the same number of shares
of Series C Preferred Stock as the holder would have been entitled to receive in
the Merger if such Faircom Option had been exercised in full prior to the date
of the Merger. The number of shares of Series C Preferred Stock to be issued in
the Merger and issuable pursuant to Regent Options to be received in exchange
for Faircom Options in the Merger will be based upon an aggregate liquidation
preference amount of $33,162,000, adjusted by the amount of Faircom's net
working capital and decreased by its senior debt and by one-half of the
prepayment premium on such senior debt to be paid at the closing of the Merger,
all as computed as of the last day of the month immediately preceding the
closing date of the Merger ("Closing Date"). See "The Merger Agreement."
Upon consummation of the Merger, approximately % of the outstanding
capital stock of Regent would be owned by those persons who are holders of
Faircom Common Stock and Faircom Options on the date of this Proxy
Statement/Prospectus, and approximately % would be owned by holders of the
Faircom Subordinated Notes as of the date of this Proxy Statement/Prospectus,
based upon the financial statements of Faircom as of December 31, 1997, adjusted
to reflect the acquisition by Faircom of WSWR(FM) in Shelby, Ohio (the "Shelby
Station") in January 1998 and Faircom's share of debt prepayment premiums and
brokerage commissions related to the Merger, and assuming (i) no other changes
to the amount of Faircom's net working capital and indebtedness as of the end of
the month preceding the Closing Date; (ii) the conversion in full of the Class A
and Class B Faircom Subordinated Notes prior to effectiveness of the Merger;
(iii) the issuance of additional shares of the respective series of Regent's
Preferred Stock pursuant to existing agreements; and (iv) the exercise, prior to
effectiveness of the Merger, of all outstanding Faircom Options and all options
and warrants for the acquisition of Regent capital stock that are either
outstanding or to be issued pursuant to existing agreements (other than options
or warrants that are not exercisable prior to or within 60 days following
effectiveness of the Merger). See "The Merger - Interests of Certain Persons in
the Merger; Certain Relationships," "The Merger Agreement -- The Merger,"
"Information Concerning Regent -- Recent and Pending Transactions" and
"Information Concerning Regent -- Security Ownership of Certain Beneficial
Owners and Management of Regent Stock."
SEE "CERTAIN RISK FACTORS" BEGINNING ON PAGE 22 HEREOF FOR A DISCUSSION OF
CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED WHEN EVALUATING THE TRANSACTIONS
PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS.
This Proxy Statement/Prospectus is first being mailed to stockholders of Faircom
on or about , 1998.
THE SECURITIES OF REGENT COMMUNICATIONS, INC. OFFERED IN CONNECTION WITH THE
MERGER DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1998
<PAGE> 6
AVAILABLE INFORMATION
Faircom is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy statements and other information regarding Faircom. The
address of such site is http://www.sec.gov.
Regent has filed a Registration Statement on Form S-4 (herein, together
with all amendments thereto, called the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the Merger Agreement.
This Proxy Statement/Prospectus does not contain all of the information and
undertakings set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Regent and the
securities of Regent to be issued pursuant to the Merger Agreement, reference is
made to the Registration Statement and the exhibits and schedules thereto.
Certain statements contained in this Proxy Statement/Prospectus as to the
contents of contracts or other documents that are set forth as an Appendix to
this Proxy Statement/Prospectus, or filed or incorporated by reference as an
exhibit to the Registration Statement are summaries of the terms thereof and, as
such, are not complete. In each such instance, reference is made to the copies
of such contracts or other documents either set forth as an Appendix to this
Proxy Statement/Prospectus or filed or incorporated by reference as an exhibit
to the Registration Statement, and each such statement contained in this Proxy
Statement/Prospectus shall be deemed qualified in all respects by such
reference. The Registration Statement and the exhibits and schedules thereto may
be inspected at the Commission's office at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies thereof may be obtained from the Public Reference Section
of the Commission at such address at prescribed rates.
If the Merger is consummated, Regent will become subject to the reporting
requirements of the Exchange Act, and Faircom will cease to be subject to the
reporting requirements of the Exchange Act. Regent intends to furnish its
stockholders with annual reports containing financial statements audited by
Regent's independent public accountants and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes or may include certain
forward-looking statements with respect to Faircom, Regent and Merger Subsidiary
that involve risks and uncertainties. This Proxy Statement/Prospectus contains
certain forward-looking statements concerning financial position, business
strategy, budgets, projected costs, and plans and objectives of management for
future operations, as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect," "intend," and other
similar expressions. Although Faircom, Regent and Merger Subsidiary each
believes its expectations reflected in such forward-looking statements are based
on reasonable assumptions, readers are cautioned that no assurance can be given
that such expectations will prove correct and that actual results and
developments may differ materially from those conveyed in such forward-looking
statements. Important factors that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
herein include changes in general economic, business and market conditions, as
well as changes in such conditions that may affect the radio broadcast industry
or the markets in which Faircom and Regent operate in particular, increased
competition for attractive radio properties and advertising dollars,
fluctuations in the costs of operating radio properties, and changes in the
regulatory climate affecting radio broadcast companies. Such forward-looking
statements speak only as of the date on which they are made, and neither
Faircom, Regent nor Merger Subsidiary undertakes any obligation to update any
forward-looking statement to reflect events or circumstances after the date of
this Proxy
2
<PAGE> 7
Statement/Prospectus. If Faircom, Regent or Merger Subsidiary does update or
correct one or more forward-looking statements, readers should not conclude that
Faircom, Regent or Merger Subsidiary will make additional updates or corrections
with respect thereto or with respect to other forward-looking statements. See
"Certain Risk Factors."
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS WITH RESPECT TO MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER FAIRCOM, REGENT OR MERGER
SUBSIDIARY. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FAIRCOM, REGENT OR MERGER SUBSIDIARY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO
FAIRCOM HAS BEEN SUPPLIED BY FAIRCOM, AND ALL INFORMATION RELATING TO REGENT HAS
BEEN SUPPLIED BY REGENT. FAIRCOM DOES NOT HAVE INDEPENDENT KNOWLEDGE OF THE
MATTERS SET FORTH HEREIN CONCERNING REGENT, AND REGENT DOES NOT HAVE INDEPENDENT
KNOWLEDGE OF THE MATTERS SET FORTH HEREIN CONCERNING FAIRCOM.
3
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 2
FORWARD-LOOKING STATEMENTS............................................................ 2
SUMMARY............................................................................... 7
General............................................................................. 7
Parties to the Merger............................................................... 7
The Special Meeting................................................................. 8
The Merger.......................................................................... 8
Background of the Merger; Faircom's Reasons for the Merger.......................... 10
Reasons of Regent for Engaging in the Merger........................................ 12
Recommendation of the Faircom Board................................................. 13
Opinion of Financial Advisor........................................................ 13
Interests of Certain Persons in the Merger; Certain Relationships................... 13
Regulatory Approvals................................................................ 15
Accounting Treatment................................................................ 15
Tax Treatment....................................................................... 15
Business and Management of Regent and Faircom Following the Merger.................. 15
Appraisal Rights.................................................................... 16
Certain Expenses of the Merger...................................................... 16
Certain Conditions to the Merger; Waiver............................................ 16
Termination......................................................................... 16
Effect of Termination............................................................... 16
Comparison of Stockholder Rights.................................................... 17
Market Price and Dividend Information............................................... 17
Faircom Selected Consolidated Financial Data........................................ 18
Selected Historical and Pro Forma Condensed Combined Data of Regent................. 19
Selected Ratios..................................................................... 21
Comparative Per Share Data.......................................................... 21
CERTAIN RISK FACTORS.................................................................. 22
Limited Operating History; Risk of Inability to Combine Operations Successfully;
Future Operating Risks........................................................... 22
Uncertainty for Faircom Stockholders If Merger Not Approved......................... 22
Risks Related to Additional Acquisitions............................................ 22
Possible Scarcity of Attractive Radio Station Acquisitions.......................... 22
Substantial Leverage; Debt Service Requirements; Accrued Dividends on Preferred
Stock............................................................................ 23
Preference of Series B Preferred Stock.............................................. 23
Conversion Events and Possible Redemption of Series C Preferred Stock............... 23
Absence of Existing Trading Market for Regent Stock................................. 24
Restrictive Covenants under Credit Agreement........................................ 24
Dependence on Key Personnel......................................................... 24
No Cash Dividends................................................................... 24
Competition......................................................................... 24
Future Sales of Shares.............................................................. 25
Restrictions on Resale.............................................................. 25
Interests of Certain Persons in the Merger.......................................... 26
GENERAL INFORMATION REGARDING PROXIES AND THE SPECIAL MEETING......................... 27
THE MERGER............................................................................ 28
General............................................................................. 28
Background of the Merger............................................................ 28
Reasons of Faircom for Engaging in the Merger; Recommendation of the Faircom
Board............................................................................ 29
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Reasons of Regent for Engaging in the Merger........................................ 31
Opinion of Financial Advisor to Faircom............................................. 31
Interests of Certain Persons in the Merger; Certain Relationships................... 32
Regulatory Approvals................................................................ 34
Certain Federal Securities Law Consequences......................................... 34
THE MERGER AGREEMENT.................................................................. 35
The Merger.......................................................................... 35
Representations and Warranties...................................................... 37
Certain Covenants................................................................... 38
Termination......................................................................... 40
Effect of Termination............................................................... 40
Certain Fees and Expenses of the Merger............................................. 40
Appraisal Rights.................................................................... 40
Registration Rights................................................................. 43
Management of Regent Following the Merger........................................... 43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 44
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 46
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................. 50
General............................................................................. 50
The Merger and Included Transactions................................................ 50
Unaudited Pro Forma Condensed Combining Statements of Operations Adjustments........ 54
CERTAIN MARKET PRICE AND DIVIDEND INFORMATION REGARDING FAIRCOM....................... 55
THE RADIO BROADCASTING INDUSTRY....................................................... 55
Operations.......................................................................... 55
Competition......................................................................... 56
FCC Regulation...................................................................... 57
INFORMATION CONCERNING FAIRCOM........................................................ 59
The Company......................................................................... 59
Operating Strategy.................................................................. 59
Licenses............................................................................ 60
Employees........................................................................... 60
Properties.......................................................................... 60
Legal Proceedings................................................................... 61
Security Ownership of Certain Beneficial Owners and Management of Faircom........... 61
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Faircom............................................................ 64
INFORMATION CONCERNING REGENT......................................................... 67
Introduction........................................................................ 67
Description of Business............................................................. 67
Description of Property............................................................. 70
Recent and Pending Transactions..................................................... 70
Business of Merger Subsidiary....................................................... 72
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Regent............................................................. 73
Directors and Executive Officers.................................................... 78
Election of Directors............................................................... 79
Committees of the Board of Directors................................................ 79
Compensation of Directors........................................................... 79
</TABLE>
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<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Compensation of Executive Officers.................................................. 79
Security Ownership of Certain Beneficial Owners and Management of Regent Stock...... 83
DESCRIPTION OF REGENT SECURITIES...................................................... 86
General............................................................................. 86
Capital Stock....................................................................... 86
Common Stock........................................................................ 86
Preferred Stock..................................................................... 86
Ranking of Series of Regent Preferred Stock......................................... 87
Series A Preferred Stock............................................................ 87
Series B Preferred Stock............................................................ 90
Series C Preferred Stock............................................................ 92
Series D Preferred Stock............................................................ 94
Series E Preferred Stock............................................................ 98
COMPARISON OF STOCKHOLDER RIGHTS...................................................... 100
STOCKHOLDER PROPOSALS................................................................. 100
LEGAL MATTERS......................................................................... 100
EXPERTS............................................................................... 101
INDEX TO FINANCIAL STATEMENTS......................................................... 102
APPENDICES:
Appendix A -- Agreement of Merger.....................................................
Appendix B -- Amended and Restated Certificate of Incorporation of Regent.............
Appendix C -- Amended and Restated By-Laws of Regent..................................
Appendix D -- Opinion of Hoffman Schutz Media Capital, Inc. ..........................
Appendix E -- Delaware General Corporation Law Section 262 ...........................
Appendix F -- Form of Proxy...........................................................
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Certain capitalized terms used in this Summary
are defined elsewhere in this Proxy Statement/Prospectus. Reference is made to,
and this Summary is qualified in its entirety by, the more detailed information
contained in this Proxy Statement/Prospectus, including the appendices hereto.
GENERAL
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Faircom Board of proxies to be voted at the Special Meeting
of Faircom's stockholders to be held on , 1998, and at any
adjournments thereof. At the Special Meeting, the Faircom stockholders will be
asked to approve and adopt the Merger Agreement.
PARTIES TO THE MERGER
Regent. Regent, a Delaware corporation, is headquartered in Covington,
Kentucky. It was founded in 1996 by Terry S. Jacobs and William L. Stakelin.
Regent, through one of its wholly-owned subsidiaries, currently owns and
operates radio station KCBQ(AM) located in San Diego, California, and operates
24 other stations in 8 markets under time brokerage agreements. Regent has
entered into a letter of intent for the sale of KCBQ(AM) and has pending a
number of transactions for the acquisition of radio stations (the "Pending
Transactions"). If the Merger Agreement and the Pending Transactions are
consummated, Regent would own a total of 31 stations in 10 markets. See
"Information Concerning Regent -- Recent and Pending Transactions."
The outstanding capital stock of Regent is owned by Mr. Jacobs, who owns
132,568 shares (or approximately 55%) of Regent Common Stock and 300,000 shares
(or 50%) of Regent's Series A Convertible Preferred Stock; Mr. Stakelin, who
owns 107,432 shares (or approximately 45%) of Regent Common Stock (Mr. Stakelin
has also agreed to purchase, on or before effectiveness of the Merger, 20,000
shares (or approximately 3%) of Regent's Series A Convertible Preferred Stock);
River Cities Capital Fund Limited Partnership, a Delaware limited partnership
("River Cities"), which owns 300,000 shares (or 50%) of Regent's Series A
Convertible Preferred Stock (River Cities is entitled to receive, upon
effectiveness of the Merger, warrants for the purchase of 80,000 shares of
Regent Common Stock); General Electric Capital Corporation, a New York
corporation, which owns 1,000,000 shares of Regent's Series B Senior Convertible
Preferred Stock; and BMO Financial, Inc., a Delaware corporation and an
affiliate of Bank of Montreal, which owns 220,000 shares of Regent's Series D
Convertible Preferred Stock (BMO Financial, Inc. has also agreed to purchase an
additional 780,000 shares of Series D Convertible Preferred Stock on or before
effectiveness of the Merger). See "Information Concerning Regent -- Securities
Ownership of Certain Beneficial Owners and Management of Regent."
Messrs. Jacobs and Stakelin together have over 50 years experience in
owning and operating radio broadcast companies, having founded or co-founded,
developed and operated three significant radio companies. Mr. Jacobs served as
President and Chief Executive Officer of a privately-held radio broadcast
company which he co-founded in 1993 under the name "Regent Communications, Inc."
(a Kentucky corporation unrelated to Regent and referred to herein as "Regent
I"), and which acquired and operated 16 radio stations until its merger into
Jacor Communications, Inc. in 1997. Prior to 1993, Mr. Jacobs was Chairman and
Chief Executive Officer of Jacor Communications, Inc., a radio broadcast company
which he founded in 1979 and which, during his tenure, grew to become the then
ninth largest radio company in the U.S. in terms of revenue. Mr. Stakelin served
as Executive Vice President and Chief Operating Officer of Regent I from 1995
until its merger into Jacor Communications, Inc. In 1988, Mr. Stakelin
co-founded Apollo Radio, Ltd., a privately-held radio broadcast company which
acquired and operated nine radio stations until its sale to Regent I in 1995.
See "Information Concerning Regent -- Directors and Executive Officers."
The principal executive offices of Regent are located at 50 East
RiverCenter Boulevard, Suite 180, Covington, Kentucky 41011, and the telephone
number of Regent at such offices is (606) 292-0030. Regent's operations are
conducted through subsidiary corporations, and references to the term "Regent"
herein include such subsidiaries unless the context otherwise requires.
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<PAGE> 12
Merger Subsidiary. Merger Subsidiary, a Delaware corporation, was
organized by Regent in connection with the proposed Merger, and has not
conducted any business. All of the issued and outstanding shares of capital
stock of Merger Subsidiary are owned by Regent. Merger Subsidiary's assets as of
effectiveness of the Merger will consist solely of the number of shares of
Series C Preferred Stock and Regent Options sufficient to fund the consideration
to be paid for the shares of Faircom Common Stock and the Faircom Options in the
Merger. Because Merger Subsidiary has no operating history and only nominal
assets at present, no historical financial statements for Merger Subsidiary are
included herein.
Faircom. Faircom was founded by Joel M. Fairman in April 1984 and began
operations with the objective of acquiring broadcasting properties at prices
considered attractive by Faircom, financing them on terms satisfactory to
Faircom, managing them in accordance with Faircom's operating strategy and
building a broadcasting group. Faircom has sought to acquire radio properties
which have a history of growing revenues and broadcast cash flow, have capable
operating management and are in communities with good growth prospects or which
have attractive competitive environments. Faircom focuses its acquisition
efforts on medium and smaller radio markets, particularly where there may be an
opportunity to achieve a significant cluster of stations in the market or to add
additional stations in surrounding communities. Faircom does not purchase
properties with negative cash flows, or so-called "under-performing" or
"turnaround" properties, unless they complement or can be combined with the
operations of positive cash flow properties in a market or regional cluster.
Faircom's strategy is to have at least $1,000,000 in broadcast cash flow and be
among the top three operators in each of its markets.
Faircom owns and operates six 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.
Faircom is a Delaware corporation whose executive offices are located at
333 Glen Head Road, Suite 220, Old Brookville, New York 11545 and its telephone
number is (516) 676-2644. All of Faircom's properties are owned and operated
through subsidiary corporations, and references to the term "Faircom" herein
include such subsidiaries unless the context otherwise requires.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting will be held on , 1998 at .M.,
local time, at , to consider and vote upon approval and adoption
of the Merger Agreement.
Record Date; Quorum. The Faircom Board has fixed the close of business on
, 1998 as the record date ("Record Date") for the determination of
holders of the Faircom Common Stock entitled to notice of and to vote at the
Special Meeting. Only the holders of Faircom Common Stock as of the Record Date
are entitled to notice of and to vote at the Special Meeting. The presence, in
person or by proxy, of the holders of shares of Faircom Common Stock possessing
a majority of the votes entitled to be cast at the Special Meeting will
constitute a quorum at the Special Meeting.
Vote Required. As of the Record Date, there were issued, outstanding and
entitled to vote shares of Faircom Common Stock. Each issued and
outstanding share of Faircom Common Stock is entitled to one vote on each matter
to be presented at the Special Meeting. The affirmative vote of the holders of
shares possessing a majority of the votes entitled to be cast by the holders of
record of Faircom Common Stock is required to adopt and approve the Merger
Agreement. All of the members of the Faircom Board and officers of Faircom and
their affiliates who are also Faircom stockholders (and who, as such, hold
17.66% of the outstanding Faircom Common Stock) have indicated it is their
intention to vote in favor of the Merger.
THE MERGER
Terms of the Merger. Subject to approval and adoption of the Merger
Agreement by the stockholders of Faircom at the Special Meeting and the
satisfaction or waiver of the other conditions contained in the Merger
Agreement, Faircom will be merged into Merger Subsidiary, with Merger Subsidiary
continuing as the surviving
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corporation (the "Surviving Corporation"). Upon effectiveness of the Merger,
taking into account the number of shares of Faircom Common Stock currently
outstanding and issuable pursuant to outstanding Faircom Options, each
outstanding share of Faircom Common Stock will be exchanged for approximately
. of a share of the Series C Preferred Stock, based upon the financial
statements of Faircom as of December 31, 1997, adjusted to reflect the
acquisition by Faircom of the Shelby Station in January 1998 and Faircom's share
of debt prepayment premiums and brokerage commissions related to the Merger, and
assuming no other changes to the amount of Faircom's net working capital and
indebtedness as of the end of the month immediately preceding the Closing Date
(the "Compilation Date"). Holders of Faircom Common Stock otherwise entitled to
fractional shares of Series C Preferred Stock will be paid cash in lieu of such
fractional shares determined as described herein. The outstanding Faircom
Options will be converted into Regent Options entitling the holder to acquire,
on equivalent terms, the same number of shares of Series C Preferred Stock as
the holder would have been entitled to receive in the Merger if such Faircom
Options had been exercised in full prior to the date of the Merger. See "The
Merger Agreement."
Effectiveness of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware ("Effectiveness"). Such filing will be made as soon as practicable
after the approval and adoption of the Merger Agreement by the stockholders of
Faircom have been obtained. See "The Merger Agreement -- Effectiveness."
Consideration to be Paid for the Faircom Stock. The number of shares of
Series C Preferred Stock to be issued in the Merger and issuable pursuant to
Regent Options to be received in exchange for Faircom Options in the Merger will
be based upon an aggregate liquidation preference amount of $33,162,000,
adjusted by the amount of Faircom's net working capital and decreased by the
outstanding principal amount of and accrued interest on Faircom's senior debt,
and by one-half of the prepayment premium required to be paid upon payment of
Faircom's senior debt at the closing of the Merger, all as determined as of the
last day of the month immediately preceding the Closing Date. This would have
resulted in the issuance of Series C Preferred Stock and Regent Options based on
an aggregate liquidation preference amount of $ , based upon the
financial statements of Faircom as of December 31, 1997, adjusted to reflect the
acquisition by Faircom of the Shelby Station in January 1998 and Faircom's share
of debt prepayment premiums and brokerage commissions related to the Merger, and
assuming (i) no other changes to the amount of Faircom's net working capital and
indebtedness as of the Compilation Date; (ii) the conversion in full of the
Class A and Class B Faircom Subordinated Notes prior to effectiveness of the
Merger; and (iii) the exercise, prior to effectiveness of the Merger, of all
outstanding Faircom Options. This amount and the number of shares of the Series
C Preferred Stock to be issued in exchange for each share of Faircom Common
Stock and pursuant to the exercise of Regent Options issued in exchange for
Faircom Options in the Merger will change to the extent Faircom's net working
capital and indebtedness as of the Compilation Date differ from that at December
31, 1997, adjusted as set forth above. See "The Merger
Agreement -- Consideration to be Paid for Faircom Stock."
The maximum number of shares of Series C Preferred Stock available for
distribution to the Faircom stockholders (the "Maximum Number of Shares to be
Issued") will be affected by the following: Blue Chip and Miami Valley will have
the right, at the closing of the Merger ("Closing"), (a) to require the
repayment in cash by Regent of up to $2,500,000 aggregate principal amount of
Faircom's Class B Convertible Subordinated Promissory Notes (the "Optional
Faircom Subordinated Notes") or (b) to convert all or any portion of the
principal amount of the Optional Faircom Subordinated Notes into Faircom Common
Stock. If either Blue Chip or Miami Valley elects to require a repayment of any
portion of the Optional Faircom Subordinated Notes at Closing, then the Maximum
Number of Shares to be Issued will be reduced to the extent of one share of
Series C Preferred Stock for every $5.00 so repaid by Regent. Of the shares of
the Series C Preferred Stock issued as a result of the conversion of the Faircom
Subordinated Notes (other than the Optional Faircom Subordinated Notes) into
Faircom Common Stock, 300,000 shares will be subject to the right of Blue Chip
and Miami Valley to put such shares to Regent for redemption in accordance with
the terms of a certain Redemption and Warrant Agreement dated as of December 5,
1997, as amended among Blue Chip, Miami Valley, Regent and Faircom (the
"Redemption and Warrant Agreement"). See "The Merger Agreement -- Consideration
to be Paid for Faircom Common Stock."
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Effect of the Merger on Faircom Stock Options. At Effectiveness, the
holders of the Faircom Options will receive substitute Regent Options under the
Regent Communications, Inc. Faircom Conversion Stock Option Plan. Each Faircom
Option will be deemed to constitute an option to acquire the same number of
shares of Series C Preferred Stock as the holder of such Faircom Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such Faircom Option in full immediately prior to the consummation of the Merger.
The terms of the Regent Options will be the same as the terms of the Faircom
Options. See "The Merger Agreement -- Treatment of Options."
BACKGROUND OF THE MERGER; FAIRCOM'S REASONS FOR THE MERGER
Background of the Merger. With the enactment of the Telecommunications Act
in February 1996, it rapidly became clear that radio station ownership would
consolidate dramatically. Faircom accelerated its objective of acquiring
additional radio stations to obtain operational benefits of scale and additional
financial strength resulting from a larger corporate structure. In addition,
Faircom believed that this strategy, if successfully consummated, would make it
a more attractive partner for combination with another broadcasting group owner.
In April 1996, Faircom retained Crisler to provide investment banking
services in connection with negotiation and financing of radio station
acquisitions, with particular emphasis on smaller market stations. In October
1996, the focus of these activities became radio stations WMAN(AM) and WYHT(FM)
in Mansfield, Ohio owned by Treasure Radio Associates Limited Partnership.
During October 1996 a number of meetings took place with possible financing
sources for this acquisition. In this connection, a meeting was held in New York
City on October 30, 1996 among Joel M. Fairman, Chairman of Faircom, R. Dean
Meiszer, President of Crisler, and Terry S. Jacobs and William L. Stakelin,
Chairman and President, respectively, of the subsequently formed Regent. Since
Messrs. Jacobs and Stakelin were then in the process of planning their own radio
station acquisitions and attendant financing, this meeting was exploratory only
and ended with no conclusive or even preliminary understandings, other than to
continue to communicate the progress of each company.
In January 1997, Faircom Mansfield Inc., a wholly-owned subsidiary of
Faircom, entered into an asset purchase contract to acquire the Mansfield
stations for $7,650,000 in cash. Thereafter, a series of negotiations ensued
with various capital sources to finance the acquisition and also to purchase the
interests then owned by Citicorp Venture Capital, Ltd. in Faircom for
$6,400,000.
On May 21, 1997, a meeting was held in Cincinnati, Ohio among Messrs.
Fairman and Meiszer, John E. Risher, Senior Vice President of Faircom, John H.
Wyant, a manager of the general partner of Blue Chip and a special limited
partner of Miami Valley and Mr. Wyant's associate, Z. David Patterson. At this
meeting there was discussed an investment in Faircom by Blue Chip and Miami
Valley. In addition, Mr. Wyant stated that Regent was entering into a contract
to acquire a group of radio stations in California and Arizona owned by The Park
Lane Group (the "Park Lane Stations") and he believed that a merger with Regent
attractive to the stockholders of Faircom could be negotiated. Faircom
stockholders, including Blue Chip and Miami Valley, would retain significant
equity positions in the merged companies. Mr. Wyant emphasized that an
affiliated fund had been an investor in Regent I, a radio operating company
previously managed by Messrs. Jacobs and Stakelin which had been merged into
Jacor Communications, Inc. in a transaction that closed in February 1997. The
investment in that prior company had been highly profitable for its equity
investors and the experience with Messrs. Jacobs and Stakelin had been
exceptionally favorable, according to Mr. Wyant. Messrs. Jacobs and Stakelin
were known most favorably to Messrs. Fairman, Risher and Meiszer based on their
historic performance and reputation in the radio industry.
Following this meeting, the group met in the offices of Regent with Messrs.
Jacobs and Stakelin and Matthew A. Yeoman, Regent's Vice-President--Finance, and
engaged in a general discussion of the properties and operations of Faircom and
Regent and the possible advantages of a merger. The concept of the proposed
transaction with Regent appeared attractive to Messrs. Fairman, Risher and
Meiszer. Over the next few days the proposed transaction was discussed
individually with the other directors of Faircom. It was determined that Faircom
should attempt to negotiate specific terms of a merger transaction with Regent.
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As a result of the May meeting and the conversations with directors that
followed, work commenced on a letter of intent between Faircom and Regent. As of
June 30, 1997, the Mansfield acquisition and the purchase of the Citicorp
interests in Faircom were consummated through a new investment aggregating
$10,000,000 in the form of Class A and Class B Faircom Subordinated Notes
purchased by Blue Chip and Miami Valley and additional senior debt from
Faircom's senior lender. In addition, a non-binding letter of intent containing
general terms and a number of contingencies relating to the proposed merger was
signed on June 30, 1997. Thereafter, the parties determined that modification to
the terms and conditions stated in the letter of intent were needed, and on July
21, 1997 Messrs. Fairman, Meiszer and Wyant met in New York City to discuss the
formulation of a new letter of intent for a merger with Regent. Work followed on
a draft of a new letter of intent.
A meeting was held on September 10, 1997, in Cincinnati, Ohio to discuss
outstanding issues on the letter of intent. Attending the meeting were Messrs.
Fairman, Jacobs, Stakelin, Wyant, Meiszer, Steven J. Kaufmann, Vice President of
Crisler, and counsel for Regent and Blue Chip. Most of the remaining issues in
the letter of intent were resolved at this meeting.
By September 16, 1997, all remaining issues of the letter of intent had
been resolved and copies were prepared for execution by Faircom and Regent. The
Faircom Board met to consider the proposed transaction with Regent, including
the draft letter of intent. At this meeting, Mr. Wyant was elected a Director of
Faircom pursuant to the intent of the parties expressed in the draft June 30,
1997 letter of intent. The Faircom Board then reviewed the proposed transaction
with Regent, and those present unanimously authorized execution of the letter of
intent and all steps necessary to prepare and execute a definitive merger
agreement with Regent, subject to obtaining an opinion from an independent
financial advisor, addressed to the Faircom Board, to the effect that the
consideration to be received by the stockholders of Faircom in connection with
the proposed merger would be fair to them from a financial point of view
("Fairness Opinion"). On September 16, 1997, a non-binding letter of intent with
respect to the proposed merger was signed by Faircom and Regent.
The Faircom Board thereafter contacted a number of financial advisors to
discuss their providing a Fairness Opinion. After considering a number of
proposals, Faircom executed an engagement letter dated November 6, 1997 with
HSMC, providing for HSMC to review the proposed transaction and determine
whether HSMC could deliver such a Fairness Opinion.
During November 1997, preparation and negotiation of a definitive merger
agreement continued. On December 4, 1997, HSMC delivered a Fairness Opinion to
the Faircom Board.
On December 5, 1997, Faircom and Regent executed the Merger Agreement. See
"The Merger -- Background of the Merger."
Faircom's Reasons for the Merger. The Faircom Board has unanimously
approved the proposed Merger and believes the Merger is in the best interests of
Faircom and its stockholders. In reaching their decision, the directors
considered, with the assistance of management and its legal and financial
advisors, the following factors:
(i) In the Merger, each share of Faircom Common Stock will be
exchanged for a proportionate share of Series C Preferred Stock with a
liquidation preference amount of $5.00 per share. The liquidation
preference amount of the Series C Preferred Stock received for each share
of Faircom Common Stock represented a substantial premium over the then
historical market prices for each share of Faircom Common Stock to be
exchanged therefor;
(ii) The Merger offers Faircom stockholders an opportunity to acquire
equity ownership in what would be a significantly larger company upon
completion of the Merger and the Pending Transactions and at the same time
retain the opportunity to participate in the long-term growth and
appreciation of Faircom's business through their ownership interest in
Regent;
(iii) The complementary nature of the strategic goals of management of
Faircom and Regent, particularly with respect to focusing on acquisitions
of radio stations in small- and medium-sized markets and acquiring clusters
of stations in such markets with combined broadcast cash flow of at least
$1,000,000 and with a strategy of becoming one of the top three operators
in each such market;
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(iv) The increased diversification of the resulting company's
ownership of radio stations, both in the number of stations owned and in
the markets served;
(v) Potential operating synergies and cost savings, including possible
synergies and cost savings with respect to the consolidation of
administrative and support functions;
(vi) The attractiveness to the stockholders of Faircom of the
valuation placed on the business of Faircom with respect to the proforma
total enterprise value of Regent upon consummation of the Merger, and the
opinion of HSMC that, as of December 4, 1997, the consideration to be
received by the Faircom stockholders is fair, from a financial point of
view, to such stockholders (see "The Merger -- Opinion of Financial Advisor
to Faircom");
(vii) The terms of the Series C Preferred Stock, including full voting
rights, a $5.00 preference on liquidation of Regent together with full
equity participation in any remaining assets if converted to common stock,
and an accruing 7% annual dividend to be paid in cash in the event of
liquidation or conversion to common stock at any time at the option of the
holder or where the Board of Directors of Regent requires conversion in the
case of a specified conversion event; and
(viii) Information with respect to the Pending Transactions of Regent
including, among other things, the recent and historical earnings
performance of the radio stations involved in the Pending Transactions, and
what the Faircom Board believes to be the potential earnings capability of
such stations, and the historical ability of Regent's executives in prior
businesses to implement successfully a growth strategy by acquisition and
operation of radio stations in small- and medium-sized markets.
In the course of its deliberations, the Faircom Board reviewed the
following additional factors relevant to the Merger: (i) the capital structure
of Regent; (ii) the financial analysis of HSMC prepared in connection with its
Fairness Opinion; (iii) reports from management and legal advisors on specific
terms of the Merger Agreement; and (iv) the proposed terms, timing and structure
of the Merger.
The Faircom Board also considered the following potentially negative
factors in its deliberations concerning the Merger: (i) the possibility of
management disruption associated with the Merger and the risk that, despite the
efforts of the combined company, key management personnel of Faircom might not
continue their employment with the combined company; (ii) the possibility that
certain of the operating economies of scale such as the elimination of redundant
administrative cost sought to be achieved as a result of the Merger might not be
achieved; (iii) the possibility of Faircom's failure to be successfully
integrated into Regent; and (iv) the possibility that Faircom's business will
outperform the other business activities of Regent.
The foregoing discussion of information and factors considered by the
Faircom Board is not intended to be exhaustive but is intended to include the
material factors considered. In view of the wide variety of factors considered,
the Faircom Board did not find it practical to, and did not, quantify or
otherwise assign relative weight to the specific factors considered, and
individual directors may have given differing weights to different factors.
See "The Merger -- Faircom's Reasons of Faircom for Engaging in the Merger;
Recommendations of the Faircom Board."
REASONS OF REGENT FOR ENGAGING IN THE MERGER
The management of Regent believes the Faircom stations fit well within
Regent's operational and acquisition strategies. The stations are cash flowing
properties located in medium-sized markets which meet the criteria of Regent's
targeted markets, provide Regent with geographic diversity, and have good
potential for growth. The stations hold good competitive positions in their
markets with well-established formats, strong historical revenues, and positive
cash flows, which Regent expects will be factors attractive to broadcast lenders
and equity investors. The Merger also brings with it Faircom's management team
and the stations' technical facilities, which Regent believes can be utilized
effectively to establish a sound structure for Regent's plans for future growth.
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RECOMMENDATION OF THE FAIRCOM BOARD
THE FAIRCOM BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF FAIRCOM AND ITS STOCKHOLDERS AND HAS APPROVED THE MERGER AGREEMENT.
THE FAIRCOM BOARD RECOMMENDS TO THE STOCKHOLDERS OF FAIRCOM THAT THEY VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
HSMC, Faircom's independent financial advisor, delivered its written
opinion dated December 4, 1997 to the Faircom Board to the effect that, as of
such date, the consideration to be received by the stockholders of Faircom in
connection with the Merger is fair, from a financial point of view, to the
stockholders of Faircom. A copy of the opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by HSMC is
attached to this Proxy Statement/ Prospectus as Appendix D and should be read in
its entirety. See "The Merger -- Background of the Merger" and "The
Merger -- Opinion of Financial Advisor to Faircom."
Subsequent to the issuance by HSMC of its opinion to the Faircom Board,
Regent engaged the services of HSMC to provide an appraisal of Regent upon which
could be based a purchase price value for accounting purposes. Regent believes
HSMC was the logical choice to provide such valuation given the groundwork and
analysis previously undertaken by HSMC in connection with preparing its Fairness
Opinion. Faircom provided to HSMC its consent to the rendering of such an
appraisal to Regent.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
In considering the recommendations of the Faircom Board with respect to
adopting the Merger Agreement and the transactions contemplated thereby,
stockholders of Faircom should be aware that certain employees, officers and
directors of Faircom and the holders of the Faircom Subordinated Notes have
interests in the Merger that are in addition to the interests of stockholders of
Faircom generally.
There are currently $11,100,000 in original principal amount of Class A,
Class B and Class C Faircom Subordinated Notes outstanding. Of the Faircom
Subordinated Noteholders, Blue Chip holds $8,750,000 in original principal
amount; Miami Valley holds $1,350,000 in original principal amount; and PNC
Bank, National Association, Trustee ("PNC Trustee"), by assignment from Blue
Chip and Miami Valley, holds $1,000,000 in original principal amount. The
Faircom Subordinated Noteholders have the right to require the liquidation of
Faircom and each of its subsidiaries because Faircom did not consummate a merger
of Faircom with another corporation on or before January 1, 1998. The Faircom
Subordinated Noteholders have given no indication they intend to exercise this
right pending consummation of the Merger with Regent. The Faircom Subordinated
Noteholders will not be voting on the proposed resolution to approve the Merger
with Regent but have consented to it and agreed to convert at least $7,500,000
of the $10,000,000 of Class A and Class B Faircom Subordinated Notes into
Faircom Common Stock immediately prior to the Closing Date. If the Merger is not
approved by the Faircom stockholders, the Faircom Subordinated Noteholders may
require the assets of Faircom be sold and Faircom liquidated.
Blue Chip and Miami Valley are venture capital funds managed by Blue Chip
Venture Company, Ltd. and one of its affiliates, John H. Wyant, is a principal
in and a manager of Blue Chip Venture Company, Ltd. and such affiliate. An
affiliate fund of Blue Chip Venture Company, Ltd. has previously invested funds
managed by it in Regent I, a radio broadcasting company formerly operated by
Messrs. Jacobs and Stakelin. As a member of the Faircom Board, Mr. Wyant has
voted in favor of the Merger, and under the terms of the Merger Agreement, upon
consummation of the Merger, Mr. Wyant will become a member of the Board of
Directors of Regent.
In January 1998, Blue Chip made a loan to Faircom of $1,100,000 to finance,
in part, the purchase of the Shelby Station, and in connection with that loan,
Faircom issued to Blue Chip the Class C Subordinated Promissory Note ("Class C
Subordinated Note"). The Class C Subordinated Note bears interest at a rate of
14%, payable at maturity, and becomes due and payable on the earlier of May 22,
1998 and the Closing of the Merger.
13
<PAGE> 18
The Merger Agreement provides the Faircom Subordinated Noteholders with
certain demand and piggyback registration rights with respect to registration
for sale under the Securities Act of the shares of Regent Common Stock into
which their shares of Series C Preferred Stock are then convertible. The holders
of Regent's Series A, Series B Senior and Series D Preferred Stock also have
certain registration rights with respect to their shares. See "The Merger
Agreement -- Registration Rights." Registration rights are not being granted in
connection with the Merger to any of the Faircom securityholders other than the
Faircom Subordinated Noteholders.
Pursuant to the terms of the Redemption and Warrant Agreement, at such time
as Regent has raised additional equity capital of at least $1,500,000, Blue Chip
and Miami Valley may require Regent to repurchase up to $1,500,000 of the shares
of Series C Preferred Stock issued to Blue Chip and Miami Valley upon
Effectiveness of the Merger in exchange for their Faircom Common Stock, at its
stated value of $5.00 per share plus the amount of any accrued and unpaid
dividends on such Series C Preferred Stock being repurchased. Until such
additional equity has been raised, Blue Chip and Miami Valley will be issued
each month five-year warrants to acquire an aggregate of 375 shares of Series C
Preferred Stock at a price of $1.00 per share. See "The Merger Agreement --
Consideration to be Paid for Faircom Stock." These redemption and warrant rights
are not being granted to any Faircom securityholder other than Blue Chip and
Miami Valley.
Concurrently with its approval in June 1997 of the $10,000,000 investment
in Faircom of Blue Chip and Miami Valley, the Faircom Board authorized the
issuance to Joel M. Fairman and John E. Risher, President and Senior Vice
President of Faircom, respectively, of stock options entitling Mr. Fairman to
purchase up to 958,886 shares, and entitling Mr. Risher to purchase up to
159,814 shares, of Faircom Common Stock, or such greater number of shares as may
be necessary for them to maintain their then existing percentage ownership
interest in Faircom. These options are in the nature of preemptive rights
inasmuch as (a) they are exercisable only if the Class A and Class B Faircom
Subordinated Notes are converted to Faircom Common Stock, and (b) they enable
Messrs. Fairman and Risher to acquire additional Faircom Common Stock at the
same price per share at which the Class A and Class B Faircom Subordinated
Noteholders could acquire Faircom Common Stock by conversion of the Class A and
Class B Faircom Subordinated Notes. The number of shares of Faircom Common Stock
Messrs. Fairman and Risher may purchase, and the exercise price of these
options, are dependent upon the amount of the Faircom Subordinated Notes that is
converted to Faircom Common Stock. If the full amount of the $10,000,000 of
Class A and Class B Faircom Subordinated Notes is converted to Faircom Common
Stock, then Messrs. Fairman and Risher will be entitled to purchase the full
number of 1,118,700 shares at a purchase price per share of approximately $.53
per share. As a result, these options would allow Messrs. Fairman and Risher the
right to preserve their percentage stock ownership position in Faircom and to
realize a gain in value on those option shares as a result of the conversion of
the Faircom Subordinated Notes in connection with the Merger. See "The
Merger -- Interests of Certain Persons in the Merger; Certain Relationships."
It is contemplated that the employees of Faircom generally will continue to
be employed by the Surviving Corporation following the Merger, including
specifically Messrs. Fairman and Risher. Mr. Fairman's continued employment will
be governed by a two-year employment agreement followed by a one-year consulting
agreement, providing annual compensation of $190,000, discretionary annual
bonuses, discretionary stock option awards, ownership of a term life insurance
policy paid for by Regent, an automobile allowance and certain other benefits.
See "Information Concerning Regent -- Compensation of Executive Officers." The
Merger Agreement also provides for the appointment of Mr. Fairman to the Board
of Directors of Regent as Vice-Chairman. See "The Merger -- Interests of Certain
Persons in the Merger; Certain Relationships."
Terry S. Jacobs, Regent's Chairman and Chief Executive Officer, and William
L. Stakelin, Regent's President and Chief Operating Officer, have signed
employment agreements which provide for the issuance to each of them under
Regent's 1998 Management Stock Option Plan of incentive and non-qualified stock
options to purchase, during a ten-year period following the date of grant (or
such shorter period as may be required to preserve the nature of the options as
incentive stock options), at an exercise price equal to the fair market value
thereof, that number of shares of the capital stock of Regent which constitutes
5.5% of Regent's capital stock outstanding from time to time, on a fully-diluted
basis; provided, however, that such number shall not exceed the greater of
733,333 and 5.5% of the number of shares of capital stock of Regent outstanding
or committed to be issued under any existing agreements as of June 30, 1999. The
initial grant of these options is to be made upon
14
<PAGE> 19
Effectiveness of the Merger, at which time it is estimated that options to
purchase approximately 360,000 shares of Regent Common Stock will be granted to
each of Mr. Jacobs and Mr. Stakelin.
REGULATORY APPROVALS
Consummation of the Merger and the resulting transfers of control are
subject to the prior approval of the Federal Communications Commission (the
"FCC"). Regent and Faircom have obtained an initial order from the FCC approving
the transfers of control which will result from the Merger, and it is
anticipated that a final order will be obtained from the FCC in February 1998.
Issuance of the Series C Preferred Stock in connection with the Merger is
subject to registration under the Securities Act and qualification or exemption
under applicable state securities laws.
ACCOUNTING TREATMENT
The Merger is intended to be treated as a "purchase" for accounting
purposes with Regent treated as the acquired company. See "The Merger" and "Pro
Forma Condensed Combined Financial Statements."
TAX TREATMENT
Faircom has received the opinion of its counsel, Fulbright & Jaworski
L.L.P. (the "Tax Opinion"), and on the Closing Date will receive an opinion from
Strauss & Troy, counsel for Regent, to the effect that, for federal income tax
purposes and based upon certain assumptions, representations and warranties, the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). See "Certain Federal
Income Tax Consequences."
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES MAY VARY FOR EACH HOLDER OF
SHARES OF FAIRCOM COMMON STOCK. EACH FAIRCOM STOCKHOLDER IS URGED TO CONSULT
SUCH STOCKHOLDER'S OWN TAX AND FINANCIAL ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER.
BUSINESS AND MANAGEMENT OF REGENT AND FAIRCOM FOLLOWING THE MERGER
Upon consummation of the Merger, approximately % of the outstanding
capital stock of Regent would be owned by those persons who are holders of
Faircom Common Stock and Faircom Options on the date of this Proxy
Statement/ Prospectus, and approximately % would be owned by holders of the
Faircom Subordinated Notes as of the date of this Proxy Statement/Prospectus,
based upon the financial statements of Faircom as of December 31, 1997, adjusted
to reflect the acquisition by Faircom of WSWR(FM) in Shelby, Ohio (the "Shelby
Station") in January 1998 and Faircom's share of debt prepayment premiums and
brokerage commissions related to the Merger, and assuming (i) no other changes
to the amount of Faircom's net working capital and indebtedness as of the
Compilation Date; (ii) the conversion in full of the Class A and Class B Faircom
Subordinated Notes prior to effectiveness of the Merger; (iii) the issuance of
additional shares of the respective series of Regent's Preferred Stock pursuant
to existing agreements; and (iv) the exercise, prior to effectiveness of the
Merger, of all outstanding Faircom Options and all options and warrants for the
acquisition of Regent capital stock that are either outstanding or to be issued
pursuant to existing agreements (other than options or warrants that are not
exercisable prior to or within 60 days following effectiveness of the Merger).
See "The Merger -- Interests of Certain Persons in the Merger; Certain
Relationships," "The Merger Agreement -- The Merger," "Information Concerning
Regent -- Recent and Pending Transactions" and "Information Concerning Regent --
Security Ownership of Certain Beneficial Owners and Management of Regent Stock."
Regent will operate as a holding company for the operation of the Surviving
Corporation, as well as the operations of the other subsidiaries of Regent.
Following the Merger, the Board of Directors of Regent will be those persons
serving as Directors of Regent prior to Effectiveness, with the addition of
Messrs. Joel M. Fairman and John H. Wyant, and the officers of Regent will be
those persons serving as officers of Regent prior to Effectiveness, with the
addition of Mr. Fairman, who will serve as Vice Chairman of Regent. See
"Information Concerning Regent -- Directors and Executive Officers."
15
<PAGE> 20
APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), holders of Faircom
Common Stock who comply with the applicable statutory procedures will be
entitled to appraisal rights. Stockholders entitled to appraisal rights will
receive cash from the Surviving Corporation equal to the fair value of their
shares as established by judicial appraisal, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, as determined by such court.
Under the DGCL, where a proposed merger is to be submitted for approval at
a meeting of stockholders, the corporation must notify each of its stockholders
who was such on the record date for such meeting, not less than 20 days prior to
the meeting, that appraisal rights are available. This Proxy
Statement/Prospectus constitutes such notice to the Faircom stockholders. Any
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so should carefully review the discussion set forth
herein, including the applicable statutory provisions of the DGCL attached to
this Proxy/Statement Prospectus as Appendix E, because failure timely and
properly to comply with the procedures specified will result in the loss of
appraisal rights under the DGCL. See "The Merger Agreement -- Appraisal Rights."
CERTAIN EXPENSES OF THE MERGER
The Merger Agreement provides that, except with respect to commissions
payable to Crisler (of which Regent will pay $150,000 and will be entitled to a
reduction of the consideration to be paid for the Faircom Common Stock for the
balance of $50,000 to be paid by Faircom), each party is required to bear its
own legal fees and other costs and expenses with respect to the Merger. The cost
of filing fees and grant fees, if any, imposed by the FCC will be borne equally
by Faircom and Regent. All fees and expenses payable by Faircom but not paid
prior to Closing will be treated as a current liability of Faircom at Closing
(so as to reduce Faircom's net working capital and thus, the consideration to be
received by the Faircom stockholders in the Merger) and will be paid by the
Surviving Corporation at Closing. See "The Merger Agreement -- Certain Fees and
Expenses of the Merger."
CERTAIN CONDITIONS TO THE MERGER; WAIVER
The respective obligations of Regent, Merger Subsidiary and Faircom to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions, including, among others, the approval and adoption of the Merger
Agreement by the requisite vote of the Faircom stockholders and certain other
conditions customary in transactions of this kind. See "The Merger
Agreement -- Certain Covenants."
TERMINATION
The Merger Agreement may be terminated or abandoned by the mutual consent
of the Boards of Directors of Faircom and Regent; by the Board of Directors of
either Regent or Faircom in accordance with the respective rights of Regent and
Faircom in the case of loss, damage or destruction of the assets of the other or
the loss of broadcast transmission of their respective radio stations; by the
Board of Directors of either Faircom or Regent after June 1, 1998, if any of the
conditions set forth in the Merger Agreement have not been fulfilled or waived,
unless such fulfillment has been frustrated or made impossible by act or failure
to act of the party seeking termination; by the Faircom Board if in the exercise
of good faith and reasonable business judgment, as a result of its fiduciary
duties to the stockholders of Faircom imposed by law, the Faircom Board
determines that such termination is required; and by the Board of Directors of
either Regent or Faircom if the FCC fails, on its own and through no breach on
the part of Regent or Faircom, to give its consent to the transfers of control
contemplated in the Merger Agreement.
EFFECT OF TERMINATION
If the Merger Agreement is terminated by the Faircom Board pursuant to a
decision made in the exercise of good faith and reasonable business judgment as
a result of its fiduciary duties to the stockholders of Faircom imposed by law
that such termination is required, or if the Merger Agreement is not terminated
but the Faircom stockholders do not approve the Merger and, within one year from
the date of the Special Meeting, Faircom
16
<PAGE> 21
consummates a transaction pursuant to a bona fide takeover proposal made by a
third party, Faircom is required promptly to pay to Regent a fee of $1,650,000.
The Merger Agreement provides that if the Merger Agreement is terminated by
Faircom solely because of a material breach by Merger Subsidiary or Regent prior
to Closing and Faircom has complied with the notice provisions set forth in the
Merger Agreement, Regent is required promptly to pay to Faircom $300,000 plus
any out-of-pocket expenses incurred by Faircom in connection with the Merger in
excess of $300,000, provided that such expenses are properly documented by
Faircom, reasonable and charged at customary hourly rates. The Merger Agreement
further provides that Regent will in no event be required to pay to Faircom more
than $823,000 in the aggregate.
COMPARISON OF STOCKHOLDER RIGHTS
If the Series C Preferred Stock received by the Faircom stockholders in the
Merger is converted into Regent Common Stock, the stockholder rights of the
Faircom stockholders as holders of Regent Common Stock will generally be the
same as they were as holders of Faircom Common Stock. Until such conversion,
however, the Faircom stockholders, as holders of Series C Preferred Stock, will
have rights not currently held by them in Faircom. As holders of Series C
Preferred Stock, the Faircom stockholders will be entitled to receive, in
preference to the holders of Regent Common Stock and to the holders of stock
ranking junior to the Series C Preferred Stock, annual dividends at the rate of
7% and a distribution upon liquidation of Regent equal to the stated value of
the Series C Preferred Stock plus any amount of accumulated, accrued or unpaid
dividends. Holders of the Series C Preferred Stock will not participate with the
holders of Regent Common Stock in any increase in the market value of Regent's
equity in excess of the 7% yield provided by the fixed dividend rate unless the
holders of the Series C Preferred Stock elect to convert their preferred shares
into Regent Common Stock. Upon such conversion, however, the Faircom
stockholders would still be entitled to receive the dividend yield of 7% per
year on the shares to the date of conversion. Consequently, if the Merger is
consummated, the Faircom stockholders will receive for their Faircom Common
Stock securities in Regent that would give them a preference over Regent Common
Stock with respect to dividends at 7% per annum and upon liquidation of Regent,
while at the same time allowing them, through conversion of their preferred
shares, to participate in the growth, if any, of Regent's equity market value on
the same basis as any holder of Regent Common Stock.
In addition to the right to vote with holders of Regent Common Stock and
with other classes of Regent Preferred Stock with voting rights, on matters
presented for a vote by Regent stockholders, holders of Series C Preferred Stock
are entitled to elect to the Board of Directors of Regent one person nominated
only by them, as a class, thereby assuring them of Board representation, which
assurance they would not necessarily have as holders of Regent Common Stock. The
initial Series C Preferred Stock Director will be John H. Wyant. Delaware law
also gives to the holders of Series C Preferred Stock the right to vote as a
separate class (instead of as part of a class consisting of holders of Series C
Preferred Stock and holders of Regent Common Stock) on matters which could
materially impact their rights as holders of the Series C Preferred Stock. See
"Comparison of Stockholder Rights."
MARKET PRICE AND DIVIDEND INFORMATION
Faircom Common Stock is quoted on the OTC Bulletin Board under the symbol
"FXCM" and is traded on the over-the-counter market.
On October 21, 1997, the last trading day preceding the announcement of the
proposed Merger, the bid and asked prices of the Faircom Common Stock on the OTC
Bulletin Board were 9/16 and 3/4, respectively. On February , 1998, the bid
and asked prices of the Faircom Common Stock on the OTC Bulletin Board were
and , respectively. There were holders of record
of Faircom Common Stock on , 1998. Faircom has never paid
dividends on the Faircom Common Stock. Faircom and its subsidiaries are subject
to certain restrictions under existing agreements with their lenders, which
limit cash dividends on Faircom Common Stock.
17
<PAGE> 22
FAIRCOM SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for Faircom presented below for,
and as of the end of each of the years in the five-year period ended December
31, 1996, is derived from Faircom's Consolidated Financial Statements which have
been audited by BDO Seidman LLP, independent certified public accountants. The
consolidated financial statements at December 31, 1995 and 1996 and for each of
the three years in the period ended December 31, 1996 and the auditors' report
thereon are included elsewhere in this Proxy Statement/ Prospectus. The selected
financial data as of September 30, 1997 and for the nine months ended September
30, 1997 and 1996 are unaudited. In the opinion of Faircom's management, the
unaudited financial statements from which such data have been derived include
all adjustments (consisting only of normal, recurring adjustments except for the
extraordinary item) which are necessary for a fair presentation of results of
operations for such periods. This selected consolidated financial data should be
read in conjunction with the "Unaudited Pro Forma Condensed Combined Financial
Statements." Comparability of Faircom's historical consolidated financial data
has been significantly impacted by acquisitions and the refinancing completed in
1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ---------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Broadcasting Revenues..... $ 4,063,606 $3,362,907 $ 4,873,954 $ 5,113,582 $ 4,983,513 $ 5,015,265 $ 6,061,729
Income from Operations........ 672,930 695,001 1,222,829 1,511,481 1,470,355 854,514 1,017,423
Income (Loss) Before
Extraordinary Items......... (196,407) 79,729 278,840 244,816 992,079 (796,843) (2,278,749)
Extraordinary Items(b)........ (4,333,310) 787,201 3,216,605 337,247
Net Income (Loss)............. (4,529,717) 79,729 278,840 244,816 1,779,280 2,419,762 (1,941,502)
Primary Income (Loss) Per
Common Share:
Income (Loss) Before
Extraordinary Items....... (.02) .01 .04 .03 .13 (.11) (.31)
Extraordinary Items......... (.59) .11 .44 .05
Primary Net Income (Loss)
Per Common Share.......... (.61) .01 .04 .03 .24 .33 (.26)
Fully Diluted Income (Loss)
Per Common Share:
Income (Loss) Before
Extraordinary Items....... .01 .02 .02 .06 (.11)
Extraordinary Items......... .05 .44
Fully Diluted Net Income
(Loss) Per Common
Share(a).................. .01 .02 .02 .11 .33
BALANCE SHEET DATA AT PERIOD
END:
Total Current Assets.......... 1,820,451 1,305,585 1,311,916 1,246,104 1,771,069 1,456,027
Total Current Liabilities..... 809,203 1,068,021 1,037,239 1,150,537 2,771,126 4,853,686
Total Assets.................. 13,081,696 4,326,453 4,546,508 4,488,913 4,515,236 6,307,862
Long-Term Debt, Less Current
Portion..................... 22,036,662 7,276,884 7,828,883 8,367,345 6,010,018 12,255,864
Redeemable Preferred Stock of
Subsidiaries at Redemption
Values...................... 1,968,544 7,909,341
Total Capital Deficit......... (10,015,658) (5,485,941) (5,764,781) (6,009,597) (11,624,571) (19,034,961)
</TABLE>
- ---------------
(a) Fully diluted income (loss) per common share in the nine months ended
September 30, 1997 and the year 1992 is not presented because the assumed
conversion of Faircom's convertible notes and outstanding options in such
nine-month period and convertible preferred stock and outstanding options
in 1992, respectively, were antidilutive.
Faircom has not declared or paid common stock cash dividends since
inception.
(b) The extraordinary loss in the nine months ended September 30, 1997 was the
result of a $4,703,000 extraordinary loss from debt extinguishment, offset
in part by an extraordinary gain of $370,000 from debt extinguishment.
18
<PAGE> 23
SELECTED HISTORICAL AND PRO FORMA CONDENSED COMBINED FINANCIAL DATA OF REGENT
The following tables set forth selected historical financial data of
Regent, Faircom and the Pending Transactions other than KIXA(FM), WSWR(FM),
KIXW(AM) and KZYY(FM) as specified below (the Pending Transactions with such
exceptions are referred to as the "Included Transactions") and pro forma
condensed combined financial data of Regent as of and for the periods presented.
The "Pro Forma Merger" condensed combined financial data give effect to the
acquisition of Regent by Faircom in the Merger, with Faircom as the accounting
acquiror and Regent as the accounting acquiree, and the effect of Faircom's
acquisition of stations WMAN(AM) and WYHT(FM). The "Pro Forma Combined"
condensed combined financial data give effect to the Merger, the closing of the
Included Transactions, Regent's divestiture of stations KCBQ(AM) and WXZZ(FM)
(the "Divestitures"), incremental borrowing of approximately $16,000,000 under
Regent's bank credit facility and the application of the proceeds from the
issuance of additional preferred stock in conjunction with the Merger and the
Included Transactions.
Pro forma adjustments have been made to the combined statements of
operations for the year ended December 31, 1996, and the nine months ended
September 30, 1997 to: (i) reflect the depreciation and amortization expense
associated with the purchase price of the Merger and the Included Transactions;
(ii) reflect the historical operating results of stations WMAN(AM) and WYHT(FM)
from January 1, 1996 through the date of acquisition, adjusted for the effect of
the purchase and the related financing transactions; (iii) modify interest
expense to reflect the borrowing under Regent's bank facility; and (iv) reflect
the effect of the Divestitures.
Pro forma adjustments have been made to the combined balance sheet as if
they occurred on September 30, 1997 to: (i) reflect the Merger and the Included
Transactions, including the incremental borrowing under Regent's bank facility;
(ii) record the conversion of Class A and Class B Faircom Subordinated Notes
into Faircom Common Stock; (iii) record the Divestitures; and (iv) record the
issuance of additional preferred stock in conjunction with the Merger and the
Included Transactions.
The Unaudited Pro Forma Condensed Combined Data of Regent have been derived
from the historical financial statements of each of the stations' owners. The
pro forma combined statement of operations and balance sheet data set forth
below do not purport to be indicative of the combined results of operations or
the combined financial position that would have occurred had the Merger and the
Included Transactions been completed on January 1, 1996 or on September 30, 1997
or which may be expected to occur in the future.
No historical financial data have been presented for Regent's pending
acquisition of KIXA(FM) and Faircom's recent acquisition of WSWR(FM) and no pro
forma adjustments have been made to reflect the effects of these acquisitions
because Regent and Faircom have determined that the impact of such transactions
would not have had a material effect on Regent's or Faircom's respective results
of operations or financial condition for the periods presented. Historical
balance sheet data have not been included in the Condensed Combined Balance
Sheet to reflect Regent's pending acquisition of radio stations KIXW(AM) and
KZYY(FM) because the required financial information cannot be obtained.
See "Information Concerning Regent -- Recent and Pending Transactions" and
"Information Concerning Regent -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
19
<PAGE> 24
The following tables should be read in conjunction with the historical and
pro forma condensed combined financial statements and notes thereto appearing
elsewhere in this Proxy Statement/Prospectus, except as described below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL PRO FORMA
REGENT FAIRCOM MERGER PARK LANE ALTA POWER SURGE* CONTINENTAL RUBY** COMBINED
---------- ----------- ---------- ----------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT
OF
OPERATIONS
DATA
Net
Revenue... $ 4,873,954 $7,130,009 $ 8,338,667 $507,917 $550,297 $1,005,435 $1,215,306 $18,747,651
Broadcast
operating
expenses... 1,218,160 1,696,947 4,132,019 339,499 256,625 486,620 475,917 7,387,627
Depreciation
and
amortization... 321,263 1,076,263 1,494,636 151,544 8,887 30,385 26,467 2,829,627
Corporate
general
and
administrative
expenses... $ 12,406 2,111,702 3,618,146 3,497,734 408,859 289,814 338,966 332,019 8,485,538
Operating
income
(loss)... (12,406) 1,222,829 738,673 (785,722) (391,985) (5,029) 149,464 380,903 44,859
Interest
expense... 698,643 1,406,115 695,899 104,731 17,526 13,951 3,627,082
Other
income
(expense)... (207,654) (191,876) (4,850) 657,870 1,167,354 (1,953,725)
Income
(loss)
from
continuing
operations... (12,406) 278,840 (859,318) (1,486,471) 161,154 (22,555) 1,302,865 (1,953,725)
Net
income
(loss)... (12,406) 278,840
Loss per
common
share... (.05) (9.17) (14.03)
Weighted
average
shares
outstanding... 240,000 240,000 240,000
Supplemental
Operating
Data:
Broadcast
cash
flow(1)... $ 3,655,974 $5,433,082 $ 4,206,657 $168,418 $293,672 $ 518,368 $ 739,589 $11,360,024
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL
REGENT FAIRCOM MERGER PARK LANE ALTA POWER SURGE* CONTINENTAL
----------- ------------ ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net Revenue................... $ 2,395,913 $ 4,063,606 $ 7,620,098 $ 5,692,493 $ 811,578 $ 68,811 $ 748,339
Broadcast operating
expenses.................... 1,780,987 1,058,111 3,102,966 2,653,887 463,325 20,321 311,009
Depreciation and
amortization................ 458,783 839,783 1,047,848 139,991 74,192 203,733
Corporate general and
administrative expenses..... 261,319 1,873,782 3,008,249 2,381,432 353,547 58,385 165,824
Operating income (loss)....... 353,607 672,930 669,100 (390,674) (145,285) (84,087) 67,773
Time brokerage agreement fees,
net......................... 584,426 584,426
Interest expense.............. 13,892 836,404 1,204,032 515,212 59,774 9,592 139,341
Other income (expense)........ 12,667 16,609 (43,753) (4,548) 806,622 66,074
Income (loss) from continuing
operations.................. (232,044) (196,407) (1,075,605) (910,434) 601,563 (17,605) (71,568)
Net income (loss)............. (232,044) (4,529,717)
Loss per common share......... (1.26) (8.97)
Weighted average shares
outstanding................. 240,000 240,000
Supplemental Operating Data:
Broadcast cash flow(1)........ $ 614,926 $ 3,005,495 $ 4,517,132 $ 3,038,606 $ 348,253 $ 48,490 $ 437,330
BALANCE SHEET DATA AT SEPTEMBER 30, 1997:
Current Assets................ $12,948,682.. $ 1,820,451 $14,769,133 $ 1,349,672 $1,109,918 $ 81,717 $ 179,908
Total assets.................. 13,494,715.. 13,081,696 26,576,411 10,081,427 2,331,964 1,219,589 1,801,447
Current liabilities........... 10,438,573.. 809,203 11,247,776 2,017,473 1,868,056 34,694 35,151
Long term debt................ 22,036,662.. 12,036,662 5,856,843 615,301 1,836,050
Shareholders' equity
(deficit)................... 3,056,142.. (10,015,658) 3,040,484 (3,858,100) (151,393) 1,184,895 (69,734)
<CAPTION>
HISTORICAL PRO FORMA
RUBY** COMBINED
---------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net Revenue................... $899,151 $ 15,610,499
Broadcast operating
expenses.................... 355,894 6,682,286
Depreciation and
amortization................ 19,850 2,262,374
Corporate general and
administrative expenses..... 249,785 6,217,222
Operating income (loss)....... 273,622 448,617
Time brokerage agreement fees,
net......................... 347,446
Interest expense.............. 2,827,464
Other income (expense)........ 806,514
Income (loss) from continuing
operations.................. (1,919,779)
Net income (loss).............
Loss per common share......... (12.70)
Weighted average shares
outstanding................. 240,000
Supplemental Operating Data:
Broadcast cash flow(1)........ $543,257 $ 8,928,213
BALANCE SHEET DATA AT SEPTEMBE
Current Assets................ $ 5,935,440
Total assets.................. 53,468,778
Current liabilities........... 5,027,999
Long term debt................ 34,148,806
Shareholders' equity
(deficit)................... 14,040,484
</TABLE>
- ---------------
* Formerly KARZ/KNRO, a division of Merit Broadcasting Corporation
** Certain non-operating income and balance sheet data was not available from
the prior station owners.
(1) "Broadcast cash flow" means operating income before reduction in carrying
value of assets, depreciation and amortization and corporate general and
administrative expenses. Broadcast cash flow should not be considered in
isolation from, or as a substitute for, operating income, net income or cash
flow and other consolidated income or cash flow statement data computed in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Although this measure of performance
is not calculated in accordance with generally accepted accounting
principles, it is widely used in the broadcasting industry as a measure of a
company's operating performance because it assists in comparing station
performance on a consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Broadcast cash flow
also excludes the effect of corporate general and administrative expenses,
which generally do not relate directly to station performance.
20
<PAGE> 25
SELECTED RATIOS
The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for Regent for the periods
indicated below were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996
---- ----
<S> <C> <C>
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.... (1) (1)
</TABLE>
- ------------
(1) For the years ended December 31, 1997 and 1996, earnings, as defined, were
inadequate to cover fixed charges by $1,103,425 and $12,406, respectively.
For purposes of calculating the above ratios, earnings consist of income
from continuing operations to which have been added income taxes and fixed
charges. Fixed charges consist of interest on all indebtedness and one-third of
rental expense (approximate portion representing interest). Preferred stock
dividends represent an amount equal to income, before income tax, which would be
required to meet the dividends on preferred stock.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and pro forma per share
data for Regent and Faircom. Pro forma income (loss) from continuing operations
per share data gives effect to the Merger as if it had been consummated as of
January 1, 1996, and book value per share data gives effect to the Merger as if
it had been consummated as of September 30, 1997. See "Summary -- Regent
Selected Historical and Pro Forma Financial Data," "Summary -- Faircom Selected
Financial Data," "Unaudited Pro Forma Condensed Combined Financial Statements,"
and "Index to Financial Statements."
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------
HISTORICAL
----------------- PROFORMA PROFORMA
REGENT FAIRCOM MERGER COMBINED
------ ------- -------- --------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations per common
share.................................................. $(1.26) $(.02) $(8.97) $(14.89)
Book value per share..................................... $12.73 (1.36) $12.67 $ 58.50
Cash dividends declared per common share................. $0.00 $0.00 $0.00 $0.00
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
HISTORICAL
----------------- PROFORMA PROFORMA
REGENT FAIRCOM MERGER COMBINED
------ ------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations per common share........ $(.05) $0.04 $(9.17) $(16.94)
Book value per share...................................... $(0.5) $(.74) (2) (2)
Cash dividends declared per common share.................. $0.00 $0.00 0.00 $0.00
</TABLE>
- ------------
(2) Information not required to be presented.
21
<PAGE> 26
CERTAIN RISK FACTORS
Ownership of the Series C Preferred Stock to be issued to the Faircom
stockholders in the Merger will involve certain investment risks. In deciding
how to vote their shares at the Special Meeting, holders of shares of Faircom
Common Stock should carefully consider all of the information contained in this
Proxy Statement/ Prospectus and, in particular, the following factors:
LIMITED OPERATING HISTORY; RISK OF INABILITY TO COMBINE OPERATIONS SUCCESSFULLY;
FUTURE OPERATING RISKS
Regent is a start-up venture with a very limited operating history and no
history of generating profits. Although Regent's management has significant
prior experience in the radio business, consummation of the Merger and the
Pending Transactions will result in the combination of the operations of radio
broadcast groups that have not previously been operated together. There can be
no assurance that these operations can successfully be combined, or that any
cost efficiencies, competitive advantages or other benefits will be realized
from the combination. See "Unaudited ProForma Condensed Combined Financial
Statements."
UNCERTAINTY FOR FAIRCOM STOCKHOLDERS IF MERGER NOT APPROVED
Under the terms of the Securities Purchase Agreement applicable to the
Class A and Class B Faircom Subordinated Notes, the Faircom Subordinated
Noteholders were granted the right to force a liquidation of Faircom if Faircom
did not consummate a merger of Faircom with another corporation on terms
acceptable to them on or before January 1, 1998. If the Merger is not approved
and consummated, there can be no assurance that the Faircom Subordinated
Noteholders will not exercise that right, or if they do, that a sale of
Faircom's assets and a liquidation of Faircom could be achieved on terms that
would provide Faircom stockholders with results comparable to those under the
Merger. See "The Merger -- Reasons of Faircom for Engaging in the Merger;
Recommendation of the Faircom Board" and "The Merger -- Interests of Certain
Persons in the Merger; Certain Relationships."
RISKS RELATED TO ADDITIONAL ACQUISITIONS
During 1997, Regent entered into or consummated agreements, exclusive of
station asset swaps and agreements that have been terminated, for the
acquisition of radio stations for an aggregate consideration in excess of
$75,000,000. Regent intends to seek additional radio station acquisitions.
Inherent in such a strategy are certain risks, such as increasing leverage and
debt service requirements, combining disparate company cultures and facilities,
and operating stations in geographically diverse markets, which could adversely
affect ratings and operating results in a given market. Accordingly, there can
be no assurance that Regent's recent, pending or future transactions may not
have an adverse effect on its business. See "Information Concerning Regent --
Description of Business."
Regent's Credit Agreement with Bank of Montreal, Chicago Branch, as Agent,
and certain lenders listed therein (the "Credit Agreement") contains borrowing
limits. There can be no assurance that Regent's lenders will consent to
increased borrowing limits that may be necessary to enable Regent to finance its
acquisition strategy or that Regent will be able to obtain suitable financing
from other sources. In addition, to the extent that any Pending Transactions and
other future acquisitions are financed, in whole or in part, through the
issuance of additional equity, the stockholders of Regent may suffer a dilution
in their holdings. See "Information Concerning Regent -- Management's Discussion
and Analysis of Financial Condition and Results of Operations of Regent."
POSSIBLE SCARCITY OF ATTRACTIVE RADIO STATION ACQUISITIONS
As a result of the passage of the Telecommunications Act in February 1996
(the "Telecommunications Act"), the ownership of radio stations has experienced
dramatic consolidation. The Telecommunications Act permits a single entity to
own as many as eight radio stations in markets where 45 or more stations compete
and also removed all national numerical ownership restrictions. Prior to the
Telecommunications Act, in general a single owner could not own more than two AM
and two FM stations in any market, nor more than a total of 20 AMs and 20 FMs,
nationwide. Since this deregulation, prices for radio stations have increased
sharply, as well-financed groups have aggressively pursued stations and groups
of stations for purchase. Although management of
22
<PAGE> 27
Regent believes that its relationships in the industry, including those with
existing and leading media brokers, make it a competitive and viable potential
purchaser of radio properties and that stations are still available in smaller
markets at attractive prices for strategic purchases, no assurance can be given
that Regent will be able to purchase additional radio properties on a basis that
will produce an attractive financial return for Regent and its stockholders. See
"Information Concerning Regent -- Description of Business."
SUBSTANTIAL LEVERAGE; DEBT SERVICE REQUIREMENTS; ACCRUED DIVIDENDS ON PREFERRED
STOCK
Regent will incur a substantial amount of debt in connection with
consummation of the Merger and the Pending Transactions. In addition, the
holders of Regent's Preferred Stock are entitled to convert such Preferred Stock
to Regent Common Stock at any time and to receive accrued dividends in cash at
the time of conversion. There can be no assurance that Regent's future cash flow
will be sufficient to cover its fixed charges for principal and interest
payments on its debt and to pay such accrued dividends. In order to fund future
dividend payments and its other obligations from operating income, Regent will
have to improve the operating results of the radio stations to be acquired in
the Pending Transactions. Regent's ability to make these improvements will be
subject to prevailing economic conditions and to legal, financial, business,
regulatory, industry and other factors, many of which are beyond Regent's
control. If cash flow is insufficient, Regent would be required to refinance its
obligations, sell additional equity securities or dispose of all or a portion of
its properties in order to meet its obligations. There can be no assurance that
Regent would be able to effect any such transaction on favorable terms, if at
all. See "Information Concerning Regent -- Management's Discussion and Analysis
of Financial Condition and Results of Operations of Regent."
PREFERENCE OF SERIES B PREFERRED STOCK
The Series C Preferred Stock to be received by the Faircom stockholders in
the Merger ranks junior to Regent's Series B Preferred Stock, of which 1,000,000
shares will be outstanding upon consummation of the Merger. The terms of the
Series B Preferred Stock provide for the holders to receive a payment on
liquidation of $5.00 per share plus accrued dividends before any distribution
can be made to other stockholders, including holders of the Series C Preferred
Stock, and to receive cumulative dividends on a preferential basis. See
"Description of Regent Securities."
CONVERSION EVENTS AND POSSIBLE REDEMPTION OF SERIES C PREFERRED STOCK
The terms of the Series C Preferred Stock to be received by the Faircom
stockholders in the Merger provide that such stock will be converted into Regent
Common Stock, at the option of Regent's Board of Directors (if all other
outstanding shares of Preferred Stock of Regent, other than those which are
senior to the Series C Preferred Stock as to dividends or upon liquidation, are
concurrently redeemed or converted), upon the happening of any of the following
events (each a"Conversion Event"): (a) a public offering of equity securities of
Regent of at least $10,000,000, (b) a private placement of equity securities of
Regent of at least $25,000,000 (or at least $10,000,000 where the investor
reasonably requires such conversion), (c) a merger of Regent with another
corporation or other entity, whether or not Regent is a survivor of such
transaction, whereby as a result the stockholders of Regent hold less than 50%
of the outstanding capital stock of the surviving entity; or (d) an acquisition
of equity securities of Regent in one transaction or in a series of related
transactions which results in a transfer of majority voting control of Regent.
If such conversion is required, holders of the Series C Preferred Stock will
receive in cash any accrued but unpaid dividends, but will lose the preferences
provided for under the terms of the Series C Preferred Stock, including the
$5.00 per share liquidating preference and any further accrual of the 7%
cumulative annual dividend. See "Description of Regent Securities."
Although the Series C Preferred Stock is generally not redeemable, all
Regent Preferred and Common Stock is subject to Regent's right to redeem any of
such securities at fair market value to prevent the loss of any of Regent's FCC
licenses. Such a circumstance might arise, for example, where foreign ownership
of such securities exceeds amounts permitted by the FCC. See "Description of
Regent Securities" and "Information Concerning Regent -- Description of
Business -- FCC Regulation."
23
<PAGE> 28
ABSENCE OF EXISTING TRADING MARKET FOR REGENT STOCK
There is currently no public market for the Series C Preferred Stock or the
Regent Common Stock into which it is convertible. Regent intends to apply for
quotation on NASDAQ of the Series C Preferred Stock. Based on information
currently available to it, Regent believes the Series C Preferred Stock may
qualify for NASDAQ quotation; however, there can be no assurance that such
quotation privileges can be obtained. If the Merger is consummated, Faircom
stockholders may have difficulty selling their shares of Series C Preferred
Stock received in the Merger, or any Regent Common Stock issued on conversion
thereof, if an active trading market does not develop in such securities. Regent
will not apply for listing or quotation on any exchange or NASDAQ of the Regent
Common Stock into which the Series C Preferred Stock is convertible, nor will a
trading market be able to be developed in the Regent Common Stock, unless and
until such number of shares of Regent Common Stock are issued and freely
tradable so as to constitute a sufficient public float.
RESTRICTIVE COVENANTS UNDER CREDIT AGREEMENT
Regent's Credit Agreement contains restrictive covenants that prohibit
Regent from, among other things, (a) incurring additional indebtedness except
within specified limits; (b) merging with any other company; (c) incurring lease
obligations in excess of specified limits; (d) making any investments or selling
assets except within specified limits; (e) making capital expenditures in excess
of specified limits; (f) paying corporate overhead in excess of specified
limits; (g) selling or discounting accounts receivable for less than face value;
and (h) investing in new lines of business. Accordingly, these types of
decisions will be subject to the prior approval of Regent's lenders, whose
interests may differ from those of Regent stockholders. See "Information
Concerning Regent -- Management's Discussion and Analysis of Financial Condition
and Results of Operations of Regent."
DEPENDENCE ON KEY PERSONNEL
Regent's success will depend significantly upon the performance of its
Chairman and Chief Executive Officer, Terry S. Jacobs, its President and Chief
Operating Officer, William L. Stakelin, and its Vice Chairman, Joel M. Fairman,
in acquiring, managing and operating radio stations. Mr. Jacobs and Mr. Stakelin
are expected to play major roles in most facets of Regent's business, including
the identification and negotiation of radio station acquisitions. While Regent
has, or will have upon consummation of the Merger, three-year employment
agreements with Mr. Jacobs, Mr. Stakelin and Mr. Fairman, there can be no
assurance that these agreements will ensure their continued service. The loss of
the services of Mr. Jacobs, Mr. Stakelin or Mr. Fairman could have a material
adverse effect on Regent. Regent does not expect to maintain key man life
insurance on Mr. Jacobs, Mr. Stakelin or Mr. Fairman upon consummation of the
Merger. See "Information Concerning Regent -- Directors and Executive Officers."
NO CASH DIVIDENDS
Regent presently intends to retain all future earnings, if any, for use in
its business and does not anticipate paying any cash dividends on its Series C
Preferred Stock or on any other class or series of its presently outstanding
stock. In addition, Regent's Credit Agreement prohibits Regent from paying
dividends on, or redeeming, purchasing, retiring or otherwise acquiring any
shares of, Regent Common Stock, and permits the payment of cash dividends on
Regent Preferred Stock only (a) if Regent is not in default under the Credit
Agreement, (b) if the ratio of Regent's outstanding indebtedness to its
operating cash flow is below specified limits both on an historical and a pro
forma basis, and (c) if and to the extent the total amount of the annual
aggregate cash dividend does not exceed certain specified limits based on
Regent's cash flow for the prior fiscal year.
COMPETITION
Radio broadcasting is a highly competitive business. Each of Regent's and
Faircom's radio stations competes for audience share and advertising revenue
directly with other radio stations, as well as with other media, such as
billboards, newspapers and television, within their respective markets. There
are typically other well-capitalized firms competing in the same geographic
markets as Regent and Faircom, many of which have
24
<PAGE> 29
substantial financial resources. With the elimination of any restrictions on the
number of radio stations which may be owned nationally by a single operator and
the liberalization of local ownership restrictions effected by the
Telecommunications Act, and the resulting consolidation of ownership in the
radio industry, competition can be expected to continue to intensify as
companies with substantial resources continue to emerge.
The financial success of each of Regent's and Faircom's radio stations is
dependent principally upon each such station's share of the overall advertising
revenue within its geographic market, its promotion and other expenses incurred
to obtain that revenue and the economic health of the geographic market. Radio
advertising revenues are, in turn, highly dependent upon audience share. Radio
station operators are subject to the possibility of another station changing
programming formats to compete directly for listeners and advertisers or
launching an aggressive promotional campaign in support of an already existing
competitive format. If a competitor were to attempt to compete in either of
these fashions, the broadcast cash flow of Regent's or Faircom's affected
station could decrease due to increased promotion and other expenses and/or
lower advertising revenues resulting from lower ratings. There can be no
assurance that any of Regent's or Faircom's radio stations will be able to
maintain or increase its current audience ratings and revenue market share.
In addition to management expertise, factors that may materially influence
a station's competitiveness include the station's ratings rank in its market,
its signal strength, audience characteristics, local program acceptance and the
characteristics of other stations in the market area. Radio broadcasting is also
subject to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems or the introduction of digital audio broadcasting ("DAB"). DAB may
deliver by satellite to nationwide and regional audiences, multi-channel,
multi-format digital radio services with sound quality equivalent to compact
discs. One form of DAB is In Band On Channel ("IBOC") digital radio. IBOC could
provide multichannel, multi-format digital radio services in the same band
currently occupied by traditional AM and FM radio services. Regent cannot
predict the effect, if any, that new technologies may have on the radio
broadcasting industry.
FUTURE SALES OF SHARES
Assuming consummation of the Merger and the Pending Transactions,
approximately shares of Regent Common Stock and up to shares
of the Series C Preferred Stock will have been issued to affiliates of Regent
and to other persons whose resales are subject to the one-year holding period
and other requirements of Rule 144 under the Securities Act ("Rule 144"). Up to
additional shares of Regent Common Stock are or will become issuable
upon conversion of the Series C Preferred Stock and all other series of
outstanding Regent Preferred Stock and upon exercise of options and warrants
currently outstanding or expected to be granted to Regent's management or
pursuant to existing agreements. See "Information Concerning Regent -- Security
Ownership of Certain Beneficial Owners and Management of Regent Stock." The
Merger Agreement provides the Faircom Subordinated Noteholders with certain
registration rights with respect to Regent Common Stock issued on conversion of
the Series C Preferred Stock. The holders of Regent's Series A, Series B Senior
and Series D Convertible Preferred Stock have also been granted registration
rights with respect to Regent Common Stock issued on conversion of their
respective series of Preferred Stock. Should an active trading market develop in
the Series C Preferred Stock or Regent Common Stock, the sale of a large number
of shares in the public market could depress the prevailing market price.
RESTRICTIONS ON RESALE
Shares of the Series C Preferred Stock issued in connection with the
Merger, and any shares of Regent Common Stock issued on conversion thereof, to
stockholders of Faircom who are also "affiliates" of Faircom for purposes of
Rule 145 under the Securities Act will be subject to the resale restrictions of
Rule 144 of such Act. With the exception of the registration rights available to
the Faircom Subordinated Noteholders pursuant to the terms of the Merger
Agreement, holders of the Series C Preferred Stock issued in the Merger or the
Regent Common Stock into which it is convertible are not entitled to
registration rights with respect to such stock. See "The Merger -- Federal
Securities Law Consequences."
25
<PAGE> 30
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Faircom management and the Faircom Subordinated
Noteholders have interests in the Merger that are in addition to and potentially
in conflict with the interests of the stockholders of Faircom generally. The
Faircom Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. See "The Merger -- Interests of Certain Persons in the Merger; Certain
Relationships."
26
<PAGE> 31
GENERAL INFORMATION REGARDING PROXIES AND THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Faircom Board for the Special Meeting to be held
, 1998 at the time and place and for the purpose set forth in the
accompanying Notice of Special Meeting.
Any Faircom stockholder who has previously delivered a properly executed
proxy may revoke such proxy at any time before its exercise. A proxy may be
revoked either by (i) delivering to the Secretary of Faircom prior to the
Special Meeting either a written revocation of such proxy or a duly executed
proxy bearing a later date or (ii) attending the Special Meeting and voting in
person, regardless of whether a proxy has previously been given. All valid,
unrevoked proxies will be voted as directed. In the absence of any contrary
directions, proxies will be voted in favor of the proposal set forth in the
Notice of Special Meeting and, with respect to such other matters as may
properly come before the Special Meeting, in the discretion of the appointed
proxies.
Only holders of record of Faircom Common Stock as of the close of business
on , 1998 will be entitled to vote at the Special Meeting. At that
date, there were shares of Faircom Common Stock outstanding, of which
, or approximately % of the total outstanding shares were beneficially
owned by directors and executive officers of Faircom and their affiliates, all
of whom intend to vote in favor of the Merger. Each share of Faircom Common
Stock is entitled to one vote on all matters on which stockholders may vote. The
presence at the Meeting, in person or by proxy, of the holders of a majority of
the issued and outstanding shares of Faircom Common Stock entitled to vote at
the Special Meeting will constitute a quorum for the transaction of business.
The Merger Agreement must be approved by holders of a majority of the issued and
outstanding shares of Faircom Common Stock. Abstentions will be counted in
determining whether a quorum is present, will be considered present and entitled
to vote, and will thus have the effect of a negative vote. If a proxy is
returned by a broker or other stockholder who does not have authority to vote,
does not give authority to a proxy to vote, or withholds authority to vote as to
any shares, such shares will be considered present at the Special Meeting for
purposes of determining a quorum, but will not be considered for purposes of
calculating the vote with respect to such matters.
Proxies are being solicited by the Faircom Board. The form of proxy is
attached to this Proxy Statement/Prospectus as Appendix F. The proxy
solicitation is being made primarily by mail, although proxies may be solicited
by personal interview, facsimile or other means of communication. Faircom will
pay the cost of this solicitation, including the charges and expenses of
brokerage firms and others who forward solicitation materials to beneficial
owners of the Faircom Common Stock. Faircom has arranged for to
serve as its proxy solicitation agent. In such capacity, will
coordinate and oversee the distribution of the proxy materials to, and the
return of the proxy cards by, registered stockholders and beneficial owners. The
fee for such services is estimated to be $ , plus the solicitor's
out-of-pocket expenses.
27
<PAGE> 32
THE MERGER
GENERAL
Regent and Faircom have entered into a Merger Agreement, which provides for
the acquisition by Regent of all the outstanding capital stock of Faircom, to be
accomplished by a merger of Faircom with and into a wholly-owned subsidiary of
Regent. The holders of Faircom Common Stock will be issued, in exchange for
their Faircom Common Stock, shares of the Series C Preferred Stock upon
consummation of the Merger. The Merger is intended to qualify as a
reorganization for federal income tax purposes. See "Certain Federal Income Tax
Consequences." The Series C Preferred Stock has full voting rights, provides for
annual cumulative dividends of 7%, and is convertible on a one-for-one basis
into Regent Common Stock (subject to adjustment in certain events). See
"Description of Regent Securities." The discussion in this Proxy
Statement/Prospectus of the Merger and the description of the Merger's principal
terms are subject to and qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Appendix A and incorporated herein by reference. The following is a brief
discussion of the background of the negotiations culminating in the Merger
Agreement.
BACKGROUND OF THE MERGER
With the enactment of the Telecommunications Act in February 1996, it
rapidly became clear that radio station ownership would consolidate
dramatically. Faircom accelerated its objective of acquiring additional radio
stations to obtain operational benefits of scale and additional financial
strength resulting from a larger corporate structure. In addition, Faircom
believed that this strategy, if successfully consummated, would make it a more
attractive partner for combination with another broadcasting group owner.
In April 1996, Faircom retained Crisler to provide investment banking
services in connection with negotiation and financing of radio station
acquisitions, with particular emphasis on smaller market stations. In October
1996, the focus of these activities became radio stations WMAN(AM) and WYHT(FM)
in Mansfield, Ohio owned by Treasure Radio Associates Limited Partnership.
During October 1996 a number of meetings took place with possible financing
sources for this acquisition. In this connection, a meeting was held in New York
City on October 30, 1996 among Joel M. Fairman, Chairman of Faircom, R. Dean
Meiszer, President of Crisler, and Terry S. Jacobs and William L. Stakelin,
Chairman and President, respectively, of the subsequently formed Regent. Since
Messrs. Jacobs and Stakelin were then in the process of planning their own radio
station acquisitions and attendant financing, this meeting was exploratory only
and ended with no conclusive or even preliminary understandings, other than to
continue to communicate the progress of each company.
In January 1997, Faircom Mansfield Inc., a wholly-owned subsidiary of
Faircom, entered into an asset purchase contract to acquire the Mansfield
stations for $7,650,000 in cash. Thereafter, a series of negotiations ensued
with various capital sources to finance the acquisition and also to purchase the
interests then owned by Citicorp Venture Capital, Ltd. in Faircom for
$6,400,000.
On May 21, 1997, a meeting was held in Cincinnati, Ohio among Messrs.
Fairman and Meiszer, John E. Risher, Senior Vice President of Faircom, John H.
Wyant, a manager of the general partner of Blue Chip and a special limited
partner of Miami Valley and Mr. Wyant's associate, Z. David Patterson. At this
meeting there was discussed an investment in Faircom by Blue Chip and Miami
Valley. In addition, Mr. Wyant stated that Regent was entering into a contract
to acquire a group of radio stations in California and Arizona owned by The Park
Lane Group (the "Park Lane Stations") and he believed that a merger with Regent
attractive to the stockholders of Faircom could be negotiated. Faircom
stockholders, including Blue Chip and Miami Valley, would retain significant
equity positions in the merged companies. Mr. Wyant emphasized that an
affiliated fund had been an investor in Regent I, a radio operating company
previously managed by Messrs. Jacobs and Stakelin which had been merged into
Jacor Communications, Inc. in a transaction that closed in February 1997. The
investment in that prior company had been highly profitable for its equity
investors and the experience with Messrs. Jacobs and Stakelin had been
exceptionally favorable, according to Mr. Wyant. Messrs. Jacobs and Stakelin
were known most favorably to Messrs. Fairman, Risher and Meiszer based on their
historic performance and reputation in the radio industry.
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Following this meeting, the group met in the offices of Regent with Messrs.
Jacobs and Stakelin and Matthew A. Yeoman, Regent's Vice-President--Finance, and
engaged in a general discussion of the properties and operations of Faircom and
Regent and the possible advantages of a merger. The concept of the proposed
transaction with Regent appeared attractive to Messrs. Fairman, Risher and
Meiszer. Over the next few days the proposed transaction was discussed
individually with the other directors of Faircom. It was determined that Faircom
should attempt to negotiate specific terms of a merger transaction with Regent.
As a result of the May meeting and the conversations with directors that
followed, work commenced on a letter of intent between Faircom and Regent. As of
June 30, 1997, the Mansfield acquisition and the purchase of the Citicorp
interests in Faircom were consummated through a new investment aggregating
$10,000,000 in the form of Class A and Class B Faircom Subordinated Notes
purchased by Blue Chip and Miami Valley and additional senior debt from
Faircom's senior lender. In addition, a non-binding letter of intent containing
general terms and a number of contingencies relating to the proposed merger was
signed on June 30, 1997. Thereafter, the parties determined that modification to
the terms and conditions stated in the letter of intent were needed, and on July
21, 1997 Messrs. Fairman, Meiszer and Wyant met in New York City to discuss the
formulation of a new letter of intent for a merger with Regent. Work followed on
a draft of a new letter of intent.
A meeting was held on September 10, 1997, in Cincinnati, Ohio to discuss
outstanding issues on the letter of intent. Attending the meeting were Messrs.
Fairman, Jacobs, Stakelin, Wyant, Meiszer, Steven J. Kaufmann, Vice President of
Crisler, and counsel for Regent and Blue Chip. Most of the remaining issues in
the letter of intent were resolved at this meeting.
By September 16, 1997, all remaining issues of the letter of intent had
been resolved and copies were prepared for execution by Faircom and Regent. The
Faircom Board met to consider the proposed transaction with Regent, including
the draft letter of intent. At this meeting, Mr. Wyant was elected a Director of
Faircom pursuant to the intent of the parties expressed in the draft June 30,
1997 letter of intent. The Faircom Board then reviewed the proposed transaction
with Regent, and those present unanimously authorized execution of the letter of
intent and all steps necessary to prepare and execute a definitive merger
agreement with Regent, subject to obtaining an opinion from an independent
financial advisor, addressed to the Faircom Board, to the effect that the
consideration to be received by the stockholders of Faircom in connection with
the proposed merger would be fair to them from a financial point of view
("Fairness Opinion"). On September 16, 1997, a non-binding letter of intent with
respect to the proposed merger was signed by Faircom and Regent.
The Faircom Board thereafter contacted a number of financial advisors to
discuss their providing a Fairness Opinion. After considering a number of
proposals, Faircom executed an engagement letter dated November 6, 1997 with
HSMC, providing for HSMC to review the proposed transaction and determine
whether HSMC could deliver such a Fairness Opinion.
During November 1997, preparation and negotiation of a definitive merger
agreement continued. On December 4, 1997, HSMC delivered a Fairness Opinion to
the Faircom Board.
On December 5, 1997, Faircom and Regent executed the Merger Agreement.
REASONS OF FAIRCOM FOR ENGAGING IN THE MERGER; RECOMMENDATION OF THE FAIRCOM
BOARD
The Faircom Board has unanimously approved the proposed Merger and believes
the Merger is in the best interests of Faircom and its stockholders. In reaching
their decision, the directors considered, with the assistance of management and
its legal and financial advisors, the following factors:
(i) In the Merger, each share of Faircom Common Stock will be
exchanged for a proportionate share of Series C Preferred Stock with a
liquidation preference amount of $5.00 per share. The liquidation
preference amount of the Series C Preferred Stock received for each share
of Faircom Common Stock represented a substantial premium over the then
historical market prices for each share of Faircom Common Stock to be
exchanged therefor;
(ii) The Merger offers Faircom stockholders an opportunity to acquire
equity ownership in what would be a significantly larger company upon
completion of the Merger and the Pending Transactions and at the
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same time retain the opportunity to participate in the long-term growth and
appreciation of Faircom's business through their ownership interest in
Regent;
(iii) The complementary nature of the strategic goals of management of
Faircom and Regent, particularly with respect to focusing on acquisitions
of radio stations in small- and medium-sized markets and acquiring clusters
of stations in such markets with combined broadcast cash flow of at least
$1,000,000 and with a strategy of becoming one of the top three operators
in each such market;
(iv) The increased diversification of the resulting company's
ownership of radio stations, both in the number of stations owned and in
the markets served;
(v) Potential operating synergies and cost savings, including possible
synergies and cost savings with respect to the consolidation of
administrative and support functions;
(vi) The attractiveness to the stockholders of Faircom of the
valuation placed on the business of Faircom with respect to the proforma
total enterprise value of Regent upon consummation of the Merger, and the
opinion of HSMC that, as of December 4, 1997, the consideration to be
received by the Faircom stockholders is fair, from a financial point of
view, to such stockholders (see "The Merger -- Opinion of Financial Advisor
to Faircom");
(vii) The terms of the Series C Preferred Stock, including full voting
rights, a $5.00 preference on liquidation of Regent together with full
equity participation in any remaining assets if converted to common stock,
and an accruing 7% annual dividend to be paid in cash in the event of
liquidation or conversion to common stock at any time at the option of the
holder or where the Board of Directors of Regent requires conversion in the
case of specified conversion events; and
(viii) Information with respect to the Pending Transactions of Regent
including, among other things, the recent and historical earnings
performance of the radio stations involved in the Pending Transactions, and
what the Faircom Board believes to be the potential earnings capability of
such stations, and the historical ability of Regent's executives in prior
businesses to implement successfully a growth strategy by acquisition and
operation of radio stations in small-and medium-sized markets.
In the course of its deliberations, the Faircom Board reviewed the
following additional factors relevant to the Merger: (i) the capital structure
of Regent; (ii) the financial analysis of HSMC prepared in connection with its
Fairness Opinion; (iii) reports from management and legal advisors on specific
terms of the Merger Agreement; and (iv) the proposed terms, timing and structure
of the Merger.
The Faircom Board also considered the following potentially negative
factors in its deliberations concerning the Merger: (i) the possibility of
management disruption associated with the Merger and the risk that, despite the
efforts of the combined company, key management personnel of Faircom might not
continue their employment with the combined company; (ii) the possibility that
certain of the operating economies of scale such as the elimination of redundant
administrative cost sought to be achieved as a result of the Merger might not be
achieved; (iii) the possibility of Faircom's failure to be successfully
integrated into Regent; and (iv) the possibility that Faircom's business will
outperform the other business activities of Regent.
The foregoing discussion of information and factors considered by the
Faircom Board is not intended to be exhaustive but is intended to include the
material factors considered. In view of the wide variety of factors considered,
the Faircom Board did not find it practical to, and did not, quantify or
otherwise assign relative weight to the specific factors considered, and
individual directors may have given differing weights to different factors.
After taking into consideration all of the factors set forth above,
together with an analysis of the presentations of management, HSMC and legal
counsel, the Faircom Board unanimously approved the Merger. ACCORDINGLY, THE
FAIRCOM BOARD UNANIMOUSLY RECOMMENDS THAT FAIRCOM'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
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REASONS OF REGENT FOR ENGAGING IN THE MERGER
The management of Regent believes the Faircom stations fit well within
Regent's operational and acquisition strategies. The stations are cash flowing
properties located in medium-sized markets which meet the criteria of Regent's
targeted markets, provide Regent with geographic diversity, and have good
potential for growth. The stations hold good competitive positions in their
markets with well-established formats, strong historical revenues, and positive
cash flows, which Regent expects will be factors attractive to broadcast lenders
and equity investors. The Merger also brings with it Faircom's management team
and the stations' technical facilities, which Regent believes can be utilized
effectively to establish a sound structure for Regent's plans for future growth.
OPINION OF FINANCIAL ADVISOR TO FAIRCOM
HSMC has delivered its written opinion dated December 4, 1997 to the
Faircom Board to the effect that, as of such date, the consideration to be
received by the holders of the Faircom Common Stock pursuant to the Merger
Agreement is fair, from a financial point of view, to such holders. A copy of
the opinion of HSMC rendered is attached hereto as Appendix D and incorporated
herein by reference. Stockholders of Faircom are urged to read the opinion in
its entirety for assumptions made, matters considered and limits of the review
of HSMC. The summary of the opinion of HSMC set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion. The HSMC opinion is addressed only to the Faircom Board, does
not address the relative merits of the Merger and other transactions or business
strategies, if any, that may have been discussed by the Faircom Board as
alternatives to the Merger or the decision of the Faircom Board to proceed with
the Merger, and does not constitute a recommendation to any stockholder as to
how such stockholder should vote at the Special Meeting.
In connection with the preparation of its opinion, HSMC, among other
things: (i) reviewed Faircom's annual reports on Form 10-K and related financial
information for the three fiscal years ended December 31, 1996 and Faircom's
Form 10-Q for the first three quarters of 1997; (ii) conducted discussions with
Faircom management concerning the company's business and prospects for each of
Faircom's stations; (iii) conducted discussions with the senior management of
Regent concerning certain strategic, financial and operational issues relating
to the combination of the Regent and Faircom stations; (iv) reviewed the terms
and conditions of the proposed Merger as set forth in the Plan of Acquisition
and Capitalization dated December, 1997 prepared by Crisler (the "Acquisition
and Capitalization Plan"), with particular attention to the value of the
contribution of each of the Merger participants relative to the consideration
each is proposed to receive under the terms of the Merger Agreement; (v)
compared the financial terms of the Merger with the financial terms of certain
other business combinations which HSMC deemed relevant; (vi) visited and
inspected the radio stations owned by Faircom in Michigan and Ohio (including
the Shelby Station), reviewing their current operations with Faircom's local
management to determine current business activity and future prospects
(including a review of local competition, projections for local radio
advertising expenditures, and anticipated future financial performance for the
stations in 1998 and beyond); (vii) visited and inspected each of the Park Lane
Stations (including extensive meetings with Regent's local station managers to
assess current and future business prospects in a manner identical to that done
with the stations owned by Faircom); (viii) inspected the studios and the
offices of the radio stations Regent is proposing to acquire in Bullhead City,
Arizona, and Victorville, California; (ix) reviewed audited and unaudited
financial operating information for the full years 1995 and 1996, as well as
interim operating statements for the first nine months of 1997 and operating
budgets for the last three months of 1997, for each of Faircom's stations and
each of the Park Lane Stations; (x) created financial operating models for each
of the station groups in the nine radio markets where Regent and Faircom
stations then operated, calculating the current fair market value of the
operating assets of each station combination using the discounted cash flow
valuation method; (xi) compared the computed fair market values of the assets
contributed by Faircom and Regent, with allowances for existing liabilities of
Faircom and proposed liabilities of Regent as outlined in the Acquisition and
Capitalization Plan, and compared the consideration to be received by each of
the participants in accordance with such plan; and (xii) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as HSMC deemed necessary, including its
assessments of likely changes in regulatory, general economic and monetary
conditions.
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In preparing its opinion, HSMC relied on the accuracy and completeness of
all information that was available to it, including that supplied to it by
Regent, Faircom and the radio stations involved in the Merger. HSMC assumed no
responsibility for the independent verification of such information.
Where HSMC used projections, estimates or budgets not prepared by it, HSMC
assumed that they had been reasonably prepared to reflect the best available
estimates of the future performance of the subject stations. HSMC did not
undertake an independent verification of the outstanding indebtedness of
Faircom, Regent or any of the individual companies that currently own the
stations proposed to be acquired by Regent. HSMC assumed that (i) all material
assets and liabilities of Faircom and Regent are as set forth in their
respective financial statements, and (ii) the Merger will qualify as a
reorganization under the Internal Revenue Code with respect to the stockholders
of Faircom. HSMC's opinion indicates that it is based upon regulatory, economic
and monetary conditions existing as of the date of its opinion. HSMC expressed
no opinion as to the price or trading ranges at which Regent's Series C
Convertible Preferred Stock (or the Regent Common Stock into which the Series C
Preferred Stock is convertible) will trade after the effective date of the
Merger.
In arriving at its opinion, HSMC was not requested to solicit, and did not
solicit, third party indications of interest in acquiring all or any portion of
the stock or assets of Faircom.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by HSMC. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. HSMC believes that its analyses must be considered as a
whole and that selecting portions thereof could create an incomplete view of the
processes underlying its analyses and opinion.
HSMC's opinion was prepared at the request and for the use of the Faircom
Board and may not be reproduced, summarized, described, referred to or given to
any other person or otherwise be made public without the prior written consent
of HSMC (other than to reproduce such opinion in full in this Proxy
Statement/Prospectus).
HSMC received a flat fee at the time of the delivery of its opinion. The
fee was in no way dependent upon the results of HSMC's analyses or conclusions
nor was it dependent upon the consummation of the Merger.
Subsequent to the issuance by HSMC of its opinion to the Faircom Board,
Regent engaged the services of HSMC to provide an appraisal of Regent upon which
could be based a purchase price value for accounting purposes. Regent believes
HSMC was the logical choice to provide such valuation given the groundwork and
analysis previously undertaken by HSMC in connection with preparing its opinion
for the Faircom Board.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
The Faircom Subordinated Noteholders currently hold in the aggregate
$11,100,000 in original principal amount of Class A, Class B and Class C Faircom
Subordinated Notes, of which $8,750,000 in original principal amount is held by
Blue Chip, $1,350,000 in original principal amount is held by Miami Valley and
$1,000,000 in original principal amount is held by PNC, Trustee pursuant to an
assignment from Blue Chip and Miami Valley. The Faircom Subordinated Noteholders
have the contractual right, obtained in connection with the issuance of the
Class A and Class B Faircom Subordinated Notes on June 30, 1997, to require the
liquidation of Faircom and each of its subsidiaries because Faircom did not
consummate a merger of Faircom with another corporation on or before January 1,
1998. The Faircom Subordinated Noteholders have given no indication they intend
to exercise this right pending consummation of the Merger with Regent. The
Faircom Subordinated Noteholders will not be voting on the proposed resolution
to approve the Merger with Regent but have consented to it and agreed to convert
at least $7,500,000 of the $10,000,000 of Class A and Class B Faircom
Subordinated Notes into Faircom Common Stock immediately prior to the Closing
Date. If the Merger is not approved by the Faircom stockholders, the Faircom
Subordinated Noteholders may require the assets of Faircom be sold and Faircom
liquidated.
Blue Chip and Miami Valley are venture capital funds managed by Blue Chip
Venture Company, Ltd. and one of its affiliates. Mr. John H. Wyant is a
principal in and a manager of Blue Chip Venture Company, Ltd. and such
affiliate. An affiliate fund of Blue Chip Venture Company, Ltd. has previously
invested funds managed by it in Regent I, a radio broadcasting company formerly
operated by Messrs. Jacobs and Stakelin. As a member of the
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Faircom Board, Mr. Wyant has voted in favor of the Merger, and under the terms
of the Merger Agreement, upon consummation of the Merger, Mr. Wyant will become
a member of the Board of Directors of Regent.
In January 1998, Blue Chip made a loan to Faircom of $1,100,000 to finance,
in part, the purchase of the Shelby Station, and in connection with that loan,
Faircom issued to Blue Chip a Class C Subordinated Note. The Class C
Subordinated Note bears interest at a rate of 14%, payable at maturity, and
becomes due and payable on the earlier of May 22, 1998 and the Closing of the
Merger.
The Merger Agreement provides the Faircom Subordinated Noteholders with
certain demand and piggyback registration rights with respect to registration
for sale under the Securities Act of the shares of Regent Common Stock into
which their shares of Series C Preferred Stock are then convertible. The holders
of Regent's Series A, Series B Senior and Series D Preferred Stock also have
certain registration rights with respect to their shares. See "The Merger
Agreement -- Registration Rights." Registration rights are not being granted in
connection with the Merger to any Faircom securityholder other than the Faircom
Subordinated Noteholders.
Pursuant to the Redemption and Warrant Agreement, at such time as Regent
has raised additional equity capital of at least $1,500,000, Blue Chip and Miami
Valley may require Regent to repurchase up to $1,500,000 of the Series C
Preferred Stock issued to Blue Chip and Miami Valley upon completion of the
Merger in exchange for their Faircom Common Stock, at its stated value of $5.00
per share plus the amount of any accrued and unpaid dividends on such Series C
Preferred Stock being repurchased. Until such additional equity has been raised,
Blue Chip and Miami Valley will be issued each month five-year warrants to
acquire an aggregate of 375 shares of Regent Series C Preferred Stock at a price
of $1.00 per share. See "The Merger Agreement -- Consideration to be Paid for
Faircom Stock." These redemption and warrant rights are not being granted to any
Faircom securityholder other than Blue Chip and Miami Valley.
Concurrently with its approval of the $10,000,000 investment in Faircom of
Blue Chip and Miami Valley, the Faircom Board authorized the issuance to Joel M.
Fairman and John E. Risher, President and Senior Vice President of Faircom,
respectively, of stock options entitling Mr. Faircom to purchase up to 958,886
shares, and entitling Mr. Risher to purchase up to 159,814 shares, of Faircom
Common Stock, or such greater number of shares as may be necessary for them to
maintain their then existing percentage ownership interest in Faircom. These
options are in the nature of preemptive rights inasmuch as (a) they are
exercisable only if the Faircom Subordinated Notes are converted to Faircom
Common Stock, and (b) they enable Messrs. Fairman and Risher to acquire
additional Faircom Common Stock at the same price per share at which the Faircom
Subordinated Noteholders could acquire Faircom Common Stock by conversion of the
Faircom Subordinated Notes. The number of shares of Faircom Common Stock Messrs.
Fairman and Risher may purchase, and the exercise price of these options, are
dependent upon the amount of the Faircom Subordinated Notes that is converted to
Faircom Common Stock. If the full amount of the $10,000,000 of Class A and Class
B Faircom Subordinated Notes is converted to Faircom Common Stock, then Messrs.
Fairman and Risher will be entitled to purchase the full number of 1,118,700
shares at a purchase price per share of approximately $.53 per share. As a
result, these options would allow Messrs. Fairman and Risher the right to
preserve their percentage stock ownership position in Faircom and to realize a
gain in value on those option shares as a result of conversion of the Class A
and Class B Faircom Subordinated Notes in connection with the Merger.
It is contemplated that the employees of Faircom generally will continue to
be employed by the Surviving Corporation following the Merger, including
specifically Messrs. Fairman and Risher. Mr. Fairman's continued employment will
be governed by a two-year employment agreement followed by a one-year consulting
agreement, providing annual compensation of $190,000, discretionary annual
bonuses, discretionary stock option awards, ownership of a term life insurance
policy paid for by Regent, an automobile allowance and certain other benefits.
See "Information Concerning Regent -- Compensation of Executive Officers." The
Merger Agreement also provides for the appointment of Mr. Fairman to the Board
of Directors of Regent as Vice-Chairman upon Effectiveness of the Merger.
Terry S. Jacobs, Regent's Chairman and Chief Executive Officer, and William
L. Stakelin, Regent's President and Chief Operating Officer, have signed
employment agreements which provide for the issuance to each of them under
Regent's 1998 Management Stock Option Plan of incentive and non-qualified stock
options to purchase during a ten-year period following the date of grant (or
such shorter period as may be required to
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preserve the nature of the options as incentive stock options), at an exercise
price equal to the fair market value thereof, that number of shares of the
capital stock of Regent which constitutes 5.5% of Regent's capital stock
outstanding from time to time, on a fully-diluted basis; provided, however, that
such number shall not exceed the greater of 733,333 and 5.5% of the number of
shares of capital stock of Regent outstanding or committed to be issued under
any existing agreements as of June 30, 1999. The initial grant of these options
is to be made upon Effectiveness of the Merger, at which time it is estimated
that options to purchase approximately 360,000 shares of Regent Common Stock
will be granted to each of Mr. Jacobs and Mr. Stakelin.
REGULATORY APPROVALS
Consummation of the Merger and the resulting transfers of control are
subject to the prior approval of the FCC. Regent and Faircom have obtained an
initial order of the FCC approving the transfers of control which would result
from the Merger, and it is anticipated that a final order will be obtained in
February 1998.
Issuance of the Series C Preferred Stock in connection with the Merger is
subject to registration under the Securities Act and qualification or exemption
under applicable state securities laws.
CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES
All shares of the Series C Preferred Stock received by Faircom's
stockholders in the Merger will be freely transferable, except that shares of
the Series C Preferred Stock received by "affiliates" of Faircom may be resold
by them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become "affiliates" of Regent), or as otherwise permitted under the
Securities Act. Persons who may be deemed to be "affiliates" of Faircom
generally include individuals or entities that control, are controlled by, or
are under common control with, Faircom and may include certain officers and
directors of Faircom as well as principal stockholders of Faircom. The Merger
Agreement requires Faircom to use its reasonable best efforts to cause each of
its "affiliates" to execute a written agreement to the effect that such
"affiliate" will not sell, pledge, transfer or otherwise dispose of any shares
of the Series C Preferred Stock issued to such "affiliate" pursuant to the
Merger, except pursuant to an effective registration statement or in compliance
with Rule 145 or another exemption from the registration requirements of the
Securities Act.
The Merger Agreement provides the Faircom Subordinated Noteholders with
certain demand and piggyback registration rights with respect to registration
for sale under the Securities Act of the shares of Regent Common Stock into
which their shares of Series C Preferred Stock are then convertible. The holders
of Regent's Series A, Series B Senior and Series D Preferred Stock also have
certain registration rights with respect to their shares. Registration rights
are not being granted in connection with the Merger to any Faircom
securityholder other than the Faircom Subordinated Noteholders.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. The summary is
qualified in its entirety by reference to the Merger Agreement. Unless otherwise
stated, capitalized terms have the same meaning as in the Merger Agreement. All
stockholders are urged to read the Merger Agreement in its entirety.
THE MERGER
General. The Merger Agreement provides that, subject to satisfaction of
the terms and conditions contained in the Merger Agreement, including without
limitation approval of the Merger Agreement by the stockholders of Faircom and
the consent of the FCC to all transfers of control as a result of the Merger,
Faircom will be merged with and into Merger Subsidiary, with Merger Subsidiary
continuing as the Surviving Corporation, effective upon the due and proper
filing by the Surviving Corporation of a Certificate of Merger with the Delaware
Secretary of State ("Effectiveness").
The Merger Agreement provides that, at the Closing, Regent will deliver to
The Fifth Third Bank (the "Trustee") the Maximum Number of Shares to be Issued
as calculated below, and cash in respect of fractional shares. The Trustee will
be responsible for distributing the Series C Preferred Stock and cash in respect
of fractional shares to the stockholders of Faircom in accordance with the terms
of the Merger Agreement.
Allocation and Distribution of Consideration Among Faircom
Stockholders. Each stockholder of Faircom will be allocated an amount equal to
the product of the Consideration Per Share Before Appraisal Rights times the
number of shares of Faircom Stock held by such stockholder immediately prior to
the Closing. The amount determined as provided above to be allocable to each
Faircom stockholder, as a percentage of the total amount allocable to all
Faircom stockholders, is referred to as that person's "Pro-Rata Percentage
Interest."
The Pro-Rata Percentage Interest of each Faircom stockholder (other than
dissenting stockholders) will be distributed as follows: each such stockholder
will receive as soon as practicable after the Closing (A) the number of shares
of the Series C Preferred Stock (or, if the stockholder is a resident or
otherwise located in a state in which the issuance of the shares of the Series C
Preferred Stock is prohibited or conditioned upon terms unacceptable to Regent
under the securities laws of such state, then the cash paid in lieu of such
shares of the Series C Preferred Stock) equal to the product of the Maximum
Number of Shares to be Issued multiplied by such stockholder's Pro-Rata
Percentage Interest; and (B) cash as payment for any fractional shares of the
Series C Preferred Stock.
Consideration to be Paid for Faircom Stock. The number of shares of Series
C Preferred Stock to be issued in the Merger and issuable pursuant to Regent
Options to be received in exchange for Faircom Options in the Merger will be
based upon an aggregate liquidation preference amount $33,162,000 (a) adjusted
by the amount of Faircom's net working capital and (b) decreased by the
outstanding principal amount of and accrued interest on Faircom's senior debt,
and by one-half of the prepayment premium required to be paid upon payment of
the Faircom's senior debt at Closing. The foregoing amount, as so adjusted, is
referred to as the "Consideration After Adjustments."
As soon as practicable, but no later than 10 days following the last to
occur of the following, (A) the Registration Statement is declared effective;
(B) a final order has been obtained from the FCC; and (C) the Faircom
stockholders have approved the Merger, a worksheet ("Closing Worksheet") will be
prepared by Faircom setting forth as of the Compilation Date the amount of
Faircom's net working capital.
As used in the Merger Agreement, "Net Working Capital" means current assets
of Faircom (defined as cash on hand and in banks, certificates of deposit,
treasury bills and marketable securities and other cash equivalents, accounts
receivable (less adequate reserves) and any other asset properly classified as
current) minus current liabilities. As used in the Merger Agreement, the term
"current liabilities" means the amount of all the liabilities of Faircom at the
Compilation Date that should be classified as such on a balance sheet or
disclosed in the notes to the financial statements as of that date prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with those followed in the preparation of Faircom's financial
statements and
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includes (i) accounts payable, (ii) all indebtedness (other than Faircom's
senior debt and the Class A and Class B Faircom Subordinated Notes, but
including the Class C Faircom Subordinated Notes), (iii) any unpaid bonuses,
severance or vacation pay accrued to employees for the period ending on the day
prior to the Compilation Date, and (iv) trade and barter obligations not offset
by corresponding amounts of trade and barter receivables.
If Regent and/or its representatives object to Faircom's computation of Net
Working Capital, Regent and Faircom have agreed to use their best efforts to
resolve such objections through negotiation as expeditiously as possible and,
absent such resolution, to designate a mutually agreeable independent national
accounting firm to act as an arbitrator ("Arbitrator"). The Arbitrator will
determine all issues in disagreement and make any further adjustments required
to the Consideration After Adjustments ("Final Consideration"), which will be
final, conclusive and binding upon all parties to the Merger Agreement. The fees
and expenses of Regent's accountants, if any, and the Arbitrator will be paid
one-half by Regent and one-half by Faircom (as a reduction in Net Working
Capital at Closing).
The maximum number of shares of the Series C Preferred Stock available for
distribution to the Faircom stockholders (the "Maximum Number of Shares to be
Issued") will be computed by dividing the Final Consideration by $5.00 (the
"Initial Number") less the number derived by multiplying the Initial Number by a
fraction, the numerator of which is the number of shares of Faircom Common Stock
issuable pursuant to options outstanding and not exercised on the Closing Date
(the "Option Shares") and the denominator of which is the number of shares of
Faircom Common Stock outstanding on the Closing Date (including any shares
issued on conversion of the Class A and Class B Faircom Subordinated Notes on or
before the Closing Date) plus the Option Shares.
The Maximum Number of Shares to be Issued will be affected by the
following: Blue Chip and Miami Valley will have the right, at Closing, to
require the repayment in cash by Regent of up to $2,500,000 principal amount of
the Class A and Class B Faircom Subordinated Notes in the aggregate (the
"Optional Faircom Subordinated Notes") or to convert all or any portion of the
principal amount of the Optional Faircom Subordinated Notes into Faircom Common
Stock. If either Blue Chip or Miami Valley elects to require a repayment of any
portion of the Optional Faircom Subordinated Notes at Closing, then the Maximum
Number of Shares to be Issued will be reduced to the extent of one share of the
Series C Preferred Stock per $5.00 so repaid by Regent. All accrued interest on
the Faircom Subordinated Notes will be treated as a current liability of Faircom
at Closing (so as to reduce Net Working Capital) and paid in cash to the holders
of such Notes at Closing. Of the shares of the Series C Preferred Stock issued
as a result of the conversion of Faircom Subordinated Notes into Faircom Common
Stock (other than the Optional Faircom Subordinated Notes), 300,000 of such
shares of Series C Preferred Stock (having a liquidation value of $5.00 per
share) will be subject to the right of Blue Chip and Miami Valley to put such
shares to Regent for redemption in accordance with the terms of the Redemption
and Warrant Agreement. A copy of the Redemption and Warrant Agreement is
attached as Exhibit 13(b)(3) to the Merger Agreement, attached hereto as
Appendix A. Pursuant to the terms of the Redemption and Warrant Agreement, such
right may be exercised by Blue Chip and Miami Valley during the 60-day period
after receipt by such parties of notice from Regent that Regent has raised
additional equity after the Merger of at least $1,500,000. On the last day of
each month after the Closing of the Merger until Regent provides such notice,
Regent is required to deliver to Blue Chip and Miami Valley five-year warrants
to purchase an aggregate of 375 shares of Series C Preferred Stock at an
exercise price of $1.00 per share.
Effectiveness. Effectiveness of the Merger is expected to occur as soon as
practicable after the approval of the Faircom stockholders has been obtained.
Exchange of Faircom Common Stock. At Effectiveness, each share of Faircom
Common Stock issued and outstanding immediately prior to Effectiveness, other
than shares owned or held by dissenting stockholders, will, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
be converted into and become exchangeable for approximately . share of
Series C Preferred Stock, based upon the financial statements of Faircom as of
December 31, 1997, adjusted to reflect the acquisition by Faircom of the Shelby
Station in January 1998 and Faircom's share of debt prepayment premiums and
brokerage commissions related to the Merger, and assuming no other changes to
the amount of Faircom's net working capital and indebtedness as of the
Compilation Date. Each share of Faircom Common Stock held in Faircom's treasury
immediately prior to
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Effectiveness will, by virtue of the Merger, cease to be outstanding, will be
canceled and retired without payment of any consideration therefor and will
cease to exist. The holders of shares of Faircom Common Stock outstanding
immediately prior to the consummation of the Merger will own 100% of the
outstanding shares of the Series C Preferred Stock immediately following
consummation of the Merger.
No Fractional Shares. No fractional shares of the Series C Preferred Stock
will be issued in the Merger. In the event any holder of Faircom Common Stock is
allocated an interest in a fractional share of the Series C Preferred Stock,
said fractional amount will be rounded down to the nearest whole share and the
stockholder will be paid in cash, without interest, an amount equal to the
product of the fraction multiplied by $5.00.
Treatment of Options. At Effectiveness, the holders of Faircom Options
will receive Regent Options as substitute stock options under the Regent
Communications, Inc. Faircom Conversion Stock Option Plan. Each Faircom Option
will be deemed to constitute an option to acquire the same number of shares of
the Series C Preferred Stock as the holder of such Faircom Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
Faircom Option in full immediately prior to the consummation of the Merger. The
terms of the Regent Options will be the same as those of the existing Faircom
Options, and will run from the date of grant of the Faircom Options. The Regent
Options will be immediately exercisable at the same aggregate exercise price as
the Faircom Options surrendered in exchange therefor.
Merger Subsidiary Continues as a Wholly-Owned Subsidiary of Regent. At
Effectiveness, each share of common stock of Merger Subsidiary issued and
outstanding immediately prior to Effectiveness will be held by Regent. Each such
share will, by virtue of the Merger and without any action on the part of Merger
Subsidiary or Regent, be converted into the same number of shares of common
stock of the Surviving Corporation. At Effectiveness, the Surviving Corporation
will continue as a wholly-owned subsidiary of Regent.
Exchange of Share Certificates after Effectiveness. Promptly after
Effectiveness, the Trustee will mail to each record holder of Faircom Common
Stock (as of Effectiveness) a letter of transmittal to be used by each such
holder in forwarding such holder's certificates evidencing the shares of Faircom
Common Stock. Shares of Faircom Common Stock will be surrendered and exchanged
for certificates evidencing the shares of Series C Preferred Stock to which such
holder has become entitled. Each holder of certificates formerly representing
shares of Faircom Common Stock shall, upon surrender of such certificates to the
Trustee together with such transmittal form, be entitled to receive in exchange
therefor certificates evidencing the number of shares of Series C Preferred
Stock to which such holder is entitled. Such transmittal forms will be
accompanied by instructions specifying other details of the exchange. FAIRCOM'S
STOCKHOLDERS SHOULD NOT SEND IN ANY SHARE CERTIFICATES UNLESS AND UNTIL THEY
RECEIVE A TRANSMITTAL FORM. After Effectiveness, each certificate evidencing
shares of Faircom Common Stock, until so surrendered, will represent solely the
right to receive the number of shares of Series C Preferred Stock which the
holder of such certificate is entitled to receive.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) each of Regent's and each of its
subsidiaries' (including Merger Subsidiary), and each of Faircom's and each of
its subsidiaries', organization and similar corporate matters; (b) each of
Regent's and Faircom's capital structure; (c) approval of the Merger Agreement
by the Board of Directors of each of Regent, Merger Subsidiary, and Faircom; (d)
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (e) the absence of conflicts under charters or
bylaws, or regulatory or governmental consents or approvals, and the absence of
violations of any agreements, obligations, instruments and laws; (f) pending or
threatened litigation; (g) the accuracy of information contained in documents
filed with the Commission by each of Regent and Faircom; (h) absence of certain
material events, changes or effects; (i) the accuracy of information supplied by
each of Regent, Merger Subsidiary and Faircom in connection with the
Registration Statement and this Proxy Statement/Prospectus; (j) taxes; (k)
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (l) title to and condition
of assets; (m) the absence of undisclosed material liabilities and certain
contracts; (n) compliance with environmental and other laws; (o) related party
transactions; (p) compliance with FCC regulations and other
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regulatory matters; (q) insurance; and (r) personnel and compensation. In
addition, the Merger Agreement contains certain representations and warranties
relating, in the case of Regent, to the issuance and transferability of the
Series C Preferred Stock.
CERTAIN COVENANTS
The Merger Agreement contains additional covenants and agreements, certain
of which are summarized below.
Conduct of Business. The Merger Agreement provides that, during the period
of time from the date of the Merger Agreement and Effectiveness, except as
permitted by the Merger Agreement, each of Regent and Faircom will conduct the
business and operations of its stations in good faith in substantially the same
manner as before the date of the Merger Agreement. Each of Regent and Faircom
will use its reasonable best efforts (based upon the exercise of reasonably
prudent business judgment) to maintain and preserve the present character of its
stations, the quality of their programs, their business organization and makeup
and present customers and present business reputation, to keep available to the
stations the services of their present employees, and to maintain and preserve
the good will of their advertisers and listeners. Without limiting the
generality of the foregoing, except for changes or actions in the ordinary
course of business consistent with past practices, neither Regent nor Faircom
shall, without the prior written consent of the other: (a) increase the
compensation payable or to become payable to any of the employees of such
entities except as otherwise permitted by the Merger Agreement; (b) enter into
any contract, lease or commitment or engage in any transaction relating to any
of its stations; (c) cancel, modify, or amend in any material manner, or in any
manner within its reasonable control, impair any contracts, leases or other
agreements relating to its stations; (d) create any mortgage, pledge, lien or
encumbrance affecting any of its assets (except, in the case of Faircom, any
which can be repaid concurrently with the Closing by Faircom or Regent); (e)
sell, assign, lease or otherwise transfer or dispose of any of its assets; (f)
consolidate with, merge into, or acquire any other person or entity or permit
any person to acquire, merge into or consolidate with it (with the exception, in
the case of Faircom, of the acquisition of the Shelby Station, and except that,
in the case of Regent, the consent of either the president of Faircom or the
general partner of Blue Chip will constitute the consent of Faircom, and that
the consent of Faircom will not be required for certain transactions listed in
the Merger Agreement); (g) declare, make or incur any liability to make any
dividends or other distributions on its capital stock; (h) redeem or otherwise
acquire any shares of its capital stock; (i) issue or sell any shares of its
capital stock, warrants, options or other rights to acquire any shares of its
capital stock (except, in the case of Faircom, for shares issued pursuant to the
exercise of options or the conversion of the Faircom Subordinated Notes, and in
the case of Regent, pursuant to the conversion of the outstanding Preferred
Stock and except for shares issued pursuant to the exercise of options which may
be granted to management up to but not to exceed 15% of the outstanding shares
of Regent's capital stock, assuming conversion to Regent Common Stock of all
outstanding shares of Series A, Series B Senior, Series C, Series D and Series E
Preferred Stock, and any series of preferred stock created after the date of the
Merger Agreement on a fully diluted basis; (j) amend its Certificate of
Incorporation or bylaws; (k) borrow or incur any indebtedness (except, in the
case of Faircom, that which can be repaid by Faircom or Regent concurrently with
or prior to Closing).
Acquisition Proposals. Faircom has agreed that it will not, and will use
its reasonable best efforts not to permit, any of its directors, officers,
employees and agents or those of any of its subsidiaries to, directly or
indirectly, solicit, initiate or knowingly encourage (including by way of
furnishing information) any proposal or offer, or any extension of interest by
any third party relating to Faircom's willingness or ability to receive or
discuss a proposal or offer, in each case prior to the Special Meeting, for a
merger, consolidation or other business combination involving, or any purchase
of, all or substantially all of the assets or more than 50% of the voting
securities of Faircom; provided that Faircom may engage in unsolicited
discussions or negotiations with, and furnish information concerning Faircom and
its business, property and assets to, any third party which makes any proposal
or offer as described above if the Faircom Board concludes in good faith and in
the exercise of its reasonable judgment after consultation with its outside
counsel that the failure to take such action would present a reasonable
probability of violating the obligations of such Board to Faircom's stockholders
under applicable law.
Conditions. The respective obligations of Regent and Merger Subsidiary, on
the one hand, and Faircom on the other hand, to effect the Merger are subject to
the following conditions, among others: (a) the representations
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and warranties of the other party as set forth in the Merger Agreement or any
other writing delivered by the other party shall be true and correct in all
material respects as of the date of the Merger Agreement and as of and at the
Closing Date as if made on such Closing Date except for changes (i) expressly
permitted or contemplated by the terms of the Merger Agreement; or (ii) in the
ordinary course of business which are not individually or in the aggregate,
material and adverse, and such party shall have performed and complied with all
of its obligations and covenants required by the Merger Agreement required to be
performed or complied with on or prior to the Closing Date and the other party
shall have delivered a certificate to such effect dated the Closing Date and
executed by an officer of such party; (b) the Merger Agreement and the Merger
shall have been duly approved by the stockholders of Faircom; (c) no suit,
action, claim or governmental proceeding or investigation shall be pending or
shall have been instituted, taken, presented or threatened against either
Faircom or Regent which makes unlawful the carrying out of the Merger Agreement,
causes it to be rescinded, or, in the case of Regent, imposes a lien on or
requires Regent to divest itself of, any of Faircom's assets; (d) the FCC's
Order shall have become a Final Order, unless the Final Order is caused by the
action or inaction of the party claiming applicability of the condition; (e) on
the Closing Date, each person, association, corporation or other entity, the
consent or approval of which to the surrender and exchange of the Faircom Common
Stock, the issuance and delivery of the Series C Preferred Stock, and the merger
of Faircom into Merger Subsidiary, is then required shall have duly consented
thereto, and all other consents required under the terms of the material
contracts, leases and agreements identified in the Merger Agreement shall have
been obtained; (f) each of Regent and Faircom shall have conducted and/or
obtained a satisfactory review and examination of the title to and condition of
the real property owned by the other (including such environmental assessments
of said properties as may be currently in existence or as either party may elect
to have conducted at its expense, to be completed within sixty (60) days after
execution of the Merger Agreement); (g) Regent shall have raised and/or shall
have commitments for at least $13,700,000 of cash equity and additional bank
financing sufficient to finance the acquisition of the assets of the Park Lane
Stations, and the closing of such acquisition shall have occurred prior to or
concurrently with the Closing; (h) each of Regent and Faircom shall be the
holder of their respective FCC licenses and such licenses shall be free and
clear of all conditions, competing applications, petitions to deny, complaints,
appeals or any restrictions as may materially limit the operation or prospects
of the parties' stations as presently authorized; (i) the Registration Statement
of which this Proxy Statement/Prospectus is a part shall have been declared
effective; and (j) each of Faircom and Regent shall have received an opinion
from Regent's counsel that the Merger will qualify as a reorganization under the
Code, and Faircom shall have received an opinion from its counsel to the same
effect.
The obligations of Regent and Merger Subsidiary to effect the Merger are
subject to the following additional conditions: (a) holders of no more than ten
percent (10%) (excluding Blue Chip or Miami Valley) of the outstanding Faircom
Common Stock shall have taken all necessary steps to be entitled pursuant to
Delaware law to make a written demand for payment of the fair value for their
shares; (b) Faircom shall have provided to Regent all of the information
required to be submitted by Faircom for inclusion in the Registration Statement
and this Proxy Statement/Prospectus; and (c) the holders of the Faircom
Subordinated Notes shall have converted such Notes (other than the Optional
Faircom Subordinated Notes) into Faircom Common Stock on or before the Closing
Date.
The obligations of Faircom to effect the Merger are subject to the
following additional conditions: (a) all consideration which is due on the
Closing Date shall have been paid in accordance with the terms of the Merger
Agreement; (b) the issuance of the Series C Preferred Stock shall be legally
permitted by all applicable laws and regulations and shall be issued pursuant to
an effective registration statement and pursuant to applicable state securities
laws; (c) the Tax Opinion and the Fairness Opinion shall not have been withdrawn
with reasonable justification, unless such withdrawal is caused by the action or
inaction of Faircom.
TERMINATION
The Merger Agreement may be terminated or abandoned only as follows: (a) by
the mutual consent of the Boards of Directors of Faircom and Regent,
notwithstanding prior approval by the stockholders of either or both of such
corporations; (b) by the Board of Directors of either Regent or Faircom in
accordance with the respective rights of Regent or Faircom in the case of loss,
damage or destruction of the assets of the other or the loss of
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broadcast transmission of the stations, all as provided in the Merger Agreement;
(c) by the Board of Directors of either Faircom or Regent after June 1, 1998, if
any of the conditions set forth in the Merger Agreement, to which the
obligations of such parties are subject, have not been fulfilled or waived,
unless such fulfillment has been frustrated or made impossible by act or failure
to act of the party seeking termination; (d) by the Faircom Board if in the
exercise of good faith and reasonable business judgment, as set forth in the
Merger Agreement, as to its fiduciary duties to the stockholders of Faircom
imposed by law, the Faircom Board determines that such termination is required;
and (e) by the Board of Directors of either Regent or Faircom if the FCC fails,
on its own and through no breach on the part of Regent or Faircom, to give its
consent to the transfers of control contemplated in the Merger Agreement.
EFFECT OF TERMINATION
If the Merger Agreement is terminated by the Faircom Board, which has
decided, in the exercise of good faith and reasonable business judgment as to
its fiduciary duties to the stockholders of Faircom imposed by law, such
termination is required, or if the Merger Agreement is not terminated but the
Faircom stockholders do not approve the Merger and, within one year from the
date of the Special Meeting, Faircom consummates a transaction pursuant to a
bona fide takeover proposal made by a third party, Faircom is required promptly
to pay to Regent a fee of $1,650,000.
If the Merger Agreement is terminated by Faircom solely because of a
material breach by Merger Subsidiary or Regent prior to Closing and Faircom has
complied with the notice provisions set forth in the Merger Agreement, Regent is
required promptly to pay to Faircom $300,000 plus any out-of-pocket expenses
incurred by Faircom in connection with the Merger in excess of $300,000,
provided that such expenses are properly documented by Faircom, reasonable and
charged at customary hourly rates. The Merger Agreement further provides that
Regent will in no event be required to pay to Faircom more than $823,000 in the
aggregate.
CERTAIN FEES AND EXPENSES OF THE MERGER
Except with respect to commissions payable to Crisler (of which Regent will
pay $150,000 and will be entitled to a reduction of the consideration to be paid
for the Faircom Common Stock for the balance of $50,000 to be paid by Faircom,
as a reduction of Net Working Capital), each party to the Merger Agreement is
required to bear its own legal fees and other costs and expenses with respect to
the Merger, including preparation and prosecution of FCC applications. The cost
of filing fees and grant fees, if any, imposed by the FCC will be borne equally
by the parties. All fees and expenses payable by Faircom but not paid prior to
Closing will be treated as a current liability of Faircom at Closing (so as to
reduce Net Working Capital) and will be paid by the Surviving Corporation at
Closing.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), stockholders of
corporations being acquired pursuant to a merger generally have the right to
serve upon the corporation a written demand for appraisal of their shares.
Stockholders entitled to appraisal rights subsequently receive cash from the
corporation equal to the value of their shares as established by judicial
appraisal. The holders of Faircom Common Stock will be entitled to such
appraisal rights pursuant to Section 262 of the DGCL in connection with the
Merger.
Holders of record of Faircom Common Stock who comply with the applicable
statutory procedures summarized herein will be entitled to appraisal rights
under Section 262 of the DGCL. A person having a beneficial interest in any
Faircom Common Stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX E TO THIS
PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO
A "STOCKHOLDER" ARE TO A RECORD HOLDER OF FAIRCOM COMMON STOCK AS TO WHICH
APPRAISAL RIGHTS ARE ASSERTED.
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Under the DGCL, holders of Faircom Common Stock who follow the procedures
set forth in Section 262 will be entitled to have their shares of Faircom Common
Stock appraised by the Delaware Chancery Court and to receive payment in cash of
the "fair value" of such shares of Faircom Common Stock exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Proxy Statement/Prospectus constitutes such notice to the holders of
Faircom Common Stock and the applicable statutory provisions of the DGCL are
attached to this Proxy Statement/Prospectus as Appendix E. Any stockholder who
wishes to exercise such appraisal rights or who wishes to preserve his right to
do so should review the following discussion and Appendix E carefully, because
failure to timely and properly comply with the procedures specified will result
in the loss of appraisal rights under the DGCL.
A HOLDER OF FAIRCOM COMMON STOCK WISHING TO EXERCISE SUCH HOLDER'S
APPRAISAL RIGHTS (I) MUST NOT VOTE IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT
AND (II) MUST DELIVER TO FAIRCOM PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT
THE SPECIAL MEETING TO BE HELD ON , 1998 A WRITTEN DEMAND FOR
APPRAISAL OF SUCH HOLDER'S SHARES OF FAIRCOM COMMON STOCK. A PROXY OR VOTE
AGAINST THE MERGER WILL NOT CONSTITUTE SUCH A DEMAND. A HOLDER OF FAIRCOM COMMON
STOCK WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD
HOLDER OF SUCH FAIRCOM COMMON STOCK ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL
IS MADE AND MUST CONTINUE TO HOLD SUCH FAIRCOM COMMON STOCK OF RECORD UNTIL THE
TIME OF THE MERGER (THE "EFFECTIVE DATE"). ACCORDINGLY, A HOLDER OF FAIRCOM
COMMON STOCK WHO IS THE RECORD HOLDER OF FAIRCOM COMMON STOCK ON THE DATE THE
WRITTEN DEMAND FOR APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH FAIRCOM
COMMON STOCK PRIOR TO EFFECTIVENESS, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT
OF SUCH FAIRCOM COMMON STOCK.
Only a holder of record of Faircom Common Stock is entitled to assert
appraisal rights for the Faircom Common Stock registered in that holder's name.
A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as such holder's name appears on such holder's
stock certificates. If the Faircom Common Stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the Faircom Common Stock is
owned of record by more than one person as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds Faircom Common Stock as nominee for several beneficial owners
may exercise appraisal rights with respect to the Faircom Common Stock held for
one or more beneficial owners while not exercising such rights with respect to
the Faircom Common Stock held for other beneficial owners; in such case, the
written demand should set forth the number of shares of Faircom Common Stock as
to which appraisal is sought and where no number of shares of Faircom Common
Stock is expressly mentioned the demand will be presumed to cover all shares of
Faircom Common Stock held in the name of the record owner. Stockholders who hold
their Faircom Common Stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO FAIRCOM
INC., 333 GLEN HEAD ROAD, OLD BROOKVILLE, NEW YORK 11545, ATTENTION: PRESIDENT.
Within 120 days after Effectiveness, but not thereafter, Faircom or any
stockholder who has complied with the statutory requirements summarized above
may file a petition in the Delaware Chancery Court demanding a determination of
the fair value of the Faircom Common Stock. Faircom is under no obligation to
and has no present intention to file a petition with respect to the appraisal of
the fair value of the Faircom Common Stock.
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Accordingly, it is the obligation of the stockholders to initiate all necessary
action to perfect their appraisal rights within the time prescribed in Section
262.
Within 120 days after Effectiveness, any stockholder who has complied with
the requirements for exercise of appraisal rights will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth the
aggregate number of shares of Faircom Common Stock not voted in favor of
adoption of the Merger Agreement, the aggregate number of shares of Faircom
Common Stock with respect to which demands for appraisal have been received and
the aggregate number of holders of such Faircom Common Stock. Such statements
must be mailed within ten days after a written request therefor has been
received by the Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Faircom Common
Stock exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Stockholders considering
seeking appraisal should be aware that the fair value of their Faircom Common
Stock as determined under Section 262 could be more than, the same as or less
than the consideration they would receive pursuant to the Merger Agreement if
they did not seek appraisal of the Faircom Common Stock and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods that are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
The Court will determine the amount of interest, if any, to be paid upon
the amounts to be received by a person whose Faircom Common Stock has been
appraised. The costs of the action may be determined by the Court and taxed upon
the parties, as the Court deems equitable. The Court may also order that all or
a portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Faircom Common Stock entitled to
appraisal.
Any holder of shares of Faircom Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after Effectiveness, be
entitled to vote the shares of Faircom Common Stock subject to such demand for
any purpose. Any holder of Faircom Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after Effectiveness, be
entitled to the payment of dividends or other distributions on those shares of
Faircom Common Stock (except dividends or other distributions payable to holders
of record of Faircom Common Stock as of a record date prior to Effectiveness).
If any stockholder who properly demands appraisal of his Faircom Common
Stock under Section 262 fails to perfect, or effectively withdraws or loses, his
right to appraisal, as provided in the DGCL, the shares of Faircom Common Stock
of such stockholder will be converted into the right to receive the
consideration receivable with respect to such Faircom Common Stock in accordance
with the Merger Agreement. A stockholder will fail to perfect, or effectively
lose or withdraw, his right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after Effectiveness, or if the stockholder
delivers to Faircom a written withdrawal of his demand for appraisal and
acceptance of the Merger. Any such attempt to withdraw an appraisal demand more
than 60 days after Effectiveness will require the written approval of Faircom.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH
EVENT A STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE
WITH RESPECT TO SUCH FAIRCOM COMMON STOCK IN ACCORDANCE WITH THE MERGER
AGREEMENT).
REGISTRATION RIGHTS
The Merger Agreement provides the Faircom Subordinated Noteholders with
certain demand and piggyback registration rights with respect to registration
for sale under the Securities Act of the shares of Regent Common Stock into
which their shares of Series C Preferred Stock are then convertible ("Conversion
Stock"). The Faircom Subordinated Noteholders will have demand rights to require
Regent to register their shares of
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Conversion Stock. In addition, the Faircom Subordinated Noteholders will have
certain piggyback registration rights to register their shares of Conversion
Stock in the event Regent files a registration statement under the Securities
Act. The registration rights of the Faircom Subordinated Noteholders under the
Merger Agreement are subject to a number of customary conditions and
limitations.
The Merger Agreement provides that the provisions of the Merger Agreement
relative to the Faircom Subordinated Noteholders' registration rights will be
deemed amended, at the option of the Faircom Subordinated Noteholders, to grant
to the Faircom Subordinated Noteholders rights equivalent to the most favorable
registration rights granted to any other person. The holders of Regent's Series
A, Series B Senior and Series D Convertible Preferred Stock have also been
granted registration rights with respect to Regent Common Stock issued on
conversion of their respective series of Preferred Stock.
MANAGEMENT OF REGENT FOLLOWING THE MERGER
Directors. The following will be the directors of Regent as of and after
Effectiveness:
Joel M. Fairman
Terry S. Jacobs
R. Glen Mayfield
William L. Stakelin
John H. Wyant
Officers. The following will be the executive officers of Regent as of and
after Effectiveness:
<TABLE>
<S> <C>
Chairman of the Board, Chief Executive Officer and Treasurer.............Terry S. Jacobs
Vice Chairman............................................................Joel M. Fairman
President, Chief Operating Officer and Secretary.....................William L. Stakelin
Senior Vice President.......................................................Fred L. Murr
Vice President-Finance, Assistant Secretary............................Matthew A. Yeoman
</TABLE>
43
<PAGE> 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax consequences
of the Merger. The discussion is based upon the Code, treasury regulations
thereunder and administrative rulings and court decisions as of the date hereof.
All of the foregoing are subject to change, possibly with retroactive effect,
and any such change could affect the continuing validity of this discussion.
This discussion does not address all aspects of federal income taxation that may
be important to a holder of Faircom Common Stock in light of such stockholder's
particular circumstances, or to holders of Faircom Common Stock subject to
special treatment under certain federal income tax laws, such as stockholders
who are not citizens or residents of the United States, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or
stockholders who acquired their Faircom Common Stock pursuant to the exercise of
options or similar derivative securities or otherwise as compensation. This
discussion does not address any tax consequences arising under the laws of any
state, locality or foreign jurisdiction. Moreover, the tax consequences to
holders of Faircom Options, and to those exercising dissenters' rights under
state law, are not discussed. In addition, the tax consequences of the Merger to
the Faircom Subordinated Noteholders, including, without limitation, as holders
of Faircom Subordinated Notes and Faircom Common Stock, are not discussed
herein. This discussion assumes that Faircom stockholders hold their respective
shares of Faircom Common Stock as capital assets within the meaning of Section
1221 of the Code.
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A SUMMARY. IT IS NOT A
SUBSTITUTE FOR INDEPENDENT TAX ADVICE AND CAREFUL TAX PLANNING BASED UPON A
HOLDER'S INDIVIDUAL CIRCUMSTANCES. FAIRCOM'S STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO THEM.
Tax Opinion. It is a condition to the obligations of Faircom and Regent to
consummate the Merger that Faircom receive an opinion from Fulbright & Jaworski
L.L.P. and from Strauss & Troy, and that Regent receive an opinion from Strauss
& Troy, to the effect that, based on the facts, representations and assumptions
set forth in such opinions, the Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code. Assuming the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code, the Merger will
have the federal income tax consequences discussed below. The opinions of
counsel referred to above will assume the absence of changes in existing facts
and will rely on certain assumptions, representations and warranties of Faircom,
Regent, Merger Subsidiary and others. Neither Faircom nor Regent intends to
request a ruling from the Internal Revenue Service ("IRS") with respect to the
Merger. The opinions of counsel referred to above neither bind nor preclude the
IRS from adopting a contrary position. An opinion of counsel sets forth such
counsel's legal judgment and has no binding effect or official status of any
kind, and no assurance can be given that contrary positions will not be
successfully asserted by the IRS or adopted by a court if the issues are
litigated.
Tax Implications to Faircom Stockholders. Except as discussed below, (a)
no gain or loss will be recognized for federal income tax purposes by holders of
Faircom Common Stock who exchange their Faircom Common Stock for Series C
Preferred Stock, except to the extent of cash received in lieu of fractional
shares, and (b) the aggregate tax basis of Series C Preferred Stock received in
exchange for Faircom Common Stock as a result of the Merger will be the same as
the stockholder's aggregate tax basis in the Faircom Common Stock surrendered in
the exchange (reduced by any tax basis allocable to fractional shares for which
cash is received). The holding period for the Series C Preferred Stock held by
former Faircom stockholders as a result of the exchange will include the period
during which such stockholder held the Faircom Common Stock exchanged.
Cash received by a holder of Faircom Common Stock in lieu of a fractional
interest in the Series C Preferred Stock will result in the recognition of gain
or loss for federal income tax purposes, measured by the difference between the
amount of cash received and the portion of the tax basis of the share of Faircom
Common Stock allocable to such fractional share interest. Such gain or loss
generally will be capital gain or loss. However, it is possible that, under
certain circumstances, the receipt of cash in lieu of a fractional share
interest in the Series C Preferred Stock could be treated as dividend income. On
the basis of a published ruling of the IRS, in the case of a holder of Faircom
Common Stock whose stock interest in Regent (relative to the total number of
Regent shares outstanding) is minimal and who exercises no control over the
affairs of Regent, any cash received in lieu of a fractional share interest
generally will result in the recognition of capital gain or loss. Noncorporate
holders of
44
<PAGE> 49
Faircom Common Stock are urged to consult with their own tax advisors concerning
changes with respect to the taxation of capital gains contained in the Taxpayer
Relief Act of 1997.
Tax Implications to Faircom. No gain or loss will be recognized for
federal income tax purposes by Faircom as a result of the Merger.
Possible Treatment of Series C Preferred Stock as Section 306 Stock. In
general, if the Series C Preferred Stock received by holders of Faircom Common
Stock were treated as "Section 306 stock" for federal income tax purposes,
unless an exception applies, the proceeds received by a stockholder upon the
subsequent disposition of such stock would be treated as either dividend income
(if the disposition is a redemption) or ordinary income (if the disposition is
other than by redemption); and a stockholder would not be entitled to offset the
amount realized on a disposition of Section 306 stock with such stockholder's
basis, if any, in such Section 306 stock. No loss would be recognized on a
disposition of Section 306 stock. However, Regent Common Stock received upon the
conversion of the Series C Preferred Stock would not be treated as Section 306
stock.
The Series C Preferred Stock received by a holder of Faircom Common Stock
will not be treated as Section 306 stock if such stockholder had received cash
in lieu of such Series C Preferred Stock and the receipt of such cash would not
have been treated as a dividend pursuant to Section 302 of the Code. On the
basis of a published ruling of the IRS, the Series C Preferred Stock received by
a holder of Faircom Common Stock whose stock interest in Regent (relative to the
total number of Regent shares outstanding) is minimal (taking into account
Regent stock owned under certain constructive ownership rules that generally
attribute ownership of stock to or from corporations, partnerships, estates,
trusts and certain family members, and to holders of options or other
convertible securities) and who exercises no control over the affairs of Regent
should not be treated as Section 306 stock. In addition, Series C Preferred
Stock received by a holder of Faircom Common Stock should not be treated as
Section 306 stock provided that such holder does not own any other Regent stock,
or options to acquire Regent stock, either directly, indirectly or
constructively.
Whether a Faircom stockholder will receive Section 306 stock in the Merger
is a question of fact dependent upon the facts and circumstances applicable to
such stockholder. Because of the complexity of these rules, Faircom stockholders
should consult their personal tax advisors to determine whether the Series C
Preferred Stock they will receive in the Merger will be Section 306 stock.
Subsequent Conversion of the Series C Preferred Stock into Regent Common
Stock. In general, a holder of Faircom Common Stock who, pursuant to the
Merger, receives Series C Preferred Stock will not recognize any gain or loss
upon any subsequent conversion of such Series C Preferred Stock into shares of
Regent Common Stock. The tax basis for the shares of Regent Common Stock
received upon conversion generally should be equal to the tax basis of the
Series C Preferred Stock converted, and the holding period of the Regent Common
Stock received generally should include the period during which the converted
Series C Preferred Stock was held.
Adjustment of Conversion Price. The conversion price of the Series C
Preferred Stock is subject to adjustment under certain circumstances. Section
305 of the Code treats as a distribution taxable as a dividend (to the extent of
Regent's current or accumulated earnings and profits) certain actual or
constructive distributions of stock with respect to stock or convertible
securities. Under Treasury regulations, an adjustment may, under certain
circumstances, be treated as a constructive dividend. Similarly, a failure to
adjust the conversion price of Series C Preferred Stock to reflect a stock
dividend or similar event could in some circumstances give rise to constructive
dividend income to holders of Regent stock or convertible securities.
45
<PAGE> 50
REGENT COMMUNICATIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
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 May 1997,
and the effects of Regent's Pending Transactions other than as specified below
(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 will control
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 September
30, 1997. The unaudited pro forma condensed combined statements of operations
give effect to these transactions as if they had occurred on January 1, 1996.
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
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 consummation of the Included Transactions.
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. The unaudited pro forma condensed
combined financial statements should also be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Proxy
Statement/Prospectus. See "Certain Risk Factors" and "Index to Financial
Statements" included elsewhere herein.
No pro forma adjustments have been made to reflect Regent's pending
acquisition of radio station KIXA(FM) in Lucerne Valley, California because
Regent has determined that the impact of such transaction would not be
significant to Regent's results of operations and 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 would not be significant to
Faircom's results of operations and financial condition. Historical balance
sheet data have not been included in the Condensed Combined Balance Sheet to
reflect Regent's pending acquisition of radio stations KIXW(AM) and KZXY(FM) in
Apple Valley, California because the required financial information cannot be
obtained. See "Certain Risk Factors" and "Information Concerning
Regent -- Management's Discussion and Analysis of Financial Condition and
Results of Operations."
46
<PAGE> 51
REGENT COMMUNICATIONS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 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........................ $ 794,204 $ 495,530 $ 1,289,734 $ 425,081 $
Accounts receivable......... 1,329,172 1,238,116 2,567,288 495,652 194,049
Prepaid expenses and
other..................... 10,825,306 86,805 10,912,111 428,939 915,869
----------- ------------ ------------ ------------ ------------ ----------
Total current
assets.............. 12,948,682 1,820,451 14,769,133 1,349,672 1,109,918
Property and equipment, net... 20,365 4,228,761 4,249,126 2,677,570 220,814
Intangible assets, net........ 5,937,878 $ 525,668 6,463,546 6,054,185 956,150
Deferred charges and other.... 525,668 1,094,606 (525,668) 1,094,606 45,082
----------- ------------ ------------ ------------ ------------ ----------
Total assets.......... $13,494,715 $ 13,081,696 0 $ 26,576,411 $ 10,081,427 $2,331,964
========== =========== =========== =========== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Account payable, accrued
liabilities and other..... $ 988,573 $ 306,483 $ 1,295,056 $ 1,296,610 $1,807,046
Notes payable............... 9,450,000 9,450,000
Current portion of long-term
debt...................... 502,720 502,720 720,863 61,010
----------- ------------ ------------ ------------ ------------ ----------
Total current
liabilities......... 10,438,573 809,203 11,247,776 2,017,473 1,868,056
Long-term debt, net of current
maturities.................. 22,036,662 $(10,000,000) 12,036,662 5,856,843 615,301
Other......................... 251,489 251,489
----------- ------------ ------------ ------------ ------------ ----------
Total liabilities..... 10,438,573 23,097,354 (10,000,000) 23,535,927 7,874,316 2,483,357
Shareholders' equity:
Preferred stock............. 2,700,000 3,056,142 5,756,142 11,661,086
Common stock................ 2,400 73,782 (73,782) 2,400 1,631,049 225,000
Additional paid in
capital................... 598,192 2,605,813 6,773,190 9,977,195
Retained earnings
(deficit)................. (244,450) (12,695,253) 244,450 (12,695,253) (11,085,024) (376,393)
----------- ------------ ------------ ------------ ------------ ----------
Total shareholders'
equity (deficit).... 3,056,142 (10,015,658) 10,000,000 3,040,484 2,207,111 (151,393)
----------- ------------ ------------ ------------ ------------ ----------
Total liabilities and
shareholders'
equity.............. $13,494,715 $ 13,081,696 $ 0 $ 26,576,411 $ 10,081,427 $2,331,964
========== =========== =========== =========== =========== =========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
HISTORICAL INCLUDED FINANCING
POWER HISTORICAL TRANSACTIONS TRANSACTION COMBINED
SURGE* CONTINENTAL (NOTE 3) (NOTE 3) PRO FORMA
---------- ----------- ------------ ------------ ------------
<S> <C<C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ $ 364 $ 2,757 $ (2,757) $ 1,715,179
Accounts receivable......... 8,487 166,885 (166,885) 3,265,456
Prepaid expenses and
other..................... 72,886 10,266 (11,385,266) 954,805
---------- ----------- ------------ ------------ ------------
Total current
assets.............. 81,717 179,908 (11,554,908) 5,935,440
Property and equipment, net... 160,644 406,734 7,714,888
Intangible assets, net........ 977,228 1,198,040 23,029,613 38,678,762
Deferred charges and other.... 16,765 (16,765) 1,139,688
---------- ----------- ------------ ------------ ------------
Total assets.......... $1,219,589 $1,801,447 $11,457,940 $ 53,468,778
========= ========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
Current liabilities:
Account payable, accrued
liabilities and other..... $ 34,694 $ 35,131 $ (725,131) $ 3,743,406
Notes payable............... (9,450,000)
Current portion of long-term
debt...................... 1,284,593
---------- ----------- ------------ ------------ ------------
Total current
liabilities......... 34,694 35,131 (10,175,131) 5,027,999
Long-term debt, net of current
maturities.................. 1,836,050 23,803,950 $(10,000,000) 34,148,806
Other......................... 251,489
---------- ----------- ------------ ------------ ------------
Total liabilities..... 34,694 1,871,181 13,628,819 (10,000,000) 39,428,294
Shareholders' equity:
Preferred stock............. (10,661,086) 10,000,000 16,756,142
Common stock................ 1,202,500 (3,058,549) 2,400
Additional paid in
capital................... 1,834 (1,834) 9,977,195
Retained earnings
(deficit)................. (17,605) (71,568) 11,550,590 (12,695,253)
---------- ----------- ------------ ------------ ------------
Total shareholders'
equity (deficit).... 1,184,895 (69,734) (2,170,879) 10,000,000 14,040,484
---------- ----------- ------------ ------------ ------------
Total liabilities and
shareholders'
equity.............. $1,219,589 $1,801,447 $11,457,940 $ 0 $ 53,468,778
========= ========== =========== =========== ===========
</TABLE>
- ---------------
* A successor of KARZ/KNRO (A Division of Merit Broadcasting Corporation)
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
47
<PAGE> 52
REGENT COMMUNICATIONS, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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................................ $2,395,913 $4,063,606 $ 1,160,579 $ 7,620,098 $5,692,493 $ 811,578
Broadcast operating expenses............... 1,780,987 1,058,111 263,868 3,102,966 2,653,887 463,325
Depreciation and amortization.............. 458,783 381,000 839,783 1,047,848 139,991
Corporate general and administrative
expenses................................. 261,319 1,873,782 873,148 3,008,249 2,381,432 353,547
---------- ---------- -------------- -------------- ---------- ----------
Operating income (loss).................. 353,607 672,930 (357,437) 669,100 (390,674) (145,285)
Interest expense........................... 13,892 836,404 353,736 1,204,032 515,212 59,774
Time brokerage fees, net................... 584,426 584,426
Other income (expense), net................ 12,667 16,609 14,477 43,753 (4,548) 806,622
---------- ---------- -------------- -------------- ---------- ----------
Loss from continuing operations before
income taxes............................. (232,044) (146,865) (696,696) (1,075,605) (910,434) 601,563
Provision for income taxes................. 49,542 (49,542)
---------- ---------- -------------- -------------- ---------- ----------
Loss from continuing operations............ $ (232,044) $ (196,407) $ (647,154) $ (1,075,605) $ (910,434) $ 601,563
========= ========= ============= ============= ========= =========
Loss applicable to common shares:
Loss from continuing operations.......... $ (232,044) $ (1,075,605)
Preferred stock dividends................ (69,386) (1,076,336)
---------- --------------
Loss applicable to common shares....... $ (301,430) $ (2,151,941)
========= =============
Loss per common share...................... $ (1.26) $ (8.97)
========= =============
Weighted average shares outstanding (See
Note 5).................................. 240,000 240,000
========= =============
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
HISTORICAL INCLUDED
POWER HISTORICAL HISTORICAL TRANSACTIONS COMBINED
SURGE* CONTINENTAL RUBY (NOTE 4) PRO FORMA
---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net revenue................................ $ 68,811 $ 748,339 $899,151 $ (229,971) $15,610,499
Broadcast operating expenses............... 20,321 311,009 355,894 (225,116) 6,682,286
Depreciation and amortization.............. 74,192 203,733 19,850 (63,023) 2,262,374
Corporate general and administrative
expenses................................. 58,385 165,824 249,785 6,217,222
---------- ----------- ---------- ------------ -----------
Operating income (loss).................. (84,087) 67,773 273,622 58,168 448,617
Interest expense........................... 9,592 139,341 899,513 2,827,464
Time brokerage fees, net................... (236,980) 347,446
Other income (expense), net................ 66,074 (105,387) 806,514
---------- ----------- ---------- ------------ -----------
Loss from continuing operations before
income taxes............................. (27,605) (71,568) 273,622 (709,752) (1,919,779)
Provision for income taxes................. (10,000) 10,000
---------- ----------- ---------- ------------ -----------
Loss from continuing operations............ $(17,605) $ (71,568) $273,622 $ (719,752) $(1,919,779)
========= ========== ========= =========== ==========
Loss applicable to common shares:
Loss from continuing operations.......... $(1,919,779)
Preferred stock dividends................ (1,653,836)
-----------
Loss applicable to common shares....... $(3,573,615)
==========
Loss per common share...................... $ (14.89)
==========
Weighted average shares outstanding (See
Note 5).................................. 240,000
==========
</TABLE>
- ---------------
* A successor of KARZ/KNRO (A Division of Merit Broadcasting Corporation)
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
48
<PAGE> 53
REGENT COMMUNICATIONS, INC.
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA REGENT
ADJUSTMENTS AS ADJUSTED INCLUDED TRANSACTIONS
FOR THE MERGER FOR THE ------------------------
AND HISTORICAL MERGER AND
HISTORICAL HISTORICAL ACQUISITION HISTORICAL HISTORICAL HISTORICAL
REGENT FAIRCOM (NOTE 4) ACQUISITION PARK LANE ALTA
---------- ---------- -------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................... $ $4,873,954 $ 2,256,075 $7,130,009 $ 8,338,667 $507,917
Broadcast operating expenses.................. 1,218,160 478,787 1,696,947 4,132,019 339,499
Depreciation and amortization................. 321,263 755,000 1,076,263 1,494,636 151,544
Corporate general and administrative
expenses.................................... 12,406 2,111,702 1,494,038 3,618,146 3,497,734 408,859
---------- ---------- -------------- ----------- ----------- ----------
Operating income (loss)..................... (12,406) 1,222,829 (471,750) 738,673 (785,722) (391,985)
Interest expense.............................. 698,643 707,472 1,406,115 695,699 104,731
Other income (expense), net................... (207,654) 15,778 (191,876) (4,850) 657,870
---------- ---------- -------------- ----------- ----------- ----------
Loss from continuing operations before income
taxes....................................... (12,406) 316,532 (1,163,444) (859,318) (1,486,471) 161,154
Provision for income taxes.................... 37,692 (37,692)
---------- ---------- -------------- ----------- ----------- ----------
Loss from continuing operations............... $(12,406) $ 278,840 $ (1,125,752) $ (859,318) $(1,436,471) $161,154
========= ========= ============= ========== ========== =========
Loss applicable to common shares:
Loss from continuing operations............. $(12,406) $ (859,318)
Preferred stock dividends................... (1,342,600)
---------- -----------
Loss applicable to common shares...... $(12,406) $(2,201,918)
========= ==========
Loss per common share......................... $ (.05) $ (9.17)
========= ==========
Weighted average shares outstanding (See Note
5).......................................... 240,000 240,000
========= ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
HISTORICAL INCLUDED
POWER HISTORICAL HISTORICAL TRANSACTIONS COMBINED
SURGE* CONTINENTAL RUBY (NOTE 4) PRO FORMA
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue................................... $550,297 $1,005,435 $1,215,306 $ $18,747,651
Broadcast operating expenses.................. 256,625 486,620 475,917 7,387,627
Depreciation and amortization................. 8,887 30,385 26,467 41,445 2,829,627
Corporate general and administrative
expenses.................................... 289,814 338,966 332,019 8,485,538
---------- ----------- ---------- ----------- -----------
Operating income (loss)..................... (5,029) 149,464 380,903 (41,445) 44,859
Interest expense.............................. 17,526 13,951 1,388,860 3,627,082
Other income (expense), net................... 1,167,354 1,628,498
---------- ----------- ---------- ----------- -----------
Loss from continuing operations before income
taxes....................................... (22,555) 1,302,867 380,903 (1,430,305) (1,953,725)
Provision for income taxes....................
---------- ----------- ---------- ----------- -----------
Loss from continuing operations............... $(22,555) $1,302,867 $ 380,903 $(1,430,305) $(1,953,725)
========= ========== ========= =========== ==========
Loss applicable to common shares:
Loss from continuing operations............. $(1,953,725)
Preferred stock dividends................... (2,112,600)
-----------
Loss applicable to common shares...... $(4,066,325)
==========
Loss per common share......................... $ (16.94)
==========
Weighted average shares outstanding (See Note
5).......................................... 240,000
==========
</TABLE>
- ---------------
* A successor of KARZ/KNRO (A Division of Merit Broadcasting Corporation)
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
49
<PAGE> 54
REGENT COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. GENERAL
The Merger will be accounted for under the purchase method of accounting as
a reverse merger since the shareholders of Faircom will control 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 May 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-Q filed for the quarterly period ended
September 30, 1997. Information presented for the year ended December 31, 1996
reflects the operating results of the Pro Forma Companies for such period except
that Alta California Broadcasting, Inc. ("Alta") operating results are for the
year ended March 31, 1997 and Treasure's operating results (presented in Note 4)
are for the year ended November 30, 1996.
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
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.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
------------------------------------------
FAIR
MARKET VALUE ADJUSTED STATION
ACQUISITION SHARES OF STOCK CASH TOTAL NET ASSETS(B) LICENSES GOODWILL
- ---------------------------- --------- ------------ ----------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merger:
Regent.................... 3,859,000 $ 3,056,142 (a) $ 3,056,142 $ 2,530,474 $ 525,668
Pending Transactions:
Park Lane................. $17,125,000 17,125,000 (3,847,074) $5,466,250 15,505,824
Alta/Power Surge.......... 200,000 1,000,000 890,000 1,890,000 (209,876) 700,000 1,399,876
Continental............... 3,600,000 3,600,000 406,734 885,000 2,308,266
Ruby...................... 6,000,000 6,000,000 50,000 1,450,000 4,500,000
--------- ------------ ----------- ----------- ------------- ---------- -----------
4,059,000 $ 4,056,142 $27,615,000 $31,671,142 $(1,069,742) $8,501,250 $24,239,634
======== ============ ========== ========== ============ ========= ==========
</TABLE>
- ---------------
(a) Reflects the reverse merger purchase price based on Regents net asset value
as of September 30, 1997.
(b) 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.
50
<PAGE> 55
REGENT COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (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
MERGER ADJUSTMENTS ADJUSTMENTS TRANSACTIONS
-------------------------- FOR THE ------------
(A) (B) MERGER (C)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ (2,757)
Accounts receivable................................................... (166,885)
Prepaid expenses and other............................................ (1,935,266)
------------ ----------- ------------ ------------
Total current assets............................................ (2,104,908)
Property and equipment, net...........................................
Intangible assets, net................................................ $ 525,668 $ 525,668 23,029,613
Deferred charges and other............................................ (525,668) (525,668) (16,765)
------------ ----------- ------------ ------------
Total assets.................................................... $ 0 $ 0 $ 0 $ 20,907,940
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Account payable, accrued liabilities and other........................ $ (725,131)
Note payable..........................................................
Current portion of long term debt.....................................
------------ ----------- ------------ ------------
Total current liabilities....................................... (725,131)
Long-term debt, net of current maturities............................... $(10,000,000) $(10,000,000) (23,803,950)
Other liabilities.......................................................
------------ ----------- ------------ ------------
Total liabilities............................................... (10,000,000) (10,000,000) 23,078,819
Shareholders' Equity:
Preferred stock....................................................... 3,056,142 3,056,142 (10,661,086)
Common stock.......................................................... 190,120 (263,902) (73,782) (3,058,549)
Additional paid-in capital............................................ 9,609,880 (3,036,690) 6,773,190 (1,834)
Retained earnings (deficit)........................................... 244,450 244,450 11,550,590
------------ ----------- ------------ ------------
Shareholders' equity (deficit).................................. 10,000,000 10,000,000 (2,170,879)
------------ ----------- ------------ ------------
Total liabilities and shareholders' equity...................... $ 0 $ 0 $ 0 $ 20,907,940
=========== ========== =========== ===========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE FINANCING
INCLUDED TRANSACTIONS
(D) TRANSACTIONS (E)
----------- ------------ ------------
<S> <<C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ (2,757)
Accounts receivable................................................... (166,885)
Prepaid expenses and other............................................ $(9,450,000) (11,385,266)
----------- ------------ ------------
Total current assets............................................ (9,450,000) (11,554,908)
Property and equipment, net...........................................
Intangible assets, net................................................ 23,029,613
Deferred charges and other............................................ (16,765)
----------- ------------ ------------
Total assets.................................................... $(9,450,000) $ 11,457,940 $ 0
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Account payable, accrued liabilities and other........................ $ (725,131)
Note payable.......................................................... $(9,450,000) (9,450,000)
Current portion of long term debt.....................................
----------- ------------ ------------
Total current liabilities....................................... (9,450,000) (10,175,131)
Long-term debt, net of current maturities............................... 23,803,950) $(10,000,000)
Other liabilities.......................................................
----------- ------------ ------------
Total liabilities............................................... (9,450,000) 13,628,819 (10,000,000)
Shareholders' Equity:
Preferred stock....................................................... (10,661,086) 10,000,000
Common stock.......................................................... (3,058,549)
Additional paid-in capital............................................ (1,834)
Retained earnings (deficit)........................................... 11,550,590
----------- ------------ ------------
Shareholders' equity (deficit).................................. (2,170,879) 10,000,000
----------- ------------ ------------
Total liabilities and shareholders' equity...................... $(9,450,000) $ 11,457,940 $ 0
========== =========== ===========
</TABLE>
- ---------------
(A) Records the conversion of Faircom Subordinated Convertible Notes into
Faircom Common Stock immediately precedent to the Merger in the aggregate
amount of $10,000,000. The noteholders will have the right, at the closing
of the Merger, to require the repayment in cash by Regent of up to
$2,500,000 aggregate principal amount or to convert the principal amount
into Faircom common stock immediately precedent to the Merger. Based on
discussions with the noteholders, the pro forma presentation assumes all of
the principal amount will be converted into Faircom common stock.
(B) Records the reverse merger transaction, consisting of approximately
3,859,000 shares of preferred stock valued based on Regent's net asset
value of approximately $3,056,000 at September 30, 1997, including
acquisition costs. The excess purchase price over the fair value of the net
assets acquired is $525,668.
(C) Records the purchase transactions, consisting of approximately $27,615,000
in cash and 200,000 shares of preferred stock valued in total of
$1,000,000, for a total estimated purchase price of $28,615,000. Adjustment
reflects $196,673 of certain assets which will not be acquired and
$2,561,181 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 $23,713,966. The cash portion of the purchase
price will be funded through a bank credit facility and the issuance of
additional debt and/or equity securities. Adjustment also includes a credit
facility fee of $775,000, which is reflected in Prepaid Expenses and Other
in the Pro Forma Condensed Combined Balance Sheet. See Note E.
(D) Records the effects of the Company's completed and pending divestitures of
one radio station located in Lexington, Kentucky (WXZZ/FM) and one radio
station in San Diego, California, KCBQ/AM), respectively. The station in
Lexington was disposed of in November 1997 and the Company has a formal
plan to dispose of the San Diego station during 1998.
(E) Records the issuance of Series B and Series D capital stock in the
aggregate amount of $10,000,000 in conjunction with the Merger and the
Pending Transaction.
51
<PAGE> 56
REGENT COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combining
statement of operations adjustments:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 revenues............... $1,160,579 $ 1,160,579
Broadcast operating
expenses................. 263,868 263,868
Depreciation and
amortization............. $ 10,000 371,000 381,000 (63,023)
Corporate general and
administrative
expenses................. 465,148 $ 408,000 873,148
--------- -------- ---------- --------- -------------- --------- -----------
Operating income
(loss)........... (10,000) 60,563 (408,000) (357,437) 63,023
Interest expense........... 353,736 353,736 914,513
Time brokerage fees, net...
Other income (expense),
net...................... 14,477 14,477
--------- -------- ---------- --------- -------------- --------- -----------
Loss from continuing
operations before income
taxes.................... (10,000) (278,696) (408,000) (696,696) 63,023 (914,513)
Provision for income
taxes.................... $(49,542) (49,542)
--------- -------- ---------- --------- -------------- --------- -----------
Loss from continuing
operations............... $ (10,000) $ 49,542 $ (278,696) $(408,000) $ (647,154) $ 63,023 $ (914,513)
======== ======= ========= ======== ============= ======== ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
INCLUDED
(G) (H) (I) TRANSACTIONS
--------- --------- --------- ---------------
<S> <C<C> <C> <C> <C>
Net revenues............... (229,971) $ (229,971)
Broadcast operating
expenses................. (225,116) (225,116)
Depreciation and
amortization............. (63,023)
Corporate general and
administrative
expenses.................
--------- --------- --------- ---------------
Operating income
(loss)........... (4,855) 58,168
Interest expense........... (15,000) 899,513
Time brokerage fees, net... (236,980) (236,980)
Other income (expense),
net...................... (105,387) (105,387)
--------- --------- --------- ---------------
Loss from continuing
operations before income
taxes.................... (95,242) (236,980) (709,752)
Provision for income
taxes.................... $ 10,000 10,000
--------- --------- --------- ---------------
Loss from continuing
operations............... $ (10,000) $ (95,242) $(236,980) $ (719,752)
======== ======== ======== ==============
</TABLE>
52
<PAGE> 57
REGENT COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
ADJUSTMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<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............... $2,265,075 $ 2,256,075
Broadcast operating
expenses................ 478,787 478,787
Depreciation and
amortization............ $ 13,000 742,000 755,000 41,445
Corporate general and
administrative
expenses................ 949,038 545,000 1,494,038
--------- -------- ---------- ----------- -------------- --------- -----------
Operating income
(loss).......... (13,000) 86,250 (545,000) (471,750) (41,445)
Interest expense.......... 707,472 707,472 $ 1,388,860
Other income (expense),
net..................... 15,778 15,778
--------- -------- ---------- ----------- -------------- --------- -----------
(1,388,860)
Loss from continuing
operations before income
taxes................... (13,000) (605,444) (545,000) (1,163,444) (41,445)
Provision for income
taxes................... $(37,692) $ (37,692)
--------- -------- ---------- ----------- -------------- --------- -----------
Loss from continuing
operations.............. $ (13,000) $ 37,692 $ (605,444) (545,000) $ (1,125,752) $ (41,445) (1,388,860)
======== ======= ========= ========== ============= ======== ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
INCLUDED
(G) (H) (I) TRANSACTIONS
--------- --------- --------- ---------------
<S> <C<C> <C> <C> <C>
Net revenue...............
Broadcast operating
expenses................
Depreciation and
amortization............ $ 41,445
Corporate general and
administrative
expenses................
--------- --------- --------- ---------------
Operating income
(loss).......... (41,445)
Interest expense.......... 1,388,860
Other income (expense),
net.....................
--------- --------- --------- ---------------
Loss from continuing
operations before income
taxes................... (1,430,305)
Provision for income
taxes...................
--------- --------- --------- ---------------
Loss from continuing
operations.............. $(1,430,305)
======== ======== ======== ==============
</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 historical operating results of Treasure Radio Associates
Limited Partnership from the beginning of the period through the date of
acquisition (May 1997), adjusted for the effect of the purchase transaction
and the related financing transaction assuming that the acquisition took
place on January 1, 1996. 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 $4,600,000. 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. The pro forma statement of operations
does not include 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 Faircom Subordinated
Convertible Notes into Faircom Common Stock in conjunction with the Merger.
The total estimated nonrecurring charge is approximately $168,000.
(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 the 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 changes in interest expense of $20,000
for the year ended December 31, 1996 and $9,500 for the nine months ended
September 30, 1997. Adjustment also reflects amortization of estimated
deferred financing costs over the seven year loan period of approximately
$111,000 for the year ended December 31, 1996 and approximately $83,000 for
the nine months ended September 30, 1997. 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 the Company'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 the Company has an
agreement in place to dispose of the San Diego station sometime during the
first half of 1998.
(I) Reflects the elimination of time brokerage fees in consolidation.
53
<PAGE> 58
REGENT COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (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
September 30, 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 dividends 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, 1996: (i) 3,059,000 shares of Series C in conjunction with the
Merger; and (ii) 1,000,000 shares each of Series B and D and 200,000 shares of
Series E in conjunction with the Included Transactions.
54
<PAGE> 59
CERTAIN MARKET PRICE AND DIVIDEND INFORMATION
REGARDING FAIRCOM
Faircom Common Stock is quoted on the OTC Bulletin Board under the symbol
"FXCM" and is traded on the over-the-counter market. The following table
reflects the reported high and low bid quotations for Faircom Common Stock on
the OTC Bulletin Board for the periods indicated. Such quotations reflect
interdealer prices, without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- ---------------------------------------------------------------------------- --- ---
<S> <C> <C>
1996
First Quarter............................................................. 1/4 1/8
Second Quarter............................................................ 1/4 1/8
Third Quarter............................................................. 1/4 1/8
Fourth Quarter............................................................ 6/32 1/8
1997
First Quarter............................................................. 7/32 1/8
Second Quarter............................................................ 9/32 7/32
Third Quarter............................................................. 5/8 9/32
Fourth Quarter............................................................ 15/16 9/16
1998
First Quarter through February 6, 1998.................................... 15/16 27/32
</TABLE>
On October 21, 1997, the last trading day preceding the announcement of the
proposed Merger, the bid and asked prices of the Faircom Common Stock on the OTC
Bulletin Board were 9/16 and 3/4, respectively. On February , 1998, the bid
and asked prices of the Faircom Common Stock on the OTC Bulletin Board were
and , respectively. There were holders of record of Faircom
Common Stock on , 1998. Faircom has never paid dividends on the
Faircom Common Stock. Faircom and its subsidiaries are subject to certain
restrictions under existing agreements with their lenders, which limit cash
dividends on Faircom Common Stock.
THE RADIO BROADCASTING INDUSTRY
At December 31, 1997, there were 4,762 commercial AM and 5,542 commercial
FM stations authorized and operating in the United States. An increasing number
of persons listen to FM radio because of clearer sound characteristics and
stereo transmission. In the spring of 1997, FM listenership was about 78% of
total radio audience.
OPERATIONS
Radio station revenue is derived predominantly from local and regional
advertising and to a lesser extent from national advertising. Network
compensation also provides some revenue. For example, in the nine months ended
September 30, 1997, approximately 77% of Faircom's consolidated station
advertising revenues were from local and regional sales, 22% from national sales
and about 1% from network or syndication compensation. Local and regional sales
generally are made by a station's sales staff. National sales generally are made
by "national rep" firms, specializing in radio advertising sales on the national
level. These firms are compensated on a commission-only basis. Local and
regional sales are made primarily to businesses in the market covered by a
station's broadcast signal and to some extent to businesses in contiguous or
nearby markets. Such businesses include auto dealers, soft drink, beer and wine
distributors, fast food outlets and financial institutions. National sales are
made to larger, nationwide advertisers, such as soft drink producers, automobile
manufacturers and airlines. Most advertising contracts are short-term, generally
running only for a few weeks. Advertising rates charged by a radio station are
based primarily on the station's ability to attract audiences in the demographic
groups which advertisers wish to reach and on the number of stations competing
in the market area. Rating service surveys quantify the number of listeners
tuned to the station at various times. Rates are generally highest during
morning and evening drive-time hours. Faircom's and Regent's stations'
advertising sales are made by
55
<PAGE> 60
their respective sales staffs under the direction of a general manager or sales
managers. Television, billboard, newspaper and direct mail advertising, as well
as special events and promotions, can be used to supplement direct contact by
the sales staff in developing advertising clients.
The primary costs incurred in operating a radio station are salaries,
programming, promotion and advertising expenditures, occupancy costs of premises
for studios and offices, transmitting and other equipment expenses and music
license royalty fees.
Radio broadcasting revenues are spread over the calendar year. The first
quarter generally reflects the lowest and the third and fourth quarters the
highest revenues for the year, due in part to increases in retail advertising in
the summer and in the fall in preparation for the holiday season and, in
election years, to political advertising.
The radio industry is continually faced with technological changes and
innovations, the possible rise in popularity of competing entertainment and
communications media, changes in labor conditions, governmental restrictions and
actions of federal regulatory bodies, including the FCC, any of which could have
a material effect on Faircom's or Regent's business. However, broadcasting
stations have generally enjoyed growth in listeners and value within the past
several decades. Population increases and greater availability of radios,
particularly car and portable radios, have contributed to this growth.
COMPETITION
The radio broadcasting industry is a highly competitive business. Faircom's
and Regent's radio broadcasting stations compete for audience share and revenue
directly with the other AM and FM radio stations in their respective market
areas, as well as with other advertising media such as newspapers, television,
magazines, outdoor advertising, transit advertising and mail marketing.
Competition within the radio broadcasting industry occurs primarily in the
individual market areas so that a station in one market does not generally
compete with stations in other market areas. In addition to management
experience, factors which are material to competitive position include the
station's ratings in its market, rates charged for advertising time, broadcast
signal coverage, assigned frequency, audience characteristics, the ability to
create and execute promotional campaigns for clients and for the station, local
program acceptance and the number and characteristics of other stations in the
market area. Both Faircom and Regent attempt to improve their competitive
positions by reviewing programming and the programming of competitors, upgrading
technical facilities where appropriate, attempting to expand sales to existing
advertising clients and developing new client relationships, and by promotional
campaigns aimed at the demographic groups targeted by their respective stations.
In order to provide additional opportunity for persons interested in
obtaining radio broadcasting licenses, including minorities, the FCC in 1984
proposed new licenses for new full service FM broadcast stations in 684
communities. This FCC program is referred to as the "Docket 80-90" proceeding.
Where these stations have commenced commercial broadcasting, they have increased
competition in these markets. Also, it has been customary in the industry for
experienced operators to buy stations in markets they consider attractive and
attempt to improve the performance of these stations by additional investment
and better management, thus increasing competition in these markets.
The FCC recently has allocated spectrum to a new technology, digital audio
broadcasting ("DAB"), to deliver satellite-based audio programming to a national
or regional audience and has adopted regulations for a DAB service. DAB may
provide a medium for the delivery by satellite or terrestrial means of multiple
new audio programming formats with compact disc quality sound to local and
national audiences. Another form of DAB, known as In-Band On Channel ("IBOC"),
could provide DAB in the present FM radio band. It is not known at this time
whether this technology also may be used in the future by existing radio
broadcast stations either on existing or alternate broadcasting frequencies. In
addition, three applications have been granted by the FCC for authority to offer
multiple channels of digital, satellite-delivered S-Band aural services that
could compete with conventional terrestrial radio broadcasting. These satellite
radio services use technology that may permit higher sound quality than is
possible with conventional AM and FM terrestrial radio broadcasting.
Implementation of DAB or IBOC would provide an additional audio programming
service that could compete with Faircom's and Regent's radio stations for
listeners, but the effect upon Faircom and Regent cannot be predicted.
56
<PAGE> 61
FCC REGULATION
The FCC regulates radio stations under the Communications Act of 1934, as
amended (the "Communications Act") which, together with FCC rules and policies
promulgated thereunder, governs the issuance, renewal and assignment of
licenses, technical operations, employment practices and, to a limited extent,
business and program practices of radio stations and other communications
entities.
The rules also generally prohibit the acquisition of ownership in, or
control of, a television station and either an AM or a FM radio station serving
the same market. Such so-called "cross-ownership" prohibition is subject to
waiver for stations in the 25 largest television markets under certain
conditions. There are also prohibitions relating to ownership in or control of a
daily newspaper and a broadcast station in the same market and limitations on
the extent to which aliens may own an interest in broadcast stations.
Over the past five years, broadcasters such as Regent and Faircom have
entered into what have commonly been referred to as "Local Market Agreements",
or "LMAs". While these agreements may take varying forms, under a typical LMA,
separately owned and licensed radio stations agree to enter into cooperative
arrangements of varying sorts, subject to compliance with the requirements of
antitrust laws and with the FCC's rules and policies. Under these types of
arrangements, separately owned stations could agree to function cooperatively in
terms of programming, advertising sales, etc., subject to the licensee of each
station maintaining independent control over the programming and station
operations of its own station. One typical type of LMA is a programming
agreement among two separately owned radio stations serving a common service
area, whereby the licensee of one station programs substantial portions of the
broadcast day on the other licensee's station, subject to ultimate editorial and
other controls being exercised by the latter licensee, and sells advertising
time during such program segments. Such arrangements are an extension of the
concept of "time brokerage" agreements, under which a licensee of a station
sells blocks of time on its station to an entity or entities which program the
blocks of time and which sell their own commercial advertising announcements
during the time periods in question.
In the past, the FCC has determined that issues of joint advertising sales
should be left to antitrust enforcement and has specifically revised its
so-called "cross-interest" policy to make that policy inapplicable to time
brokerage arrangements. Under the cross-interest policy, the FCC may prohibit
one party from acquiring certain economic interests in two broadcast stations in
the same market. Furthermore, the staff of the FCC's Mass Media Bureau has, over
the past five years, held that LMAs are not contrary to the Communications Act
provided that the licensee of the station which is being substantially
programmed by another entity maintains complete responsibility for and control
over operations of its broadcast station and assures compliance with applicable
FCC rules and policies. However, LMAs in which one station programs more than
15% of the weekly broadcast time of another local radio station are prohibited
under FCC rules if the programming station could not own the programmed station
under the FCC's so-called "multiple ownership" rules.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. This legislation (a) permits foreign nationals to serve as officers
and directors of broadcast licensees and their parent companies, (b) directs the
FCC to eliminate its national ownership limits on radio station ownership, (c)
requires the FCC to relax its numerical restrictions on local radio ownership,
(d) extends the FCC's radio and television cross ownership waiver policy to the
top 50 markets, (e) extends the license renewal period for radio and television
stations to eight years and (f) affords renewal applicants significant new
protections from competing applications for their broadcast licenses.
The Telecommunications Act's provisions regarding local radio ownership
limits create a sliding scale of permissible ownership, depending on market
size. In radio markets with 45 or more commercial radio stations, a licensee may
own up to eight stations, no more than five of which can be in a single radio
service (i.e. no more than five AM or five FM). In radio markets with 30 to 44
commercial radio stations, a licensee may own up to seven stations, no more than
four of which are in a single radio service. In radio markets having 15 to 29
commercial radio stations, a licensee may own up to six radio stations, no more
than four of which are in a single radio service. Finally, with respect to radio
markets having 14 or fewer commercial radio stations, a licensee may own up to
five radio stations, no more than three of which are in the same service;
provided that the licensee may not own more than one half of the radio stations
in the market.
57
<PAGE> 62
The Telecommunications Act affords renewal applicants additional protection
from renewal challenges by (a) changing the standard for grant of license
renewal and (b) precluding the FCC from considering the relative merits of a
competing applicant in connection with making its determination on a licensee's
renewal application. The new standard for license renewal is that a station's
license will be renewed if (x) the station has served the public interest,
convenience and necessity, (y) there have been no serious violations of the
Communications Act or FCC rules by the licensee and (z) there have been no other
violations of the Communications Act or FCC rules which, taken together, would
establish a pattern of abuse by the licensee.
The foregoing does not purport to be a complete summary of all of the
provisions of the Communications Act, the Telecommunications Act or the
regulations or policies of the FCC thereunder. Reference is made to such Acts,
regulations, and policies for further information.
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<PAGE> 63
INFORMATION CONCERNING FAIRCOM
THE COMPANY
Faircom owns and operates six 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.
Faircom was founded by Joel M. Fairman in April 1984 and began operations
with the objective of acquiring broadcasting properties at prices considered
attractive by Faircom, financing them on terms satisfactory to Faircom, managing
them in accordance with Faircom's operating strategy and building a broadcasting
group. Faircom has sought to acquire radio properties which have a history of
growing revenues and broadcast cash flow, have capable operating management and
are in communities with good growth prospects or which have attractive
competitive environments. Faircom focuses its acquisition efforts on medium and
smaller radio markets, particularly where there may be an opportunity to achieve
a significant cluster of stations in the market or to add additional stations in
surrounding communities. Faircom has not purchased, and does not foresee
purchasing in the near future, properties with negative cash flows, or so-called
"under-performing" or "turnaround" properties, unless they complement or can be
combined with the operations of positive cash flow properties in a market or
regional cluster. Faircom's strategy is to have at least $1,000,000 in broadcast
cash flow and be among the top three operators in each of its markets.
In August 1994, Faircom sold WHFM(FM), its station in Southampton, Long
Island, New York for $1,860,000 cash, reduced by credits of $150,000 for certain
payments made by the purchaser prior to closing, and purchased WWBN(FM) for
$450,000, consisting of $400,000 cash and an 8% note to the seller for $50,000,
paid in full December 1995.
In June 1997, Faircom, through its wholly-owned subsidiary, Faircom
Mansfield Inc. ("Faircom Mansfield"), purchased substantially all of the assets
of WMAN(AM) and WYHT(FM) for total cash consideration of $7,650,000. Faircom
also negotiated the refinancing of all its existing indebtedness, increased such
indebtedness and obtained additional equity capital in connection with the
acquisition.
In January 1998, Faircom purchased substantially all of the assets and
operations of radio station WSWR(FM) in Shelby, Ohio for $1,125,000 in cash. The
acquisition was financed with internal funds and a bridge loan from Blue Chip to
Faircom of $1,100,000. This bridge loan is expected to be refinanced from term
loans to Regent at the closing of the Merger. The bridge loan is in the form of
a subordinated note, matures on the first to occur of May 22, 1998 or the
closing of the Merger and bears accrued interest at 14% per annum, payable at
maturity.
Faircom continuously reviews radio properties for possible acquisition, and
several acquisitions are currently being actively pursued. No assurance can be
given that Faircom will successfully consummate any of such acquisitions.
Faircom's executive offices are located at 333 Glen Head Road, Suite 220,
Old Brookville, New York 11545 and its telephone number is (516) 676-2646.
OPERATING STRATEGY
Faircom's strategy has been to purchase radio properties that exhibit
growing revenues and broadcast cash flow, and have experienced, in-place
operating personnel. After acquiring a radio station, Faircom reviews the
station's operations and attempts to realize economies associated with ownership
of multiple stations by centralizing such functions as accounting and other
administrative activities. A minimal staff is maintained at the corporate level
reflecting Faircom's strategy of minimizing corporate expenses while giving
considerable autonomy to its station managers.
Faircom relies on experienced station managers who are given the authority
for decision making at the station level, subject to guidance by Faircom's
management. Faircom's station managers are partially compen-
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<PAGE> 64
sated on the basis of their ability to meet or exceed budgeted operating
results. Consequently, operating personnel can benefit by meeting the revenue
and expense objectives of Faircom.
Each station targets specific demographic groups based upon advertiser
demand, the format of the station and the competition in the market. Through
program selection, promotion, advertising and the use of selected on-air
personnel, each station attempts to attract a target audience that it believes
is attractive to advertisers. Faircom retains consultants to assist the its
programming personnel by evaluating and suggesting improvements for programming.
Faircom also conducts research through outside consultants to evaluate and
improve its programming and also uses its own personnel for such research.
LICENSES
Faircom's license for its Tuscola station, WWBN(FM), was to expire October
1, 1996, and was renewed for a term through October 1, 2003. Pursuant to
regulations adopted by the FCC in January 1997, as provided by the Telecom Act,
the license renewal term was extended to October 1, 2004, a period of eight
years. Faircom's licenses for its Flint stations, WCRZ(FM) and WFNT(AM), also
were to expire on October 1, 1996. Timely license renewal applications for the
stations were filed, and, as part of the FCC's review process, the Equal
Employment Opportunity ("EEO") Branch of the FCC's Mass Media Bureau requested
additional written information regarding Faircom's EEO recruitment efforts at
these stations. Such additional information was furnished, and on September 30,
1997, the FCC released a Memorandum Opinion and Order and Notice of Apparent
Liability. The Opinion found that there was no evidence that the licensee
engaged in employment discrimination, but that the overall EEO recruitment
effort was deficient because the licensee failed to recruit actively for some of
its vacancies and to engage in meaningful self-assessment of its EEO program.
The Order granted renewal of the stations licenses for a term expiring October
1, 2004, subject to an admonishment and reporting requirements with respect to
EEO recruitment performance for the 12 month periods ending June 1, 1998, 1999
and 2000. A Notice of Apparent Liability was issued in the amount of $11,000.
The management of Faircom and its FCC counsel believe that the factual
assumptions on which the FCC Opinion, Order and Notice are based are incorrect
and incomplete. On October 30, 1997, Faircom filed with the FCC a Petition for
Reconsideration in this matter. Faircom and its FCC counsel are unable to
predict the ultimate outcome of this matter, but in the opinion of both a
rejection of Faircom's Petition would not have a material adverse effect on
Faircom. The licenses of WMAN(AM) and WYHT(FM) in Mansfield, Ohio, and WSWR(FM),
in Shelby, Ohio, were renewed October 1, 1996 and expire October 1, 2004.
EMPLOYEES
At the corporate level, Faircom employs its President and Treasurer, Joel
M. Fairman, and John E. Risher, its Senior Vice President, who also utilize the
services of consultants, a bookkeeping service and Faircom's attorneys.
Faircom's President and Senior Vice President assist the general managers of
Faircom's stations in developing strategies to increase the profitability of
Faircom's broadcasting properties and in the operation of the stations. Faircom
plans to continue its present policy of utilizing only a small number of persons
at the corporate level. Each market in which Faircom owns and operates radio
stations has its own complement of employees, including a general manager, a
sales manager, a business manager, advertising sales staff, on-air personalities
and engineering and operating personnel. In the aggregate, Faircom's
subsidiaries employ 63 people on a full-time basis and 31 people on a part-time
basis.
Faircom has never experienced a strike or work stoppage and believes that
its relations with its employees are good.
PROPERTIES
Faircom leases an aggregate of approximately 1,535 square feet of office
space for its corporate offices in Old Brookville, New York. The leases expire
February 28, 1998. Faircom has the option to extend the leases for an additional
term of three years. Annual rental is currently $38,500. Faircom has exercised
its option to extend its lease on 780 square feet of office space through
February 28, 2001, for which its annual rental is currently
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<PAGE> 65
$22,200. Its lease on the balance of its office space, 755 square feet, with a
current annual rental of $16,300, will expire February 28, 1998.
The Flint stations occupy studio and office space in a building of
approximately 6,000 square feet located on 10 acres in southeastern Flint,
Michigan. The AM towers and antennas are also located on this land. A FM tower,
antenna and transmitter building and equipment are located on 19 acres of land
located nearby. The land, buildings, towers, antennas and equipment are owned by
a subsidiary of Faircom.
The Tuscola station occupies studio and office space in leased premises in
Frankenmuth, Michigan, at an annual rental of $1,800 under a lease that expires
in September 1998. The station's tower, antenna and transmitter building and
equipment are owned by a subsidiary of Faircom. Those facilities are located on
leased land in Millington, Michigan. The lease expires in June 2002 and has
renewal options through June 2042. Current rental is $2,112 annually.
The Mansfield stations occupy studio and office space in a building of
approximately 6,600 square feet located on six acres in Mansfield, Ohio. An
auxiliary AM tower is located at this site. An adjoining property of
approximately 10 acres is the site of a building of approximately 6,000 square
feet that contains AM and FM transmitters and equipment and storage space. The
AM and FM towers and antenna are located on this property. The land, buildings,
towers, antennas and equipment are owned by a subsidiary of Faircom.
All operations of WSWR(FM) are being moved from Shelby to the Mansfield
studio and office space. The tower, antenna and transmitter building and
equipment of WSWR(FM) are located on approximately one-half acre in Plymouth
Township, Ohio, northeast of Shelby. The tower site is leased through September
2002 at a current rental of $1,200 annually, with four five-year term renewal
options, each at a 10% increase in annual rent over the prior term. WSWR(FM)
also leases approximately 1,000 square feet for office, sales and broadcast use
in Willard, Ohio. The lease is at a current annual rental of $3,600 and expires
in August 2002. The lease contains an option to renew for an additional
five-year term at an annual rental of $4,200.
Faircom owns substantially all of its studio and general office equipment.
Faircom believes that its properties are in good condition and are adequate for
its operations, although opportunities to upgrade facilities are constantly
reviewed.
All the tangible and intangible property of Faircom's subsidiaries is
pledged as security for senior debt of the subsidiaries.
LEGAL PROCEEDINGS
Faircom is not a party to any lawsuit or legal proceeding that, in the
opinion of Faircom, is likely to have a material adverse effect on Faircom.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FAIRCOM
The following table sets forth, as of the date of this Proxy
Statement/Prospectus, certain information with respect to all stockholders known
to Faircom to beneficially own more than 5% of the Faircom Common Stock, and
information with respect to Faircom Common Stock beneficially owned by each
director of Faircom, the President of Faircom and all directors and executive
officers of Faircom as a group. Except as otherwise specified,
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<PAGE> 66
the stockholders listed in the table have sole voting and investment power with
respect to Faircom Common Stock owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNERS BENEFICIALLY OWNED(A) PERCENT OF CLASS
- ------------------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Blue Chip Capital Fund II Limited............................ 14,492,085(b) 66.3%
Partnership
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Miami Valley Venture Fund L.P................................ 2,557,427(c) 25.7%
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 4520
John H. Wyant................................................ 17,049,512(d) 69.8%
c/o Blue Chip Venture Company, Ltd.
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
PNC Bank, National Association, Trustee...................... 1,962,488(e) 21.0%
201 East Fifth Street
Cincinnati, Ohio 45202
Joel M. Fairman.............................................. 2,458,886(f) 28.5%
333 Glen Head Road
Old Brookville, New York 11545
Don G. Hoff and Sandra Hoff.................................. 430,000 5.8%
1 Via Capistrano
Tiburon, California 94920
Ido Klear.................................................... 380,000 5.2%
111 Great Neck Road
Great Neck, New York 11021
Anthony Pantaleoni........................................... 110,000(g) 1.5%
666 Fifth Avenue
New York, New York 10103
Stephen C. Eyre.............................................. 139,500(g) 1.9%
69 Dogwood Lane
Locust Valley, New York 11560
John C. Jansing.............................................. 153,500(g) 2.1%
162 South Beach Road
Hobe Sound, Florida 33455
All officers and directors as a group (6 persons)............ 20,227,212(h) 77.0%
</TABLE>
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<PAGE> 67
- ---------------
(a) The Securities and Exchange Commission has defined "beneficial ownership"
to include sole or shared voting or investment power with respect to a
security or the right to acquire beneficial ownership within 60 days. The
number of shares indicated are owned with sole voting and investment power
unless otherwise noted and includes certain shares held in the name of
affiliated companies as to which beneficial ownership may be disclaimed.
(b) Represents: (A) 8,431,875 shares issuable upon conversion of Faircom's
Class A Subordinated Promissory Note held by Blue Chip Capital Fund II
Limited Partnership in the principal amount of $3,750,000; and (B)
6,060,210 shares issuable upon conversion of Faircom's Class B Subordinated
Promissory Note held by Blue Chip Capital Fund II Limited Partnership in
the aggregate principal amount of $3,900,000. See note (d) below.
(c) Represents: (A) 1,487,979 shares issuable upon conversion of Faircom's
Class A Subordinated Promissory Note held by Miami Valley Venture Fund L.P.
in the principal amount of $661,765; and (B) 1,069,448 shares issuable upon
conversion of Faircom's Class B Subordinated Promissory Note held by Miami
Valley Venture Fund L.P. in the principal amount of $688,235. See note (d)
below.
(d) John H. Wyant, a director of Faircom, is a beneficial owner and manager of
Blue Chip Venture Company Ltd., which is the general partner of Blue Chip
Capital Fund II Limited Partnership, and Blue Chip Venture Company of
Dayton, Ltd., an investment manager for Miami Valley Venture Fund L.P. Mr.
Wyant disclaims beneficial ownership of the securities held by Blue Chip
Capital Fund II Limited Partnership and Miami Valley Venture Fund L.P. See
notes (b) and (c) above.
(e) Represents 1,322,646 shares issuable upon conversion of Faircom's Class A
Subordinated Promissory Notes held by PNC Bank, National Association,
Trustee in the principal amount of $588,235 and 639,842 shares issuable
upon conversion of Faircom's Class B Subordinated Promissory Notes held by
PNC Bank, National Association, Trustee in the principal amount of
$411,765.
(f) Includes 1,258,886 shares issuable pursuant to stock options held by Mr.
Fairman, including options granted under Faircom's Stock Option Plan (the
"Plan") and outside the Plan. See "The Merger -- Interests of Certain
Persons in the Merger; Certain Relationships."
(g) Includes 100,000 shares issuable pursuant to stock options held by each of
Messrs. Pantaleoni, Eyre and Jansing under the Plan.
(h) Includes 1,849,700 shares issuable pursuant to stock options held by
officers and directors of Faircom, including options granted under the Plan
and outside the Plan, and 17,049,512 shares issuable upon conversion of
Faircom's Class A and Class B Subordinated Promissory Notes held by Blue
Chip Capital Fund II Limited Partnership and Miami Valley Venture Fund L.P.
See note (d) above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FAIRCOM
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 compared to nine months ended September
30, 1996
The results of Faircom's operations from period-to-period are not
comparable or necessarily indicative of results in the future due to the
significance of acquisitions. As of June 30, 1997, Faircom, through a wholly-
owned subsidiary, acquired the assets and operations of two radio stations,
WMAN(AM) and WYHT(FM), both located in Mansfield, Ohio (the "Mansfield
Stations"). The acquisition has been accounted for as a purchase, and
accordingly the operating results of the Mansfield Stations have been included
in the Consolidated Statements of Operations from the acquisition date.
The increase in Faircom's net broadcasting revenues for the nine months
ended September 30, 1997 resulted principally from the ownership and operation
of the Mansfield Stations during such period. Net broadcasting revenues
increased to $4,064,000 from $3,363,000, or 20.8%, in such nine month period in
1997 as compared with the corresponding 1996 period.
Operating expenses before depreciation, amortization and corporate expenses
also increased to $2,635,000 from $2,184,000, or 20.7%, in the nine month period
ended September 30, 1997, as compared with the 1996 period, primarily as a
result of the acquisition of the Mansfield Stations.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses (broadcast cash flow)
increased 21.2% to $1,429,000 in the nine months ended September 30, 1997 from
$1,179,000 in the comparable 1996 period. This increase resulted primarily from
the acquisition of the Mansfield Stations as described above.
Depreciation and amortization and interest expense increased in the nine
month period ended September 30, 1997, as compared with the 1996 period, as a
result of the addition of assets and debt incurred in connection with the
acquisition of the Mansfield Stations.
As a result principally of an extraordinary loss from debt extinguishment
of $4,703,000, offset in part by an extraordinary gain from debt extinguishment
of $370,000, net loss was $4,529,717 for the nine months ended September 30,
1997 compared to net income of $79,729 in the first nine months of 1996.
Year ended December 31, 1996 compared to year ended December 31, 1995
Faircom's net broadcasting revenues decreased 4.7% in 1996 compared to 1995
(to $4,874,000 from $5,114,000), primarily due to lower regional and national
advertising activity in the Flint, Michigan radio market and resulting lower
regional and national advertising revenues in the Flint radio stations.
Operating expenses before depreciation, amortization and corporate expenses
increased by 1.6% in 1996 compared to 1995 (to $2,993,000 from $2,946,000).
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses ("broadcast cash flow")
decreased 13.2% (to $1,881,000 from $2,167,000) in 1996 compared to 1995,
principally as a result of the lower net broadcasting revenues in Flint.
Corporate expenses increased by 10.5% in 1996 from 1995 (to $337,000 from
$305,000) primarily as a result of higher employee compensation, professional
fees and related expense. Such employee compensation in 1996 included incentive
payments indexed to 1995 operating results.
Interest expense decreased by 13.9% in 1996 from 1995 (to $699,000 from
$811,000) due to lower principal amounts of interest bearing debt outstanding
and lower interest rates during 1996.
As a result principally of lower provision for appraisal rights and
interest expense in 1996 compared with 1995, offset by lower income from
operations, net income increased to $279,000 in 1996 from $245,000.
Year ended December 31, 1995 compared to year ended December 31, 1994
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<PAGE> 69
Faircom's net broadcasting revenues increased 2.6% in 1995 compared to 1994
(to $5,114,000 from $4,984,000). Increased net revenues at the Flint, Michigan
radio stations in 1995 more than offset the absence of any net revenues in 1996
from a radio station in Southampton, New York, formerly owned by Faircom and
sold in August 1994. Net revenues increased in the Flint stations as a result of
higher local and national advertising revenues generated by increased economic
activity in the market and nationally.
Operating expenses before depreciation, amortization and corporate expenses
increased by 3.3% in 1996 compared to 1994 (to $2,946,000 from $2,863,000).
Expenses increased as a result of increased operating expenses at the Flint
stations, offset in part by the absence of operating expenses in the Southampton
station formerly owned by Faircom. The increases in Flint operating expenses
consist principally of increases in promotion and advertising expense, the cost
of new syndicated programming and higher sales and administrative expense.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses ("broadcast cash flow")
increased 1.7% (to $2,167,000 from $2,131,000) in 1995 compared to 1994. This
increase resulted from higher broadcast cash flow in Flint, offset by the
absence of any broadcast cash flow from Southampton in 1995.
Corporate expenses increased by 12.4% in 1996 from 1994 (to $306,000 from
$271,000) primarily as a result of higher payments for employee compensation,
including incentive compensation.
Interest expense increased by 6.4% in 1995 from 1994 (to $811,000 from
$770,000) due to higher principal amounts of interest bearing debt outstanding
and higher interest rates during 1996.
The year 1995 contained no gain from sale of radio stations. Such gain, in
the amount of $965,000, was contained in the year 1994, reflecting the sale in
August 1994 of the Southampton radio station formerly owned by Faircom.
Preferred stock dividend requirement of subsidiaries decreased by 100.0% in
1995 from 1994 (to zero from $149,000) as a consequence of the extinguishment of
the preferred stock in a former subsidiary of Faircom resulting from the sale of
the former station in Southampton in August 1994.
As a result principally of the absence in 1995 of the $966,000 gain from
sale of a radio station and the $787,000 gain from troubled debt restructuring
recognized in 1994, net income declined to $245,000 in 1995 from $1,779,000 in
1994. The gain from sale of a radio station and the gain from troubled debt
restructuring accounted for $.13 and $.11 of the primary and $.06 and $.05 of
the fully diluted per share earnings, respectively, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1997, net cash provided by operating
activities was $186,000 compared with $154,000 provided by operating activities
in the comparable 1996 period. Net increase in cash and cash equivalents was
$372,000 in 1997 compared with a net decrease of $280,000 in 1996.
Based upon current interest rates, Faircom believes its interest payments
for the balance of 1997 will be approximately $318,000. Scheduled debt principal
payments are $95,000. Corporate expenses and capital expenditures for the
remainder of 1997 are estimated to be approximately $100,000 and $55,000,
respectively. Faircom expects to be able to meet such interest expense, debt
repayment, corporate expenses and capital expenditures, aggregating $568,000,
from net cash provided by operations and current cash balances.
As previously indicated, the terms of the Securities Purchase Agreement
applicable to the Class A and Class B Notes, provide that if Faircom Inc. does
not, on or before January 1, 1998, consummate a merger of Faircom Inc. with
another corporation on terms acceptable to noteholders, then upon notice from
the noteholders, Faircom Inc. shall take all action necessary to liquidate
Faircom Inc. and each of its subsidiaries on terms and conditions acceptable to
the noteholders, such approval not to be unreasonably withheld. Any such
liquidation shall provide for the payment in full of all senior debt.
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<PAGE> 70
Faircom is currently negotiating with respect to additional radio station
acquisitions. Such acquisitions would require additional debt and equity
financing. In addition, Faircom has engaged in discussions regarding various
forms of combinations with other group broadcasters.
On October 22, 1997, Faircom announced that it had signed a letter of
intent to merge with Regent Communications, Inc., another group radio
broadcaster. Faircom expects to pay the fees and expenses of this transaction
for which Faircom is responsible from net cash provided by operations and
current cash balances. Faircom is unable to estimate, at present, the amount of
such fees and expenses.
INFLATION
Faircom does believe the effects of inflation have had a significant impact
on its consolidated financial statements.
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INFORMATION CONCERNING REGENT
INTRODUCTION
The discussion set forth below under the heading "Description of Business"
describes the business of Regent as conducted by Regent and its subsidiaries
prior to Effectiveness. The discussion set forth below under the heading "Recent
and Pending Transactions" describes all recent transactions with respect to
which Regent or its subsidiaries acquired or disposed of properties and all
transactions with respect to which Regent has entered into definitive agreements
or letters of intent for the purchase of additional radio station properties or
the sale of certain of its assets.
DESCRIPTION OF BUSINESS
General. Regent is a holding company engaged in the radio broadcasting
business. Regent was incorporated under the laws of the State of Delaware in
1996 under the name "JS Communications, Inc." and, in 1997, changed its name to
"Regent Communications, Inc." Regent, through its wholly-owned subsidiary,
currently owns and operates radio station KCBQ(AM) located in San Diego,
California. Regent also provides programming and other services to 24 other
stations under time brokerage agreements which Regent has agreed to acquire
concurrently with the closing of the Merger.
The following table sets forth certain information regarding KCBQ-AM and
the radio stations which Regent has agreed to acquire:
<TABLE>
<CAPTION>
STATION CALL CITY OF POWER
MARKET AREA LETTERS LICENSE FREQUENCY (KW) FORMAT
- --------------------------------- ----------------------- --------- ----- -------------------
<S> <C> <C> <C> <C> <C>
San Diego, California
KCBQ(AM)* San Diego, CA 1170 KHz 50.0(day) Talk/Information
1.5(night)
Chico, California
KFMF(FM)+ Chico, CA 93.9 MHz 2.0 Album Oriented
Rock
KALF(FM)+ Red Bluff, CA 95.7 MHz 7.0 Country
KPPL(FM)+ Colusa, CA 107.5 MHz 28.0 Lite Rock
Redding, California
KQMS(AM)+ Redding, CA 1400 KHz 1.0 News/Talk/Sports
KSHA(FM)+ Redding, CA 104.3 MHz 100.0 Lite Rock
KNNN(FM)+ Central Valley, CA 99.3 MHz 4.2 Adult Contemporary
KRDG(FM)+ Shingletown, CA 105.3 MHz 9.9 Oldies
KRRX(FM)+ Burney, CA 106.1 MHz 100.0 Classic Rock
KNRO(AM)+ Redding, CA 600 KHz 1.0 News/Talk/Sports
Palmdale, California
KTPI(FM)+ Tehachapi, CA 103.1 MHz 6.0 Country
KVOY(AM)+ Mojave, CA 1340 KHz 1.0 Country/Talk
Victorville, California
KZXY(FM)+ Apple Valley, CA 102.3 MHz 3.0 Adult Contemporary
KIXW(AM)+ Apple Valley, CA 960 KHz 5.0 Country/Adult
Contemporary
KATJ(FM)+ George, CA 100.7 MHz 260w Country
KROY(AM)+ Victorville, CA 1590 KHz 500w Country
KIXA(FM)+ Lucerne Valley, CA 106.5 MHz 150w Country
South Lake Tahoe, California
KRLT(FM)+ South Lake Tahoe, CA 93.9 MHz 6.0 Classic Rock
KOWL(AM)+ South Lake Tahoe, CA 1490 KHz 1.0 News/Talk/Sports
</TABLE>
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<TABLE>
<CAPTION>
STATION CALL CITY OF POWER
MARKET AREA LETTERS LICENSE FREQUENCY (KW) FORMAT
- --------------------------------- ----------------------- --------- ----- -------------------
<S> <C> <C> <C> <C> <C>
Flagstaff, Arizona
KZGL(FM)+ Cottonwood, AZ 95.9 MHz 9.0 Classic Rock
KVNA(AM)+ Flagstaff, AZ 600 KHz 5.0 News/Talk/Sports
KVNA(FM)+ Flagstaff, AZ 97.5 MHz 100.0 Adult Contemporary
Kingman, Arizona
KFLG(AM) Bullhead City, AZ 1000 KHz 5.0 American Standards
KFLG(FM) Bullhead City, AZ 102.7 MHz 53.0 Country
KAAA(AM)+ Kingman, AZ 1230 KHz 1.0 News/Talk
KZZZ(FM)+ Kingman, AZ 94.7 MHz 100.0 Adult Contemporary
Flint, Michigan
WCRZ(FM) Flint, MI 107.9 MHz 50.0 Adult Contemporary
WWBN(FM) Tuscola, MI 101.5 MHz 6.0 Album Oriented Rock
WFNT(AM) Flint, MI 1470 KHz 5.0(day) News/Talk/Sports
1.0(night)
Mansfield/Shelby, Ohio
WMAN(AM) Mansfield, OH 1400 KHz 1.0 News/Talk/Sports
WYHT(FM) Mansfield, OH 105.3 MHz 50.0 Hot Adult
Contemporary
WSWR(FM) Shelby, OH 100.1 MHz 3.0 Oldies
Charleston, South Carolina
WSSP(FM)+# Goose Creek, SC 94.3 MHz 5.8 Nostalgia
</TABLE>
- ---------------
* Regent has entered into a letter of intent for the sale of KCBQ(AM).
+ Regent provides programming and sells advertising as a "time broker" to these
stations for a monthly fee pending their acquisition.
# Regent has an option expiring in November 1998 for the purchase of WSSP(FM),
which option may be put to Regent if not exercised prior to its expiration.
See "Information Concerning Regent -- Recent and Pending Transactions."
Acquisition Strategy. Given deregulation and subsequent industry
consolidation, Regent believes it is prudent to acquire a sufficient number of
stations in each market to form competitive station clusters. Operating a number
of stations in a single market should allow Regent to reduce overhead and
marketing expenses, create a strong identity among advertisers, attract superior
operating and on-air talent, and build a strong position with demographically
attractive listeners, thereby creating operating leverage that should give
Regent the opportunity to enhance revenue generation.
Initially, Regent intends to focus on the acquisition of properties or
combining with operators with existing cash flow (such as Park Lane and Faircom)
to provide a corporate base for future growth. As Regent expands, it may
consider opportunities involving underperforming stations, which will benefit
from management's experience, thereby positioning itself to increase return on
investment.
Management does not have a specific inflexible acquisition formula,
believing that what may be an attractive cash flow multiple in one situation may
be a very poor investment in other circumstances. Factors which may influence
pricing include actual and potential revenue growth rates, competitive factors,
the potential to improve or add to existing in-market operations, the quality of
technical facilities, and hidden values such as high overhead, poor sales
conversion, or real estate or other assets that can be sold.
Regent plans to utilize its management's experience in the industry and
relationships with both independent owners and larger corporate entities to
create opportunities for purchases that may not be available to others. Regent
expects to be flexible with respect to its acquisition policies, offering
certain sellers the opportunity to receive shares of Regent in partial payment
for their stations. Regent believes the availability of a publicly-traded
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equity as a payment medium may be useful to Regent in accommodating sellers'
financial and tax objectives. In the past this has proven to be helpful when
negotiating with sellers who wish to maintain an investment in the industry
while achieving some liquidity. As an additional inducement, Regent may also
offer qualified sellers the opportunity to continue to manage the properties
subsequent to a sale, providing continued stability within its operations.
Operating Strategy. Regent's strategies for operating broadcasting
properties and creating value have been developed from its management's years of
experience in the industry.
Critical elements of Regent's operating strategies include a continual
focus on improving ratings, revenues and operating effectiveness in each
station; an emphasis on developing superior local and corporate management; the
sharing of financial rewards with this management; operating multiple station
clusters for maximum efficiency; the development of strong ratings or format
positions within its markets; establishing the first, second or third revenue
position in each of its markets; improving the performance of developmental
stations; utilization of management information systems and controls; ongoing
programming research; and effective implementation of the results of this
research.
Regent management has experience building and operating profitable
in-market station clusters with strong ratings or format positions and believes
that the opportunities created by deregulation can only be realized by owning
well designed and executed clusters. Maximizing performance of an in-market
cluster requires musical formats that work well together to draw attractive
demographics and create a market position less vulnerable to competitive attack.
An example of such a cluster might include ownership of a Modern Rock, Classic
Rock and a Sports/Talk station. Such a grouping would tend to attract an
audience with strength among male demographics. This audience would be of
interest to particular advertisers (e.g., brewers, certain automobile
manufacturers or retailers oriented toward a male clientele) and allow the
broadcaster to create attractive packages for these advertisers.
Strong station clusters are also critical to establishing a competitive
revenue position. Consolidation results in a smaller number of broadcasters
controlling larger revenue shares. In most markets, holding a top three position
generally provides the ability to compete for advertisers seeking broad
visibility in the market. Moreover, clusters with larger revenue shares will be
in a position to spread overhead and other costs over this larger base, thereby
increasing margins relative to smaller competitors.
Regent's plan is to seek to build market share and create high returns on
investment by purchasing a mixture of cash flowing and developmental properties
and improving their operating and financial performance. In general, these types
of properties are enhanced by research driven improvements in musical format,
followed by operational improvements. At a minimum, such operating improvements
include ensuring that superior station management, systems and controls, and
aggressive budgets are in place. Corporate management may temporarily take over
day-to-day management of such properties until the improvements are soundly
established. While industry dynamics have changed and broadcasting prices have
risen, management believes that the fundamental skills required to improve
station operations have remained largely the same.
In running the geographically diverse operations and rapidly changing
businesses that are typical of broadcasting companies, management has found that
effective management information systems and controls are an important element
of success. For Regent, these consist of:
- - Daily and weekly detailed sales reports that allow for the control of
advertising unit pricing based on available inventory.
- - Detailed monthly financial statements which track "actual" versus "budget"
versus "prior year" performance on a "monthly," "quarterly" and/or
"year-to-date" basis. These reports provide detail on all revenue and expense
categories by department, station, market and on a corporate, consolidated
basis.
- - Detailed daily cash management reports with all cash collected swept into a
central interest-bearing account each day.
- - Monthly tracking of Arbitrend ratings by station, where available, to monitor
performance.
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- - Monthly tracking, by market, of market and station revenue data, where
available, to track each station and market to determine if audience share is
being properly converted to revenue share.
- - Constant monitoring of competition by station and market.
Assembling talented and aggressive operating management is critical to
success for radio companies. Messrs. Jacobs and Stakelin have always endeavored
to create positive work environments in order to attract and retain talented
personnel. In addition, Regent intends to provide incentives to key employees by
creating financial rewards, including making equity available to certain key
employees based on performance.
In summary, Regent's strategy is to attempt to create solid and growing
cash flows, profitable and well thought out local clusters, reasonable
geographic and formatic diversity and an experienced management team at both the
corporate and station levels. It is believed that the implementation of this
strategy will position Regent as a relatively attractive public or private
acquisition target or as a merger partner.
Dividend Policy. In addition to restrictions on the payment of dividends
imposed under Delaware General Corporation Law and the terms of Regent's Credit
Agreement, Regent presently intends to retain all of its earnings, if any, for
the future operation and growth of its business and does not intend to pay cash
dividends on shares of its capital stock in the foreseeable future. The payment
of any cash dividends on any class of capital stock in the future will be
dependent upon Regent's results of operations, earnings, capital requirements,
contractual restrictions and other factors considered relevant by the Board of
Directors.
Regent's Credit Agreement permits the payment of cash dividends on Regent
Preferred Stock only (a) if Regent is not in default under the Credit Agreement,
(b) if the ratio of Regent's outstanding indebtedness to its operating cash flow
is below specified limits both on an historical and a pro forma basis, and (c)
to the extent the total amount of the annual aggregate cash dividend does not
exceed certain specified limits based on Regent's cash flow for the prior fiscal
year.
Regent's Credit Agreement also prohibits Regent from paying dividends on,
or redeeming, purchasing, retiring or otherwise acquiring any shares of, Regent
Common Stock.
Personnel. At the corporate level, Regent employs seven full-time employees
and one part-time employee. Each station has its own complement of employees,
which may include a general manager, a sales manager, an operations manager,
advertising staff, on-air personalities and secretarial personnel. In the
aggregate, Regent's subsidiaries employ 125 persons on a full-time basis and 101
persons part-time.
DESCRIPTION OF PROPERTY
Regent, through its subsidiary, Regent Broadcasting of San Diego, Inc.,
owns a leasehold interest in approximately 20 acres of land in Santee,
California for the radio transmitter and broadcast towers for KCBQ(AM). A
two-story building used for studio and operations containing approximately 8,600
square feet and a one-story storage facility containing approximately 900 square
feet are also located on this property. The lease for this property expires in
September 1998. Regent has an option to renew the lease for one five-year term.
Annual rental is currently $50,000 plus an adjustment based on the annual
average percentage increase in the Gross National Product Implicit Price
Deflator.
Regent leases approximately 3,060 square feet of office space in Covington,
Kentucky for its corporate offices under a lease, which expires in March 1999.
Regent has the option to renew the lease for two five-year terms at market
rates. Current rental is $44,304 annually.
Regent does not anticipate any difficulties in renewing those leases that
require renewal within the next 10 years. Regent believes that its properties
are generally adequate for its current operations.
RECENT AND PENDING TRANSACTIONS
The following is a summary of all recent transactions with respect to which
Regent and its subsidiaries acquired or disposed of radio stations and all of
the Pending Transactions. Regent anticipates that, subject to its receipt of the
required FCC approvals, it will consummate the Pending Transactions concurrently
with or
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following the consummation of the Merger; however, there can be no assurance
that Regent will successfully complete any of the Pending Transactions.
In June 1997, Regent entered into an agreement to purchase all of the
outstanding capital stock of The Park Lane Group ("Park Lane"), 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 South Lake Tahoe, California and KVNA(AM), KVNA(FM) and
KZGL(FM) in Flagstaff, Arizona. The purchase price for the stock under the
original agreement was approximately $23,500,000 in cash, subject to certain
closing adjustments. In February 1998, Regent and the shareholders of Park Lane
entered into a First Amendment to Stock Purchase Agreement, which, among other
things, extended the closing date to the earlier of March 31, 1998 or the date
of the Merger, and decreased the purchase price to $23,075,000. The Merger
Agreement provides that the closing of the acquisition of the Park Lane Stations
must occur prior to or concurrently with the Closing of the Merger. Accordingly,
if the Park Lane acquisition has not been consummated prior to the Closing Date
and cannot be consummated concurrently with the Closing, the Merger may not be
consummated unless this condition is waived by both Regent and Faircom. Pending
such acquisition, Regent is operating the Park Lane Stations under a time
brokerage agreement. Upon consummation of this transaction, Regent and James H.
Levy, the President of Park Lane, will enter into a one-year Consulting and
Non-Competition Agreement, providing for the payment of a consulting fee of
$200,000 to Mr. Levy.
In October 1997, Regent and its wholly-owned subsidiary, Regent Acquisition
Corp., entered into an Agreement of Merger, pursuant to which Regent will
acquire 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. The purchase price for the stock is $2,000,000, subject to certain
adjustments to be made at Closing. The purchase price will be paid in the form
of $1,000,000 in cash and 200,000 shares of Regent's Series E Preferred Stock.
Alta is the owner, operator and licensee of radio station KRDG(FM) in
Shingletown, California and, through its subsidiary, Northern California
Broadcasting, Inc., KNNN(FM) in Central Valley, California. In addition, Alta
intends to acquire, prior to the closing of the merger between it and Regent
Acquisition Corp., 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.
In December 1997, Regent Broadcasting of Kingman, Inc., a wholly-owned
subsidiary of Regent, entered into an Asset Purchase Agreement with Continental
Radio Broadcasting, L.L.C. ("Continental") to purchase 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 is $3,600,000 in
cash.
In December 1997, Regent and its wholly-owned subsidiary, Regent
Broadcasting of Victorville, Inc. ("Regent-Victorville"), entered into an
Agreement of Merger, pursuant to which Regent will acquire all of the
outstanding capital stock of Topaz Broadcasting, Inc. ("Topaz") by virtue of a
merger of Topaz with and into Regent-Victorville. Topaz is currently a party to
an Asset Purchase Agreement to purchase the assets used or held by RASA
Communications, Inc. for use in the operation of radio station KIXA(FM) in
Lucerne Valley, California. The consideration to be paid for the Topaz stock is
400,000 shares of Regent Series E Preferred Stock, subject to certain
adjustments at closing. Pending closing of the Merger, Regent is operating
KIXA(FM) pursuant to the terms of a time brokerage agreement with Topaz.
In December 1997, Regent-Victorville also entered into an Asset Purchase
Agreement with Ruby Broadcasting, Inc. ("Ruby"), a sister corporation and
affiliate of Topaz, to purchase 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 the stations is $6,000,000 in cash. Pending closing of
this acquisition, Regent is operating the stations pursuant to the terms of a
time brokerage agreement with Ruby.
In December 1997, Regent signed a letter of intent with a third party to
sell the assets used in the operation of radio station KCBQ(AM) in San Diego,
California for $6,500,000 in cash. Regent is currently negotiating a definitive
agreement and anticipates the closing of this sale will take place prior to June
30, 1998.
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In December 1997, Wicks Broadcast Group Limited Partnership and WBG License
Co., L.L.C. (collectively, "Wicks") assigned to Regent an option to purchase the
FCC licenses and certain assets used in the operations of radio station WSSP(FM)
in Goose Creek, South Carolina from Southwind Broadcasting, Inc. ("Southwind").
In connection with this transaction, Regent made a $1,500,000 loan to Southwind,
which was financed through a non-recourse loan to Regent from a third party. The
term of the option is approximately one year. If Regent exercises the option,
the $1,500,000 debt obligation of Southwind to Regent will be cancelled in
payment of the purchase price. If the option is not exercised prior to the
expiration of its term, Southwind has the right to put the option to Regent in
satisfaction of its debt obligation. Regent is currently seeking to sell the
option to a third party. If Regent is not able to consummate a sale of the
option prior to expiration of the term of the option, Regent will exercise the
option. Payment on Regent's $1,500,000 non-recourse obligation incurred to
finance its loan to Southwind is due on the earlier of the eventual sale of the
station or December 3, 2002. Regent is currently operating WSSP(FM) pursuant to
a time brokerage agreement.
BUSINESS OF MERGER SUBSIDIARY
Merger Subsidiary, a wholly-owned subsidiary of Regent, has not conducted
any business activities to date, other than those incident to its formation, and
its participation in the preparation of this Proxy Statement/Prospectus. Upon
the consummation of the Merger, Merger Subsidiary will own all of the
outstanding capital stock of Faircom's subsidiaries. Accordingly, the business
of Merger Subsidiary will be the business currently conducted by Faircom and its
subsidiaries. See "Business of Faircom."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Regent was formed in November of 1996 to acquire, own and operate groups of
radio stations in medium and small-sized markets. Upon the consummation of the
Merger and the Pending Transactions, which were entered into during 1997, Regent
will own 31 stations in 10 markets located in California, Arizona, Michigan and
Ohio. During 1997, Regent provided programming and other services to 24 of these
stations pursuant to time brokerage agreements and to KCBQ(AM) in San Diego.
Regent acquired the FCC license and certain limited assets useful for its
operation of KCBQ(AM) in June 1997 and has subsequently entered into a letter of
intent to sell those assets.
The performance of a radio station group, such as Regent, is customarily
measured by its ability to generate Broadcast Cash Flow. Broadcast Cash Flow is
defined as net revenues less station operating expenses, excluding depreciation,
amortization, interest, taxes and corporate expenses. Although Broadcast Cash
Flow is not recognized under generally accepted accounting principles, it is
accepted by the broadcasting industry as a generally recognized measure of
performance and is used by analysts who report publicly on the condition and
performance of broadcasting companies. For the foregoing reasons, Regent
believes that Broadcast Cash Flow will be a useful measurement for investors.
However, investors should not consider Broadcast Cash Flow to be an alternative
to operating income as determined in accordance with generally accepted
accounting principles, an alternative to cash flows from operating activities
(as a measure of liquidity) or an indicator of Regent's performance under
generally accepted accounting principles.
The primary source of Regent's revenues is the sale of broadcasting time on
its radio stations for advertising. Regent's most significant station operating
expenses are employee salaries and commissions, programming expenses and
advertising and promotional expenditures. Regent strives to control these
expenses by working closely with local station management. See "Information
Concerning Regent -- Description of Business."
Regent's revenues are primarily affected by the advertising rates charged
by radio stations. Regent's advertising rates are in large part based on a
station's ability to attract audiences in the demographic groups targeted by its
advertisers, as measured in the larger markets principally by Arbitron on a
quarterly basis. Because audience ratings in local markets are crucial to a
station's financial success, Regent endeavors to develop strong listener
loyalty.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station. Regent strives to maximize station revenue by managing the
number of commercials available for sale and adjusting prices based upon local
market conditions. In the broadcasting industry, radio stations often utilize
trade (or barter) agreements which exchange advertising time for goods or
services (such as travel or lodging), instead of for cash. Regent seeks to
minimize its use of trade agreements.
Regent's advertising contracts are generally short-term. Regent generates
most of its revenue from local advertising, which is sold primarily by a
station's sales staff. To generate national advertising sales, Regent engages
independent advertising sales representatives that specialize in national sales
for each of its stations.
A broadcaster's revenues generally vary through the year. As is typical in
the radio broadcasting industry, Regent's first calendar quarter generally will
be expected to produce the lowest revenues for the year, and the fourth calendar
quarter generally will be expected to produce the highest revenues for the year.
Regent's operating results in any period may be affected by the incurrence of
advertising and promotion expenses that do not necessarily produce commensurate
revenues until the impact of the advertising and promotion is realized in future
periods.
Regent may experience continuing net losses due to anticipated high levels
of interest and depreciation and amortization expenses arising under the Credit
Agreement and any future borrowings and resulting from station acquisitions and
financing therefor.
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RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Report on Audits of
Consolidated Financial Statements, the Pro Forma Financial Statements and
related financial statements and notes appearing elsewhere in this Proxy
Statement/Prospectus. This discussion reflects the consolidated financial data
of the properties operated by Regent since its initiation of broadcasting
activities during the year 1997. Regent's activities, changes in financial
conditions and results of operations during the year 1996 were nominal since the
company was in the initial start-up phase.
Regent began its broadcasting activities on March 1, 1997 by providing
programming and other services to radio station KCBQ(AM) 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, Regent 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 forward; KRDG(FM), KNNN(FM), KRRX(FM) and KNRO(AM) in
Redding, California from October 10 forward; and WSSP(FM) in Charleston, South
Carolina from December 5 forward). The brokerage fees of these time brokerage
agreements were structured on a basis designed to pass through to the owners
much, if not all, of the Broadcast Cash Flow generated at the stations by
Regent.
The operating results of all of the above stations for the periods
indicated are included in the financial data as of December 31, 1997. The
stations included in the financial data were owned by eight different owners and
as a result of a number of factors, including the different capital structures
and accounting basis of the various owners of the stations, the historical
financial results are not meaningful for period-to-period comparisons. In
addition, due to the significance of pending acquisitions, the results of
Regent's operations are not necessarily indicative of results in the future.
Year Ended December 31, 1997 Compared to the Period November 5, 1996
(inception) through December 31, 1996
Net revenues (total revenues less agency commissions) for the stations
operated by Regent for the year ended December 31, 1997, were $4,916,005
compared to no revenues in 1996. Substantially all revenues were generated by
Stations operated under time brokerage agreements.
The operating expenses for the year ended December 31, 1997, corresponding
to the above revenues, were $4,167,002 compared to $12,406 in 1996.
Interest expense in 1997 was $97,254 compared to zero interest expense in
1996. Time brokerage agreement fees in 1997 were $1,223,054, compared to zero
time brokerage agreement fees in 1996. Net loss for 1997 was $1,103,425 compared
to a net loss of $12,406 in 1996.
Broadcast Cash Flow for the year ended December 31, 1997, was $749,003.
After reflecting additional expenses for depreciation, amortization, corporate
general and administrative expenses, time brokerage agreement fees, and interest
expense and income, the net loss was $1,103,425. After reflecting preferred
stock dividend requirements of $146,175, the loss applicable to common shares
(240,000) was $1,249,600, or a loss of $5.21 per common share.
Cash Flows
Cash flows used in operating activities, inclusive of working, were
approximately $1,668,000 for the year ended December 31, 1997 and zero for the
period November 5, 1996 (inception) through December 31, 1996. Cash flows used
in operating activities of the year ended December 31, 1997 resulted primarily
from the $1,100,000 net loss from operations and the $591,000 net change in
working capital.
Cash flows used by investing activities were approximately $2,821,000 for
the year ended December 31, 1997. Investing activities include acquisition costs
of approximately $775,000 and deposits held in escrow for station acquisitions
of approximately $1,975,000. There were no investing activities in 1996.
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Cash flows provided by financing activities were approximately $5,503,000
and $592 for 1997 and 1996, respectively. Cash flows provided by financing
activities during 1997 resulted primarily from issuance of $5,200,000 in
preferred stock and contributions from common shareholders of $600,000 offset by
approximately $300,000 of paid finance costs. Cash flows provided by financing
activities in 1996 resulted from issuance of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Recently Completed Radio Station Acquisitions and Pending Disposition
In June 1997, Regent completed the acquisition of the FCC license and
certain operating assets of KCBQ(AM) in San Diego, California for $6,000,000.
The acquisition was funded through the issuance of a 5-year promissory note to
the seller. Pursuant to the Asset Purchase Agreement, the seller agreed to
reimburse Regent for operating losses incurred from the effective date of the
time brokerage agreement and the acquisition date through the eventual date of
resale of the station assets. During 1997, such operating loss reimbursements
amounted to approximately $136,000. In December 1997, Regent signed a letter of
intent with a third party to sell the assets for $6,500,000 in cash. Regent is
currently negotiating a definitive agreement and anticipates closing the sale
prior to June 30, 1998. See "Information Concerning Regent -- Recent and Pending
Transactions."
Acquisitions and Dispositions Completed During 1997
In August, 1997, Regent acquired the FCC licenses and certain assets of
WXZZ(FM) located in Georgetown, Kentucky from a third-party for $3,450,000. The
acquisition was funded through a note payable to HMH Broadcasting. In November
1997, Regent sold the station assets to HMH Broadcasting in exchange for
cancellation of the aforementioned note payable.
In December 1997, Regent acquired radio stations WRFQ(FM) and WSUY(FM) in
Charleston, South Carolina for approximately $4,500,000 in cash. Regent
consummated this transaction and immediately transferred control of these assets
to a third party for $4,500,000 in cash, which was used to pay the purchase
price for the assets. See "Information Concerning Regent -- Recent and Pending
Transactions."
Pending Radio Station Acquisitions
Regent has also entered into agreements which have not yet been consummated
to acquire (by merger, by purchase of capital stock or by purchase of the FCC
licenses and substantially all of the broadcast assets) 31 stations in the
following broadcast areas:
<TABLE>
<CAPTION>
CONSIDERATION TOTAL ESCROW
-------------------------- PURCHASE AMOUNT
LOCATION STOCK CASH PRICE PAID
- ------------------------------------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Redding, California; Chico, California;
Palmdale, California; Victorville,
California; Kingman, Arizona; South Lake
Tahoe, California; and Flagstaff,
Arizona................................. $23,075,000 $23,075,000 $1,200,000
Shingletown, California; Burney,
California; Redding, California; and
Central Valley, California.............. $ 1,000,000 1,000,000 2,000,000 175,000
Bullhead City, Arizona.................... 3,600,000 3,600,000 175,000
Lucerne Valley, California................ 2,000,000 2,000,000 100,000
Apple Valley, California.................. 6,000,000 6,000,000 300,000
Mansfield, Ohio; Shelby, Ohio; Flint,
Michigan; and Tuscola, Michigan......... 3,056,000(a) 3,056,000
----------- ----------- ----------- ----------
$ 6,056,000 $33,675,000 $39,731,000 $1,950,000
========== ========== ========== =========
</TABLE>
- ---------------
(a) Reflects the reverse merger purchase price based on Regent's net asset
value as of September 30, 1997.
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Financing Activity
Regent's principal source of funds has been the net proceeds of
approximately $5,800,000 from private placements of Regent Common Stock and
Regent's Series A, Series B Senior and Series D Convertible Preferred Stock.
Concurrently with consummation of the Merger and the acquisition by Regent of
The Park Lane Group, purchasers of the Series A, Series B Senior and Series D
Preferred Stock are obligated to invest an additional $7,900,000, which would
bring Regent's equity capitalization up to approximately $13,700,000. In
addition, Regent has in place a $55,000,000 credit facility under the terms of a
Credit Agreement, dated as of November 14, 1997, with Bank of Montreal, Chicago
Bank as Agent, General Electric Capital Corporation as Documentation Agent, and
the lenders listed therein.
With respect to the Pending Transactions, Regent has deposited in escrow to
be applied toward the purchase prices an aggregate of $1,950,000, utilizing for
this purpose that amount of the proceeds from the private placement of its
equity securities. Regent also used a portion of the private placement proceeds
to fund operating, financing and investing activities during 1997. At December
31, 1997, Regent's working capital position was $1,341,527, net of deposits held
in excrow.
Regent estimates that approximately $37,500,000 of cash will need to be
utilized to complete the Merger and the Park Lane acquisition. This includes
cash payments to acquire the Park Lane stock, to retire existing indebtedness of
the Park Lane and Faircom entities, and to pay other estimated acquisition costs
and brokerage and investment banking fees. Actual cash required will depend on
adjustments that take into account the actual amount of Faircom's and Park
Lane's net working capital as of the closing date.
Subject to the terms and conditions of the Credit Agreement, the amount of
funding initially available to Regent will be limited to an amount which equals
6.0 times the combined historical twelve-month trailing EBITDA (defined as
earnings before interest, taxes, depreciation and amortization). This multiple
(i.e., leverage ratio) is to decline in stages over the term of the credit
facility to 3.5 by April 1, 2001, with the first reduction to 5.5 required by
October 1, 1998. The calculation of such EBITDA is to be made on a pro forma
basis which includes the trailing twelve-month operating cash flow of the
stations currently owned and/or operated by Regent and the stations to be
acquired pursuant to the Pending Transactions and excludes that of the stations
to be sold pursuant to the Pending Transactions.
The following is a summary of other material terms of the Credit Agreement.
Interest. All loans will be an obligation of Regent and each of its
subsidiaries and will bear interest, which is payable quarterly in arrears,
generally at a floating rate equal to either a Base Rate (the higher of the
Prime Rate or 1/2 of 1% in excess of the Federal Funds Effective Rate, as such
terms are defined in the Credit Agreement), plus a margin of up to 1.25%
depending upon Regent's ratio of total debt to operating cash flow, or an
Adjusted Libor Rate, as defined in the Credit Agreement plus a margin of from
1.25% to 2.50% depending upon Regent's ratio of total debt to operating cash
flow.
Amortization. Principal is payable in 25 consecutive quarterly
installments on the last day of each quarter commencing on March 31, 1999 in
amounts which increase incrementally from $687,500 per quarter through December
31, 1999 to $2,750,000 per quarter during the seventh year of the loan. The
balance of the principal of $6,875,000 is due on March 31, 2005.
Security. The assets and obligations under the loans are collateralized by
a first priority security interest in all existing and after-acquired property
of Regent and its subsidiaries and all issued and outstanding capital stock of
Regent's subsidiaries.
Covenants. The Credit Agreement contains financial leverage and coverage
ratios, limitations on corporate overhead, and restrictions on capital
expenditures in excess of $1,500,000 in the aggregate annually.
Prepayment. Regent is entitled to prepay the outstanding principal at any
time, in integral multiples of $500,000, without prepayment premium or penalty
(other than breakage and other costs with respect to LIBOR rate loans if the
prepayment is not made on specified dates).
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Based on the current operations of the Park Lane and Faircom stations,
Regent estimates that it will be able to utilize approximately $25,000,000 of
the funds available to it under the Credit Agreement toward completion of the
Park Lane acquisition and the Merger. To cover the balance of approximately
$11,300,000 (taking into account the deposit already in escrow) plus additional
working capital needed, if any, Regent will utilize its cash on hand, plus the
$7,900,000 committed to be invested by purchasers of its Series A, Series B
Senior and Series D Preferred Stock. In the event these funds are insufficient,
the balance will be provided in short-term borrowings from management and/or
other shareholders. While there can be no assurance that the Park Lane and
Faircom stations will, as of the closings of those transactions, achieve the
requisite cash flow levels required to obtain the $25,000,000 of bank financing
earmarked to fund these acquisitions, management of Regent believes the other
sources of financing, together with the funds expected to be generated from
operations, should be sufficient to fund the acquisition and on-going operation
of the Park Lane and Faircom stations for the next twelve months and foreseeable
future.
Regent projects that approximately $12,500,000 of cash will be needed to
complete the other Pending Transactions. Based on the current operations of the
stations being acquired, Regent estimates that it should be able to utilize
approximately $8,000,000 of the funds available to it under the Credit
Agreement. To cover the balance of $4,500,000, Regent is currently in
discussions with interested parties to secure an additional $10,000,000 to
$20,000,000 in debt and/or equity financing which will provide the additional
funds to complete those transactions. To assist it in these matters, Regent has
retained the services of The Crisler Company, a financial services firm that
specializes in arranging debt and equity financing for members of the
broadcasting industry. In the event Regent is unsuccessful in securing such
additional equity capital, it may forfeit escrow deposits of $750,000 in the
aggregate and incur other expenses related to defaulting under these agreements.
Regent does not currently have any material commitments with respect to
capital expenditures, but it intends to build new studios to consolidate
operations in several markets and will upgrade tower and transmitter locations
in at least two other markets. The total cost of these expenditures is expected
to be approximately $1,500,000. Regent anticipates that such expenditures would
be funded from the proceeds of new equity investments.
With the first principal debt repayment not due until March 31, 1999, it is
anticipated that Regent will be able to meet its debt service requirements from
net cash provided by operations over at least the next twelve months. As stated
above, however, under the terms of its Credit Agreement, there is no assurance
that Regent will be able to borrow enough to fund all of the Pending
Transactions. In addition, it is anticipated that through this period dividend
payments on the Preferred Stock will be deferred. In order to fund future
dividend payments from operating income, Regent will have to improve the
operating results of the radio stations to be acquired in the Pending
Transactions. Regent's ability to make these improvements will be subject to
prevailing economic conditions and to legal, financial, business, regulatory,
industry and other factors, many of which are beyond Regent's control.
Regent will be required to incur additional indebtedness or raise
additional equity financing in connection with future acquisitions of radio
properties and is likely to need to incur or raise such additional financing
when the final payment is due in 2005 under the Credit Agreement. There can be
no assurance that Regent will be able to incur such additional indebtedness or
raise additional equity on terms acceptable to Regent. Regent's ability to make
future acquisitions and incur additional indebtedness will also be restricted by
the Credit Agreement. Without such sources of funding, it is unlikely that
Regent will be able to carry out its acquisition strategy. See "Certain Risk
Factors."
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<PAGE> 82
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information as to each person who will serve as a
director or executive officer of Regent upon consummation of the Merger:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH REGENT
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Terry S. Jacobs.............. 55 Chairman of the Board, Chief Executive Officer,
Treasurer, Director
Joel M. Fairman.............. 68 Vice Chairman, Director
William L. Stakelin.......... 55 President, Chief Operating Officer, Secretary, Director
Fred L. Murr................. 50 Senior Vice President
Matthew A. Yeoman............ 32 Vice President, Finance, Assistant Secretary
R. Glen Mayfield............. 56 Director
John H. Wyant................ 51 Director
</TABLE>
Mr. Jacobs has been Chairman of the Board, Chief Executive Officer,
Treasurer and a Director of Regent since its organization in November 1996. Mr.
Jacobs served as President and Chief Executive Officer of a privately held radio
broadcast company which he co-founded in 1993 under the name "Regent
Communications, Inc." (Regent I) and which acquired and operated 16 radio
stations until its merger into Jacor Communications, Inc. in February 1997.
Prior to 1993, Mr. Jacobs was Chairman and Chief Executive Officer of Jacor
Communications, Inc., a radio broadcast company which he founded in 1979 and
which, during his tenure, grew to become the then ninth largest radio company in
the U.S. in terms of revenue. From 1974 to 1980, Mr. Jacobs was Senior Vice
President and Actuary and a member of the Board of Directors of Great American
Insurance Company, the insurance group of American Financial Group, Inc.,
Cincinnati, Ohio. Mr. Jacobs currently serves as a director of National Grange
Mutual Insurance Company.
Mr. Fairman has been Chairman of the Board, Chief Executive Officer and
Treasurer of Faircom since its founding and organization by him in April 1984.
Prior thereto he was an investment banking executive, and a practicing attorney
focusing on corporate transactions. From 1965 through 1983, he was employed by
Prudential-Bache Securities, Inc., and its predecessor firms. He was the founder
and Managing Director of Prudential-Bache's Communications Group, which provided
investment banking services to a wide variety of communications companies. Mr.
Fairman has been a director of a number of public and private companies,
including Barton's Candy Corp., Microwave Semiconductor Corp. and Great Scott
Supermarkets, Inc.
Mr. Stakelin has been President, Chief Operating Officer and a Director of
Regent since its organization in November 1996. He served as Executive Vice
President and Chief Operating Officer of Regent I from 1995 until its merger
into Jacor Communications, Inc. in February 1997. Mr. Stakelin served as
President and Chief Executive Officer of Apollo Radio, Ltd., a privately-held
radio broadcast company which he co-founded in 1988 and which acquired and
operated nine radio stations until its sale to Regent I in 1995. Mr. Stakelin
has held numerous industry offices, including Chairman of the Board of the
National Association of Broadcasters. From 1983 to 1988, Mr. Stakelin was
President and Chief Executive Officer of the Radio Advertising Bureau. He
currently serves as a member of the Board of Directors of the National
Advertising Council, the Associated Press and the Radio Advertising Bureau.
Mr. Murr has been employed by Regent as Senior Vice President since June
1997. Mr. Murr entered broadcasting in 1972 as a sales representative for radio
station WINN in Louisville, Kentucky, which at that time was owned by Bluegrass
Broadcasting Co., a company operated by Mr. Stakelin. Mr. Murr became general
sales manager for radio station WAVE in Louisville, Kentucky in 1974 and then
rejoined Bluegrass Broadcasting in 1980 as General Sales Manager in Orlando,
Florida. Mr. Murr joined Apollo Radio Ltd. when that company was formed by Mr.
Stakelin in 1988, serving in the capacity as Vice President/General Manager of
KUDL/KMXV in Kansas City, Missouri. He joined Regent I upon the sale of Apollo
to that company and became Vice President/General Manager of a five-station
group in Las Vegas, where he served until Regent I was acquired by Jacor
Communications, Inc. in February 1997.
Mr. Yeoman has been Vice President, Finance and Assistant Secretary of
Regent since March 1997. In 1993, he left his position with Jacor
Communications, Inc. to assist Mr. Jacobs in the formation and operation of
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<PAGE> 83
Regent I, where he held the position of Controller until its merger into Jacor
Communications, Inc. in February 1997.
Mr. Mayfield has served as a Director of Regent since May 1997, elected
pursuant to the terms of Regent's Series A Convertible Preferred Stock to
represent the holders of such stock. Since 1978, he has been President of
Mayfield & Robinson, Inc., a management and financial consulting firm in
Cincinnati, Ohio. Since August 1994, Mr. Mayfield has served as Vice President
and a director of Mayson, Inc., a corporation 50% owned by him which serves as
the general partner of River Cities Management Limited Partnership, the general
partner of River Cities Capital Fund Limited Partnership, which holds 50% of the
outstanding shares of Regent's Series A Preferred Stock. Mr. Mayfield is also a
director of NS Group, Inc.
Mr. Wyant has served since its formation in 1992 as President of Blue Chip
Venture Company, a venture capital investment firm which, together with its
affiliates, manages an aggregate of approximately $180 million of committed
capital for investment in privately held high growth companies. From 1991 to
1992, Mr. Wyant served as Executive Vice President, Corporate Finance, of
Gradison & Co., a financial services firm, where his primary activity was the
development and formation of Blue Chip Venture Company. Mr. Wyant was initially
trained in marketing with The Procter & Gamble Company and served in marketing
and general management positions with Taft Broadcasting Company. Subsequently,
he was Chief Executive Officer of Home Entertainment Network and Nutrition
Technology Corporation, both venture capital-backed companies. He has been a
director of Faircom since September 1997 and also is a director of Zaring
National Corporation, Ciao Cucina Corporation and a number of privately held
companies.
ELECTION OF DIRECTORS
Messrs. Jacobs and Stakelin were re-elected on May 20, 1997 as directors of
Regent to serve until the 1998 annual meeting of stockholders of Regent and
until their respective successors are elected and qualified. Pursuant to the
terms of Regent's Series A Preferred Stock, Mr. Mayfield was elected on May 20,
1997 as a director of Regent to represent the holders of such stock, to serve
until the 1998 annual meeting of stockholders and until his successor is elected
and qualified.
Pursuant to the Agreement of Merger, Messrs. Fairman and Wyant will become
directors of Regent at Effectiveness of the Merger, to serve until the 1998
annual meeting of stockholders and until their respective successors are elected
and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Regent intends to establish an Audit Committee
and a Compensation Committee following the Merger. It is intended that Messrs.
Mayfield and Wyant will serve as the initial members of said committees.
COMPENSATION OF DIRECTORS
Each of the directors of Regent currently serving as such, and each of the
individuals who is to become a director of Regent upon Effectiveness of the
Merger, either is or will become an employee of Regent, or serves or will serve
as a director pursuant to the terms of a series of Regent Preferred Stock
representing the holders thereof and, as such, will not receive compensation for
his service as a director of Regent.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual compensation of the executive
officers of Regent for the fiscal year ended December 31, 1997.
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<PAGE> 84
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION SALARY OTHER
- -------------------------------------------------------------------------- ------- ------
<S> <C> <C>
Terry S. Jacobs........................................................... $10,500 $1,050(a)
Chairman of the Board and Chief Executive Officer
William L. Stakelin....................................................... $10,500 $1,050(a)
President and Chief Operating Officer
Fred L. Murr.............................................................. $34,615(b) 0
Senior Vice President
Matthew A. Yeoman......................................................... $56,539 0
Vice President, Finance
</TABLE>
- ---------------
(a) Automobile allowance paid in 1997.
(b) Mr. Murr joined Regent in June 1997.
Employment Agreements. Regent has entered into employment agreements with
Terry S. Jacobs and William L. Stakelin pursuant to which Mr. Jacobs is employed
as Chairman and Chief Executive Officer of Regent and Mr. Stakelin is employed
as President and Chief Operating Officer of Regent, each for an initial term of
three years commencing March 1, 1998 and ending April 30, 2001. Under their
employment agreements, Mr. Jacobs and Mr. Stakelin are entitled to base salaries
of $250,000 and $225,000, respectively, which amounts are subject each 12-month
period to an increase in the discretion of the Board of Directors and to a
mandatory cost-of-living increase tied to the Consumer Price Index-All Items.
The employment agreements also provide for Messrs. Jacobs and Stakelin to
receive a discretionary annual bonus. Such bonus, if any, is to be determined by
the Board of Directors of Regent and based on performance of the employee and
Regent and the achievement of certain goals established for each year. As a
guideline, the employment agreements reflect the expectation of the parties that
performance during a fiscal year that is rated as "good" should merit a
discretionary bonus equal to 50% of the employee's base salary for that fiscal
year, with a higher percentage for performances of "excellent" or "outstanding,"
a lower percentage for performances of only "satisfactory" and no bonus for
performances of "poor." In addition, the employment agreements entitle Messrs.
Jacobs and Stakelin each to receive grants of incentive and non-qualified
options to acquire capital stock of Regent in the discretion of the Board of
Directors to purchase such number of shares of Regent Common Stock as would
equal 5.5% of Regent's capital stock outstanding from time to time (assuming the
exercise of all then outstanding warrants and options covering Regent capital
stock and the conversion of all securities then convertible into Regent capital
stock) provided, however, that such number shall not exceed the greater of
733,333 and 5.5% of the number of shares of capital stock of Regent outstanding
or committed to be issued under any existing agreement as of June 30, 1999. All
options are to have an exercise price per share equal to the per share fair
market value of the underlying Regent Common Stock on the date of grant. Grants
of incentive stock options are to vest over a period of ten years (10% per year)
and to be exercisable for ten years from the date of grant. Grants of
non-qualified stock options are to vest over a period of three years (33% per
year) and have an exercise period of ten years from the date of grant. All
unvested options will fully vest immediately upon a change of corporate control
of Regent or a sale of substantially all of its assets. The employment
agreements also provide for Messrs. Jacobs and Stakelin to receive use of an
automobile, parking and automobile insurance coverage at Regent's expense and
other benefits available to key management employees generally.
The employment agreements of Messrs. Jacobs and Stakelin are terminable by
them upon 90 days' prior written notice and are terminable by Regent at any
time. In the event of a termination by reason of the employee's death or
disability or in the event of a termination by Regent without cause, then (a)
Regent is required to purchase, and the employee is required to sell to Regent,
(i) all shares of Regent stock owned by him at a price equal to its fair market
value as of the date of termination (provided that the valuation date may not be
earlier than September 30, 1998) and (ii) all vested stock options held by him
at a price equal to the excess of the fair market value of the underlying stock
over the exercise price, (b) all unvested options will terminate, and (c) the
employee is entitled to receive his base salary through the termination date
and, in the event of disability, for up to one year
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<PAGE> 85
after termination during the continuation of disability. In the case of
termination due to death or disability, the employee is also entitled to a
prorated portion of any bonus to which he otherwise would have been entitled. If
employment is terminated by Regent without cause, the employment agreements
entitle Mr. Jacobs or Mr. Stakelin, as the case may be, to receive, in addition
to base salary and bonus prorated through the date of termination, the greater
of his current base salary for an additional 12-month period or his current base
salary throughout the remaining portion of the current three-year term of the
employment agreement. Messrs. Jacobs and Stakelin are subject to customary
non-competition and non-solicitation covenants during their period of employment
with Regent and, except in the case of a termination of employment by Regent
without cause, for an 18-month period thereafter, as well as customary
confidentiality covenants.
Pursuant to the terms of the Merger Agreement, at Effectiveness, Regent has
agreed to enter into an employment agreement with Joel M. Fairman providing for
Mr. Fairman to be employed by Regent as Vice Chairman of the Board for a
two-year term and as a consultant for the one-year period thereafter in
accordance with the terms of a standard consulting agreement to be entered into
between Regent and Mr. Fairman at that time. During the term of the employment
agreement and the consulting agreement, Mr. Fairman will be entitled to receive
annual base compensation equal to $190,000.
The employment and consulting agreements will provide for Mr. Fairman to
receive a discretionary annual bonus which, if awarded, would be in such amount
as may be determined by the Board of Directors of Regent and would be based on
the performance of Mr. Fairman and of Regent and the achievement of certain
goals established for each year. In addition, Mr. Fairman will be entitled to
receive grants of incentive or non-qualified options to acquire capital stock of
Regent under Regent's 1998 Management Stock Option Plan in the discretion of the
Board of Directors. The employment agreement will also contain Regent's
agreement to seek to cause Mr. Fairman to be elected and re-elected to the Board
of Directors of Regent to serve throughout the term of his employment and
consultancy with Regent and for two years thereafter, except if his employment
has been terminated for cause. The employment agreement will obligate Regent to
continue the existing lease currently utilized by Faircom at Suite 220, Old
Brookville, New York, pursuant to the existing lease terms through the end of
the employment and consultation periods. The employment and consulting
agreements will also provide for Mr. Fairman to own a term life insurance policy
paid for by Regent and to receive use of an automobile and automobile insurance
coverage at Regent's expense and other benefits available to key management
employees generally.
The employment agreement of Mr. Fairman will be terminable by him upon 90
days' prior written notice and will be terminable by Regent at any time. In the
event of a termination by reason of Mr. Fairman's death or disability or in the
event of a termination by Regent without cause, then Mr. Fairman would be
entitled to receive his base salary through the termination date and, in the
event of disability, for up to one year after termination during the
continuation of disability. In the case of termination due to death or
disability, Mr. Fairman would also be entitled to a prorated portion of any
bonus to which he otherwise would have been entitled. If employment is
terminated by Regent without cause, the employment and consulting agreements
would entitle Mr. Fairman to receive, in addition to his base salary and any
bonus prorated through the date of termination, the greater of his base salary
for an additional 12-month period or his base salary throughout the remaining
portion of the current term of his employment and consulting agreements. Mr.
Fairman will be subject to customary non-competition and non-solicitation
covenants during his period of employment and consultancy with Regent and,
except in the case of a termination by Regent without cause, for an 18-month
period thereafter, as well as customary confidentiality covenants.
Management Stock Options. An employee stock option plan known as the
Regent Communications, Inc. 1998 Management Stock Option Plan (the "Plan") has
been was adopted by Regent's Board of Directors and approved by its
stockholders, effective January 1, 1998. The Plan provides for the issuance of
stock options for not more than 2,000,000 shares of Regent Common Stock to
full-time, salaried employees of Regent and its subsidiaries who are determined
by the Compensation Committee of the Board of Directors to be key management
employees whose performance merits special recognition. As of ,
1998, employees were eligible to participate in the Plan.
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<PAGE> 86
The Plan permits the granting of incentive stock options under Section 422
of the Internal Revenue Code, as well as non-qualified stock options. Under the
Plan, the exercise price of incentive stock options that may be granted cannot
be less than the fair market value of the underlying stock on the date of grant
(110% of the fair market value for incentive stock options granted to any 10%
stockholder). Regent Common Stock underlying options that expire or are
surrendered unexercised become available for reissuance under the Plan. Options
granted under the Plan may be exercisable for up to ten years following the date
of grant, except that incentive stock options granted to employees who own more
than 10% of the voting shares of Regent may not be exercisable beyond five years
from the date of grant. Unless earlier terminated by the Board of Directors, the
Plan will terminate in 2007.
The Board of Directors of Regent has authorized the grant upon
Effectiveness of the Merger of incentive and non-qualified stock options under
the Plan to Mr. Jacobs and Mr. Stakelin in accordance with the terms of their
employment agreements. Those agreements provide for the issuance to Messrs.
Jacobs and Stakelin in intervals as equity securities are issued by Regent of
options to acquire up to 5.5% each of the outstanding capital stock of Regent,
on a fully-diluted basis. It is anticipated the grants to be made upon
Effectiveness of the Merger will entitle Mr. Jacobs and Mr. Stakelin each to
purchase approximately 360,000 shares of Regent Common Stock. The exercise price
per share is to be equal to the fair market value per share of the Regent Common
Stock on the date of grant. Additional options will be granted to Messrs. Jacobs
and Stakelin as additional shares of capital stock of Regent are issued. Of the
options to be granted to each of Mr. Jacobs and Mr. Stakelin, the maximum
allowable will be issued as incentive stock options (expected to be at least
200,000) that will vest over ten years (10% per year) and will be exercisable in
equal one-tenth increments commencing on the date of grant and continuing on
each anniversary of the date of grant. The balance of the options will be
non-qualified stock options that will vest over three years (33% each year) and
will become exercisable in equal one-third increments commencing at the end of
each of the first three years following grant. All unvested options granted to
Messrs. Jacobs and Stakelin will also fully vest immediately upon a change of
corporate control of Regent or sale of substantially all of its assets. All
options granted will expire at the end of ten years from the date of grant (or
such shorter period as may be required to pressure qualified tax investment). As
of the date of this Proxy Statement/ Prospectus, no options have been granted
under the Plan.
Pursuant to the anti-dilution provisions of the various series of Regent's
Preferred Stock, the number of shares of Regent Common Stock into which the
Regent Preferred Stock is convertible is to be adjusted to preserve the relative
ownership position of the holder in certain events, including the issuance of
options for the purchase of Regent Common Stock with certain exceptions. One
exception is the issuance of incentive stock options to management of Regent
exercisable for up to 15% of the equity securities of Regent on a fully diluted
basis. In order to avoid triggering the anti-dilution provisions of the various
series of Regent's Preferred Stock, it is the present intention of the Regent
Board of Directors that any options granted under the Plan will be limited in
number such that, at any time, the number of shares of Regent capital stock
issued or issuable pursuant to the exercise of options granted under the Plan
will not, in the aggregate, exceed 15% of the number of shares of Regent capital
stock outstanding (assuming and giving effect to the exercise of all then
outstanding warrants and options and the conversion of all then outstanding
securities convertible into Regent capital stock).
Retirement Plan. Effective January 1, 1997, Regent established the Regent
Communications, Inc. 401(k) Profit Sharing Plan and Trust, a cash or deferred
profit sharing plan, for the benefit of its nonunion employees. For the initial
Plan Year, eligible employees age 21 or older on December 15, 1997 became
participants in the plan. For all subsequent years, eligible employees who meet
the minimum eligibility requirements of age 21, 12 consecutive months of
employment and 1,000 hours of service in such 12-month period will become
participants. The retirement plan is a qualified plan under Section 401(a) of
the Internal Revenue Code. Three types of contributions may be made to the
retirement plan: elective contributions, non-elective contributions and profit
sharing contributions. Regent has no obligation to make profit sharing
contributions under the plan. As of December 31, 1997, no non-elective or profit
sharing contributions had been made to the plan, and none of Regent's officers
or directors had made any salary deferral elections under the plan.
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<PAGE> 87
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF REGENT STOCK
The following table sets forth, as of the date of this Proxy
Statement/Prospectus and following Effectiveness, the number and percentage by
class of Regent's securities held by (i) beneficial owners of more than 5% of
Regent's respective classes of securities, (ii) Regent's directors and
individuals who are to become directors of Regent at Effectiveness, (iii)
Regent's executive officers and individuals who are to become executive officers
of Regent at Effectiveness, and (iv) all such executive officers and directors
of Regent, as a group.
<TABLE>
<CAPTION>
AS OF , 1998 FOLLOWING EFFECTIVENESS (B)
------------------------- -----------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
TITLE NAME AND ADDRESS OF BENEFICIAL PERCENT BENEFICIAL PERCENT
OF CLASS BENEFICIAL OWNER OWNERSHIP(A) OF CLASS OWNERSHIP(A) OF CLASS
- ------------------------ -------------------------- ------------ -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Common Stock............ Terry S. Jacobs 432,568(c) 80.1% 440,000(c)(d) %
Common Stock............ William L. Stakelin 107,432 44.8% 160,000(d)(e) %
Common Stock............ R. Glen Mayfield (f) (f) (f)(g) (f)(g)
River Cities Capital Fund
Common Stock............ Limited Partnership 300,000(f) 55.6% 380,000(f)(g) %
General Electric Capital
Common Stock............ Corporation 500,000(h) 67.6% 500,000(h) %
Common Stock............ John H. Wyant 0 0% (i)(j) (i)(j)
Blue Chip Capital Fund II
Common Stock............ Limited Partnership 0 0 % (i) %
Miami Valley Venture Fund
Common Stock............ L.P. 0 0 % (j) %
PNC, National Association,
Common Stock............ Trustee 0 0 % (k) %
Common Stock............ Joel M. Fairman 0 0 % (l) %
All executive officers and
directors as a group (5
persons; 7 persons at
Common Stock............ Effectiveness) 840,000 (m) 100.0 % (m) %
Preferred Stock......... Terry S. Jacobs 300,000 (c) 16.5 % 300,000 (c) %
Preferred Stock......... William L. Stakelin 0 0 % 20,000 (e) %
Preferred Stock......... R. Glen Mayfield (f) (f) (f) (f)
River Cities Capital Fund
Preferred Stock......... Limited Partnership 300,000 (f) 16.5 % 300,000 (f) %
General Electric Capital
Preferred Stock......... Corporation 1,000,000 (h) 5.4.9 % 1,000,000 (h) %
Preferred Stock......... John H. Wyant 0 0 % (i)(j) (i)
Blue Chip Capital Fund II
Preferred Stock......... Limited Partnership 0 0 % (i) %
Miami Valley Venture Fund
Preferred Stock......... L.P. 0 0 % (j) %
PNC, National Association,
Preferred Stock......... Trustee 0 0 % (k) %
Preferred Stock......... Joel M. Fairman 0 0 % (l) %
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
AS OF , 1998 FOLLOWING EFFECTIVENESS (B)
------------------------- -----------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
TITLE NAME AND ADDRESS OF BENEFICIAL PERCENT BENEFICIAL PERCENT
OF CLASS BENEFICIAL OWNER OWNERSHIP(A) OF CLASS OWNERSHIP(A) OF CLASS
- ------------------------ -------------------------- ------------ -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Preferred Stock......... BMO Financial, Inc. 220,000(n) 12.1% 1,000,000(n) %
All executive officers and
directors as a group (5
persons; 7 persons at
Preferred Stock......... Effectiveness) 600,000(o) 33.0% (o) %
</TABLE>
- ---------------
(a) The Securities and Exchange Commission has defined "beneficial ownership"
to include sole or shared voting or investment power with respect to a
security or the right to acquire beneficial ownership within 60 days. The
number of shares indicated are owned with sole voting and investment power
unless otherwise noted and includes certain shares held in the name of
affiliated companies as to which beneficial ownership may be disclaimed.
(b) Reflects the number of shares of each class of Regent's capital stock as to
which beneficial ownership will be held or may be acquired within 60 days,
as of Effectiveness of the Merger, based upon the financial statements of
Faircom as of December 31, 1997, adjusted to reflect the acquisition by
Faircom of the Shelby Station in January 1998 and Faircom's share of debt
prepayment premiums and brokerage commissions related to the Merger, and
assuming (i) the conversion in full of the Class A and Class B Faircom
Subordinated Notes into 19,012,000 shares of Faircom Common Stock prior to
Effectiveness; (ii) the issuance of shares of Series C Preferred
Stock to Faircom stockholders in the Merger; (iii) the issuance of
1,400,000 additional shares of Regent Preferred Stock pursuant to existing
agreements; and (iv) the issuance of 80,000 shares of Regent Common Stock
and shares of Regent Preferred Stock pursuant to the conversion
and exercise of all outstanding Faircom Options, and the exercise of all
options and warrants for the acquisition of Regent Common Stock or Regent
Preferred Stock which are either outstanding or to be issued pursuant to
existing agreements and which are exercisable within 60 days following
Effectiveness.
(c) Includes 300,000 shares of Regent's Series A Convertible Preferred Stock
held by Mr. Jacobs, which shares are convertible into shares of Regent
Common Stock at any time on a one-for-one basis. Following Effectiveness,
also includes options to purchase 20,000 shares of Regent Common Stock
estimated to become exercisable upon consummation of the Merger. See "The
Merger--Interests of Certain Persons in the Merger; Certain Relationships."
Mr. Jacobs's address is c/o Regent Communications, Inc., 50 E. RiverCenter
Boulevard, Suite 180, Covington, Kentucky 41011.
(d) Mr. Jacobs has agreed to transfer 12,568 shares of Regent Common Stock to
Mr. Stakelin upon Effectiveness.
(e) Includes 20,000 shares of Regent's Series A Convertible Preferred Stock
which Mr. Stakelin has the obligation to purchase at any time prior to
Effectiveness and which shares, when issued to Mr. Stakelin, will be
convertible into shares of Regent Common Stock at any time on a one-for-one
basis. Following Effectiveness, also includes options to purchase 20,000
shares of Regent Common Stock estimated to become exercisable upon
consummation of the Merger. See "The Merger--Interests of Certain Persons
in the Merger; Certain Relationships." Mr. Stakelin's address is c/o Regent
Communications, Inc., 50 E. RiverCenter Boulevard, Suite 180, Covington,
Kentucky 41011.
(f) Includes 300,000 shares of Regent's Series A Convertible Preferred Stock
held by River Cities Capital Fund Limited Partnership, which shares are
convertible at any time into Regent Common Stock on a one-for-one basis. R.
Glen Mayfield, a director of Regent, is the Vice President, a director and
a 50% stockholder of Mayson, Inc., the general partner of River Cities
Management Limited Partnership, which is the general partner of River
Cities Capital Fund Limited Partnership. Mr. Mayfield disclaims beneficial
ownership of the securities held by River Cities Capital Fund Limited
Partnership. The address of River Cities Capital Fund Limited Partnership
and Mr. Mayfield is 221 E. Fourth Street, Suite 2250, Cincinnati, Ohio
45202.
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(g) Includes warrants to purchase 80,000 shares of Regent Common Stock, which
River Cities Capital Fund Limited Partnership is entitled to receive at
Effectiveness.
(h) General Electric Capital Corporation holds 1,000,000 shares of Regent
Series B Senior Preferred Stock, which shares are convertible into Regent
Common Stock on a one-half-for-one basis. The address of General Electric
Capital Corporation is 3379 Peachtree Road N.E., Suite 600, Atlanta,
Georgia 30326.
(i) Represents shares of Series C Preferred Stock that would be
issued in the Merger in respect of the Faircom Common Stock issuable to
Blue Chip Capital Fund II Limited Partnership upon conversion of the Class
A and Class B Faircom Subordinated Notes. John H. Wyant, a director of
Faircom, is a beneficial owner and manager of Blue Chip Venture Company
Ltd., which is general partner of Blue Chip Capital Fund II Limited
Partnership. Mr. Wyant disclaims beneficial ownership of the securities
held by Blue Chip Capital Fund II Limited Partnership. The address of Blue
Chip Capital Fund II Limited Partnership and Mr. Wyant is 2000 PNC Center,
201 East Fifth Street, Cincinnati, Ohio 45202. See "Information Concerning
Faircom -- Security Ownership of Certain Beneficial Owners and Management
of Faircom."
(j) Represents shares of Series C Preferred Stock that would be
issued in the Merger in respect of the Faircom Common Stock issuable to
Miami Valley Venture Fund L.P. upon conversion of the Class A and Class B
Faircom Subordinated Notes. John H. Wyant, a director of Faircom, is a
beneficial owner and manager of Blue Chip Venture Company of Dayton, Ltd.,
an investment manager for Miami Valley Venture Fund L.P. Mr. Wyant
disclaims beneficial ownership of the securities held by Miami Valley
Venture Fund L.P. The address of Miami Valley Venture Fund L.P. and Mr.
Wyant is 2000 PNC Center, 201 East Fifth Street, Cincinnati, Ohio 45202.
See "Information Concerning Faircom -- Security Ownership of Certain
Beneficial Owners and Management of Faircom."
(k) Represents shares of Series C Preferred Stock that would be
issued in the Merger in respect of the Faircom Common Stock issuable to
PNC, National Association, Trustee, upon conversion of the Class A and
Class B Faircom Subordinated Notes. The address of PNC, National
Association, Trustee, is PNC Center, 201 East Fifth Street, Cincinnati,
Ohio 45202.
(l) Represents shares of Series C Preferred Stock (A) to be issued in
the Merger in respect of the shares of Faircom Common Stock held by Mr.
Fairman and (B) issuable pursuant to Regent Options into which Faircom
Options held by Mr. Fairman would be converted in connection with the
Merger, which shares would be convertible at any time into Regent Common
Stock on a one-for-one basis. Mr. Fairman's address is 333 Glen Head Road,
Old Brookville, New York 11545. See "The Merger -- Interests of Certain
Persons in the Merger; Certain Relationships" and "Information Concerning
Faircom -- Security Ownership of Certain Beneficial Owners and Management
of Faircom."
(m) Includes the shares of Series A Convertible Preferred Stock held by Mr.
Jacobs and River Cities Capital Fund Limited Partnership. See notes (c) and
(f) above. Following Effectiveness, also includes certain options to
purchase Regent Common Stock held by Messrs. Jacobs and Stakelin described
in notes (c) and (e) above and the other securities described in notes (e),
(g), (i) and (j) above.
(n) BMO Financial, Inc. currently holds 220,000 shares of Regent's Series D
Convertible Preferred Stock, which shares are convertible into shares of
Regent Common Stock on a one-for-one basis provided that, except in certain
limited circumstances, the shares of Regent Common Stock acquired by BMO
Financial, Inc. on conversion may not exceed 4.99% of the total shares of
Regent Common Stock then outstanding. See "Description of Regent
Securities." BMO Financial, Inc. has agreed to purchase, on or before
Effectiveness, an additional 780,000 shares of Series D Convertible
Preferred Stock. The address of BMO Financial, Inc. is 430 Park Avenue, New
York, New York 10022.
(o) Includes the shares of Series A Convertible Preferred Stock held by Mr.
Jacobs and River Cities Capital Fund Limited Partnership. See notes (c) and
(f) above. Following Effectiveness, also includes the securities described
in notes (e), (g), (i) and (j) above.
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<PAGE> 90
DESCRIPTION OF REGENT SECURITIES
GENERAL
The discussion in this Proxy Statement/Prospectus of the terms of the
capital stock of Regent is subject to and qualified in its entirety by reference
to the Amended and Restated Certificate of Incorporation of Regent, a copy of
which is attached to this Proxy Statement/Prospectus as Appendix B and
incorporated herein by reference.
CAPITAL STOCK
The authorized capital stock of Regent consists of 50,000,000 shares of
capital stock, consisting of 30,000,000 shares of Common Stock, par value $.01
per share ("Regent Common Stock"), and 20,000,000 shares of Preferred Stock, par
value $.01 per share ("Regent Preferred Stock"), of which 620,000 shares have
been designated Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 1,000,000 shares have been designated Series B Senior Convertible
Preferred Stock (the "Series B Preferred Stock"), 4,000,000 shares have been
designated Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), 1,000,000 shares have been designated Series D Convertible Preferred
Stock (the "Series D Preferred Stock"), and 5,000,000 shares have been
designated Series E Convertible Preferred Stock (the "Series E Preferred
Stock"). The following summary description of Regent's capital stock is not
intended to be complete and is subject to and qualified in its entirety by
reference to the terms of instruments and agreements relating thereto, each of
which has been filed as an exhibit to the Registration Statement of which this
Proxy Statement/ Prospectus is a part. Unless otherwise stated, capitalized
terms have the same meaning as in Regent's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation").
Regent holds (directly or indirectly) licenses from the FCC to conduct its
business and such licenses are conditioned upon some or all of the holders of
Regent's capital stock possessing prescribed qualifications. The Regent Common
Stock and Regent Preferred Stock are subject to redemption by Regent, to the
extent necessary to prevent the loss of any such license held by Regent or to
reinstate it, for cash, property or rights, including other securities of
Regent, at such time or times as the Board of Directors of Regent determines,
upon notice and following the same procedures as are applicable to redemption of
Regent Preferred Stock, at a redemption price equal to its fair market value.
COMMON STOCK
Regent Common Stock has full voting rights and other characteristics of
common stock recognized under the General Corporation Law of the State of
Delaware subject to the foregoing paragraph and subject to the rights and
preferences of Regent Preferred Stock.
PREFERRED STOCK
The Board of Directors of Regent has the authority, subject to the
limitations prescribed by law and the provisions of Regent's Certificate of
Incorporation, to provide for the issuance of the shares of Regent Preferred
Stock in series, and to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each series and the qualifications, limitations or
restrictions thereof. Among the specific matters that may be determined by the
Board of Directors are the number of shares constituting each series and the
distinctive designation thereof; the dividend rate, whether dividends will be
cumulative, and the relative rights of priority, if any, on the payment of
dividends; whether the series will have voting rights in addition to the voting
rights provided by law, and, if so, the terms of such voting rights; whether the
series will have conversion privileges, and if so, the terms of such conversion,
including provision for adjustment of the conversion rate; redemption rights and
the terms thereof; whether the series will have a sinking fund and if so, the
terms and amount of such sinking fund; and the rights of the shares of the
series in the event of voluntary or involuntary liquidation, dissolution or
winding up of Regent, and the relative rights of priority, if any, of payment of
shares of such series.
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<PAGE> 91
Pursuant to this authority, the Board of Directors has established to date
the five different series of Regent Preferred Stock with different
characteristics as summarized in the following chart:
CHARACTERISTICS OF THE DIFFERENT SERIES
OF REGENT PREFERRED STOCK
<TABLE>
<CAPTION>
DIVIDEND VOTING LIQUIDATION CONVERSION REDEMPTION BOARD
SERIES RATE RIGHTS PREFERENCE RIGHTS RIGHTS REPRESENTATIVE
- ------ -------- --------------- ------------ ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Redeemable by
A 7% Full Junior to 1:1 by holder at Regent at any Yes
Series B any time time
Non-voting
except under Senior to .5:1 by holder Redeemable by Yes, if no FCC
B 7% limited all Series at any time* Regent at any regulatory
circumstances time issues
1:1 optional by
holder at any
Junior to time and 1:1
C 7% Full Series B mandatory under No Yes
certain
circumstances
Generally No, without
limited to 4.9% Junior to 1:1 by holder at Redeemable by change to bank
D 7% with common Series B any time Regent at any holding company
stock time rules
1:1 optional by
holder at any
Junior to time and 1:1
E 7% Full Series B mandatory under No No
certain
circumstances
</TABLE>
* One share of Regent Common Stock for each share of Series B Preferred Stock.
A more detailed summary description of the Regent Preferred Stock follows.
RANKING OF SERIES OF REGENT PREFERRED STOCK
With respect to the payment of dividends and the distribution of assets and
rights upon liquidation, dissolution or winding up of Regent: (i) The Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, and the Series E Preferred Stock rank senior to the
Regent Common Stock; (ii) the Series B Preferred Stock ranks senior to the
Series A Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock, and any other series of Regent Preferred
Stock hereafter created; and (iii) the Series A Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock
rank equal to each other.
SERIES A PREFERRED STOCK
General. Regent currently has authority to issue 620,000 shares of Series A
Preferred Stock. The stated value ("Stated Value") of the Series A Preferred
Stock is $5.00 per share. As of the date of this Proxy Statement/Prospectus,
there were issued and outstanding 600,000 shares of Series A Preferred Stock.
Dividends. The holders of shares of the Series A Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of
Regent out of funds legally available for such purpose, cumulative dividends
payable quarterly in cash on the first business day of January, April, July and
October, accruing
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commencing with the date of issue of such shares, at the rate of $.35 per share
per annum. No interest is payable on accrued but unpaid dividends.
Voting Rights. In addition to voting rights required by law or by the
Certificate of Incorporation, subject to restrictions contained in the
Certificate of Incorporation, the holders of the Series A Preferred Stock are
entitled to vote on all matters submitted to a vote of Regent's stockholders.
Except as otherwise required by law or provided by Regent's Certificate of
Incorporation, the holders of the Series A Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock (under certain conditions), the
Series E Preferred Stock, and the Regent Common Stock vote together as one class
with one vote per share (in the case of Regent Preferred Stock, subject to
certain adjustments as provided in Regent's Certificate of Incorporation, and if
convertible into Regent Common Stock, one vote per share of Common Stock into
which such convertible Preferred Stock is then convertible) on all matters
submitted to a vote of Regent's stockholders.
Certain Restrictions. Whenever dividends payable on the Series A Preferred
Stock are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series A Preferred Stock outstanding shall have been
paid in full or declared and set apart for payment, Regent may not: (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock, provided that Regent may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for, or out of the
shares of any such junior stock, (B) pay dividends on or make any other
distributions on any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled, (C)
redeem or purchase or otherwise acquire for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, provided that Regent may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of Regent ranking junior to the Series A Preferred Stock or
in satisfaction of contractual obligations to do so entered into with the
written consent of the holders of a majority of outstanding shares of Series A
Preferred Stock, or (D) purchase or otherwise acquire for consideration any
shares of the Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series of classes.
Liquidation, Dissolution or Winding Up. In the event of a liquidation,
dissolution or winding up of Regent, no distribution may be made (A) to the
holders of the Series A Preferred Stock unless, prior thereto, the holders of
the Series B Preferred Stock have received the Stated Value per share of the
Series B Preferred Stock, plus an amount equal to unpaid dividends (including
accrued dividends), whether or not declared, to the date of such payment, or (B)
to the holders of stock ranking junior to the Series A Preferred Stock unless,
prior thereto, the holders of Series A Preferred have received the Stated Value
per share of the Series A Preferred Stock, plus an amount equal to unpaid
dividends (including accrued dividends), whether or not declared, to the date of
such payment, or (C) to the holders of stock ranking on a parity with the Series
A Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
Conversion Rights. Each share of the Series A Preferred is convertible into
one (1) share of Regent Common Stock at the option of the holder, at any time,
and at the option of Regent's Board of Directors in preparation for or upon any
of the following events (each a "Conversion Event"): (a) a public offering of
equity securities of Regent of at least $10,000,000, (b) a private placement of
equity securities of Regent of at least $25,000,000, (c) a private placement of
equity securities of Regent of at least $10,000,000 under circumstances where
the investor(s) reasonably believe the conversion is necessary to achieve its
(their) investment objectives, (d) a merger of Regent with another corporation
or other entity, whether or not Regent is a survivor of such transaction,
whereby as a result the stockholders of Regent hold less than 50% of the
outstanding capital stock of
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the surviving entity, or (e) an acquisition of equity securities of Regent in
one transaction or in a series of related transactions which results in a
transfer of majority voting control of Regent.
The number of shares of Regent Common Stock into which each share of Series
A Preferred Stock is convertible is subject to adjustment in certain events,
including (A) the issuance of Regent Common Stock as a dividend; (B)
subdivisions, combinations, or consolidations of Regent Common Stock; (C) the
issuance of options, warrants or other rights (excluding those to Blue Chip and
Miami Valley as a holder of Series C Preferred Stock pursuant to the terms of
the Redemption and Warrant Agreement, excluding those to certain Faircom
officers and directors pursuant to the terms of the Merger Agreement, and
excluding incentive stock options to management of Regent exercisable for up to
15% of the equity securities of Regent on a fully diluted basis) entitling the
holder to subscribe for or purchase Regent Common Stock at a price per share
which, when added to the consideration received or receivable by Regent for such
options, warrants or other rights, is less than the then fair market value of
such Regent Common Stock at the date of such issuance; (D) the issuance or sale
of Regent securities convertible into, or exchangeable for, Regent Common Stock
at a price per share which, when added to the consideration received or
receivable by Regent for such exchangeable or convertible securities, is less
than the then fair market value of the Regent Common Stock at the date of such
issuance; (E) the issuance or sale of Regent Common Stock for consideration
representing less than the then fair market value of the Regent Common Stock at
the date of such issuance; (F) recapitalizations, reclassifications or other
transactions resulting in the change of Regent Common Stock into the same or a
different number of shares of any class or classes of stock; and (G) the capital
reorganization, merger or consolidation of Regent with or into another
corporation, or the sale of all or substantially all, of Regent's properties and
assets to another person.
If the adjustment would require a change of less than one percent (1%) in
the number of shares of Regent Common Stock into which each share of Series A
Preferred Stock may be converted, the amount of any such adjustment will be
carried forward and adjustment with respect thereto will be made at the time of
and together with any subsequent adjustment which, together with all amounts so
carried forward, aggregates 1% of the number of shares of Regent Common Stock
into which each share of Series A Preferred Stock is then convertible.
Upon conversion of any shares of the Series A Preferred Stock, the holder
will be entitled to receive any accumulated, accrued or unpaid dividends in
respect of the shares so converted, including any dividends on such shares of
the Series A Preferred Stock declared prior to such conversion if such holder
held such shares on the record date fixed for the determination of holders of
the Series A Preferred Stock entitled to receive payment of such dividend.
Shares of the Series A Preferred Stock may not be converted after the close
of business on the third business day preceding the Redemption Date (as defined
below).
Redemption. Regent may, at the election of its Board of Directors, at any
time or from time to time, redeem the whole or part of the Series A Preferred
Stock, at the Stated Value, plus an amount equal to all unpaid dividends
(including accrued dividends), whether or not declared, to the date fixed for
redemption (the "Redemption Date"). In the event Regent elects to redeem less
than all of the Series A Preferred Stock, Regent will select pro rata the shares
to be so redeemed, except that if the Board of Directors determines in its
reasonable business judgment that to do so by lot would be in the best interests
of Regent, then the shares to be so redeemed will be selected by lot in such
manner as prescribed by the Board of Directors.
All dividends on the shares of Series A Preferred Stock called for
redemption shall cease to accrue, said shares shall no longer be deemed
outstanding, and all rights of the holders thereof as stockholders of Regent
(except the right to receive payment for the shares, the right to receive
declared dividends, and the right to convert such shares into shares of Regent
Common Stock until the close of business on the third business day preceding the
Redemption Date) will cease from and after the Redemption Date.
Directorship. The holders of the Series A Preferred Stock, as a class, are
entitled to be represented on the Board of Directors of Regent by one Director
(the "Series A Director") who, upon nomination by such holders, as a class, will
stand for election by voting by the holders of the Series A Preferred Stock, the
Series B Preferred Stock (subject to limitations contained in Regent's
Certificate of Incorporation), the Series C Preferred Stock, the Series D
Preferred Stock (subject to limitations contained in Regent's Certificate of
Incorporation), the Series E
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Preferred Stock, and the holders of Regent Common Stock, except where the number
of individuals nominated for election exceeds the number of Directors to be
elected, in which case the holders of the Series A Preferred Stock will have the
sole right to vote for, elect and remove the individual nominated by them, as a
class, to serve as the Series A Director, and in such event no right to vote
for, elect or remove any of the other Directors. The Series A Director, upon
being elected, will serve for the same term and have the same voting powers as
other Directors. In addition, the Series A Director will serve as a member of
the Compensation, Audit, and Nominating Committees of the Board of Directors (or
any other committee of the Board performing such functions), which Committees
will be composed of at least one Director, in addition to the Series A Director,
who is not an employee of Regent. The current holders of the Series A Preferred
Stock have agreed among themselves to vote a majority of the votes to be cast
for the Series A Director as directed by River Cities Capital Fund, which
currently owns 50% of the outstanding shares of Series A Preferred Stock.
SERIES B PREFERRED STOCK
General. Regent currently has authority to issue 1,000,000 shares of Series
B Preferred Stock, all of which are issued and outstanding. The Stated Value of
the Series B Preferred Stock is $5.00 per share.
Dividends. The holders of shares of the Series B Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of
Regent out of funds legally available for such purpose, cumulative dividends
payable quarterly in cash on the first business day of January, April, July and
October, accruing commencing with the date of issue of such shares, at the rate
of $.35 per share per annum. No interest is payable on accrued but unpaid
dividends.
Voting Rights. Except as provided in Regent's Certificate of Incorporation
or otherwise required by law, the voting power of Regent is vested in the
holders of shares of Regent Common Stock, Series A Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock, and such other series of voting
preferred stock as are from time to time designated, and the holders of shares
of Series B Preferred Stock and Series D Preferred Stock have no voting power,
except that with respect to the events described below, the holders of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock, and the
Regent Common Stock vote together as a class with one vote per share (in the
case of Preferred Stock, subject to adjustments as provided in the Certificate
of Incorporation and if convertible into Regent Common Stock, one vote per share
of Regent Common Stock into which such convertible Preferred Stock is then
convertible) to the extent such of the following events are otherwise subject to
the vote of any holders of capital stock of Regent:
(a) any amendment of the Certificate of Incorporation;
(b) a sale of all or substantially all of the assets of Regent;
(c) the dissolution, liquidation or termination of Regent;
(d) any acquisition of or merger of Regent with another corporation or
other entity, whether or not Regent is a survivor of such transaction;
(e) any change in the fundamental nature of the business of Regent;
(f) any transaction with affiliates, except upon fair and reasonable
terms comparable to an arms-length transaction; or
(g) any change in Regent's capital structure in a manner that dilutes
the ownership interest of the holders of Series B Preferred Stock.
Certain Restrictions. Whenever dividends payable on the Series B Preferred
Stock are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series B Preferred Stock outstanding shall have been
paid in full or declared and set apart for payment, Regent may not: (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock, provided that Regent may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange
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for, shares of any such junior stock, (B) pay dividends on or make any other
distributions on any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except dividends paid ratably on the Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled, (C)
redeem or purchase or otherwise acquire for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series B Preferred Stock, provided that Regent may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of Regent ranking junior to the Series B Preferred Stock or
in satisfaction of contractual obligations to do so entered into with the
written consent of the holders of a majority of outstanding shares of Series B
Preferred Stock, or (D) purchase or otherwise acquire for consideration any
shares of the Series B Preferred Stock, or any shares of stock ranking on a
parity with the Series B Preferred Stock except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series of classes.
Liquidation, Dissolution or Winding Up. In the event of a liquidation,
dissolution or winding up of Regent, no distribution may be made (A) to the
holders of stock ranking junior to the Series B Preferred Stock unless, prior
thereto, the holders of Series B Preferred Stock have received the Stated Value
per share, plus an amount equal to unpaid dividends (including accrued
dividends), whether or not declared, to the date of such payment, or (B) to the
holders of stock ranking on a parity with the Series B Preferred Stock, except
distributions made ratably on the Series B Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
Conversion Rights. Each share of the Series B Preferred Stock is
convertible into one-half ( 1/2) share of Regent Common Stock at the option of
the holder, at any time. The number of shares of Regent Common Stock into which
each share of Series B Preferred Stock is convertible is subject to adjustment
in certain events, including (A) the issuance of Regent Common Stock as a
dividend; (B) subdivisions, combinations, or consolidations of Regent Common
Stock; (C) the issuance of options, warrants or other rights to subscribe for or
purchase Regent Common Stock (whether or not at the time exercisable) to Blue
Chip and Miami Valley as a holder of Series C Preferred Stock; (D) the issuance
of options, warrants, or other rights entitling the holder to subscribe for or
purchase Regent Common Stock at a price per share which, when added to the
consideration received or receivable by Regent for such options, warrants or
other rights, is less than the then fair market value of such Regent Common
Stock at the date of such issuance (other than those to Blue Chip and Miami
Valley as a holder of Series C Preferred Stock pursuant to the terms of the
Redemption and Warrant Agreement, the grant of stock options to management of
Regent exercisable for up to 15% of the equity securities of Regent on a fully
diluted basis, and the issuance of stock options to certain Faircom officers and
directors pursuant to the terms of the Merger Agreement); (E) the issuance or
sale of Regent securities convertible into, or exchangeable for, Regent Common
Stock at a price per share which, when added to the consideration received or
receivable by Regent for such exchangeable or convertible securities, is less
than the then fair market value of the Common Stock at the date of such
issuance; (F) the issuance or sale of Regent Common Stock for consideration
representing less than the then fair market value of the Regent Common Stock at
the date of such issuance; (G) recapitalizations, reclassifications or other
transactions resulting in the change of Regent Common Stock into the same or a
different number of shares of any class or classes of stock; and (H) the capital
reorganization, merger or consolidation of Regent with or into another
corporation, or the sale of all or substantially all, of Regent's properties and
assets to another person.
If the adjustment would require a change of less than one percent (1%) in
the number of shares of Regent Common Stock into which each share of Series B
Preferred Stock may be converted, the amount of any such adjustment will be
carried forward and adjustment with respect thereto will be made at the time of
and together with any subsequent adjustment which, together with all amounts so
carried forward, aggregates 1% of the number of shares of Regent Common Stock
into which each share of Series B Preferred Stock is then convertible.
Upon conversion of any shares of the Series B Preferred Stock, the holder
will be entitled to receive any accumulated, accrued or unpaid dividends in
respect of the shares so converted, including any dividends on such
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shares of the Series B Preferred Stock declared prior to such conversion if such
holder held such shares on the record date fixed for the determination of
holders of the Series B Preferred Stock entitled to receive payment of such
dividend.
Shares of the Series B Preferred Stock may not be converted after the close
of business on the third business day preceding the Redemption Date.
Redemption. Regent may, at the election of its Board of Directors, at any
time or from time to time, redeem the whole or part of the Series B Preferred
Stock at the Stated Value, plus an amount equal to all unpaid dividends
(including accrued dividends), whether or not declared, to the Redemption Date.
In the event Regent elects to redeem less than all of the Series B Preferred
Stock, Regent will select pro rata the shares to be so redeemed, except that if
the Board of Directors determines in its reasonable business judgment that to do
so by lot would be in the best interests of Regent, then the shares to be so
redeemed will be selected by lot in such manner as prescribed by the Board of
Directors. Regent is also obligated by contract to redeem all of the Series B
Preferred Stock in the event the Merger Agreement is terminated or the Merger
and Park Lane acquisition are not completed by June 30, 1998.
All dividends on the shares of Series B Preferred Stock called for
redemption shall cease to accrue, said shares shall no longer be deemed
outstanding, and all rights of the holders therefor as stockholders of Regent
(except the right to receive payment for the shares, the right to receive
declared dividends, and the right to convert such shares into shares of Regent
Common Stock until the close of business on the third business day preceding the
Redemption Date) will cease from and after the Redemption Date.
Directorship. The holders of the Series B Preferred Stock, as a class, are
entitled to be represented on the Board of Directors by one Director (the
"Series B Director") who, upon nomination by such holders, as a class, will
stand for election by voting by the holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock (subject to limitations contained in Regent's Certificate of
Incorporation), the Series E Preferred, and the holders of Regent Common Stock,
except under circumstances (a) where the right to nominate and vote for the
Series B Director would (i) result in attribution of the media interests of
Regent to, or present any other FCC regulatory issue for, the holders of the
Series B Preferred Stock under the rules and written policies of the FCC for so
long as the holders of the Series B Preferred Stock seek to have their ownership
interest in Regent deemed non-attributable under such rules and policies or (ii)
in the opinion of FCC counsel to Regent, the form of such opinion and the
identity of such counsel to be reasonably satisfactory to the holders of the
Series B Preferred Stock, present any regulatory issues for Regent or (b) where
the number of individuals nominated for election exceeds the number of Directors
to be elected. In the event the holders of the Series B Preferred Stock have
nominated and can vote on an individual for election to the Board of Directors
and the number of individuals nominated for election exceeds the number of
Directors to be elected, then the holders of the Series B Preferred Stock will
have the sole right to vote for, elect and remove the individual nominated by
them, as a class, to serve as the Series B Director, and in such event no right
to vote for, elect or remove any of the other Directors. The Series B Director,
upon being elected, will serve for the same term and have the same voting powers
as other Directors. The right to elect the Series B Director is exercisable by
the holders of a majority of the Series B Preferred Stock at their option upon
at least 60 days notice to Regent; provided, however, if Regent is subject to
the reporting requirements of the Exchange Act, such notice must be provided on
or before the date established by Regent for the submission of proposals
pursuant to the proxy rules promulgated under the Exchange Act. The holders of a
majority of the Series B Preferred Stock have informed Regent that they have no
present intention of designating a Class B Director.
SERIES C PREFERRED STOCK
General. Regent currently has authority to issue 4,000,000 shares of Series
C Convertible Preferred Stock ("Series C Preferred Stock"). The Stated Value of
the Series C Preferred Stock is $5.00 per share. There are no issued and
outstanding shares of Series C Preferred Stock.
Dividends. The holders of shares of the Series C Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of
Regent out of funds legally available for such purpose, cumulative dividends
payable quarterly in cash on the first business day of January, April, July and
October, accruing
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commencing with the date of issue of such shares, at the rate of $.35 per share
per annum. No interest is payable on accrued but unpaid dividends.
Voting Rights. In addition to voting rights required by law, subject to
restrictions contained in Regent's Certificate of Incorporation, the holders of
the Series C Preferred Stock are entitled to vote on all matters submitted to a
vote of Regent's stockholders. Except as otherwise required by law or provided
by Regent's Certificate of Incorporation, the holders of the Series A Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock (under certain
conditions), the Series E Preferred Stock, and the Regent Common Stock vote
together as one class with one vote per share (in the case of Preferred Stock,
subject to certain adjustments provided in the Certificate of Incorporation, and
if convertible into Regent Common Stock, one vote per share of Regent Common
Stock into which such convertible Preferred Stock is then convertible) on all
matters submitted to a vote of Regent's stockholders.
Certain Restrictions. Whenever dividends payable on the Series C Preferred
Stock are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series C Preferred Stock outstanding shall have been
paid in full or declared and set apart for payment, Regent may not: (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock, provided that Regent may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for, or out of the
shares of any such junior stock, (B) pay dividends on or make any other
distributions on any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock,
except dividends paid ratably on the Series C Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled, (C)
redeem or purchase or otherwise acquire for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series C Preferred Stock, provided that Regent may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of Regent ranking junior to the Series C Preferred Stock or
in satisfaction of contractual obligations to do so entered into with the
written consent of the holders of a majority of outstanding shares of Series C
Preferred Stock, or (D) purchase or otherwise acquire for consideration any
shares of the Series C Preferred Stock, or any shares of stock ranking on a
parity with the Series C Preferred Stock except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series of classes.
Liquidation, Dissolution or Winding Up. In the event of a liquidation,
dissolution or winding up of Regent, no distribution may be made (A) to the
holders of the Series C Preferred Stock unless, prior thereto, the holders of
the Series B Preferred Stock have received the Stated Value per share of the
Series B Preferred Stock, plus an amount equal to unpaid dividends (including
accrued dividends), whether or not declared, to the date of such payment, or (B)
to the holders of stock ranking junior to the Series C Preferred Stock unless,
prior thereto, the holders of Series C Preferred Stock have received the Stated
Value per share of the Series C Preferred Stock, plus an amount equal to unpaid
dividends (including accrued dividends), whether or not declared, to the date of
such payment, or (C) to the holders of stock ranking on a parity with the Series
C Preferred Stock, except distributions made ratably on the Series C Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
Conversion Rights. Each share of the Series C Preferred Stock is
convertible into one (1) share of Regent Common Stock at the option of the
holder, at any time, and at the option of Regent's Board of Directors upon the
occurrence of a Conversion Event if all other outstanding shares of Preferred
Stock of Regent, other than those which are senior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series C Preferred Stock,
are concurrently either redeemed or converted. The number of shares of Regent
Common Stock into which each share of Series C Preferred Stock is convertible is
subject to adjustment in certain events, including (A) the issuance of Regent
Common Stock as a dividend; (B) subdivisions, combinations, or consolidations of
Regent Common Stock; (C) the issuance of options, warrants or other rights
(excluding those to Blue Chip and Miami Valley as a holder of Series C Preferred
Stock pursuant to the terms of the Redemption and Warrant Agreement,
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excluding those to certain officers and directors of Faircom pursuant to the
terms of the Merger Agreement and excluding incentive stock options to
management of Regent exercisable for up to 15% of the equity securities of
Regent on a fully diluted basis) entitling the holder to subscribe for or
purchase Regent Common Stock at a price per share which, when added to the
consideration received or receivable by Regent for such options, warrants or
other rights, is less than the then fair market value of such Regent Common
Stock at the date of such issuance; (D) the issuance or sale of Regent
securities convertible into, or exchangeable for, Regent Common Stock at a price
per share which, when added to the consideration received or receivable by
Regent for such exchangeable or convertible securities, is less than the then
fair market value of the Regent Common Stock at the date of such issuance; (E)
the issuance or sale of Regent Common Stock for consideration representing less
than the then fair market value of the Regent Common Stock at the date of such
issuance; (F) recapitalizations, reclassifications or other transactions
resulting in the change of Regent Common Stock into the same or a different
number of shares of any class or classes of stock; and (G) the capital
reorganization of Regent Common Stock, merger or consolidation of Regent with or
into another corporation, or the sale of all or substantially all, of Regent's
properties and assets to another person.
If the adjustment would require a change of less than one percent (1%) in
the number of shares of Regent Common Stock into which each share of Series C
Preferred Stock may be converted, the amount of any such adjustment will be
carried forward and adjustment with respect thereto will be made at the time of
and together with any subsequent adjustment which, together with all amounts so
carried forward, aggregates 1% of the number of shares of Regent Common Stock
into which each share of Series C Preferred Stock is then convertible. Upon
conversion of any shares of the Series C Preferred Stock, the holder will be
entitled to receive any accumulated, accrued or unpaid dividends in respect of
the shares so converted, including any dividends on such shares of the Series C
Preferred Stock declared prior to such conversion if such holder held such
shares on the record date fixed for the determination of holders of the Series C
Preferred Stock entitled to receive payment of such dividend.
Redemption. Shares of the Series C Preferred Stock are not subject to any
right of Regent contained in Regent's Certificate of Incorporation to redeem
such shares, except where necessary to prevent the loss of any Regent FCC
license.
Directorship. The holders of the Series C Preferred Stock, as a class, are
entitled to be represented on the Board of Directors by one Director (the
"Series C Director") who, upon nomination by such holders, as a class, will
stand for election by voting by the holders of the Series A Preferred Stock, the
Series B Preferred Stock(subject to certain limitations contained in Regent's
Certificate of Incorporation), the Series C Preferred Stock, the Series D
Preferred Stock (subject to certain limitations contained in Regent's
Certificate of Incorporation), the Series E Preferred Stock, and the holders of
Regent Common Stock, except that, where the number of individuals nominated for
election exceeds the number of Directors to be elected, the holders of the
Series C Preferred Stock will have the sole right to vote for, elect and remove
the individual nominated by them, as a class, to serve as the Series C Director,
and in such event no right to vote for, elect or remove any of the other
Directors. The Series C Director, upon being elected, will serve for the same
term and have the same voting powers as other Directors. The right to elect the
Series C Director is exercisable by the holders of a majority of the Series C
Preferred Stock at their option upon at least 60 days notice to Regent;
provided, however, if Regent is subject to the reporting requirements of the
Exchange Act, such notice must be provided to Regent on or before the date
established by Regent for the submission of proposals pursuant to the proxy
rules promulgated under the Exchange Act. The Series C Director, if not an
employee of Regent, will serve as a member of the Compensation, Audit, and
Nominating Committees of the Board of Directors (or any other Committee of the
Board performing such functions), which Committees will be composed of at least
one Director, in addition to the Series C Director, who is not an employee of
Regent.
SERIES D PREFERRED STOCK
General. Regent currently has authority to issue 1,000,000 shares of Series
D Preferred Stock. The Stated Value of the Series D Preferred Stock is $5.00 per
share. As of the date of this Proxy Statement/Prospectus, there were 220,000
shares of Series D Preferred Stock issued and outstanding. Prior to
Effectiveness, 1,000,000 shares of Series D Preferred Stock may be issued and
outstanding.
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Dividends. The holders of shares of the Series D Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of
Regent out of funds legally available for such purpose, cumulative dividends
payable quarterly in cash on the first business day of January, April, July and
October, accruing commencing with the date of issue of such shares, at the rate
of $.35 per share per annum. No interest is payable on accrued but unpaid
dividends.
Voting Rights. Except as otherwise required by law or provided by Regent's
Certificate of Incorporation, the voting power of Regent is vested in the
holders of shares of Regent Common Stock, Series A Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock, and such other series of voting
preferred stock as are from time to time designated, and the holders of shares
of Series D Preferred Stock and Series B Preferred Stock have no voting power,
except that with respect to the events described below, the holders of the
Series A Preferred, the Series B Preferred, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock, and the Regent Common
Stock vote together as a class with one vote per share (in the case of Preferred
Stock, subject to adjustments as provided in the Certificate of Incorporation
and if convertible into Regent Common Stock, one vote per share of Regent Common
Stock into which such convertible Preferred Stock is then convertible) to the
extent such of the following events are otherwise subject to the vote of any
holders of capital stock of Regent:
(a) any amendment of the Certificate of Incorporation which (i)
authorizes or modifies the rights, preferences or terms of any security
that is or would be senior in any respect to the Series D Preferred Stock,
(ii) modifies any of the rights, preferences or terms of the Series D
Preferred Stock, or (iii) would otherwise significantly and adversely
affect the Series D Preferred Stock;
(b) a sale of all or substantially all of the assets of Regent;
(c) the dissolution, liquidation or termination of Regent;
(d) any acquisition of or merger of Regent with another corporation or
other entity, whether or not Regent is a survivor of such transaction;
(e) any material change in the fundamental nature of the business of
Regent;
(f) any transaction with affiliates, except upon fair and reasonable
terms comparable to an arms-length transaction; and
(g) any change in Regent's capital structure in a manner that dilutes
the economic interest of the holders of Series D Preferred Stock.
Notwithstanding the foregoing, at such time as the holders of the Series D
Preferred Stock shall have obtained the consent of the FCC to the exercise by
the holders of the Series D Preferred of the voting rights set forth below or at
such time as the consent of the FCC is not necessary under applicable law, rule
or regulation, then on the election of a majority of the holders of the Series D
Preferred Stock in addition to voting rights required by law, the holders of the
Series D Preferred Stock shall be entitled to vote on all matters submitted to a
vote of Regent stockholders with the holders of Regent's Common Stock together
as part of the same class; provided, however, the aggregate number of votes
which may be cast by the holders of the Series D Preferred Stock may not exceed
4.9% of the entire number of votes entitled to be cast by all of Regent's
stockholders, as derived in accordance with a formula set forth in the
Certificate of Incorporation intended to comply with the limitations imposed on
bank holding companies and foreign banks treated as bank holding companies by
the Bank Holding Company Act of 1956, as amended.
Certain Restrictions. Whenever dividends payable on the Series D Preferred
Stock are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series D Preferred Stock outstanding shall have been
paid in full or declared and set apart for payment, Regent may not: (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series D
Preferred Stock, provided that Regent may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for, shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Preferred Stock, except dividends
paid ratably on the Series D Preferred Stock and all such parity stock on which
dividends are
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payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled, (C) redeem or purchase or otherwise acquire
for consideration any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
provided that Regent may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of Regent
ranking junior to the Series D Preferred Stock or in satisfaction of contractual
obligations to do so entered into with the written consent of the holders of a
majority of outstanding shares of Series D Preferred Stock, or (D) purchase or
otherwise acquire for consideration any shares of the Series D Preferred Stock,
or any shares of stock ranking on a parity with the Series D Preferred Stock
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series of classes.
Liquidation, Dissolution or Winding Up. In the event of a liquidation,
dissolution or winding up of Regent, no distribution may be made (A) to the
holders of the Series D Preferred Stock unless, prior thereto, the holders of
the Series B Preferred Stock have received the Stated Value per share, plus an
amount equal to unpaid dividends (including accrued dividends), whether or not
declared, to the date of such payment, or (B) to the holders of stock ranking
junior to the Series D Preferred Stock unless, prior thereto, the holders of
Series D Preferred Stock have received the Stated Value per share, plus an
amount equal to unpaid dividends (including accrued dividends), whether or not
declared, to the date of such payment, or (C) to the holders of stock ranking on
a parity with the Series D Preferred Stock, except distributions made ratably on
the Series D Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Conversion Rights. Subject to the limitations set forth below, each share
of the Series D Preferred Stock is convertible, at the option of the holder,
into shares of Regent Common Stock, on the terms and conditions set forth below:
(a) Shares of Series D Preferred Stock may be converted by a holder
only: (A) to acquire a number of shares of Regent Common Stock which, when
added to all of the shares of Regent Common Stock previously acquired on
conversion of Series D Preferred Stock under this provision (fully adjusted
to reflect the events described in paragraph (b) immediately below, does
not exceed 4.99% of the total shares of Regent Common Stock then
outstanding; or (B) in a widely dispersed public distribution of the
resulting Regent Common Stock; or (C) in connection with a private
placement in which no one party directly or indirectly acquires the right
to purchase in excess of 2% of the Regent Common Stock; or (D) in an
assignment to one or more financial intermediaries (e.g., broker-dealer or
investment banker) for the purpose of conducting a widely dispersed
distribution of the resulting Regent Common Stock on behalf of the holder;
or (E) on effectiveness of an amendment to or repeal of the Bank Holding
Company Act of 1956, as amended (including any replacement law, "BHCA"), or
the International Banking Act of 1978, as amended ("IBA"), as a result of
which a bank holding company (as defined in the BHCA) and a foreign bank
with a U.S. branch or agency may acquire the resulting shares of Regent
Common Stock without limitation; or (F) on receipt and finality of an order
approving the transaction from the Board of Governors of the Federal
Reserve System ("FRB"), including any successor agency responsible for
supervision and enforcement under the BHCA or the IBA.
(b) Subject to the provisions for adjustment set forth below, each
share of the Series D Preferred Stock is convertible at the option of the
holder into one (1) fully paid and nonassessable share of Regent Common
Stock. The number of shares of Regent Common Stock into which each share of
Series D Preferred Stock is convertible is subject to adjustment in certain
events, including (A) the issuance of Regent Common Stock as a dividend;
(B) subdivisions, combinations, or consolidations of Regent Common Stock;
(C) the issuance of options, warrants or other rights (excluding those to
Blue Chip and Miami Valley as a holder of Series C Preferred Stock pursuant
to the terms of the Redemption and Warrant Agreement, excluding those to
certain Faircom officers and directors pursuant to the terms of the Merger
Agreement, and excluding incentive stock options to management of Regent
exercisable for up to 15% of the equity securities of Regent on a fully
diluted basis) entitling the holder to subscribe for or purchase Regent
Common Stock at a price per share
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which, when added to the consideration received or receivable by Regent for
such options, warrants or other rights, is less than the then fair market
value of such Regent Common Stock at the date of such issuance; (D) the
issuance or sale of Regent securities convertible into, or exchangeable
for, Regent Common Stock at a price per share which, when added to the
consideration received or receivable by Regent for such exchangeable or
convertible securities, is less than the then fair market value of the
Regent Common Stock at the date of such issuance; (E) the issuance or sale
of Regent Common Stock for consideration representing less than the then
fair market value of the Regent Common Stock at the date of such issuance;
(F) recapitalizations, reclassifications or other transactions resulting in
the change of Regent Common Stock into the same or a different number of
shares of any class or classes of stock; and (G) the capital
reorganization, merger or consolidation of Regent with or into another
corporation, or the sale of all or substantially all, of Regent's
properties and assets to another person.
If the adjustment would require a change of less than one percent (1%) in
the number of shares of Regent Common Stock into which each share of Series D
Preferred Stock may be converted, the amount of any such adjustment will be
carried forward and adjustment with respect thereto will be made at the time of
and together with any subsequent adjustment which, together with all amounts so
carried forward, aggregates 1% of the number of shares of Regent Common Stock
into which each share of Series D Preferred Stock is then convertible.
Upon conversion of any shares of the Series D Preferred Stock, the holder
will be entitled to receive any accumulated, accrued or unpaid dividends in
respect of the shares so converted, including any dividends on such shares of
the Series D Preferred Stock declared prior to such conversion if such holder
held such shares on the record date fixed for the determination of holders of
the Series D Preferred Stock entitled to receive payment of such dividend.
Shares of the Series D Preferred Stock may not be converted after the close
of business on the third business day preceding the Redemption Date.
Redemption. Regent may, at the election of its Board of Directors, at any
time or from time to time, redeem the whole or part of the Series D Preferred
Stock, at the Stated Value, plus an amount equal to all unpaid dividends
(including accrued dividends), whether or not declared, to the Redemption Date.
In the event Regent elects to redeem less than all of the Series D Preferred
Stock, Regent will select pro rata the shares to be so redeemed, except that if
the Board of Directors determines in its reasonable business judgment that to do
so by lot would be in the best interests of Regent, then the shares to be so
redeemed will be selected by lot in such manner as prescribed by the Board of
Directors. Regent is also obligated by contract to redeem all of the Series D
Preferred Stock in the event the Merger Agreement is terminated or the Merger
and Park Lane acquisition are not completed by June 30, 1998.
All dividends on the shares of Series D Preferred Stock called for
redemption shall cease to accrue, said shares shall no longer be deemed
outstanding, and all rights of the holders thereof as stockholders of Regent
(except the right to receive payment for the shares, the right to receive
declared dividends, and the right to convert such shares into shares of Regent
Common Stock until the close of business on the third business day preceding the
Redemption Date) will cease from and after the Redemption Date.
Directorship. After the occurrence of one or more of the events described
in the paragraph immediately following below, the holders of the Series D
Preferred Stock, as a class, are entitled to be represented on the Board of
Directors by one Director (the "Series D Director") who, upon nomination by such
holders, as a class, will stand for election by voting by the holders of the
Series A Preferred Stock, the Series B Preferred Stock (subject to limitations
contained in Regent's Certificate of Incorporation), the Series C Preferred
Stock, the Series D Preferred Stock (subject to limitations contained in
Regent's Certificate of Incorporation), the Series E Preferred Stock, and the
holders of Regent Common Stock, except under circumstances where the number of
individuals nominated for election exceeds the number of Directors to be
elected. In the event the number of individuals nominated for election exceeds
the number of Directors to be elected, then the holders of the Series D
Preferred Stock will have the sole right to vote for, elect and remove the
individual nominated by them, as a class, to serve as the Series D Director, and
in such event no right to vote for, elect or remove any of the other Directors.
The Series D Director, upon being elected, will serve for the same term and have
the same voting powers as other Directors. The right to elect the Series D
Director pursuant to the terms hereof will be exercisable by the holders
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of a majority of the Series D Preferred Stock at their option upon at least 60
days notice to Regent; provided, however, if Regent is subject to the reporting
requirements of the Exchange Act, such notice must be provided on or before the
date established by Regent for the submission of proposals pursuant to the proxy
rules promulgated under the Exchange Act.
The right set forth in the immediately preceding paragraph may be exercised
only after: (i) (A) effectiveness of an amendment to or repeal of the BHCA or
IBA, as a result of which amendment or repeal a bank holding company (as defined
in the BHCA) and a foreign bank with a U.S. branch or agency may appoint a
director of Regent without limitation or (B) on receipt and finality of an order
approving the transaction from the FRB under the BHCA or the IBA; and (ii) on
receipt and finality of an order of the FCC consenting thereto, if such consent
is then required under applicable law, rule or regulation.
SERIES E PREFERRED STOCK
General. Regent currently has authority to issue 5,000,000 shares of Series
E Preferred Stock. The Stated Value of the Series E Preferred Stock is $5.00 per
share. As of the date of this Proxy Statement/Prospectus, there were no issued
and outstanding shares of Series E Preferred Stock. Prior to Effectiveness, as
many as 650,000 shares of Series E Preferred Stock may be issued and
outstanding.
Dividends. The holders of shares of the Series E Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of
Regent out of funds legally available for such purpose, cumulative dividends
payable quarterly in cash on the first business day of January, April, July and
October, accruing commencing with the date of issue of such shares, at the rate
of $.35 per share per annum. No interest is payable on accrued but unpaid
dividends.
Voting Rights. In addition to voting rights required by law or by Regent's
Certificate of Incorporation, subject to restrictions contained in the
Certificate of Incorporation, the holders of the Series E Preferred Stock are
entitled to vote on all matters submitted to a vote of Regent's stockholders.
Except as otherwise required by law or by Regent's Certificate of Incorporation,
the holders of the Series A Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock (under certain conditions), the Series E Preferred
Stock, and the holders of Regent's Common Stock vote together as one class with
one vote per share (in the case of Preferred Stock, subject to certain
adjustments contained in Regent's Certificate of Incorporation and if
convertible into Regent Common Stock, one vote per share of Regent Common Stock
into which such convertible Preferred Stock is then convertible) on all matters
submitted to a vote of Regent's stockholders.
Certain Restrictions. Whenever dividends payable on the Series E Preferred
Stock are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series E Preferred Stock outstanding shall have been
paid in full or declared and set apart for payment, Regent may not: (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series E
Preferred Stock, provided that Regent may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for, or out of the
shares of any such junior stock, (B) pay dividends on or make any other
distributions on any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series E Preferred Stock,
except dividends paid ratably on the Series E Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled, (C)
redeem or purchase or otherwise acquire for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series E Preferred Stock, provided that Regent may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of Regent ranking junior to the Series E Preferred Stock or
in satisfaction of contractual obligations to do so entered into with the
written consent of the holders of a majority of aggregate outstanding shares of
Series A Preferred Stock and Series E Preferred Stock outstanding as of the date
of the creation of such contractual obligations, or (D) purchase or otherwise
acquire for consideration any shares of the Series E Preferred Stock, or any
shares of stock ranking on a parity with the Series E Preferred Stock except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend
98
<PAGE> 103
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series of classes.
Liquidation, Dissolution or Winding Up. In the event of a liquidation,
dissolution or winding up of Regent, no distribution may be made (A) to the
holders of the Series E Preferred Stock unless, prior thereto, the holders of
the Series B Preferred Stock have received the Stated Value per share of the
Series B Preferred Stock, plus an amount equal to unpaid dividends (including
accrued dividends), whether or not declared, to the date of such payment, or (B)
to the holders of stock ranking junior to the Series E Preferred Stock unless,
prior thereto, the holders of Series E Preferred Stock have received the Stated
Value per share of the Series E Preferred Stock, plus an amount equal to unpaid
dividends (including accrued dividends), whether or not declared, to the date of
such payment, or (C) to the holders of stock ranking on a parity with the Series
E Preferred Stock, except distributions made ratably on the Series E Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
Conversion Rights. Each share of the Series E Preferred Stock is
convertible into one (1) share of Regent Common Stock at the option of the
holder, at any time, and at the option of Regent's Board of Directors upon the
occurrence of a Conversion Event. The number of shares of Regent Common Stock
into which each share of Series E Preferred Stock is convertible is subject to
adjustment in certain events, including (A) the issuance of Regent Common Stock
as a dividend; (B) subdivisions, combinations, or consolidations of Regent
Common Stock; (C) the issuance of options, warrants or other rights (excluding
those to Blue Chip and Miami Valley as a holder of Series C Preferred Stock
pursuant to the terms of the Redemption and Warrant Agreement, excluding those
to certain Faircom officers and directors pursuant to the terms of the Merger
Agreement, and excluding incentive stock options to management of Regent
exercisable for up to 15% of the equity securities of Regent on a fully diluted
basis) entitling the holder to subscribe for or purchase Regent Common Stock at
a price per share which, when added to the consideration received or receivable
by Regent for such options, warrants or other rights, is less than the then fair
market value of such Regent Common Stock at the date of such issuance; (D) the
issuance or sale of Regent securities convertible into, or exchangeable for,
Regent Common Stock at a price per share which, when added to the consideration
received or receivable by Regent for such exchangeable or convertible
securities, is less than the then fair market value of the Regent Common Stock
at the date of such issuance; (E) the issuance or sale of Regent Common Stock
for consideration representing less than the then fair market value of the
Regent Common Stock at the date of such issuance; (F) recapitalizations,
reclassifications or other transactions resulting in the change of Regent Common
Stock into the same or a different number of shares of any class or classes of
stock; and (G) the capital reorganization, merger or consolidation of Regent
with or into another corporation, or the sale of all or substantially all, of
Regent's properties and assets to another person.
If the adjustment would require a change of less than one percent (1%) in
the number of shares of Regent Common Stock into which each share of Series E
Preferred Stock may be converted, the amount of any such adjustment will be
carried forward and adjustment with respect thereto will be made at the time of
and together with any subsequent adjustment which, together with all amounts so
carried forward, aggregates 1% of the number of shares of Regent Common Stock
into which each share of Series E Preferred Stock is then convertible.
Upon conversion of any shares of the Series E Preferred Stock, the holder
will be entitled to receive any accumulated, accrued or unpaid dividends in
respect of the shares so converted, provided that such holder will be entitled
to receive any dividends on such shares of the Series E Preferred Stock declared
prior to such conversion if such holder held such shares on the record date
fixed for the determination of holders of the Series E Preferred Stock entitled
to receive payment of such dividend.
Redemption. Shares of the Series E Preferred Stock are not subject to any
right of Regent contained in Regent's Certificate of Incorporation to redeem
such shares.
99
<PAGE> 104
COMPARISON OF STOCKHOLDER RIGHTS
If the Series C Preferred Stock held by the Faircom stockholders is
converted into Regent Common Stock, the stockholder rights of the Faircom
stockholders as holders of Regent Common Stock will generally be the same as
they were as holders of Faircom Common Stock. Until such conversion, however,
the Faircom stockholders, as holders of Series C Preferred Stock, will have
rights not currently held by them in Faircom. As holders of Series C Preferred
Stock, the Faircom stockholders will be entitled to receive, in preference to
the holders of Regent Common Stock and to the holders of stock ranking junior to
the Series C Preferred Stock, annual dividends at the rate of 7% and a
distribution upon liquidation of Regent equal to the Stated Value of the Series
C Preferred Stock plus any amount of accumulated, accrued or unpaid dividends.
Holders of the Series C Preferred Stock will not participate with the holders of
Regent Common Stock in any increase in the market value of Regent's equity in
excess of the 7% yield provided by the fixed dividend rate unless the holders of
the Series C Preferred Stock elect to convert their preferred shares into Regent
Common Stock. Upon such conversion, however, the Faircom stockholders would
still be entitled to receive the dividend yield of 7% per year on the shares to
the date of conversion. Consequently, if the Merger is consummated, the Faircom
stockholders will receive for their Faircom Common Stock securities in Regent
that would give them a preference over Regent Common Stock with respect to
dividends at 7% per annum and upon liquidation of Regent, while at the same time
allowing them, through conversion of their preferred shares, to participate in
the growth, if any, of Regent's equity market value on the same basis as any
holder of Regent Common Stock.
In addition to the right to vote together with holders of Regent Common
Stock and with other classes of Regent Preferred Stock with voting rights, on
matters presented to a vote of the Regent stockholders, holders of Series C
Preferred Stock are entitled to elect to the Board of Directors of Regent one
person nominated only by them, as a class, thereby assuring them of Board
representation, which assurance they would not necessarily have as holders of
Regent Common Stock. Delaware law also gives to the holders of Series C
Preferred Stock the right to vote as a separate class (instead of as part of a
class consisting of holders of Series C Preferred Stock, holders of Regent
Common Stock and holders of other series of Regent Preferred Stock) on matters
which could materially impact their rights as holders of the Series C Preferred
Stock.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the stockholders of Faircom will have the
right to have proposals presented at Faircom's 1998 Annual Meeting of
Stockholders. Such proposals must comply with the rules of the U.S. Securities
and Exchange Commission then in effect and be received by the Secretary of
Faircom, at its principal offices, by June 30, 1998. Such proposals should be
submitted by certified U.S. mail, with return receipt requested.
LEGAL MATTERS
The validity of the shares of Series C Preferred Stock to be issued in
connection with the Merger will be passed upon for Regent by Strauss & Troy, a
Legal Professional Association, Cincinnati, Ohio. Certain legal matters relating
to the Merger will be passed upon, on behalf of Faircom, by Fulbright & Jaworski
L.L.P., New York, New York, and for Regent, by Strauss & Troy. In addition to
the tax opinion previously rendered to Faircom by Fulbright & Jaworski L.L.P.,
each of Strauss & Troy and Fulbright & Jaworski L.L.P. will also render a tax
opinion to Faircom at the Closing of the Merger, and Strauss & Troy will render
a tax opinion to Regent at the Closing. Anthony Pantaleoni, a member of the firm
of Fulbright & Jaworski L.L.P., is the beneficial owner of 110,000 shares of
Faircom Common Stock (which includes options for the purchase of 100,000 shares)
and serves as Secretary of Faircom and its subsidiaries. Alan C. Rosser, a
member of the firm of Strauss & Troy, serves as Assistant Secretary of Regent
and its subsidiaries.
100
<PAGE> 105
EXPERTS
The consolidated balance sheets of Regent as of December 31, 1997 and 1996
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the year ended December 31, 1997 and for the period
from November 5, 1996 (inception) through December 31, 1996, included in this
Proxy Statement/Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated balance sheets of The Park Lane Group and its subsidiaries
as of December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996, included in this Proxy
Statement/Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheet of Continental Radio Broadcasting, L.L.C. as of December
31, 1997 and the related statement of operations, shareholders' equity (deficit)
and cash flows for the year then ended, included in this Proxy
Statement/Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated balance sheets of Faircom as of December 31, 1996 and 1995
and the related consolidated statements of operations, capital deficit and cash
flows for the three years in the period ended December 31, 1996, included in
this Proxy Statement/Prospectus, have been included herein in reliance on the
report of BDO Seidman, LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheets of Treasure Radio Associates Limited Partnership as of
November 30, 1996 and 1995 and the related statements of operations, partners'
deficit and cash flows for the years then ended, included in this Proxy
Statement/Prospectus, have been included herein in reliance on the report of
Kopperman & Wolf Co., independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The consolidated financial statements of Alta California Broadcasting, Inc.
and its subsidiary as of March 31, 1997 and for the year then ended, and the
financial statements of KARZ/KNRO (a division of Merit Broadcasting Corporation)
as of December 31, 1996 and for the year then ended, included in this Proxy
Statement/Prospectus, have been audited by Stockman Kast Ryan & Scruggs, P.C.,
independent auditors, as stated in their reports herein, and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The statement of revenues and direct expenses of Ruby Broadcasting, Inc.
for the years ended December 31, 1997 and 1996, included in this Proxy
Statement/Prospectus, have been audited by Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
101
<PAGE> 106
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FAIRCOM INC.
AUDITED --
Report of Independent Accountants.................................................. F-1
Consolidated Balance Sheets at December 31, 1996 and 1995.......................... F-2
Consolidated Statements of Operations for the years ended December 31, 1996, 1995
and 1994........................................................................ F-3
Consolidated Statements of Capital Deficit for the years ended December 31, 1996
1995 and 1994................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996 1995
and 1994........................................................................ F-5
Notes to Consolidated Financial Statements......................................... F-6
UNAUDITED --
Consolidated Balance Sheets at September 30, 1997.................................. F-23
Consolidated Statements of Operations for the nine months ended September 30, 1997
and 1996........................................................................ F-24
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997
and 1996........................................................................ F-26
Notes to Consolidated Financial Statements......................................... F-28
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP (WYHT (FM) AND WMAN (AM)
AUDITED --
Report of Independent Accountants.................................................. F-30
Balance Sheets at November 30, 1996 and 1995....................................... F-31
Statement of Partners' Deficit for the years ended November 30, 1996 and 1995...... F-33
Statement of Income for the years ended November 30, 1996 and 1995................. F-34
Statement of Cash Flows for the years ended November 30, 1996 and 1995............. F-35
Notes to Financial Statements...................................................... F-37
UNAUDITED
Balance Sheets at May 31, 1997 and 1996............................................ F-46
Statements of Operations for the six months ended May 31, 1997 and 1996............ F-47
Statements of Cash Flows for the six months ended May 31, 1997 and 1996............ F-48
Notes to Financial Statements...................................................... F-49
REGENT COMMUNICATIONS, INC.
AUDITED --
Report of Independent Accountants.................................................. F-50
Consolidated Balance Sheets at December 31, 1997 and 1996.......................... F-51
Consolidated Statements of Operations for the year ended December 31, 1997 and the
period from November 5, 1996 (inception) through December 31, 1996.............. F-52
Consolidated Statements of Shareholders' Equity for the year ended December 31,
1997 and the period from November 5, 1996 (inception) through December 31,
1996............................................................................ F-53
Consolidated Statements of Cash Flows for the year ended December 31, 1997 and the
period from November 5, 1996 (inception) through December 31, 1996.............. F-54
Notes to Consolidated Financial Statements......................................... F-55
THE PARK LANE GROUP AND SUBSIDIARIES
AUDITED --
Report of Independent Accountants.................................................. F-67
Consolidated Balance Sheets at December 31, 1996 and 1995.......................... F-68
Consolidated Statements of Operations for the years ended December 31, 1996, 1995
and 1994........................................................................ F-69
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994................................................ F-70
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994........................................................................ F-71
Notes to Consolidated Financial Statements......................................... F-72
</TABLE>
102
<PAGE> 107
<TABLE>
<S> <C>
UNAUDITED --
Consolidated Balance Sheets at September 30, 1997.................................. F-88
Consolidated Statements of Operations for the nine months ended September 30, 1997
and 1996........................................................................ F-89
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997
and 1996........................................................................ F-90
Notes to Consolidated Financial Statements......................................... F-91
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
AUDITED --
Independent Auditors' Report....................................................... F-93
Consolidated Balance Sheet at March 31, 1997....................................... F-94
Consolidated Statement of Operations for the year ended March 31, 1997............. F-95
Consolidated Statement of Stockholder's Equity (Deficiency) for the year ended
March 31, 1997.................................................................. F-96
Consolidated Statement of Cash Flows for the year ended March 31, 1997............. F-97
Notes to Consolidated Financial Statements......................................... F-99
UNAUDITED --
Consolidated Balance Sheet at September 30, 1997................................... F-94
Consolidated Statements of Operations for the six months ended September 30, 1996
and 1997........................................................................ F-95
Consolidated Statement of Stockholder's Equity (Deficiency) for the six months
ended September 30, 1997........................................................ F-96
Consolidated Statements of Cash Flows for the six months ended September 30, 1996
and 1997........................................................................ F-97
Notes to Consolidated Financial Statements......................................... F-99
KARZ/KNRO (A DIVISION OF MERIT BROADCASTING CORPORATION)
AUDITED --
Independent Auditors' Report....................................................... F-106
Balance Sheet at December 31, 1996................................................. F-107
Statement of Operations and Net Liabilities of Division for the year ended December
31, 1996........................................................................ F-108
Statement of Cash Flows for the year ended December 31, 1996....................... F-109
Notes to Financial Statements...................................................... F-110
POWER SURGE, INC.
UNAUDITED --
Balance Sheet at September 30, 1997................................................ F-112
Statement of Operations for the nine months ended September 30, 1997............... F-113
Statement of Stockholder's Equity for the nine months ended September 30, 1997..... F-114
Statement of Cash Flows for the nine months ended September 30, 1997............... F-115
Notes to Financial Statements...................................................... F-116
CONTINENTAL RADIO BROADCASTING L.L.C.
AUDITED --
Report of Independent Accountants.................................................. F-119
Balance Sheet at December 31, 1997................................................. F-120
Statement of Operations for the year ended December 31, 1997....................... F-121
Statement of Changes in Partners' Deficit for the year ended December 31, 1997..... F-122
Statement of Cash Flows for the year ended December 31, 1997....................... F-123
Notes to Financial Statements...................................................... F-124
RUBY BROADCASTING, INC.
AUDITED --
Report of Independent Accountants.................................................. F-128
Statement of Revenues and Direct Expenses for the years ended December 31, 1997 and
1996............................................................................ F-129
Notes to Statement of Revenues and Direct Expenses................................. F-130
</TABLE>
103
<PAGE> 108
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Faircom Inc.
We have audited the consolidated balance sheets of Faircom Inc. as of December
31, 1996 and 1995 and the related consolidated statements of income, capital
deficit and cash flows for each of the three years in the period ended 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 presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Faircom Inc. at
December 31, 1996 and 1995 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Mitchel Field, New York
January 14, 1997
F-1
<PAGE> 109
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 2)
CURRENT ASSETS:
Cash and cash equivalents $ 123,221 $ 363,532
Accounts receivable, less allowance of $20,000 for possible
losses in 1996 and 1995 1,169,772 942,601
Prepaid expenses 12,592 5,783
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,305,585 1,311,916
- --------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, less accumulated depreciation and
amortization (Note 1) 1,184,554 1,327,067
- --------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS, net of accumulated amortization of $515,670
and $458,553 1,627,767 1,684,884
OTHER ASSETS:
deferred financing costs 167,222 167,641
other 41,325 55,000
- --------------------------------------------------------------------------------------------------------------------
1,836,314 1,907,525
- --------------------------------------------------------------------------------------------------------------------
$4,326,453 $4,546,508
====================================================================================================================
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 76,853 $ 58,946
Accrued expenses and liabilities 199,054 208,635
Taxes payable 10,150 20,150
Current portion of interest payable (Note 2 (b)) 226,417 235,458
Current portion of long-term debt (Note 2) 552,000 493,250
Current portion of obligations under capital leases (Note 4) 3,547 20,800
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,068,021 1,037,239
LONG-TERM DEBT, less current portion (Note 2) 7,276,884 7,828,883
INTEREST PAYABLE, less current portion (Note 2 (b)) 350,494 509,167
DEFERRED RENTAL INCOME (Note 3) 101,995 136,000
APPRAISAL RIGHT LIABILITY (Note 2 (d)) 1,015,000 800,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,812,394 10,311,289
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2 (d) and 4)
CAPITAL DEFICIT (Notes 2 (c), 6 and 7):
Common stock - $.01 par value, 35,000,000 shares
authorized; 7,378,199 shares issued and outstanding 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (8,165,536) (8,444,376)
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL DEFICIT (5,485,941) (5,764,781)
- --------------------------------------------------------------------------------------------------------------------
$4,326,453 $4,546,508
====================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-2
<PAGE> 110
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BROADCASTING REVENUES:
Gross broadcasting revenues $5,517,586 $5,785,963 $5,607,940
Less: agency commissions (643,632) (672,381) (624,427)
- -----------------------------------------------------------------------------------------------------------------------------
NET BROADCASTING REVENUES 4,873,954 5,113,582 4,983,513
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Programming and technical expenses 1,218,160 1,229,333 1,161,600
Selling, general and administrative expenses 1,775,059 1,716,858 1,690,994
Depreciation and amortization 321,263 351,257 389,489
Corporate expenses 336,643 304,653 271,075
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3,651,125 3,602,101 3,513,158
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,222,829 1,511,481 1,470,355
Interest expense (698,643) (811,298) (770,009)
Gain from sale of Southampton radio station (Note 8) - - 964,859
Other income 7,346 10,633 16,255
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PREFERRED STOCK DIVIDEND REQUIREMENT OF
SUBSIDIARIES, PROVISION FOR APPRAISAL RIGHTS, TAXES ON INCOME
AND EXTRAORDINARY ITEM 531,532 710,816 1,681,460
Preferred stock dividend requirement of subsidiaries (Notes
2(c) and 8) - - (149,225)
Provision for appraisal rights (Note 2 (d)) (215,000) (438,000) (402,000)
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME AND EXTRAORDINARY ITEM 316,532 272,816 1,130,235
TAXES ON INCOME (Note 9) 37,692 28,000 138,156
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 278,840 244,816 992,079
EXTRAORDINARY ITEM:
Gain from troubled debt restructuring (Note 2(b)) - - 787,201
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 278,840 $ 244,816 $1,779,280
=============================================================================================================================
PRIMARY INCOME PER SHARE OF COMMON STOCK - ASSUMING NO DILUTION:
Income before extraordinary item $.04 $.03 $.13
Extraordinary item - - .11
- -----------------------------------------------------------------------------------------------------------------------------
PRIMARY NET INCOME PER COMMON SHARE $.04 $.03 $.24
=============================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,378,199 7,378,199 7,378,199
=============================================================================================================================
FULLY DILUTED INCOME PER COMMON SHARE - ASSUMING ISSUANCE OF ALL DILUTIVE
CONTINGENT SHARES:
Income before extraordinary item $.02 $.02 $.06
Extraordinary item - - .05
- -----------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE $.02 $.02 $.11
=============================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,459,701 16,459,701 16,459,701
=============================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-3
<PAGE> 111
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,378,199 $73,782 $2,605,813 $(14,304,166) $(11,624,571)
Extinguishment of
Southampton's
preferred stock
(Notes 2 (c) and 8) - - - 2,117,769 2,117,769
Extinguishment of
subordinated
claim and related
stock option (Note
2 (c)) - - - 1,717,925 1,717,925
Net income for the
year ended
December 31,
1994 - - - 1,779,280 1,779,280
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1994 7,378,199 73,782 2,605,813 (8,689,192) (6,009,597)
Net income for the
year ended
December 31,
1995 - - - 244,816 244,816
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1995 7,378,199 73,782 2,605,813 (8,444,376) (5,764,781)
Net income for the
year ended
December 31,
1996 - - - 278,840 278,840
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1996 7,378,199 $73,782 $2,605,813 $(8,165,536) $(5,485,941)
========================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-4
<PAGE> 112
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $278,840 $244,816 $1,779,280
- ------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 323,474 351,257 389,489
Amortization of deferred rental income (34,005) (34,000) -
Provision for doubtful accounts 23,449 16,428 22,997
Gain from sale of radio station - - (964,859)
Preferred stock dividend requirement of
subsidiaries - - 149,225
Provision for appraisal rights 215,000 438,000 402,000
Gain from troubled debt restructuring - - (787,201)
Increase (decrease) in cash flows from changes in
operating assets and liabilities, net of effects of
sales of radio stations:
Accounts receivable (250,620) (2,708) (198,313)
Prepaid expenses (6,809) 31,724 (23,359)
Other assets (1,325) - (75,000)
Accounts payable 17,907 13,907 (9,746)
Accrued expenses and liabilities (9,581) (77,016) (136,753)
Taxes payable (10,000) (100,918) 121,068
Interest payable (167,714) (61,978) (47,787)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 99,776 574,696 (1,158,239)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 378,616 819,512 621,041
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets used to satisfy secured
claims - - 1,700,000
Capital expenditures (63,440) (172,805) (375,904)
Intangible assets related to purchase of radio station - - (152,796)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (63,440) (172,805) 1,171,300
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for deferred financing costs (44,985) (235) (210,340)
Proceeds from long-term debt - - 720,578
Principal payments on long-term debt (493,249) (515,556) (2,228,943)
Principal payments under capital lease obligations (17,253) (19,660) (32,539)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (555,487) (535,451) (1,751,244)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (240,311) 111,256 41,097
CASH AND CASH EQUIVALENTS, beginning of year 363,532 252,276 211,179
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $123,221 $363,532 $ 252,276
==============================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-5
<PAGE> 113
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION AND Faircom Inc. (the "Company") owns and operates radio
BUSINESS stations through its wholly-owned subsidiary in Flint,
Michigan.
PRINCIPLES OF The consolidated financial statements of the Company
CONSOLIDATION include the accounts of Faircom Inc. and its
subsidiaries, Faircom Flint Inc. ("Flint"), and Faircom
Evansville Inc., all of whose common stock is owned by
the Company. All intercompany accounts and transactions
are eliminated. Faircom Evansville Inc. was inactive
during the three years ended December 31, 1996. The
assets of Faircom Southampton Inc. ("Southampton") were
sold in 1994 (see Note 8). Southampton, which was a
wholly-owned subsidiary of the Company, was dissolved
in 1994.
USE OF ESTIMATES In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that may
affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues
and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH For purposes of the statement of cash flows, the
EQUIVALENTS Company considers all highly liquid financial
instruments purchased with an original maturity of
three months or less to be cash equivalents. The
carrying amount reported in the consolidated balance
sheets for cash and cash equivalents approximates its
fair value.
PROPERTY AND Property and equipment are stated at cost. For
EQUIPMENT financial reporting purposes, depreciation is
determined using the straight-line method based upon
the estimated useful lives of the various classes of
assets, ranging from three to nineteen years. Leasehold
improvements are amortized over the shorter of their
useful lives or the terms of the related leases. Both
straight-line and accelerated methods are used for
federal and state income tax purposes.
F-6
<PAGE> 114
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
INTANGIBLE ASSETS Intangible assets consist of the excess of the purchase
price (including related acquisition costs) over the
fair value of tangible assets of acquired radio
stations, a substantial portion of which represents the
value of Federal Communications Commission licenses.
These assets are amortized on a straight-line basis
over forty years. Management evaluates the continuing
realizability of the intangible assets by assessing
projected future cash flows and obtaining independent
appraisals of the value of its radio stations.
LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 requires, among other
things, that losses resulting from impairment of assets
expected to be held, and gains or losses from assets
expected to be disposed of, be included as a component
of income from continuing operations before taxes on
income. The Company adopted SFAS No. 121 in 1996 and
its implementation did not have a material effect on
the consolidated financial statements.
DEFERRED FINANCING Deferred financing costs are amortized on a
COSTS straight-line basis over the term of the related
debt.
REDEEMABLE The Company carried the redeemable preferred stock of
PREFERRED STOCK its former subsidiaries (see Notes 2(c) and 8) at their
AND APPRAISAL redemption values. Dividends on such stock were accrued
RIGHTS currently and charged to operations. At such time that
the appraisal rights of the preferred stockholders had
greater than a nominal value, an accrual and
corresponding charge to preferred stock requirements
were reflected in the consolidated financial
statements. Adjustments were made to this accrual based
on the passage of time and changes in appraisal values.
The value of the appraisal right given to Citicorp
Venture Capital, Ltd. ("CVC") for its guaranty of
certain debt interest (see Note 2 (d)) was accounted
for in a manner similar to the appraisal rights of the
preferred stockholders.
F-7
<PAGE> 115
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
The value of the appraisal right given to CVC in
connection with its subordinated exchangeable note (see
Note 2 (d)) is accrued at a discounted amount, based on
the interest rate of the related note and the date on
which the appraisal right becomes exercisable.
Adjustments are made to this accrual based on the
passage of time and changes in appraisal values.
TAXES ON INCOME Income taxes are calculated using the liability method
specified by Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income
Taxes".
REVENUE Revenue from radio advertisements, including barter
RECOGNITION transactions (advertising provided in exchange for
goods and services), is recognized as income when the
advertisements are broadcast. The merchandise or
services received as barter for advertising are charged
to expense when used or provided.
STOCK-BASED In October 1995, the Financial Accounting Standards
COMPENSATION Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123, which is
effective in 1996 for transactions entered into after
1994, establishes a fair value method of accounting for
stock-based compensation, through either recognition or
disclosure. The Company adopted the employee
stock-based compensation provisions of Statement No.
123 in 1996. However, since the pro forma net income
and earnings per share amounts assuming the fair value
method was adopted January 1, 1995 did not differ
materially from the comparable amounts reported on the
consolidated statements of income, no such pro forma
amounts have been disclosed. The adoption of Statement
No. 123 did not impact the Company's results of
operations, financial position or cash flows.
ADVERTISING COSTS Advertising costs are charged to expense as incurred
and amounted to $68,345, $149,469 and $118,770 for the
years ended December 31, 1996, 1995 and 1994,
respectively.
F-8
<PAGE> 116
FAIRCOM INC.
SUMMARY OF ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
NET INCOME PER Net income per common share is based on the weighted
COMMON SHARE average number of shares of common stock outstanding
during each period. The effects of the assumed
conversion of a convertible note on per share data have
been reflected in the fully diluted calculation only
(see Note 2 (c)). The effects of the assumed exercise
of outstanding options were not dilutive and,
accordingly, have been excluded from both the primary
and fully diluted per share calculations (see Notes 6
and 7).
F-9
<PAGE> 117
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 116,000 $ 116,000
Buildings and building
improvements 633,136 626,722
Leasehold improvements 3,445 3,445
Towers and antenna systems 1,182,526 1,180,620
Studio, technical and transmitting
equipment 3,467,747 3,422,652
Office equipment, furniture and
fixtures 941,665 933,850
- ------------------------------------------------------------------------------------------------------
6,344,519 6,283,289
Less: accumulated depreciation and
amortization (5,159,965) (4,956,222)
- ------------------------------------------------------------------------------------------------------
Net property and equipment $1,184,554 $1,327,067
======================================================================================================
</TABLE>
2. LONG-TERM DEBT Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior secured term note (see (a) below) $5,713,717 $6,131,916
Senior secured term note (see (b) below) 760,200 834,000
Senior secured time note (see (b) below) 673,337 673,337
Subordinated senior convertible note (see
(c) below) 181,630 181,630
Subordinated senior exchangeable note
(see (d) below) 500,000 500,000
Notes payable for purchase of radio
station - 1,250
- ------------------------------------------------------------------------------------------------------
7,828,884 8,322,133
Less: Current portion of long-term debt (552,000) (493,250)
- ------------------------------------------------------------------------------------------------------
$7,276,884 $7,828,883
======================================================================================================
</TABLE>
F-10
<PAGE> 118
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(a) Senior secured term note
On December 22, 1994, Flint entered into an amended and
restated loan agreement (the "1994 loan agreement"), under
which certain existing indebtedness was consolidated,
creating three new loans (see also Note 2 (b)). A portion of
the "first loan" proceeds under the 1994 loan agreement was
used to repay in full two existing term loans, with the
balance used to fund loan closing costs and certain capital
expenditures. The "first loan" is evidenced by a term note
for $6,509,317, with interest payable monthly at the prime
rate plus 2-3/4% (base rate), which may be reduced if
certain conditions are met. The base rate can also be
increased by a maximum of 4% if Flint is in default for
non-payment of principal or interest. The principal balance
is payable in varying monthly installments, ranging from
$31,450 to $48,450, from January 1, 1995 through November 1,
1999, with the balance due on December 1, 1999. Flint has
the option, subject to certain terms and conditions, to
extend the "first loan" maturity date for an additional 60
months beyond December 1, 1999.
The borrowings are secured by all tangible and intangible
property of Flint and all outstanding Flint common stock
held by the Company, and are guaranteed by the Company.
The 1994 loan agreement contains certain financial and
restrictive covenants, including maintenance of minimum
operating income levels and debt coverage ratios, and
limitations on capital expenditures, additional
indebtedness, mergers and dividend payments.
F-11
<PAGE> 119
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(b) Senior secured term note and time note
Under the 1994 loan agreement described in Note 2 (a), Flint
became obligated for a term note of $900,000 under the
"second loan" and a time note of $700,000 under the "third
loan". The "second loan" and "third loan" arose from the
acquisition by Flint's senior lender of the $3,180,564
subordinated secured claim against Flint, which Flint had
recorded in connection with its guaranty of certain
indebtedness of a former affiliate, Faircom Charleston, Inc.
("Charleston"), which was dissolved in 1994. The senior
lender, which had acquired the claim from the Resolution
Trust Corporation at a discounted amount, forgave all but
$1,600,000 of this claim and recast it as senior secured
indebtedness of Flint. An extraordinary gain of $787,201 was
recorded in 1994 by Flint in connection with this troubled
debt restructuring. The gain represents the principal amount
of the subordinated secured claim which was forgiven, less
the estimated interest of $793,363 payable over the term of
the "second loan" and "third loan", assuming a prime rate of
8.5%.
The principal balance of the term note under the "second
loan" is payable in varying monthly installments, ranging
from $5,500 to $8,550, from January 1, 1995 through November
1, 1999, with the balance due on December 1, 1999. Flint has
the option, subject to certain terms and conditions, to
extend the "second loan" maturity date for an additional 60
months beyond December 1, 1999. Interest on the term note is
payable monthly at the prime rate plus 2-3/4% (base rate),
which may be reduced if certain conditions are met. The base
rate can also be increased by a maximum of 4% if Flint is in
default for non-payment of principal or interest.
F-12
<PAGE> 120
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Both principal and interest, at the prime rate plus 3%, on
the time note under the "third loan" are payable in a single
payment on December 1, 1999. However, to the extent that
Flint has excess cash flow, as defined in the 1994 loan
agreement, a quarterly payment is required, to be applied
first to accrued interest and then to principal. Flint made
a required quarterly principal payment of $41,246 on March
1, 1995, of which $14,583 was applied to accrued interest
and $26,663 was applied to principal. In addition, a
required quarterly payment of $72,438, which was applied to
accrued interest, was made on March 1, 1996. Flint was also
required to make quarterly payments from excess cash flow as
of September 1 and December 1, 1995 and 1996, but such
payments were waived by the lender.
The collateral and covenants in connection with the "second
loan" and "third loan" are the same as those described for
the "first loan" in Note 2 (a).
(c) Subordinated senior convertible note
The Company and Flint entered into a securities exchange
agreement with Citicorp Venture Capital, Ltd. ("CVC") on
December 22, 1994 (the "1994 CVC agreement"). Under the 1994
CVC agreement, the Company issued a senior convertible note
to CVC for $181,630, with interest payable quarterly at a
rate of 8.65% per annum. The interest rate may be increased
to 10% per annum if the Company is in default for
non-payment of principal or interest. Principal is payable
on December 1, 2004.
F-13
<PAGE> 121
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The senior convertible note, which is subordinated to the
debt described in Notes 2 (a) and 2 (b), was issued in
exchange for the extinguishment of a subordinated claim
payable to CVC in the amount of $1,899,555 related to the
former Charleston Preferred Stock (extinguished and credited
against deficit in 1993 in the amount of its liquidation
value), which CVC had the option of converting into
6,963,733 shares of the Company's common stock; and the
extinguishment in 1994 of the former Southampton Preferred
Stock, with a liquidation value of $2,117,769, which CVC had
the option of converting into 2,117,769 shares of the
Company's common stock (see Note 8). The liquidation value
of the former Southampton Preferred Stock, and the
difference between the subordinated claim and the principal
amount of the new senior convertible note, were credited
against deficit in 1994.
CVC has the option at any time prior to December 1, 2004 to
convert all or any portion of the senior convertible note
into up to 9,081,502 shares of the Company's common stock,
at a conversion rate of 50,000 shares of stock for each
$1,000 of note principal, equivalent to a conversion price
of $.02 per share, subject to antidilution adjustments upon
stock splits and other events.
The senior convertible note contains certain restrictive
covenants, including limitations on capital expenditures,
additional indebtedness, mergers and dividend payments.
(d) Subordinated senior exchangeable note
Under the 1994 CVC agreement (see Note 2 (c)), the Company
also issued a senior exchangeable note to CVC for $500,000,
with interest payable quarterly at a rate of 10% per annum.
The interest rate may be increased to 12% per annum if the
Company is in default for non-payment of principal or
interest. Principal is payable on December 1, 2004.
F-14
<PAGE> 122
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The senior exchangeable note, which is subordinated to the
debt described in Notes 2 (a) and 2 (b), was issued in
exchange for the extinguishment of an appraisal right with
respect to Flint held by CVC, valued for purposes of the
exchange at $310,000 at December 31, 1993 and $350,000 at
December 22, 1994, the date of the 1994 CVC agreement; and
for the extinguishment of the Company's subordinated
obligation to CVC, valued at $150,000 at December 22, 1994,
which was related to CVC's payment of certain accrued
interest under an interest guaranty on one of the Company's
notes payable.
At any time after December 1, 1999, CVC may request a
determination of the appraised value (as defined in the 1994
CVC agreement) of Flint, and elect to exchange $350,000 of
the principal amount of the senior exchangeable note for a
payment of 19.99% of such appraised value. Management
estimates that the present value of this appraisal right at
December 31, 1996, 1995 and 1994 was approximately
$1,015,000, $800,000 and $362,000, respectively, net of the
$350,000 principal amount that would be exchanged at each
such date and based on a 10% discount rate. If at any time
Flint is disposed of by the Company, CVC is entitled to
elect to exchange $350,000 of the principal amount of the
senior exchangeable note for a payment of 19.99% of the net
proceeds (as defined) received.
The senior exchangeable note has the same restrictive
covenants as described in Note 2 (c) for the senior
convertible note.
Minimum annual maturities of the Company's long-term debt for the
next five years and thereafter are approximately as follows: 1997
- $552,000; 1998 - $612,000; 1999 - $5,983,000; 2000 - $0; 2001 -
$0; and $682,000 thereafter.
The Company estimates that the carrying amount of its long-term
debt approximates its fair value.
F-15
<PAGE> 123
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. DEFERRED RENTAL Effective January 1995, Flint, as lessor, entered into an
INCOME operating lease agreement with a telecommunications
company. The lessee agreed to arrange for the construction
of a new radio tower and antenna at one of Flint's tower
sites, at lessee's expense, and transfer title to those
assets to Flint, in exchange for the right to use a portion
of the new tower and related building facilities in its
operations on a rent-free basis for five years. The lessee
has three successive five-year renewal options, providing
for no rent in the sixth year, a total of $18,000 rent in
the seventh year, and annual increases of 4% beginning with
the eighth year.
Flint has recorded as an advance minimum lease payment an
amount equal to the fair value of the tower and antenna
constructed for its benefit, based on the lessee's
construction costs, aggregating approximately $170,000. The
assets received were capitalized, the advance lease payment
is being amortized as rental income on a straight-line
basis over the five year initial lease term, and the
unamortized portion of the lease payment is recorded as
deferred rental income.
4. COMMITMENTS The Company has entered into operating lease agreements for
office space and certain equipment. The Company also
obtained equipment under capital leases.
The following is a schedule of approximate future minimum
lease payments required under these leases:
Operating Capital
----------------------------------------------------------
1996 $37,500 $3,641
1997 6,250 -
Less amount representing
interest - 94
----------------------------------------------------------
Present value of net
minimum lease payments $43,750 $3,547
==========================================================
Rent expense was approximately $46,000, $32,000 and $54,000
for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-16
<PAGE> 124
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
5. RETIREMENT PLANS Effective January 1, 1995, the Company established a
qualified salary reduction plan under Section 401(k) of
the Internal Revenue Code for eligible employees. Under
the plan, the Company may, but is not required to, make
matching and discretionary contributions to
participants' accounts. Matching contributions charged
against operations amounted to $6,800 and $4,600 for
the years ended December 31, 1996 and 1995.
6. STOCK OPTION PLAN The Company has a stock option plan (the "Plan") under
which 900,000 shares of common stock have been reserved
for issuance. Under this Plan, the Company may grant
options to purchase up to 900,000 shares of common
stock in the form of either nonqualified stock options
or incentive stock options ("ISOs"). The Plan provides
that the option price for the nonqualified options be
determined by the Board of Directors at or prior to the
time the option is granted (but in no event at a price
below par value of the common stock) and for ISOs, at a
price not less than 100% of the fair market value of
the common stock at the date the option is granted,
except for those individuals possessing more than 10%
of the total combined voting power of all classes of
stock of the Company or its subsidiaries, for whom the
price is not less than 110% of the fair market value of
the common stock.
The term of each option granted shall be determined by
the Board of Directors, provided that the term for each
ISO granted under the Plan not be more than 10 years
from the date of the grant and the term for each option
granted to an individual owning more than 10% of the
combined voting power, as described above, not be more
than five years.
Under the terms of the Plan, the Company's right to
grant additional ISOs terminated September 18, 1994,
ten years from the date the Plan was adopted by the
Company's Board of Directors.
The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees", and related Interpretations
in accounting for the Plan. Under APB 25, for options
granted to employees at exercise prices equal to the
fair market value of the underlying common stock at the
date of grant, no compensation cost is recognized.
F-17
<PAGE> 125
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires the Company to provide, beginning with
1995 grants, pro forma information regarding net income and net income per
common share as if compensation costs for the Company's stock option plans had
been determined in accordance with the fair value based method prescribed in
SFAS No. 123. Such pro forma information has not been presented because
management has determined that the compensation costs associated with options
granted in 1996 and 1995 are not material to net income or net income per common
share.
Transactions involving options granted under the Plan are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 800,000 $.14 533,88 $.11 747,800 $.19
Granted 234,182 .19 309,318 .16 100,000 .16
Cancelled 209,182 .13 43,200 .31 313,918 .36
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31 825,000 $.16 800,00 $.14 533,882 $.11
===============================================================================================================================
Exercisable, December 31 676,000 $.16 661,00 $.14 427,242 $.10
===============================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Options
Options Outstanding Exercisable
--------------------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercise Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.13 to .17 730,000 3.0 years $.15 631,000 $.15
.22 95,000 4.2 .22 45,000 .22
- --------------------------------------------------------------------------------------------------------------
$.13 to .22 825,000 3.0 years $.16 676,000 $.16
==============================================================================================================
</TABLE>
Of the 825,000 options outstanding at December 31, 1996, 717,500 are
nonqualified options and 107,500 are ISOs.
F-18
<PAGE> 126
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. COMMON STOCK At December 31, 1996, shares of the Company's
SHARES RESERVED authorized and unissued common stock were reserved for
issuance upon conversion of a subordinated senior
convertible note and exercise of options, as follows:
Subordinated senior convertible note (Note 2 (c)) 9,081,502
Stock option plan (Note 6) 900,000
- ---------------------------------------------------------------------------
9,981,502
===========================================================================
8. SALE OF In January 1994, Southampton entered into a contract to
SOUTHAMPTON RADIO sell substantially all of its assets. The Southampton
STATION Preferred Stock was extinguished because there were no
funds for payment to the Southampton preferred
stockholder available from the sale of Southampton.
The operations of the Southampton subsidiary prior to
the sale of the radio station, which closed in August
1994, were included in the statement of operations for
1994 and the sale resulted in a gain of $964,859. The
Southampton operations which were included in the
statement of operations are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Net broadcasting revenues $269,000
Total operating expenses 165,000
- -----------------------------------------------------------------------------
Income from operations 104,000
Interest expense (122,000)
Gain from sale of station 965,000
Other income 10,000
- -----------------------------------------------------------------------------
Income before preferred stock dividend requirement
and taxes on income 957,000
Preferred stock dividend requirement (149,000)
Taxes on income (39,000)
- -----------------------------------------------------------------------------
Net income $769,000
=============================================================================
</TABLE>
F-19
<PAGE> 127
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The gain from sale of the Southampton radio station is
calculated as follows:
Proceeds from sale of station $1,700,000
Net assets sold:
Broadcasting property, net $272,000
Intangible assets 407,000 (679,000)
- -------------------------------------------------------------------------------
1,021,000
Capital lease assumed by buyer 44,000
Other expenses (86,000)
Write-off of remaining assets (14,000)
- -------------------------------------------------------------------------------
Gain from sale of station $ 965,000
===============================================================================
9. TAXES ON INCOME The provision for federal and state income taxes
consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $152,000 $157,000 $1,021,000
State 37,692 70,000 97,156
- -------------------------------------------------------------------------------------------------------
189,692 227,000 1,118,156
Benefits of net operating
loss carryforwards 152,000 199,000 980,000
- -------------------------------------------------------------------------------------------------------
$ 37,692 $ 28,000 $ 138,156
=======================================================================================================
</TABLE>
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred asset for:
Net operating loss carryforwards $2,311,000 $2,502,000
Excess gain on debt restructuring for
tax reporting purposes 186,000 274,000
Alternative minimum tax credit
carryforwards 35,000 35,000
- -------------------------------------------------------------------------------------------------------
Subtotal 2,532,000 2,811,000
Less: valuation allowance (2,532,000) (2,811,000)
- -------------------------------------------------------------------------------------------------------
Net $ - $ -
=======================================================================================================
</TABLE>
F-20
<PAGE> 128
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company has provided valuation allowances equal to
its deferred tax assets because of the uncertainty as
to future utilization.
The Company and Flint file consolidated federal and
separate state income tax returns. At December 31,
1996, consolidated net operating loss carryforwards
("NOL's") for income tax purposes were $6,421,000. The
tax NOL's expire during the years 2002 to 2008.
The difference between the Company's effective tax rate
on income before taxes on income and extraordinary item
and the federal statutory tax rate arises from the
following:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax expense at
statutory rate 34.0% 34.0% 34.0%
Federal taxes, based on
alternative minimum
calculation - 1.8% 7.7%
Non-deductible
expenses 31.9% 47.6% 26.7%
Benefit of net operating
losses (48.0)% (72.8)% (61.9)%
Changes in valuation
allowance (13.9)% - -
State taxes, net of
federal benefit 7.9% 16.9% 5.7%
Prior year's federal tax
overaccrual - (17.2)% -
- ---------------------------------------------------------------------
Effective tax rate 11.9% 10.3% 12.2%
=====================================================================
</TABLE>
10. SUPPLEMENTAL CASH (a) Supplemental disclosure of cash flow information:
FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid during the
year $866,357 $873,276 $788,746
========================================================================================================
Income taxes paid
during the year $ 43,592 $133,257 $ 15,429
========================================================================================================
</TABLE>
F-21
<PAGE> 129
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(b) Supplemental disclosures of non-cash investing and
financing activities:
In December 1994, the subordinated claim against
Flint of $1,899,555 and a related stock option were
extinguished and exchanged as partial consideration
for the Company's $181,630 subordinated senior
convertible note. The difference of $1,717,925 was
credited against deficit (see Note 2 (c)). In
December 1994, the former Southampton Preferred
Stock and a related stock conversion right were
extinguished and exchanged as partial consideration
for the above-mentioned convertible note (see Note
2 (c)).
In December 1994, the Company issued a $500,000
subordinated senior exchangeable note in exchange
for the extinguishment of CVC's appraisal right to
Flint, valued at $350,000, and the extinguishment
of the Company's $150,000 subordinated obligation
to CVC (see Note 2 (d)).
In December 1994, a $3,180,564 subordinated secured
claim against Flint was acquired by Flint's senior
lender from the Resolution Trust Corporation,
reduced to $1,600,000, and recast as senior secured
indebtedness of Flint, resulting in an
extraordinary gain of $787,201 (see Note 2 (b)).
In January 1995, Flint received a tower and
antenna, valued at $170,000, as an advance lease
payment under the terms of an operating lease
agreement (see Note 3).
11. SUBSEQUENT EVENT In January 1997, the Company, through its wholly-owned
subsidiary, Faircom Mansfield Inc. ("Mansfield"),
entered into a contract for the purchase of
substantially all of the assets of two radio stations
in Mansfield, Ohio for total cash consideration of
$7,650,000. Mansfield was formerly named Faircom
Evansville Inc. Subject to FCC approval and the
satisfaction of contractual conditions, a closing is
anticipated in May 1997. Flint borrowed $400,000 by
increasing its existing senior secured debt in the form
of a "fourth loan", and advanced such amount to
Mansfield to make an escrow deposit under the contract.
This loan requires interest payments monthly at the
prime rate plus 3% and matures January 1, 1998. The
Company is negotiating the refinancing of all its
existing indebtedness, increasing such indebtedness and
obtaining additional equity capital in connection with
the Mansfield acquisition.
F-22
<PAGE> 130
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 495,530 $ 123,221
Accounts receivable, less allowance
of $20,000 for possible losses in
1997 and 1996 1,238,116 1,169,772
Prepaid expenses 86,805 12,592
------------ ------------
Total current assets 1,820,451 1,305,585
------------ ------------
Property and equipment, at cost 9,629,351 6,344,519
Less accumulated depreciation and
amortization (5,400,590) (5,159,965)
------------ ------------
Property and equipment, net 4,228,761 1,184,554
------------ ------------
Intangible assets, net of accumulated
amortization of $634,189 in 1997 and
$512,643 in 1996 5,937,878 1,627,767
Other assets:
Deferred financing costs 964,531 167,222
Escrow deposit for purchase of radio station 100,000 --
Other 30,075 41,325
------------ ------------
7,032,484 1,836,314
------------ ------------
$ 13,081,696 $ 4,326,453
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $ 112,262 $ 76,853
Accrued expenses and liabilities 190,132 199,054
Taxes payable 4,089 10,150
Interest payable-secured note 102,716 --
Current portion of interest payable -- 226,417
Current portion of senior secured term notes 400,004 552,000
Current portion of obligations under capital leases -- 3,547
------------ ------------
Total current liabilities 809,203 1,068,021
------------ ------------
Long-term debt, less current portion: --
Senior secured term notes 12,036,662 6,595,254
Convertible and exchangeable
subordinated promissory notes 10,000,000 681,630
Interest payable, less current portion -- 350,494
Interest payable-convertible notes 175,000 --
Deferred rental income 76,489 101,995
Appraisal right liability -- 1,015,000
------------ ------------
Total liabilities 23,097,354 9,812,394
------------ ------------
Capital deficit:
Common stock-$.01 par value, 35,000,000
shares authorized; 7,378,199 shares
issued and outstanding 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (12,695,253) (8,165,536)
------------ ------------
Total capital deficit (10,015,658) (5,485,941)
------------ ------------
$ 13,081,696 $ 4,326,453
============ ============
</TABLE>
F-23
<PAGE> 131
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30
--------------------------
1997 1996
---- ----
<S> <C> <C>
Gross broadcasting
revenues $ 4,559,193 $ 3,798,007
Less: agency commissions (495,587) (435,100)
----------- -----------
Net broadcasting
revenues 4,063,606 3,362,907
----------- -----------
Programming and
technical expenses 1,058,111 900,703
Selling, general and
administrative expenses 1,576,616 1,283,006
Depreciation and
amortization 458,783 235,440
Corporate expenses 297,166 248,757
----------- -----------
Total operating expenses 3,390,676 2,667,906
----------- -----------
Income from operations 672,930 695,001
Interest expense (836,404) (527,777)
Other income 16,609 5,197
----------- -----------
Income (loss) before provision for appraisal
right and taxes on income (146,865) 172,421
Provision for appraisal right -- (55,000)
----------- -----------
Income (loss) before taxes on
income (146,865) 117,421
Taxes on income (49,542) (37,692)
----------- -----------
Income (loss) before extraordinary items (196,407) 79,729
----------- -----------
Extraordinary gain from debt extinguishment 370,060 --
Extraordinary loss from debt extinguishment (4,703,370) --
----------- -----------
Extraordinary items (4,333,310) --
----------- -----------
Net income (loss) $(4,529,717) $ 79,729
=========== ===========
Primary income
(loss) per common share-assuming
no dilution:
Income (loss) before extraordinary items $ (.02) $ .01
Extraordinary items (.59) --
----------- -----------
Primary net income (loss)
per common share $ (.61) $ .01
=========== ===========
Weighted average shares
outstanding-primary 7,378,199 7,378,199
=========== ===========
</TABLE>
F-24
<PAGE> 132
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30
-------------------
1997 1996
---- ----
<S> <C> <C>
Fully diluted income per common
share-assuming full dilution:
Income before extraordinary items $ .01
Extraordinary items --
-----
Fully diluted net income per common share $ .01
=====
Weighted average shares
outstanding-fully diluted 16,459,701
==========
</TABLE>
F-25
<PAGE> 133
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
Cash flows from operating activities:
Net income (loss) $(4,529,717) $ 79,729
----------- -----------
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 458,783 235,440
Amortization of deferred
rental income (25,506) (25,503)
Provision for appraisal right -- 55,000
Extraordinary items 4,333,310 --
Increase (decrease) in cash flows
from changes in operating
assets and liabilities:
Accounts receivable (68,344) (11,500)
Prepaid expenses (74,213) (39,356)
Accounts payable 35,409 34,029
Accrued expenses and
liabilities (8,922) (10,523)
Taxes payable (6,061) (15,000)
Interest payable 70,865 (148,008)
----------- -----------
Total adjustments 4,715,321 74,579
----------- -----------
Net cash provided by
operating activities $ 185,604 $ 154,308
----------- -----------
F-26
<PAGE> 134
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
Cash flows from investing activities:
Acquisition of radio stations $ (7,650,000) $ --
Capital expenditures (69,832) (25,226)
Escrow deposit (100,000) --
------------ ------------
Net cash used in
investing activities (7,819,832) (25,226)
------------ ------------
Cash flows from financing activities:
Payments for deferred financing costs (879,328) (24,814)
Principal payments on long-term debt (12,595,588) (370,249)
Payment of appraisal right liability (1,015,000) --
Principal payments under capital
lease obligations (3,547) (13,957)
Proceeds from long-term debt 22,500,000 --
------------ ------------
Net cash provided by (used in)
financing activities 8,006,537 (409,020)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 372,309 (279,938)
Cash and cash equivalents,
beginning of period 123,221 363,532
------------ ------------
Cash and cash equivalents,
end of period $ 495,530 $ 83,594
============ ============
F-27
<PAGE> 135
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated 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 consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as filed with the Commission.
2. Net Loss Per Common Share
Fully diluted net loss per common share for the
nine months and the three months ended September 30, 1997 is not presented
because the effects of the assumed conversion of the Company's Convertible
Subordinated Promissory Notes and the Company's Subordinated Senior
Convertible Note would be antidilutive in those periods. The effects of the
assumed exercise of outstanding options were not dilutive and, accordingly,
have been excluded from both the primary and fully diluted per share
calculations.
3. Acquisition of Radio Stations
As of June 30, 1997, the Company, through a
wholly-owned subsidiary, Faircom Mansfield Inc. ("Faircom Mansfield"),
acquired the assets and operations of two radio stations, WMAN-AM and WYHT-FM,
both located in Mansfield, Ohio (the "Mansfield Stations") for aggregate cash
consideration of $7,650,000. The acquisition has been accounted for as a
purchase, and accordingly the operating results of the Mansfield Stations have
been included in the Consolidated Statements of Operations from the
acquisition date.
The following are the Company's estimates of
selected pro forma unaudited consolidated results as if the Mansfield Stations
had been acquired as of the beginning of the periods presented:
F-28
<PAGE> 136
<TABLE>
<CAPTION>
($000s except per share amounts) 9 months ended 3 months ended
------------------ ----------------
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net broadcasting
revenues $5,216 $5,043 $1,905 $1,800
Less: operating expenses before
depreciation, amortization and
corporate expenses 3,310 3,240 1,153 1,108
------- ------- ------- -------
Broadcast cash flow $1,906 $1,803 $752 $692
======= ======= ======= =======
Net loss $(4,838) $(626) $(124) $(233)
======= ======= ======= =======
Primary net loss per
common share $(.66) $(.08) $(.02) $(.03)
======= ======= ======= =======
</TABLE>
4. Related Additional Financing and Refinancing
As of June 30, 1997, the Company completed the sale of
$10,000,000 aggregate principal amount of its convertible subordinated
promissory notes due July 1, 2002 (the "Notes"). The Notes consist of Class A
and Class B convertible subordinated promissory notes, each in the aggregate
principal amount of $5,000,000. The Class A Notes are convertible into
11,242,500 shares of the Company's common stock, $.01 par value (the "Common
Stock"), and the Class B Notes into 7,769,500 shares of Common Stock. The
aggregate 19,012,000 of such shares on full conversion of the Notes would
represent 67.1% of the Company's outstanding Common Stock on a fully diluted
and adjusted basis. The Notes bear interest at 7% per annum, compounded
quarterly, payable at the maturity of the Notes. The Notes have not been
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration under the Act or an applicable
exemption from registration. The terms of the Securities Purchase Agreement
applicable to the Class A and Class B Notes provide that if Faircom Inc. does
not, on or before January 1, 1998, consummate a merger of Faircom Inc. with
another corporation on terms acceptable to noteholders, then upon notice from
the noteholders. Faircom Inc. shall take all action necessary to liquidate
Faircom Inc. and each of its subsidiaries on terms and conditions acceptable to
the noteholders, such approval not to be unreasonably withheld. Any such
liquidation shall provide for the payment in full of all senior debt.
The proceeds from the sale of the Notes were used (i) to
purchase for $6,400,000 from Citicorp Venture Capital, Ltd. ("Citicorp") the
Company's 8.65% Senior Convertible Note ("Convertible Note") in the principal
amount of $181,630 due December 1, 2004 and the Company's 10% Senior
Exchangeable Note ("Exchangeable Note") in the principal amount of $500,000 due
December 1, 2004, representing all of the Citicorp's interests in the Company,
and (ii) to pay a portion of the purchase price for the acquisition of the
Mansfield Stations and the legal and other fees and expenses of such
acquisition. The Convertible Note was convertible into 9,081,502 shares of
Common Stock, which would have represented 52.5% of the Company's fully diluted
outstanding Common Stock prior to the acquisition and the financing activities
described in this report. The Exchangeable Note gave Citicorp the right to
request, at any time after December 1, 1999, that $350,000 principal amount of
such Note be exchanged for a payment equal to 19.99% of the appraised value, as
defined, of the Company's subsidiary which owns and operates radio stations in
Flint. Michigan.
The Company also refinanced its existing senior secured term
loan credit facility with AT&T Commercial Finance Corporation ("AT&T"). As part
of the refinancing, the Company increased its outstanding debt to AT&T from
$7,371,000 to $12,500,000. The additional borrowing was used for the
acquisition of the Mansfield Stations and related expenses. The term loan
matures July 1, 2002 with optional renewal by the Company under certain
circumstances for an additional five years. Interest on the term loan initially
is at the rate of 4.50% over 90 day commercial paper rates.
5. Extraordinary Gain and Loss from Debt Extinguishment
In connection with the AT&T refinancing, certain related
accrued interest was extinguished, resulting in an extraordinary gain of
$370,060.
In connection with the purchase by the Company of its $181,630
Convertible Note and its $500,000 Exchangeable Note for $6,400,000 from
Citicorp, the Company's appraisal right liability of $1,015,000 was also
extinguished, resulting in an extraordinary loss of $4,703,370 from such debt
extinguishment.
The related current income tax effect of these extraordinary
items was not material.
6. Proposed Acquisition of Radio Station
On September 25, 1997, Faircom Mansfield filed an
application with the Federal Communications Commission ("FCC") to acquire the
assets and operations of radio station WSWR-FM, Shelby, Ohio, for $1,125,000
in cash. Faircom Mansfield deposited $100,000 in escrow pursuant to the
contract to acquire the Shelby station. Subject to FCC approval and the
satisfaction of contractual conditions, a closing is anticipated in December
1997.
F-29
<PAGE> 137
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
F-30
<PAGE> 138
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
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
F-31
<PAGE> 139
TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET (CONTINUED)
NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
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
F-32
<PAGE> 140
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
F-33
<PAGE> 141
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
F-34
<PAGE> 142
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
F-35
<PAGE> 143
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
F-36
<PAGE> 144
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>
F-37
<PAGE> 145
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>
F-38
<PAGE> 146
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.
F-39
<PAGE> 147
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>
F-40
<PAGE> 148
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>
F-41
<PAGE> 149
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>
F-42
<PAGE> 150
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>
F-43
<PAGE> 151
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.
F-44
<PAGE> 152
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.).
F-45
<PAGE> 153
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>
F-46
<PAGE> 154
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>
F-47
<PAGE> 155
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>
F-48
<PAGE> 156
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.
F-49
<PAGE> 157
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> 158
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> 159
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 -
Depreciation and amortization expense 655 -
Corporate general and administrative expenses 517,486 12,406
----------- -----------
Operating income (loss) 230,862 (12,406)
Time brokerage agreement fees, net 1,223,054 -
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> 160
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> 161
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> 162
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 operated 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: 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 $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> 163
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> 164
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> 165
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
500,000 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> 166
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 Broadcasting Inc. ("Topaz"), a sister corporation and
affiliate of Ruby. 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 with a third party. See
Note 9. The term of the option is one year. The Company is currently
seeking a buyer for the option. At December 31, 1997, 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> 167
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> 168
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 June 30, 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"), 4,000,000 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 upon the occurrence
of certain events, as defined.
F-61
<PAGE> 169
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.
8. INCOME TAXES:
The Company recorded no income tax expense or benefit for the years ended
December 31, 1997 and 1996.
F-62
<PAGE> 170
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> 171
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 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 amounts 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
September 30, 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> 172
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 execution 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 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> 173
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 the fair market value at
the grant date, except for any 10% owner (as defined), for whom the
option share price is 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.
In January 1998 and effective March 1, 1998, 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 provide
the holders with the right to acquire up to 95,000 shares of the
Company's common stock at a price per share equal to 110% of the fair
market value of the stock at the grant date. The options are exercisable
in equal one-third increments at the end of each of the first three years
following the grant, expiring on February 28, 2003.
F-66
<PAGE> 174
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, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended 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 The
Park Lane Group and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand, L.L.P.
Menlo Park, California
March 21, 1997, except for
Notes 5 and 9, for which the date
is March 31, 1997 and
January 29, 1998, respectively
F-67
<PAGE> 175
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
------
<TABLE>
<CAPTION>
ASSETS 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 351,541 $ 223,292
Accounts receivable - trade, less allowance for doubtful accounts of
$62,375 in 1996 and $81,127 in 1995 1,305,531 1,292,543
Prepaid expenses and other current assets 66,802 100,201
------- --------
Total current assets 1,723,874 1,616,036
Property and equipment, net 3,627,817 3,156,578
Intangible assets, net 7,216,225 6,515,270
-------------- --------------
Total assets $ 12,567,916 $ 11,287,884
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK,
COMMON STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities: $ 531,409 $ 547,675
Accounts payable
Accrued expenses:
Compensation and related expenses 147,362 163,679
Interest 119,385 69,556
Other 27,301 11,521
Notes payable to bank 666,800 650,800
Notes payable to shareholders 430,000 120,000
Current portion, long-term debt 987,571 253,809
-------------- --------------
Total current liabilities 2,909,828 1,817,040
Long-term debt 6,232,194 6,353,299
-------------- --------------
Total liabilities 9,142,022 8,170,339
-------------- --------------
Commitments (Note 6)
Mandatorily redeemable Series B preferred stock, $0.01 par value:
Authorized: 43,000 shares;
Issued and outstanding: 42,805 shares in 1996 and 1995 3,390,544 4,187,127
(Liquidation value: $5,384,004 in 1996 and $4,757,175 in 1995)
Mandatorily redeemable convertible Series C preferred stock, $0.01 par value:
Authorized: 13,500 shares;
Issued and outstanding: 12,021 in 1996 and none in 1995 1,165,849
(Liquidation value: $1,301,917 in 1996)
Convertible Series A preferred stock, $0.01 par value:
Authorized: 6,117,945 shares;
Issued and outstanding: 5,595,875 shares in 1996 and 1995 7,670,038 5,595,875
(Liquidation value: $5,595,875 in 1996 and 1995)
Class B common stock, $0.01 par value:
Authorized: 3,238,828 shares;
Issued and outstanding: 3,238,821 shares in 1996 and 2,429,117
shares in 1995 1,109,110 1,163,612
Class C common stock, $0.01 par value:
Authorized: 1,350,000 shares;
Issued and outstanding: 1,202,100 in 1996 and none in 1995 80,915
Class A common stock, $0.01 par value:
Authorized: 15,000,000 shares;
Issued and outstanding: 758,944 shares in 1996 and 1995 386,522 386,522
Accumulated deficit (9,130,320) (9,462,355)
-------------- --------------
Shareholders' deficit (7,634,688) (2,235,431)
-------------- --------------
Total liabilities, redeemable preferred stock,
convertible preferred stock, common stock
and shareholders' deficit $ 12,567,916 $ 11,287,884
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 176
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Revenues $7,019,499 $ 8,752,202 $ 8,927,500
Less agency commissions (510,242) (627,219) (588,833)
---------- ---------- ----------
Net revenues 6,509,257 8,124,983 8,338,667
---------- ---------- ----------
Operating expenses:
Programming 1,241,245 1,572,305 1,609,415
Sales and promotion 1,650,116 2,213,329 2,118,918
Engineering 294,014 379,988 403,686
General and administrative 2,320,784 2,877,936 2,827,557
---------- ---------- ----------
Total operating expenses 5,506,159 7,043,558 6,959,576
---------- ---------- ----------
Stations' operating income, excluding items
shown separately below 1,003,098 1,081,425 1,379,091
Depreciation and amortization (1,002,596) (1,277,833) (1,494,636)
Corporate administrative expenses (837,856) (879,652) (670,177)
---------- ---------- ----------
Operating loss (837,354) (1,076,060) (785,722)
Interest expense (569,022) (668,504) (695,899)
Other expense, net (5,425) (4,850) (4,850)
---------- ---------- ----------
Net loss before accretion (1,411,801) (1,749,414) (1,486,471)
---------- ---------- ----------
Dividends and accretion for redemption on mandatorily
redeemable preferred stock (680,646) (556,337) 1,154,436
---------- ---------- ----------
Net loss applicable to common shareholders (2,092,447) (2,305,751) (332,035)
========== ========== ==========
Net loss per share ($2.13) ($0.90) ($0.07)
========== ========== ==========
Shares used in per share calculation 980,976 2,567,209 4,973,115
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 177
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(DEFICIT)
for the years ended December 31, 1996, 1995 and 1994
<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, 1994 757,944 $ 386,022
Issuance of Class B common stock 907,976 $ 401,870
Conversion of convertible notes 159,176 75,933
into class B common stock
Issuance of common stock 1,000 500
----------- ---------- ----------- ---------- ------------ ---------
Preferred stock accretion
Preferred stock dividend
Net loss
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 809,704 54,502
special delivery in connection
with issuance of Series C stock
less $2,177 issuance costs
Issuance of Class C common stock
Reclassification of Series A 5,595,875 $5,595,875
preferred stock to shareholders
equity (deficit) due to removal of
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
========== ========== ========== ========== ========== ==========
<CAPTION>
Class C
Common Stock
---------------------- Accumulated
Shares Amount Deficit Total
----------- ------ ------------ -----------
<S> <C> <C> <C> <C>
Balances, January 1, 1994 $(4,732,122) $(4,346,100)
Issuance of Class B common stock 401,870
Conversion of convertible notes 75,933
into class B common stock
Issuance of common stock 500
Preferred stock accretion (655,646) (655,646)
Preferred stock dividend (25,000) (25,000)
Net loss (1,411,801) (1,411,801)
----------- -----------
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 54,502
special delivery in connection with
issuance of Series C stock less
$2,177 issuance costs
Issuance of Class C common stock 1,202,100 $ 80,915 80,915
Reclassification of Series A $5,595,875
preferred stock to shareholders
equity (deficit) due to removal
of 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)
========= ======== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-70
<PAGE> 178
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,411,801) $(1,749,414) $(1,486,471)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 458,351 631,113 794,982
Amortization 544,245 646,720 700,955
Provision for doubtful accounts (22,300) 158,441 148,959
Deferred interest on convertible note 83,844 91,944 101,138
Accounts receivable (234,623) (114,738) (135,971)
Prepaid expenses and other assets (63,107) 133,611 (33,399)
Accounts payable 453,305 46 16,266
Accrued expenses (91,578) (38,272) 537
Accrued interest 73,298 25,167 (49,829)
----------- ----------- -----------
Net cash provided by (used in) operating activities (210,366) (215,382) 57,167
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of radio stations (200,000) (3,163,963)
Purchases of property and equipment (122,971) (189,079) (211,612)
Acquisition cash (21,000)
----------- ----------- -----------
Net cash used in investing activities (343,971) (3,353,042) (211,612)
----------- ----------- -----------
Cash flows from financing activities:
(Payments on) borrowings under note payable to bank 223,000 179,800 (16,000)
Proceeds from issuance of convertible notes 400,650 310,000
Proceeds from issuance of Series A stock 500
Proceeds from issuance of Series B stock 309,681 3,318,685 5,920
Proceeds from issuance of Series C stock 862,202
Principal payments on long-term debt (236,821) (404,233) (825,926)
----------- ----------- -----------
Net cash provided by financing activities 697,010 3,404,252 26,196
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 142,673 (164,172) (128,249)
Cash and cash equivalents, beginning of year 373,040 515,713 351,541
----------- ----------- -----------
Cash and cash equivalents, end of year $ 515,713 $ 351,541 $ 223,292
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND
INVESTING ACTIVITY
Conversion of deferred interest to convertible note $ 83,844 $ 91,944 $ 101,138
Conversion of convertible notes to Series A preferred stock 20,000
Conversion of convertible notes to Series B stock 280,500 310,000
Financing of acquisitions through notes payable 1,279,504 1,086,350
DISCLOSURE OF EQUITY ITEMS:
Accretion on Series A preferred reversed $ 2,074,163
Preferred stock accretion $ 655,646 $ 104,662 193,081
Preferred stock dividend declared but not paid 25,000 451,675 726,646
Property and equipment acquired under capital leases 259,365 307,750 112,131
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 411,936 $ 552,629 $ 646,592
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 179
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, 1996, 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., and 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 materially large portion of
the station's total advertising revenue or of accounts receivable in
1996, 1995 and 1994.
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 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.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalent.
Continued
F-72
<PAGE> 180
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
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-LIVED ASSETS:
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS
121 was effective for fiscal year 1996 and requires the Company to
review for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to these assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be receivable. In certain situations an impairment loss would
be recognized. The adoption of SFAS 121 did not have a material effect
on the financial statements of the Company.
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.
Continued
F-73
<PAGE> 181
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
REVENUE:
Revenue from the sale of air time is recognized at the time the program
or advertisement is broadcast.
BARTER TRANSACTIONS:
The Company participates in barter transaction 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 $1,088,884, $1,068,776 and $772,152 in 1996, l995 and
1994, respectively.
ADVERTISING COSTS:
Advertising costs are expensed to operations as incurred. Advertising
costs were $751,770, $371,748 and $242,188 for the years ended December
31, 1996, 1995 and 1994, respectively.
INCOME TAXES:
The Company accounts for income taxes using the liability method to
calculate deferred income taxes. The realization of deferred 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 eight major U.S. banks; these deposits, therefore, bear the credit
risk associated with these financial institutions.
The Company's 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> 182
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
COMPUTING OF EARNINGS PER SHARE:
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares result from the assumed exercise of
outstanding stock options that have a dilutive effect when applying the
treasury stock method.
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 and is
effective for fiscal years beginning after December 15, 1995. 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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," which supersedes Accounting Principles Board
Opinion No. 15, is effective for financial statements issued for period
ending after December 15, 1997 and requires that prior periods be
restated.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130 (SFAS), Reporting Comprehensive Income. SEA 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> 183
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,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Land and buildings $ 912,241 $ 960,507
Transmitter equipment 1,318,345 1,332,770
Studio and technical equipment 1,657,031 1,812,033
Tower and antenna systems 413,090 415,901
Office furniture and equipment 662,656 720,057
Other 130,142 175,980
----------- -----------
5,093,505 5,417,248
Less accumulated depreciation and (1,465,688) (2,260,670)
amortization ----------- -----------
$ 3,627,817 $ 3,156,578
=========== ===========
</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,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Equipment under capital leases $ 793,693 $ 647,516
Less accumulated amortization (331,206) (388,505)
-------- -------
$462,487 $259,011
======== ========
</TABLE>
Intangible assets consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1996
---- ----
<S> <C> <C>
Goodwill and other $ 6,447,237 $ 6,447,237
Noncompete agreements 772,015 772,015
FCC licenses 1,846,950 1,846,950
--------- ---------
9,066,202 9,066,202
Less accumulated amortization (1,849,977) (2,550,932)
---------- ----------
$ 7,216,225 $ 6,515,270
========== ==========
</TABLE>
Continued
F-76
<PAGE> 184
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, 1996 and 1995, $650,800 and $666,800, respectively, were
outstanding on the line of credit. A further $36,879 is available under
the line at December 31, 1996. 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,
-----------------------------
1995 1996
------- --------
<S> <C> <C>
Long-term notes payable $ 5,415,589 $ 4,862,598
9.875% promissory notes 1,023,025 1,124,163
Capital leases (note 6) 509,134 423,612
Other 272,017 196,735
----------- -----------
7,219,765 6,607,108
Less current portion (987,571) (253,809)
----------- -----------
$ 6,232,194 $ 6,353,299
=========== ===========
</TABLE>
Long-term notes payable at December 31, 1996, consist of six notes
payable of $2,500,000, $372,500, $310,000, $880,098, $600,000 and
$200,000, relating to the acquisition of the radio stations of Park
Lane Regency Radio, Inc., KPPL, KTPI/KVOY, KFMF, KALF and KROY/KATJ.
The $2,500,000 note, payable to NatWest Bank N.A., was due in
installments from 1995 to 2000, and interest at the bank's prime rate
plus 1% (9.25% at December 31, 1996). The note was settled after
December 31, 1996 as part of the refinancing discussed below. See
"Subsequent Event."
Continued
F-77
<PAGE> 185
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
5. Long-Term Debt and Notes Payable:, continued
--------------------------------
The $372,500 note bore interest at 10% and was due in 18 quarterly
installments from February 1994 to May 1998, with the balance due May
1998. The note was settled after December 31, 1996 as part of the
refinancing discussed below. See "Subsequent Event."
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 was
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.
The $880,098 note bore interest at 7.5% which was payable quarterly.
The principal was payable in 15 quarterly installments from March 1997
to September 2000, with a $408,806 payment originally due December
2000. The note was settled after December 31, 1996 as part of the
refinancing discussed below. See "Subsequent Event."
The $600,000 note bore 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-FM, 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.
In connection with a Series A convertible redeemable preferred stock
issuance in 1993, the Company issued an $800,000, 9.875% subordinated
promissory note. Subject to approval of Series B preferred shareholders
and certain performance criteria, the noteholder has the option to
demand payment of the note with accrued interest on some future date to
be determined by mutual agreement of the parties. The note has been
treated as though due in fiscal 1998 since the Company's current
projections do not allow for earlier redemption and as repayment is
subject to prior approval of BancBoston under the terms of the
Inter-Investor Agreement dated October 3, 1994. Interest is payable at
the maturity date of the note. Total interest payable at December 31,
1996 was $324,163 and is included in the balance due under the note.
Continued
F-78
<PAGE> 186
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. In
December 1995, the Company issued $310,000 of 9.75% subordinated
convertible promissory notes which were subsequently converted at the
option of the holder to Series C redeemable preferred and common stock
on January 5, 1996 at $101 per unit (see Note 7).
SUBSEQUENT EVENT:
In March 1997, the Company entered into a refinancing arrangement with
Michigan National Bank (MNB) which provided the Company with an
$800,000 line of credit and a $4,300,000 term loan facility. The
following table summarizes the key provisions of the refinancing
amounts:
<TABLE>
<CAPTION>
Available
Title Amount Interest Due Date Purpose
----- ------ -------- -------- -------
<S> <C> <C> <C> <C>
Line of credit $ 800,000 Prime + 1.5% payable monthly June 30, 1998 Renewal of existing line of
credit (See Note 4)
Term loan facility 4,300,000 LIBOR + (.275 - .375)%* September 30, 2004 Refinance existing
----------- debt
Financing total $ 5,100,000
===========
</TABLE>
*Range of interest rates dependent on Company's 'leverage' as defined in the
Amended and Restated Business Loan Agreement with MNB.
In conjunction with the refinancing, the Company repaid the $2,500,000,
$372,500 and $880,098 notes discussed above in full settlement of the
outstanding liability. Accordingly, amounts due under these agreements
are shown as non-current liabilities at December 31, 1996. The
following table summarizes the repayment of long term debt required in
accordance with the presentation but does not include borrowings made
or repaid after December 31, 1996:
Continued
F-79
<PAGE> 187
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
5. Long-Term Debt and Notes Payable:, continued
--------------------------------
Repayments of long-term debt excluding capital leases (Note 6) required
over each of the years following December 31, 1996 consist of:
<TABLE>
<S> <C>
1997 $ 105,410
1998 1,234,259
1999 108,278
2000 109,058
2001 109,401
Thereafter 4,517,090
-----------
6,183,496
Less principal payments due in 1997 (105,410)
-----------
$ 6,078,086
===========
</TABLE>
The weighted average interest rate on short term borrowing as of
December 31, 1996 was 8.9%.
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>
1997 $ 181,165 $ 351,315
1998 121,800 281,138
1999 99,159 212,032
2000 64,973 122,512
2001 24,424 105,550
Thereafter 972 378,343
--------- -----------
Total minimum lease payments 492,493 $ 1,450,890
==========
Less amount representing future interest (68,881)
---------
Present value of minimum capital lease 423,612
payments
Current portion (148,399)
---------
$ 275,213
==========
</TABLE>
Rent expense was approximately $434,403, $394,340 and $264,752 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Continued
F-80
<PAGE> 188
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
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 were reversed to reduce the Series A preferred carrying
value to the redemption value of the issue.
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 agreement.
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, 1996,
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.
Continued
F-81
<PAGE> 189
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
7. Capital Stock:, continued
--------------
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, 1996, 1,202,100 shares of
Class A common stock had been reserved for conversion.
PREFERRED STOCK:
The Company's preferred stock terms and values at December 31,
1996 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>
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 shareholders 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.
Continued
F-82
<PAGE> 190
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
7. Capital Stock:, continued
-------------
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.
The holders of Series B mandatorily redeemable preferred stock
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
distribute 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.
Continued
F-83
<PAGE> 191
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
7. Capital Stock:, continued
--------------
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.
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> <C>
Balances, December 31, 1993 320,150 1,370,000 $0.50-$0.55 $ 730,000
Options granted (420,000) 420,000 $0.50 210,000
Options canceled 260,000 (260,000) $0.50 (130,000)
Additional shares authorized 97,732
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
======= ========= =======
</TABLE>
The options outstanding and currently exercisable by exercise price at December
31, 1996 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> <C>
$0.07 1,625,000 7.03 $0.07 1,003,333 $0.07
</TABLE>
Continued
F-84
<PAGE> 192
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
7. Capital Stock:, 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 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 pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1996
---- ----
<S> <C> <C>
Net loss-as reported $1,749,414 $1,486,471
Net loss-pro forma $1,752,908 $1,504,018
Net loss per share-as reported $(.90) $(.07)
Net loss per share-pro forma $(.90) $(.07)
</TABLE>
The fair value of each option grant is estimated on the date
of grant using the minimum value method with the following
weighted average assumptions:
Risk-free interest rate 6.28%
Expected life (years) 7.03
Expected dividends none
Expected volatility zero
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.
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> <C>
75,195 $ 75,195 Through March 1999
45,000 45,000 Through August 1999
-------- ---------
120,195 $ 120,195
======== =========
</TABLE>
Continued
F-85
<PAGE> 193
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. 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, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 33,000 $ 25,000
Net operating loss carryforwards 1,940,000 2,448,000
Accrued liabilities 20,000 19,000
Other 2,000 2,000
------------ ------------
Total deferred tax assets 1,995,000 2,494,000
Deferred tax liabilities - property, plant and equipment,
principally due to differences in depreciation (144,000) (104,000)
Valuation allowance (1,851,000) (2,390,000)
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
The change in the valuation allowance was an increase in the
allowance of $539,000 during 1996.
The Company's effective tax rate in 1996 differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Income tax benefit at statutory rate (34.0)% (34.0)%
Net operating loss not benefited 34.0 34.0
------ ------
Effective tax rate -% -%
====== ======
</TABLE>
The Company has approximately $6,680,000 and $2,870,000 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-86
<PAGE> 194
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
9. Acquisition:
-----------
In August 1997, the Company entered into an arrangement with
Regent Communications, Inc. ("Regent") for the acquisition of all
of the outstanding stock of the Company. The transaction is
subject to certain conditions before closing. 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 fee
based on their performance, subject to a guaranteed minimum.
F-87
<PAGE> 195
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1997
---------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 223,292 $ 425,081
Accounts receivable - trade, less allowance for doubtful accounts of
$62,375 in 1996 and $57,709 in 1997 1,292,543 495,652
Prepaid expenses and other current assets 100,201 428,939
------------ ------------
Total current assets 1,616,036 1,349,672
Property and equipment, net 3,156,578 2,677,570
Intangible assets, net 6,515,270 6,054,185
------------ ------------
Total assets $ 11,287,884 $ 10,081,427
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK, CONVERTIBLE
PREFERRED STOCK, COMMON STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities: $ 547,675 $ 260,261
Accounts payable
Accrued expenses:
Compensation and related expenses 163,679 107,600
Interest 69,556 43,015
Other 11,521 99,370
Notes payable to bank 650,800 666,364
Notes payable to shareholders 120,000 120,000
Current portion, long-term debt 253,809 720,863
------------ ------------
Total current liabilities 1,817,040 2,017,473
Long-term debt 6,353,299 5,856,843
------------ ------------
Total liabilities 8,170,339 7,874,316
------------ ------------
Commitments (Note 6)
Mandatorily redeemable Series B preferred stock, $0.01 par value:
Authorized: 43,000 shares;
Issued and outstanding: 42,805 shares in 1996 and 1995 4,187,127 4,792,696
(Liquidation value: $5,384,004 in 1997 and $6,128,379 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 1996 1,165,849 1,272,515
(Liquidation value: $1,301,917 in 1997 and $1,401,773 in 1996)
Convertible Series A preferred stock, $0.01 par value:
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 1996 80,915 80,915
Class A common stock, $0.01 par value:
Authorized: 15,000,000 shares;
Issued and outstanding: 758,944 shares in 1997 and 1996 386,522 386,522
Accumulated deficit (9,462,355) (11,085,024)
------------ ------------
Total liabilities redeemable preferred stock, convertible
preferred stock, common stock and shareholders' deficit $ 11,287,884 $ 10,081,427
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 196
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine month periods ended September 30, 1996 and 1997 (unaudited)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revenues $ 6,600,303 $ 6,078,421
Less agency commissions (434,733) (385,928)
------------ ------------
Net revenues 6,165,570 5,692,493
------------ ------------
Operating expenses:
Programming 1,217,786 970,700
Sales and promotion 1,564,784 1,422,465
Engineering 306,655 260,722
General and administrative 2,010,843 1,783,279
------------ ------------
Total operating expenses 5,100,068 4,437,166
------------ ------------
Stations' operating income, excluding items
shown separately below 1,065,502 1,255,327
Depreciation and amortization (1,088,167) (1,047,848)
Corporate administrative expenses (574,994) (598,153)
------------ ------------
Operating loss (597,659) (390,674)
Interest expense (530,478) (515,212)
Other expense, net (2,942) (4,548)
------------ ------------
Net loss before accretion (1,131,079) (910,434)
------------ ------------
Dividends and accretion for redemption on mandatorily redeemable
preferred stock 1,383,403 (731,879)
------------ ------------
Net income (loss) available to common shareholders $ 252,324 $ (1,642,213)
============ ============
Basic net income (loss) per share $ 0.05 $ (0.32)
============ ============
Shares used in basic per share calculation 4,703,685 5,199,865
============ ============
Diluted net income (loss) per share $ 0.02 $ (0.32)
============ ============
Shares used in diluted per share calculation 11,699,060 5,199,865
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 197
THE PARK LANE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine month periods ended September 30, 1996 and 1997 (unaudited)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,131,080) $ (910,434)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 563,427 523,108
Amortization 526,176 524,740
Deferred interest on convertible note 67,425 90,848
Accounts receivable 104,916 796,891
Prepaid expenses and other assets (97,506) (392,393)
Accounts payable (211,502) (287,414)
Accrued expenses 93,648 31,770
Accrued interest (55,332) (26,541)
------------ ------------
Net cash provided by (used in) operating activities (139,828) 350,575
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (198,195) (44,100)
------------ ------------
Net cash used in investing activities (198,195) (44,100)
------------ ------------
Cash flows from financing activities:
(Payments on) borrowings under note payable to bank (91,000) 15,564
Borrowing under lease line of credit 87,794 112,131
Proceeds from issuance of Series C stock 868,121
Principal payments on long-term debt (698,935) (232,381)
------------ ------------
Net cash provided (used) by financing activities 165,980 (104,686)
------------ ------------
Net increase (decrease) in cash and cash equivalents (172,043) 201,789
Cash and cash equivalents, beginning of year 351,541 223,292
------------ ------------
Cash and cash equivalents, end of year 179,498 $ 425,081
============ ============
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-90
<PAGE> 198
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED 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 September
30, 1997 and the results of operations and cash flows for the nine
month period ended September 30, 1997 and 1996. 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, 1996. 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.
F-91
<PAGE> 199
THE PARK LANE GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition:
------------
In August 1997, the Company entered into an arrangement with Regent
Communications, Inc. ("Regent") for the acquisition of all of the
outstanding stock of the Company. The transaction is subject to certain
conditions before closing. 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 fee based on their performance, subject to a
guaranteed minimum.
3. 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'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.
F-92
<PAGE> 200
INDEPENDENT AUDITORS' REPORT
Alta California Broadcasting, Inc.
Colorado Springs, Colorado
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-93
<PAGE> 201
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 37,754
Accounts receivable, net 121,560 $ 194,049
Receivable from related parties (Note 5) 38,286 8,782
Receivable from sale of stations (Note 2) 633,000 852,000
Other current assets 10,807 55,087
------------- --------------
Total current assets 841,407 1,109,918
PROPERTY AND EQUIPMENT, net (Notes 3 and 6) 213,472 220,814
INTANGIBLE ASSETS, net (Note 4) 996,584 956,150
NOTE RECEIVABLE (Note 2) 200,000
OTHER ASSETS 37,963 45,082
------------- --------------
TOTAL $ 2,289,426 $ 2,331,964
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to Redwood Broadcasting, Inc. (Note 5) $ 1,292,025 $ 1,398,845
Cash overdraft 4,068
Accounts payable 143,500 175,430
Accrued liabilities 194,365 110,171
Payables to related parties (Note 5) 14,500 32,848
Bank borrowings (Note 6) 81,504
Current portion of notes payable (Note 6) 34,517 36,010
Current portion of notes payable to related parties
(Note 5) 25,000 25,000
Capital lease obligations (Note 7) 11,994 4,180
------------- --------------
Total current liabilities 1,715,901 1,868,056
NOTES PAYABLE (Note 6) 605,208 586,822
NOTES PAYABLE TO RELATED PARTIES (Note 5) 130,949 28,479
------------- --------------
Total liabilities 2,452,058 2,483,357
------------- --------------
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) (376,393)
------------- --------------
Total stockholder's equity (deficiency) (162,632) (151,393)
------------- --------------
TOTAL $ 2,289,426 $ 2,331,964
============= ==============
</TABLE>
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-94
<PAGE> 202
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR EMDED SEPTEMBER 30,
MARCH 31, ---------------------------
1997 1996 1997
(UNAUDITED) (UNAUDITED)
REVENUE
<S> <C> <C> <C>
Broadcast revenue $ 545,185 $ 112,633 $ 741,314
Less agency commissions 37,268 8,545 68,496
-------------- ------------- --------------
NET REVENUE 507,917 104,088 672,818
-------------- ------------- --------------
OPERATING EXPENSE
Selling, general and administrative 408,859 141,745 270,367
Broadcasting 339,499 106,528 406,128
Depreciation and amortization 151,544 44,776 65,664
-------------- ------------- --------------
Total 899,902 293,049 742,159
-------------- ------------- --------------
LOSS FROM OPERATIONS (391,985) (188,961) (69,341)
-------------- ------------- --------------
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) (11,471) (27,151)
Other income - net 59,664 32,017 107,731
-------------- ------------- --------------
Other income (expense), net 553,139 (59,454) 80,580
-------------- ------------- --------------
NET INCOME (LOSS) $ 161,154 $ (248,415) $ 11,239
============== ============= ==============
NET INCOME (LOSS) PER
COMMON SHARE $ 5.37 $ (8.28) $ .37
============== ============= ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 30,000 30,000 30,000
============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-95
<PAGE> 203
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 STOCKHOLDERS'
----------------------- 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) 11,239 11,239
---------- ------------ ------------- ---------------
BALANCES,
SEPTEMBER 30, 1997
(unaudited) 30,000 $ 225,000 $ (376,393) $ (151,393)
========== ============ ============= ===============
</TABLE>
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-96
<PAGE> 204
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 161,154 $ (248,415) $ 11,239
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 151,544 44,776 65,664
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) 27,967 (72,489)
Other current assets (3,961) 23,280 (44,280)
Accounts payable and accrued expenses (40,658) (22,173) (52,264)
Other assets 14,854 (41,383) (7,119)
------------- ------------ -----------
Net cash used in operating activities (362,271) (135,948) (99,249)
------------- ------------ -----------
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) (396,688) (32,572)
Increase in receivable from sale of stations (19,000)
------------- ------------ -----------
Net cash provided by (used in) investing activities 509,413 (26,688) (51,572)
------------- ------------ -----------
FINANCING ACTIVITIES
Proceeds from borrowings under related party
notes 273,675 189,949
Proceeds from borrowings under notes 170,000
Borrowings from Redwood Broadcasting, Inc. 651,257 189,016 6,820
Principal payments on notes to related parties (529,900) (2,470)
Principal payments on notes (445,275) (278,945) (16,893)
Decrease (increase) in net payable to related
parties (215,481) 75,865 47,852
Payments on capital lease obligations (13,664) (6,524) (7,814)
Proceeds from bank borrowings and overdraft 85,572
------------- ------------ -----------
Net cash provided by (used in) financing
activities (109,388) 169,361 113,067
------------- ------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 37,754 6,725 (37,754)
CASH AND CASH EQUIVALENTS,
Beginning of period -- -- 37,754
------------- ------------ -----------
CASH AND CASH EQUIVALENTS,
End of period $ 37,754 $ 6,725 $ --
============= ============ ===========
(continued)
</TABLE>
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-97
<PAGE> 205
ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
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
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest 103,577 $ 32,843 $ 47,790
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-98
<PAGE> 206
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 SIX MONTHS ENDED SEPTEMBER 30, 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 six months ended September
30, 1997 include the operations of radio stations KRDG-FM, KNNN-FM,
KNRO-AM and KRRX-FM. The accompanying financial statements for the six
months ended September 30, 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 six months ended September 30, 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
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.
F-99
<PAGE> 207
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 Local Management Agreement (LMA) with the purchaser
until the sale closed on March 31, 1997, at which time the LMA
terminated.
Alta received $633,333 cash and a $200,000 promissory note, bearing
interest at a rate of 7%. Alta received full payment on the $200,000
promissory note in December 1997 and, accordingly, has recorded the
note as a current asset as of September 30, 1997. Alta also received
$633,000 in October 1997 under the terms of the Asset Purchase
Agreement. A gain on the sale of $678,206 has been recorded in the
accompanying statement of operations for the year ended March 31, 1997.
F-100
<PAGE> 208
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.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
<S> <C> <C>
Buildings and improvements $ 29,437 $ 35,859
Equipment 181,360 206,742
Furniture and fixtures 40,341 40,341
------------ -------------
Total property and equipment 251,138 282,942
Less accumulated depreciation 37,666 62,128
------------ -------------
Property and equipment-- net $ 213,472 $ 220,814
============ =============
</TABLE>
F-101
<PAGE> 209
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
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 94,339
------------- --------------
Intangible assets-- net $ 996,584 $ 956,150
============= ==============
</TABLE>
5. RELATED PARTY TRANSACTIONS
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
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 with
interest at 8% and principal and interest
due on March 31, 1999 30,949 28,479
------------ -------------
Total 155,949 53,479
Less current portion 25,000 25,000
------------ -------------
Total $ 130,949 $ 28,479
============ =============
</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 six-month period ended September 30, 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 $1,298,845 as of March
31, 1997 and September 30, 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.
F-102
<PAGE> 210
The Company has receivables from and payables to entities controlled by
an officer and stockholder of Redwood. The receivables and payables
total $38,246 and $14,500, respectively, as of March 31, 1997 and
$8,782 and $32,848, respectively, as of September 30, 1997. Such
balances do not bear interest and have no set repayment terms.
6. NOTES PAYABLE AND BANK BORROWINGS
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
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 $ 467,832
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 639,725 622,832
Less current portion 34,517 36,010
------------ -------------
Total $ 605,208 $ 586,822
============ =============
</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 September 30, 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
September 30, 1997, $25,000 was outstanding under the agreement.
As of September 30, 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 September 30, 1997,
$25,000 was outstanding under the agreement.
F-103
<PAGE> 211
As of September 30, 1997, the Company has a note payable to a bank with
a principal balance of $31,504 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.
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> <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>
<TABLE>
<CAPTION>
The equipment under capital lease is as follows at March 31, 1997:
<S> <C>
Equipment $ 42,416
Less accumulated depreciation 3,361
----------
Net $ 39,055
==========
</TABLE>
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.
F-104
<PAGE> 212
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-105
<PAGE> 213
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-106
<PAGE> 214
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-107
<PAGE> 215
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-108
<PAGE> 216
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-109
<PAGE> 217
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-110
<PAGE> 218
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-111
<PAGE> 219
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
BALANCE SHEET
SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 364
Accounts receivable, net 8,467
Income taxes receivable (Note 5) 10,000
Receivable from related party 62,886
-----------
Total current assets 81,717
PROPERTY AND EQUIPMENT, net (Notes 2 and 3) 160,644
INTANGIBLE ASSETS, net (Notes 2 and 4) 977,228
-----------
TOTAL $ 1,219,589
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Payable to Power Curve, Inc. $ 32,349
Accounts payable 2,345
-----------
Total current liabilities 34,694
-----------
STOCKHOLDER'S EQUITY
Common stock, no par value; 1,500
shares authorized; 1,250 shares issued
and outstanding 1,202,500
Accumulated deficit (17,605)
-----------
Total stockholder's equity 1,184,895
-----------
TOTAL $ 1,219,589
===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-112
<PAGE> 220
<TABLE>
<CAPTION>
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<S> <C>
REVENUE
Broadcast revenue $ 74,704
Less agency commissions 5,893
---------
Net revenue 68,811
---------
OPERATING EXPENSE
Selling, general and administrative 58,385
Broadcasting 20,321
Depreciation and amortization 74,192
---------
Total 152,898
---------
LOSS FROM OPERATIONS (84,087)
---------
OTHER INCOME (EXPENSE)
Interest expense (9,592)
Other income -- net 66,074
---------
Other income, net 56,482
---------
LOSS BEFORE INCOME TAX BENEFIT (27,605)
INCOME TAX BENEFIT (Note 5) 10,000
---------
NET LOSS $ (17,605)
=========
NET LOSS PER COMMON SHARE $ (14.08)
=========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,250
=========
</TABLE>
See notes to financial statements
- -------------------------------------------------------------------------------
F-113
<PAGE> 221
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- ACCUMULATED STOCKHOLDER'S
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 nine months
ended September 30, 1997 $ (17,605) (17,605)
-------- -------------- ------------- ---------------
BALANCES,
SEPTEMBER 30, 1997 1,250 $ 1,202,500 $ (17,605) $ 1,184,895
======== ============== ============= ===============
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
F-114
<PAGE> 222
<TABLE>
<CAPTION>
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C>
Net loss $ (17,605)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 74,192
Changes in operating assets and
liabilities:
Accounts receivable 969
Income taxes receivable (10,000)
Receivable from related party (62,886)
Accounts payable and accrued expenses 2,345
-----------
Net cash used in operating activities (12,985)
-----------
INVESTING ACTIVITIES
Purchase of property and equipment (21,500)
-----------
Cash used in investing activities (21,500)
-----------
FINANCING ACTIVITIES
Borrowings from Power Curve, Inc. 32,349
Issuance of common stock 2,500
-----------
Net cash provided by financing activities 34,849
-----------
NET INCREASE IN CASH 364
CASH, Beginning of period --
-----------
CASH, End of period $ 364
===========
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-115
<PAGE> 223
POWER SURGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Power Surge, Inc. (the Company), operates in the radio
broadcasting industry. The Company, a wholly-owned subsidiary of Power
Curve, Inc. (Power Curve), was incorporated on October 16, 1996,
however, the Company did not have any operations prior to 1997.
INTERIM FINANCIAL STATEMENTS -- The accompanying financial statements
as of and for the nine months ended September 30, 1997 are unaudited.
In management's opinion, the financial statements reflect all
adjustments necessary for a fair presentation of the results of this
period, all adjustments being of a normal and recurring nature.
ACCOUNTS RECEIVABLE -- The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts
receivable. At September 30, 1997, the allowance was $600.
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
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.
F-116
<PAGE> 224
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.
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.
F-117
<PAGE> 225
<TABLE>
<CAPTION>
3. PROPERTY AND EQUIPMENT
<S> <C>
Property and equipment consists of the following:
Buildings and improvements $ 75,000
Equipment 70,000
Vehicle 21,500
Furniture and fixtures 5,000
----------
Total property and equipment 171,500
Less accumulated depreciation 10,856
----------
Property and equipment-- net $ 160,644
==========
4 INTANGIBLE ASSETS
Intangible assets consist of the following:
License costs $ 890,564
Noncompete agreement 150,000
----------
Total intangible assets 1,040,564
Less accumulated amortization 63,336
----------
Intangible assets-- net $ 977,228
==========
</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.
6. SUBSEQUENT EVENT
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 Power Surge prior to the closing of
the merger.
- --------------------------------------------------------------------------------
F-118
<PAGE> 226
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-119
<PAGE> 227
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-120
<PAGE> 228
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-121
<PAGE> 229
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-122
<PAGE> 230
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-123
<PAGE> 231
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-124
<PAGE> 232
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-125
<PAGE> 233
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-126
<PAGE> 234
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-127
<PAGE> 235
REPORT OF INDEPENDENT ACCOUNTANTS
To Ruby Broadcasting, Inc.
We have audited the accompanying Statement of Revenues and Direct Expenses of
Ruby Broadcasting, Inc. ("Ruby") for the years ended December 31, 1997 and 1996.
This Statement of Revenues and Direct Expenses is the responsibility of Ruby'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 Ruby and is not intended to be a complete presentation of Ruby'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
Ruby 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-128
<PAGE> 236
RUBY BROADCASTING, INC.
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-129
<PAGE> 237
RUBY BROADCASTING, INC.
NOTES TO STATEMENT OF REVENUES AND DIRECT EXPENSES
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
A. ORGANIZATION AND BUSINESS: Ruby Broadcasting, Inc., a Delaware
corporation, owns and operates radio stations KZXY (FM) and KIXW
(AM) located in Apple Valley, California.
In December 1997, Ruby entered into an agreement to sell the FCC
licenses and related operating assets of these stations 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.
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.
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-130
<PAGE> 238
Appendix A
AGREEMENT OF MERGER
AMONG
FAIRCOM INC.
AND
REGENT MERGER CORP.
AND
REGENT COMMUNICATIONS, INC.
Dated as of December 5, 1997
<PAGE> 239
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
DEFINITION OF TERMS
<S> <C>
1. Definition of Terms.............................................................................2
(a) [Reserved].............................................................................2
(b) Closing Date and Closing...............................................................2
(c) Commission.............................................................................2
(d) Commission's Order.....................................................................2
(e) Effectiveness..........................................................................2
(f) [Reserved].............................................................................2
(g) Faircom Broadcast Assets...............................................................2
(h) Faircom Budget.........................................................................3
(i) Faircom Financials.....................................................................3
(j) Faircom Licenses.......................................................................3
(k) Faircom Senior Debt....................................................................3
(l) Faircom Stations.......................................................................3
(m) Faircom Stock..........................................................................4
(n) Faircom Stockholders...................................................................4
(o) Faircom Subordinated Notes.............................................................4
(p) Faircom Subsidiaries...................................................................4
(q) Final Order............................................................................4
(r) [Reserved].............................................................................4
(s) Intellectual Property..................................................................4
(t) Internal Revenue Code..................................................................4
(u) Optionholders..........................................................................4
(u-1) Park Lane..............................................................................4
(v) Park Lane Financials...................................................................4
(w) Park Lane Stations.....................................................................5
(x) Preferred Stock........................................................................5
(y) Pro-Rata Percentage Interest...........................................................5
(z) Regent Assets..........................................................................5
(aa) Regent Financials......................................................................5
(bb) Regent Licenses........................................................................5
(cc) Regent Projections.....................................................................5
(dd) Regent Station.........................................................................5
(ee) Regent Subsidiaries....................................................................6
(ff) SEC....................................................................................6
(gg) [Reserved].............................................................................6
(hh) Shelby Station.........................................................................6
(ii) Shelby Station Pro Forma Broadcast Cash Flow...........................................6
(jj) Trustee................................................................................6
</TABLE>
<PAGE> 240
<TABLE>
<CAPTION>
PAGE
----
AGREEMENT TO MERGE
<S> <C>
2. Agreement.......................................................................................6
3. Action to Effect Merger.........................................................................6
4. Certificate of Incorporation and By-Laws........................................................6
5. Directors.......................................................................................7
6. Officers........................................................................................7
7. Stockholder Approval; Effectiveness of Merger...................................................7
8. Authorized Shares of Surviving Corporation......................................................8
9. Authorized Shares of Disappearing Corporation...................................................8
MODE OF EFFECTING MERGER
10. Conversion and Exchange of Shares...............................................................8
11. Funding of Consideration for Faircom Stock......................................................9
12. Issuance of Preferred Stock.....................................................................9
12A. SEC Registration................................................................................9
12B. Affiliates.....................................................................................11
12C. Trading Prohibitions...........................................................................11
12D. No Solicitation................................................................................11
12E. Registration Rights............................................................................12
CONSIDERATION
13. (a) Base Consideration....................................................................15
(b) Consideration After Adjustments.......................................................16
(c) Consideration Per Share Before Appraisal Rights.......................................18
(d) Distributions by Trustee..............................................................18
14. Surrender of Certificates and Delivery of Consideration After Adjustments......................19
COMMISSION MATTERS
15. Commission Consent to Transfers of Control.....................................................20
16. Applications for Consent - Cooperation of the Parties..........................................20
17. Costs and Expenses.............................................................................20
18. Operation of Stations Before Closing...........................................................20
19. Control and Access.............................................................................20
20. [Reserved].....................................................................................21
COVENANTS, REPRESENTATIONS AND WARRANTIES OF FAIRCOM
21. Covenants, Representations and Warranties of Faircom...........................................21
(a) Corporate Standing and Authority......................................................21
(b) Capitalization; Faircom Stock.........................................................22
</TABLE>
-ii-
<PAGE> 241
<TABLE>
PAGE
----
<S> <C>
(c) Corporate Power.......................................................................22
(d) [Reserved]............................................................................22
(e) [Reserved]............................................................................22
(f) Affiliates............................................................................23
(g) Rights to Acquire Securities..........................................................23
(h) Corporate Records.....................................................................23
(i) Title to Faircom Broadcast Assets.....................................................23
(j) Financial Statements; Budget..........................................................23
(k) Contracts.............................................................................24
(1) Government Authorizations.............................................................25
(m) Management, Key Employees and Accounts................................................26
(n) Tax Elections.........................................................................26
(o) Related Transactions..................................................................26
(p) Taxes.................................................................................26
(q) Employee Benefit Plans................................................................27
(r) Compliance with Commission Regulations................................................27
(s) Personal Property.....................................................................27
(t) Real Property.........................................................................28
(u) Environmental.........................................................................28
(v) Insurance.............................................................................29
(w) Accounts and Notes Receivable.........................................................29
(x) Laws, Regulations and Instruments.....................................................29
(y) Conduct of Faircom Stations...........................................................29
(z) Disposition of Assets.................................................................29
(aa) Transmitter Sites.....................................................................30
(bb) Litigation............................................................................30
(cc) No Conflict...........................................................................30
(dd) Required Consents.....................................................................30
(ee) Intellectual Property.................................................................30
(ff) Qualifications for Transfer of Control................................................31
(gg) Public Inspection File................................................................31
(hh) Absence of Certain Changes............................................................31
(ii) Personnel Information.................................................................32
(jj) [Reserved]............................................................................32
(kk) Outstanding Debt......................................................................32
(ll) Negative Covenants....................................................................32
(mm) Affirmative Covenants.................................................................33
(nn) Additional Agreements.................................................................34
(oo) Join in Execution of Documents........................................................34
(pp) Full Disclosure.......................................................................34
(qq) Submission of Material for Registration Statement.....................................35
(rr) Fairness and Tax Opinions.............................................................35
</TABLE>
-iii-
<PAGE> 242
<TABLE>
<CAPTION>
COVENANTS, REPRESENTATIONS AND WARRANTIES
OF REGENT AND SUBSIDIARY
PAGE
----
<S> <C>
22. Covenants, Representations and Warranties of Regent and Subsidiary.............................35
(a) Corporate Standing and Authority......................................................35
(b) Capitalization; Regent Stock..........................................................36
(c) Corporate Power.......................................................................37
(d) [Reserved]............................................................................37
(e) [Reserved]............................................................................37
(f) Affiliates............................................................................37
(g) Rights to Acquire Securities..........................................................37
(h) Corporate Records.....................................................................37
(i) Title to Regent Assets................................................................38
(j) Financial Statements; Projections.....................................................38
(k) Contracts.............................................................................38
(l) Government Authorizations.............................................................39
(m) Management, Key Employees and Accounts................................................40
(n) Tax Elections.........................................................................41
(o) Related Transactions..................................................................41
(p) Taxes.................................................................................41
(q) Employee Benefit Plans................................................................41
(r) Compliance with Commission Regulations................................................42
(s) Personal Property.....................................................................42
(t) Real Property.........................................................................42
(u) Environmental.........................................................................43
(v) Insurance.............................................................................44
(w) Accounts and Notes Receivable.........................................................44
(x) Laws, Regulations and Instruments.....................................................44
(y) Conduct of Regent Station and Park Lane Stations......................................44
(z) Disposition of Assets.................................................................45
(aa) Transmitter Sites.....................................................................45
(bb) Litigation............................................................................45
(cc) No Conflict...........................................................................45
(dd) Required Consents.....................................................................45
(ee) Intellectual Property.................................................................46
(ff) Qualifications for Transfer of Control................................................46
(gg) Public Inspection File................................................................46
(hh) Absence of Certain Changes............................................................46
(ii) Personnel Information.................................................................47
(jj) [Reserved]............................................................................47
(kk) Outstanding Debt......................................................................48
(ll) Negative Covenants....................................................................48
(mm) Affirmative Covenants.................................................................49
(nn) Additional Agreements.................................................................49
(oo) Join in Execution of Documents........................................................49
</TABLE>
-iv-
<PAGE> 243
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
(pp) Full Disclosure.......................................................................49
(qq) Issuance of Preferred Stock...........................................................50
(rr) Transferability of Preferred Stock....................................................50
23. [Reserved].....................................................................................50
RISK OF LOSS
24. Risk of Loss...................................................................................50
(a) Faircom Broadcast Assets..............................................................50
(b) Regent Assets.........................................................................51
(c) Broadcast Transmission of Stations Prior to Closing...................................51
CONDITIONS PRECEDENT TO SUBSIDIARY'S AND REGENT'S
OBLIGATION TO CLOSE
25. Conditions Precedent to Subsidiary's and Regent's Obligations..................................52
(a) Representations, Warranties and Covenants.............................................52
(b) Delivery of Closing Documents.........................................................52
(c) Faircom Licenses......................................................................52
(d) Consents..............................................................................52
(e) Final Order...........................................................................53
(f) Adverse Proceedings...................................................................53
(g) Examination of Real Property..........................................................53
(h) Dissenters' Rights....................................................................53
(i) Faircom Information...................................................................53
(j) Stockholder Approval..................................................................53
(k) Registration Statement................................................................53
(l) Regent Financing; Acquisition of Park Lane............................................53
(m) Tax Opinion of Regent's Counsel.......................................................53
(n) Conversion of Faircom Subordinated Notes..............................................53
CONDITIONS PRECEDENT TO FAIRCOM'S OBLIGATION TO CLOSE
26. Conditions Precedent to Faircom's Obligations..................................................54
(a) Representations, Warranties and Covenants.............................................54
(b) Consideration.........................................................................54
(c) Delivery of Closing Documents.........................................................54
(d) Regent Licenses.......................................................................54
(e) Final Order...........................................................................54
(f) Consents..............................................................................54
(g) Adverse Proceedings...................................................................54
(h) Issuance of Preferred Stock...........................................................54
(i) Examination of Real Property..........................................................55
(j) Regent Financing; Acquisition of Park Lane............................................55
(k) Stockholder Approval..................................................................55
</TABLE>
-v-
<PAGE> 244
<TABLE>
<S> <C>
PAGE
----
(l) Registration Statement................................................................55
(m) Tax Opinion...........................................................................55
(n) Fairness Opinion......................................................................55
(o) Tax Opinion of Regent's Counsel.......................................................55
CLOSING DOCUMENTS
27. Closing Documents to be Delivered by Faircom...................................................55
28. Closing Documents to be Delivered by Regent and Subsidiary.....................................56
29. [Reserved].....................................................................................57
30. Termination....................................................................................57
31. Remedies on Termination of Agreement or Default Prior to Closing...............................58
32. Brokerage......................................................................................59
33. Survival of Representations and Warranties.....................................................59
MISCELLANEOUS PROVISIONS
34. Employment Agreement...........................................................................59
35. Headings.......................................................................................60
36. Execution......................................................................................60
37. Notices ......................................................................................60
38. Disclosure.....................................................................................61
39. Receipt of Preferred Stock.....................................................................61
40. Entire Agreement...............................................................................61
41. Governing Laws.................................................................................61
42. Successors and Assigns.........................................................................61
</TABLE>
-vi-
<PAGE> 245
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is made and entered as of
this 5th day of December, 1997, by and among FAIRCOM INC., a Delaware
corporation (hereinafter referred to as "Faircom"), REGENT MERGER CORP., a
Delaware corporation (hereinafter referred to as "Subsidiary"), REGENT
COMMUNICATIONS, INC., a Delaware corporation (hereinafter referred to as
"Regent"), BLUE CHIP CAPITAL FUND II LIMITED PARTNERSHIP (hereinafter referred
to as "Blue Chip"), and MIAMI VALLEY VENTURE FUND L.P. (hereinafter referred to
as "Miami Valley").
PREAMBLE
W I T N E S S E T H:
THAT, WHEREAS, Faircom, through its wholly-owned subsidiaries, Faircom
Flint Inc. and Faircom Mansfield Inc., is the owner, operator and licensee of
radio stations WCRZ-FM, WFNT-AM, and WWBN-FM in Flint, Michigan, and WYHT-FM and
WMAN-AM in Mansfield, Ohio, respectively; and
WHEREAS, Subsidiary is a wholly-owned subsidiary of Regent; and
WHEREAS, the Boards of Directors of Faircom and Subsidiary have
approved and adopted this Agreement pursuant to which Faircom (sometimes
referred to as "the Disappearing Corporation") will be merged into Subsidiary
(sometimes referred to as "the Surviving Corporation") under the laws of the
State of Delaware in the manner provided therefor pursuant to Section 251 and
related sections of Title 8 of the Delaware Code and the terms of this Agreement
(the "Merger"); and
WHEREAS, as a result of such merger, immediately after Effectiveness
the Faircom Stockholders will own approximately 57% or more of the outstanding
capital stock of Regent, and Regent will own all of the outstanding capital
stock of Faircom; and
WHEREAS, control of Regent and Faircom may not be transferred without
prior written consent of the Federal Communications Commission; and
WHEREAS, Regent, Subsidiary, and Faircom have negotiated the terms and
conditions of the Merger, including the consideration to be paid to the Faircom
Stockholders and the Optionholders.
NOW, THEREFORE, in consideration of the mutual promises and the
conditions hereinafter contained, and subject to the conditions hereinafter set
forth, the parties hereto agree as follows:
-A1-
<PAGE> 246
DEFINITION OF TERMS
1. DEFINITION OF TERMS. In addition to the words and terms defined in
the recitals and elsewhere in this Agreement, the following terms shall have the
following meanings:
(a) [Reserved]
(b) "Closing Date" means the date, time and place designated
by written notice from Subsidiary to Faircom, which date shall be as soon as
practicable but no later than ten (10) days after the date of the last to occur
of the following: (i) the Registration Statement (as hereinafter defined) is
declared effective; (ii) the later of the Final Order or the satisfaction of any
condition imposed by the Commission pursuant to the Commission's Order, or such
other date within the effective period (including any extension thereof) of the
Commission's order as shall be mutually agreed upon by Faircom and Subsidiary;
(iii) the approval of the Merger by the Faircom stockholders; and (iv) the
delivery to Regent of the Closing Worksheet prepared by Faircom in accordance
with the provisions of Paragraph 13(b) hereof. "Closing" means the exchange of
the Faircom Stock for the Preferred Stock, the delivery of the Preferred Stock
to the Faircom Stockholders, and the execution and delivery of the other
documents as provided herein.
(c) "Commission" means the Federal Communications Commission.
(d) "Commission's Order" means the action of the Commission
consenting to the transfers of control contemplated herein.
(e) "Effectiveness" means the date and time at which the
Merger shall become effective, which shall be upon the due and proper filing of
the Certificate of Merger.
(f) [Reserved.]
(g) "Faircom Broadcast Assets" means, with respect to the
Faircom Stations:
(i) The Licenses listed on Exhibit l(j) and the
Public Inspection File maintained in connection therewith.
(ii) All contracts for the sale of broadcast time
or advertising on the Faircom Stations for cash which are valid and enforceable
as of the Closing Date.
(iii) All contracts for the sale of broadcast
time or advertising on the Faircom Stations in exchange for merchandise or
services (or a combination of merchandise or services and cash) which are valid
and enforceable as of the Closing Date.
(iv) All other leases, contracts and agreements
relating to the operation of the Faircom Stations and which are in effect on the
Closing Date, including without limitation those described in Exhibit 21(k-1).
(v) All the tangible property, assets, furniture,
fixtures, supplies, materials, goods, transmitters and equipment used or useful
in the operation of the Faircom Stations,
-A2-
<PAGE> 247
including, without limitation, those listed on Exhibit 21(s) and including
replacements thereof or additions thereto made between the date hereof and the
Closing Date, less any retirements made in the ordinary and usual course of
business.
(vi) Goodwill, privileges, permits, copyrights, logos,
jingles, service marks, trademarks and trade names (including rights in
applications in connection therewith), and other intangible rights (including
rights to the call letters of the Faircom Stations) used or useful in the
operation of the Faircom Stations or in connection therewith.
(vii) The correspondence, files, records, stock books, minute
books, books of account, logs, advertising lists, copy and other files, books,
writings and records of Faircom and the Faircom Subsidiaries.
(viii) All accounts and notes receivable of Faircom or the
Faircom Subsidiaries as of the Closing Date.
(ix) The real property owned by Faircom or the Faircom
Subsidiaries, including without limitation that which is described in Exhibit
2l(t).
(x) All other things owned by Faircom or the Faircom
Subsidiaries (including, without limitation, cash on hand) used or useful in the
operation of the Faircom Stations and not disposed of in the ordinary and usual
course of business and any other assets acquired by Faircom or the Faircom
Subsidiaries prior to Closing.
(h) "Faircom Budget" means the 1997 Consolidated and
Consolidating projected operating statements of Faircom, a copy of which has
been delivered to Regent. Such operating statements shall contain pro forma
statements for the entire year for stations acquired or managed for partial
periods of 1997.
(i) "Faircom Financials" means the audited financial
statements of Faircom for the years ended December 31, 1994, 1995 and 1996, and
the unaudited financial statements of Faircom for the six months ended June 30,
1997, and for monthly periods thereafter to the most recent month preceding the
Closing as reasonably practicable, furnished by Faircom to Regent and consisting
of balance sheets, statements of income and retained earnings, and, except for
unaudited financials, statements of changes in financial position.
(j) "Faircom Licenses" means all licenses, permits and
authorizations issued by the Commission relative to the Faircom Stations, as
listed and described on Exhibit 1(j) attached hereto and incorporated by
reference herein.
(k) "Faircom Senior Debt" means the indebtedness of Faircom
listed on Exhibit 1(k) hereof.
(l) "Faircom Stations" means the following radio stations and
their cities of license: WCRZ-FM, WFNT-AM, Flint, Michigan; WWBN-FM, Tuscola,
Michigan; WYHT-FM and WMAN-AM, Mansfield, Ohio; and, if acquired on or before
the Closing Date, the Shelby Station, and the auxiliary licenses of all such
Faircom Stations.
-A3-
<PAGE> 248
(m) "Faircom Stock" means all shares of the capital stock of
Faircom outstanding on the Closing Date, including all shares issued on
conversion of the Faircom Subordinated Notes as contemplated hereby.
(n) "Faircom Stockholders" means all of the holders of the
issued and outstanding shares of capital stock of Faircom as of the Closing
Date, including all shares issued on conversion of the Faircom Subordinated
Notes as contemplated hereby.
(o) "Faircom Subordinated Notes" means those certain Class A
Convertible Subordinated Promissory Notes and Class B Convertible Subordinated
Promissory Notes in favor of Blue Chip Capital Fund II Limited Partnership and
Miami Valley Venture Fund L.P. in the aggregate principal amount of $10,000,000.
(p) "Faircom Subsidiaries" means Faircom Flint Inc. and
Faircom Mansfield Inc. and, if the Shelby Station is acquired on or before the
Closing Date, Faircom Shelby Inc.
(q) "Final Order" means the Commission's Order as to which
the time for filing a request for all administrative or judicial review shall
have expired without any such filing having been made.
(r) [Reserved].
(s) "Intellectual Property" means all of the rights in and to
the call letters (and any variation thereof), trademarks, trade names, service
marks, franchises, copyrights (including registrations and applications for
registration of any of the foregoing), computer software, programs and
programming material of whatever form or nature, jingles, slogans, logos or
licenses to use same and other intangible property rights which are used or
useful in connection with the operation of the Faircom Stations, the Regent
Station and the Park Lane Stations, together with any associated goodwill and
any additions thereto between the date of this Agreement and the Closing Date.
(t) "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended.
(u) "Optionholders" means those persons listed on Exhibit
21(b) and any amendments thereto as of the Closing Date, and identified thereon
as holding options to acquire capital stock of Faircom.
(u-1) "Park Lane" means The Park Lane Group, a California
corporation.
(v) "Park Lane Financials" means the consolidated and
consolidating financial statements for Park Lane for the fiscal year ended
December 31, 1996 and for the fiscal years ended December 31, 1992, 1993, 1994
and 1995, and notes thereto, as certified by Coopers & Lybrand, independent
public accountants. The Park Lane Financials include (i) the audited
consolidated balance sheets of Park Lane and its subsidiaries as of December 31,
1996; (ii) the related audited consolidated statements of earnings, source and
application of funds, shareholders' equity and changes in financial position or
cash flows (as the case may be) for the years ended as indicated on
-A4-
<PAGE> 249
each of the Park Lane financial statements; and (iii) an unaudited balance sheet
of Park Lane as of April 30, 1997 and the unaudited statement of earnings and
source and application of funds for the four-month period then ended, and
unaudited financial statements for monthly periods thereafter through August 31,
1997.
(w) "Park Lane Stations" means the following radio stations
and their cities of license, constituting The Park Lane Group, currently
operated by Regent under a time brokerage agreement with The Park Lane Group
(which commenced on August 18, 1997), which Regent has agreed to purchase
pursuant to a certain Stock Purchase Agreement dated June 16, 1997: KZGL-FM,
Cottonwood, Arizona; KVNA-AM and KVNA-FM, Flagstaff, Arizona; KAAA-AM and
KZZZ-FM, Kingman, Arizona; KFMF-FM, Chico, California; KPPL-AM, Colusa,
California; KATJ-FM, George, California; KVOY-AM, Mojave, California; KALF-FM,
Red Bluff, California; KQMS-AM and KSHA-FM, Redding, California; KOWL-AM and
KRLT-FM, South Lake Tahoe, California; KTPI-FM, Tehachapi, California; and
KROY-AM, Victorville, California, and the auxiliary licenses of all such Park
Lane Stations.
(x) "Preferred Stock" means the Series C Convertible Preferred
Stock of Regent being issued and delivered to, and acquired by, the Faircom
Stockholders under the terms of this Agreement, as set forth in the Amended and
Restated Certificate of Incorporation of Regent in substantially the form of
Exhibit 1(x) hereto, which will be filed with the Delaware Secretary of State
prior to the Closing Date.
(y) "Pro-Rata Percentage Interest" means a Faircom
Stockholder's percentage interest in Faircom as determined in accordance with
Paragraph 13(d)(1)(i) hereof.
(z) "Regent Assets" means any asset which would be included in
the definition of "Faircom Broadcast Assets" and which is used or useful in the
operation of the Regent Station or the Park Lane Stations, and any other assets
acquired by Regent or the Regent Subsidiaries prior to Closing.
(aa) "Regent Financials" means the audited financial
statements of Regent as of a date consistent with those that will be included in
the Registration Statement (as hereinafter defined), and unaudited financial
statements for monthly periods thereafter to the most recent month preceding the
Closing as reasonably practicable, to be furnished by Regent to Faircom and
consisting of balance sheets and statements of income and retained earnings,
and, except for unaudited financials, statements of changes in financial
position.
(bb) "Regent Licenses" means all licenses, permits and
authorizations issued by the Commission relative to the Regent Station and the
Park Lane Stations, as listed and described on Exhibit 1(bb) attached hereto and
incorporated by reference herein.
(cc) "Regent Projections" means pro forma projections for
Regent for the fiscal years 1997 and 1998.
(dd) "Regent Station" means radio station KCBQ-AM, San Diego,
California.
-A5-
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(ee) "Regent Subsidiaries" means those subsidiaries of Regent
listed on Exhibit 1(ee) hereto.
(ff) "SEC" means the Securities and Exchange Commission.
(gg) [Reserved]
(hh) "Shelby Station" means radio station WSWR-FM, licensed to
Shelby, Ohio and the auxiliary licenses of such station.
(ii) "Shelby Station Pro Forma Broadcast Cash Flow" means the
amount of Pro Forma Broadcast Cash Flow used by the lenders of Faircom providing
the senior debt to Faircom for the acquisition of the Shelby Station to compute
the amount of such senior debt. "Pro Forma Broadcast Cash Flow" means Pro Forma
Net Broadcast Revenues less Pro Forma Operating Expenses, before provision for
interest expense, depreciation and amortization and management fees, using
accrual accounting and prepared in accordance with generally accepted accounting
principles. "Pro Forma Net Broadcast Revenues" and "Pro Forma Operating
Expenses", respectively, means the revenues, net of agency commissions, and the
expenses, solely arising from the Shelby Station broadcasting operations,
excluding any revenues or expenses from trades and barter, as prepared on a pro
forma basis by such lenders. The computations hereunder shall be confirmed in
writing by such lenders.
(jj) "Trustee" means The Fifth Third Bank, an Ohio banking
corporation.
AGREEMENT TO MERGE
2. AGREEMENT. Faircom and Subsidiary, both corporations duly
organized and existing under the laws of the State of Delaware, hereby agree
that, in accordance with and subject to the terms and conditions set forth
herein, upon Effectiveness, Faircom shall be merged with and into Subsidiary,
the separate corporate existence of Faircom shall cease, Subsidiary shall
continue in existence and shall succeed to and assume all the rights and
obligations of Faircom, and such merger shall in all respects have the effect
provided for in Section 259 of the General Corporation Law of the State of
Delaware.
3. ACTION TO EFFECT MERGER. Prior to, from and after Effectiveness,
Faircom, Subsidiary and Regent shall take all such action as shall be necessary
or appropriate, in order to effectuate the Merger in accordance with and subject
to the terms of this Agreement and the laws of the State of Delaware.
4. CERTIFICATE OF INCORPORATION AND BY-LAWS. From and after
Effectiveness and until thereafter amended as provided by law, the Certificate
of Incorporation and the By-Laws of Subsidiary, attached hereto as Exhibits 4(a)
and 4(b), respectively, as in effect immediately prior to Effectiveness shall be
the Certificate of Incorporation and By-Laws of the Surviving Corporation.
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5. DIRECTORS.
(a) The following shall be the directors of the Surviving
Corporation as of and after Effectiveness to replace the existing directors of
Faircom and to hold office as provided in the Certificate of Incorporation and
By-Laws of the Surviving Corporation:
Terry S. Jacobs
William L. Stakelin
(b) The following shall be the directors of Regent as of and
after Effectiveness to hold office as provided in the Amended and Restated
Certificate of Incorporation and By-Laws of Regent:
Joel M. Fairman
Terry S. Jacobs
R. Glen Mayfield
William L. Stakelin
John H. Wyant
6. OFFICERS. The following shall be the officers of Regent and of the
Surviving Corporation as of and after Effectiveness to replace the existing
officers of Faircom and to hold office as provided in the Certificate of
Incorporation and By-Laws of Regent and the Surviving Corporation:
Chairman of the Board,
Chief Executive Officer,
Treasurer..................................................Terry S. Jacobs
Vice Chairman..............................................Joel M. Fairman
President, Chief Operating
Officer, Secretary.....................................William L. Stakelin
Vice President-Finance,
Assistant Secretary.........................................Matthew Yeoman
Assistant Secretary..................................Christina Tenhundfeld
Assistant Secretary.........................................Alan C. Rosser
7. STOCKHOLDER APPROVAL; EFFECTIVENESS OF MERGER. This Agreement
shall be submitted to the Faircom stockholders as provided by the applicable
laws of the State of Delaware. If this Agreement is duly authorized and adopted
by the requisite votes or written consents of the Faircom stockholders and is
not terminated or abandoned in accordance with its terms, this Agreement
shall be certified by Faircom and Subsidiary pursuant to Section 251(c) of the
General Corporation Law of the State of Delaware, and the Surviving
Corporation shall prepare, file and record a Certificate of Merger in the form
provided under such Section 251(c) as soon as practicable after the approval of
the Faircom stockholders has been obtained and before or contemporaneously with
the Closing. The Merger shall become effective upon the due and proper filing
of the Certificate of Merger.
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8. AUTHORIZED SHARES OF SURVIVING CORPORATION. Subsidiary presently
has authorized capital stock of 1,000 common shares, $1.00 per share par
value, of which 100 shares are issued and outstanding to Regent.
9. AUTHORIZED SHARES OF DISAPPEARING CORPORATION. Faircom
presently has authorized and outstanding capital stock consisting of the
following:
Total Total
Authorized Outstanding
CAPITAL STOCK SHARES SHARES
------------- ------ ------
Common Stock 35,000,000 7,378,199*
*Does not include 19,012,000 shares of common stock reserved
for conversion of the Faircom Subordinated Notes or 1,943,700 shares reserved
for issuance upon exercise of outstanding options.
MODE OF EFFECTING MERGER
10. CONVERSION AND EXCHANGE OF SHARES.
(a) At Effectiveness, each share of Faircom Stock issued and
outstanding immediately prior to Effectiveness (other than shares owned or held
by dissenting Faircom Stockholders) shall, by virtue of the Merger and without
any action on the part of the holder thereof, automatically be converted into
shares of Preferred Stock as hereinafter provided, and each share of Faircom
Stock held in Faircom's treasury immediately prior to Effectiveness shall, by
virtue of the Merger, cease to be outstanding, and shall be canceled and retired
without payment of any consideration therefor. At Effectiveness, the holders of
each outstanding option to purchase shares of Faircom Common Stock (each a
"Faircom Option") will receive such substitute stock options under the Regent
Communications, Inc. Faircom Conversion Stock Option Plan ("Regent Options") as
will satisfy the requirements of Section 424(a) of the Internal Revenue Code and
the regulations under Treas. ss.1.425-1 and as will not constitute a
modification of the existing Faircom Options under Section 424(h) of the
Internal Revenue Code. Each Faircom Option will be deemed to constitute an
option to acquire the same number of shares of Preferred Stock as the holder of
such Faircom Option would have been entitled to receive pursuant to the Merger
had such holder exercised such Faircom Option in full immediately prior to the
consummation of the Merger (whether or not such Faircom Option was in fact
exercisable at the time). The terms of the Regent Options shall be the same as
the terms of the existing Faircom Options, and such terms shall run from the
date of grant of the Faircom Options. The Regent Options shall be immediately
exercisable at the same aggregate exercise price as the Faircom Options
surrendered in exchange therefor. The Regent Option agreements shall be
substantially in the form of Exhibit 10(a). At the Closing, each Faircom
Stockholder shall surrender for cancellation and exchange his certificate or
certificates evidencing Faircom Stock (or in the case of holders of Faircom
Options, option agreement); provided, however, any Faircom Stockholder who has
properly elected to demand appraisal of shares pursuant to the applicable laws
of Delaware need surrender his certificate or certificates only concurrently
with a
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withdrawal of such demand or as required by law following a determination
of the fair value of his or her shares.
(b) The stock transfer books of Faircom shall be closed at
Effectiveness, and thereafter no transfer of any such shares of Faircom Stock
shall be recorded thereon. In the event a transfer of ownership of shares of
Faircom Stock is not recorded on the stock transfer books of Faircom, a
certificate or certificates representing the number of whole shares of Preferred
Stock into which such shares of Faircom Stock shall have been converted in
connection with the Merger may be issued to the transferee of such shares of
Faircom Stock if the certificate or certificates representing such shares of
Faircom Stock is or are surrendered to the Trustee accompanied by all documents
deemed necessary by the Trustee to evidence and effect such transfer of
ownership of shares of Faircom Stock and by the payment of any applicable stock
transfer tax with respect to such transfer, subject to compliance with any
restrictions or conditions contained herein with respect to the transfer of
shares of Faircom Stock.
11. FUNDING OF CONSIDERATION FOR FAIRCOM STOCK. On or before
the Closing Date, Regent shall have issued to Subsidiary the number of shares of
Preferred Stock equal to the Maximum Number of Shares to be Issued (as defined
in Paragraph 13(b)(2) below).
12. ISSUANCE OF PREFERRED STOCK. Subject to the provisions of
paragraph 13 hereof, at the Closing, Subsidiary shall cause to be delivered to
the Trustee certificates for the Maximum Number of Shares to be Issued, all of
which shares shall be fully paid and non-assessable and registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws.
The Trustee shall act as the disbursing agent and shall
distribute to the Faircom Stockholders the consideration for the surrender and
exchange of the Faircom Stock in accordance with paragraph 13(d) hereof.
12A. SEC REGISTRATION.
(a) Faircom shall furnish to Regent such information,
including information about Faircom and the Faircom Subsidiaries (including the
respective affiliates of any of them), as may be necessary to enable Regent to
prepare and file with the SEC a registration statement on Form S-4 under the
Securities Act, and the rules and regulations promulgated thereunder, in respect
of the Preferred Stock to be issued by reason of the Merger (such registration
statement, including the proxy statement/prospectus included therein, together
with any amendments or supplements thereto, being referred to in this Agreement
as the "Registration Statement"). Faircom covenants that the Faircom Information
(as defined below) included in the Registration Statement shall not, at the time
the Registration Statement is declared effective, at the time the proxy
statement/prospectus contained therein (the "Proxy Statement") is first mailed
to Faircom's stockholders, or at the time of the meeting of the Faircom
stockholders held to approve this Agreement, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to Effectiveness any event or circumstance should come to the
attention of Faircom with respect to the Faircom Information that is required to
be set forth in an amendment or supplement to the Registration Statement,
Faircom shall immediately notify Regent and shall assist Regent in appropriately
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amending or supplementing the Registration Statement. An amendment or supplement
may be accomplished, to the extent permitted by law, rule or regulation, by
including such information in a filing under the Securities Exchange Act of
1934, as amended (the "Exchange Act") that is incorporated by reference into the
Registration Statement. The Registration Statement insofar as it relates to
information concerning Faircom, the Faircom Subsidiaries or any of their
respective businesses, assets, directors, officers, or stockholders or any other
affiliates or other matters pertaining to Faircom that is supplied by Faircom
for inclusion in the Registration Statement, including by incorporation by
reference to SEC filings made by Faircom (the "Faircom Information") shall
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder; except that Faircom shall have no liability
or obligation for any information other than the Faircom Information.
(b) Faircom shall instruct its accountants, BDO Seidman, LLP,
to deliver, and shall use its reasonable best efforts to cause such accountants
to deliver, to Regent letters dated at the time the Registration Statement
becomes effective and as of the Closing Date, addressed to Regent, each
containing such matters as are customarily contained in auditors' letters
regarding information about Faircom included in the Registration Statement,
which auditors' letters shall be in form and substance reasonably satisfactory
to Regent. Regent shall use its reasonable best efforts to cause its
accountants, Coopers & Lybrand, LLP, to deliver to Faircom letters at such times
containing similar information about Regent in form and substance reasonably
satisfactory to Faircom.
(c) Regent shall file the Registration Statement and use its
reasonable best efforts to have it declared effective by the SEC as promptly as
practicable, and shall use its reasonable best efforts to take any action
required to be taken to comply in all material respects with any applicable
federal or state securities laws in connection with the issuance of Preferred
Stock in the Merger contemplated by this Agreement; except that such covenant of
Regent is made as to those portions of the Registration Statement containing or
required to contain Faircom Information, assuming and relying solely on timely
and full compliance with subparagraphs (a) and (b) above.
(d) Regent covenants that the information included in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, at the time the Proxy Statement is first mailed to the
Faircom stockholders, or at the time of the meeting of the Faircom stockholders
held to approve the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; except that Regent makes no
covenant as to those portions of the Registration Statement containing or
required to contain Faircom Information. If at any time prior to Effectiveness
any event or circumstance should come to the attention of Regent that is
required to be set forth in an amendment or supplement to the Registration
Statement, Regent shall give reasonably prompt notice to Faircom and shall use
its reasonable efforts to amend or supplement appropriately the Registration
Statement.
(e) Regent covenants that the Registration Statement and all
other documents required to be filed by Regent with the SEC in connection with
the transactions contemplated herein shall comply as to form and substance in
all material respects with the applicable requirements of the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder; except
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that Regent shall have no liability or obligation for any failure to comply with
such requirements arising out of the Faircom Information.
(f) Regent covenants to obtain prior to the effective date of
the Registration Statement all necessary "blue sky" permits and approvals, if
any, required to consummate the Merger.
(g) Regent shall use all reasonable best efforts to take such
action as may be necessary to ensure that the requirements of Rule 144(c) under
the Securities Act are satisfied as to enable any "affiliates" of Faircom (as
that term is used in Rule 145 under the Securities Act) to offer or sell the
Preferred Stock received by them in the Merger pursuant to paragraph (d) of Rule
145 (subject to compliance with the provisions of paragraphs (e), (f) and (g) of
Rule 144).
12B. AFFILIATES. Faircom shall use its reasonable best efforts to cause
each person that is an "affiliate" of Faircom under the Securities Act on the
date of Faircom's stockholder meeting held to approve the Merger to deliver to
Regent at the Closing a written agreement substantially in the form attached
hereto as Exhibit 12B ("Rule 145 Letters").
12C. TRADING PROHIBITIONS. Each of Regent and Faircom hereby
acknowledges that as a result of disclosures by Regent and Faircom contemplated
under this Agreement, Faircom, the Faircom Subsidiaries and their affiliates
may, from time to time, have material, non-public information concerning such
parties and their respective subsidiaries or affiliated companies. Each of
Faircom and Regent confirms that it, each of the Faircom Subsidiaries and their
affiliates is aware, and each party has advised its representatives that (i) the
United States securities laws may prohibit a person who has material, non-public
information from purchasing or selling securities of any company to which such
information relates, and (ii) material non-public information shall not be
communicated to any other person except as permitted herein.
12D. NO SOLICITATION. From and after the date hereof, Faircom will not,
and shall use its reasonable best efforts not to permit, any of its officers,
directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its subsidiaries to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Takeover Proposal (as hereinafter defined) from any person, or
engage in or continue discussions or negotiations relating thereto; provided,
however, that Faircom may engage in unsolicited discussions or negotiations
with, and furnish information concerning Faircom and its business, properties or
assets to, any third party which makes a Takeover Proposal if the Board of
Directors of Faircom concludes in good faith and in the exercise of its
reasonable judgment after consultation with its outside counsel (who may be its
regularly engaged outside counsel) that the failure to take such action would
present a reasonable probability of violating the obligations of such Board to
the Faircom Stockholders under applicable law (and such counsel has provided an
opinion to Faircom's Board of Directors to such effect). Faircom will promptly
(but in no case later than 24 hours) notify Regent of the receipt of any
Takeover Proposal, including the material terms and conditions thereof and the
identity of the person or group making such Takeover Proposal, and will promptly
(but in no case later than 24 hours) notify Regent of any determination by
Faircom's Board of Directors that a Superior Proposal (as hereinafter defined)
has been made. As used in this Agreement (i) "Takeover Proposal" shall mean any
proposal or offer, or any extension of interest by any third party relating to
Faircom's willingness or ability to receive or discuss a proposal or offer, in
each case made prior to
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Faircom's stockholder vote at the meeting to consider the Merger, other than a
proposal or offer by Regent or any of its subsidiaries, for a merger,
consolidation or other business combination involving, or any purchase of, all
or substantially all of the assets or more than 50% of the voting securities of,
Faircom and (ii) "Superior Proposal" shall mean a bona fide Takeover Proposal
made by a third party on terms that a majority of the members of the Board of
Directors of Faircom determines, in their good faith reasonable judgment and
based on the advice of an independent financial advisor, is more favorable to
the Faircom Stockholders than the transactions contemplated hereby and for which
any required financing is committed or which, in the good faith reasonable
judgment of a majority of such members (after consultation with any independent
financial advisor), is reasonably capable of being financed by such third party.
12E. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION RIGHTS. (i) If, during any period
when either Blue Chip or Miami Valley holds shares of Preferred Stock, Regent
files a registration statement with the SEC to register for public offering its
common stock ("Regent Common Stock"), Regent shall give at least 45 days'
advance written notice to Blue Chip or Miami Valley, as the case may be, of its
intent to file such registration statement. If so requested by either Blue Chip
or Miami Valley within 30 days after the giving of such written notice, to the
extent then permissible under federal and applicable state securities laws, and
the rules and regulations of the SEC thereunder, Regent shall include in such
registration statement for resale for Blue Chip's or Miami Valley's account such
portion of the shares into which the Preferred Stock held by Blue Chip or Miami
Valley is then convertible (the "Conversion Stock"), as Blue Chip or Miami
Valley shall request, except where the inclusion of any or all of Blue Chip's or
Miami Valley's Conversion Stock is not permitted by Regent's underwriter(s)
based on bona fide market considerations as specified below. To the extent Blue
Chip's or Miami Valley's Conversion Stock is not included in such registration
statement, either as a result of Blue Chip's or Miami Valley's requesting
inclusion of less than all of such stock, of Blue Chip's or Miami Valley's not
requesting inclusion within the thirty (30) day period specified above, or of
the operation of the "underwriter out" specified below, such remaining shares of
Conversion Stock shall continue to be subject to this Paragraph 12E and eligible
for inclusion in any subsequent registration effected by Regent pursuant to this
Paragraph 12E.
(ii) Regent shall not be required to include any shares of
Conversion Stock in any registration statement to the extent the public offering
involves an underwriting, and the managing underwriter thereof advises Regent in
writing that, in its opinion, the number of shares of Conversion Stock requested
to be included, when added to the number of shares of Regent Common Stock
desired to be offered by Regent, exceeds the number that can be sold in such
offering, at a price reasonably related to fair market value. To the extent the
managing underwriter provides such advice, the Conversion Stock to be included
on behalf of Blue Chip and Miami Valley, and any other shares to be registered
pursuant to such Registration Statement on behalf of another selling
stockholder, shall be reduced pro rata, taking into account the number of shares
requested to be registered by Blue Chip or Miami Valley and any other selling
stockholders.
(iii) At the time of any registration pursuant to this
Paragraph 12E, Regent, Blue Chip and Miami Valley shall enter into any
underwriting or other formal agreements containing such terms and provisions
with respect to the marketing of such securities, indemnification and other
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related matters as may be reasonably required by Regent's underwriter(s) in any
such registration. As a condition of the inclusion of the Conversion Stock in
any such registration, Blue Chip and Miami Valley agree to furnish to Regent
such information concerning Blue Chip and Miami Valley as may be requested by
Regent as necessary in connection with the registration or qualification of the
Conversion Stock under federal and state securities laws.
(b) DEMAND REGISTRATION RIGHTS. At any time, Blue Chip and
Miami Valley together may give notice to Regent requesting the registration
under the Securities Act of any or all of the Conversion Stock then held by them
or to be held by them upon conversion of the Preferred Stock. Upon receipt of
such notice, Regent shall use its best efforts to effect as promptly as possible
the registration under the Securities Act of the Conversion Stock that Regent
has been requested to register pursuant to this Paragraph 12E. Regent shall not
be obligated to file more than two registration statements under this Paragraph
12E or to keep such registration statement effective for more than 90 days.
Regent shall not be obligated to effect any registration pursuant to this
Paragraph 12E if such registration would require an audit of Regent as of a date
other than its fiscal year end. Regent may defer the filing of a registration
statement under this Paragraph 12E for a period of up to 90 days based on the
good faith judgment of the Board of Directors that such delay is needed (x) to
avoid premature disclosure of a matter if the Board has determined that the
disclosure would not be in the best interests of Regent or (y) to avoid conflict
with another public offering by Regent. Any registration statement prepared
pursuant to this Paragraph 12E shall be subject to such restrictions or
limitations as may be applicable by law to the sales price or sales method of
the proposed offering of the Conversion Stock.
(c) OTHER REGISTRATION RIGHTS. If Regent grants any
registration rights (whether "demand" or "piggyback") to any other person, this
Paragraph 12E shall be deemed amended, at the option of Blue Chip and Miami
Valley, to grant to Blue Chip and Miami Valley rights equivalent to the most
favorable rights granted to any other person.
(d) REGISTRATION PROCEDURES. If and whenever Regent is
required by the provisions of this Paragraph 12E to effect the registration of
any of Blue Chip and Miami Valley's shares of Conversion Stock or other
securities under the Securities Act, Regent shall, as expeditiously as possible:
(i) Prepare and file with the SEC a registration
statement with respect to such shares or other securities and use all reasonable
efforts to cause such registration statement to become effective as promptly as
possible;
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement as may be necessary to keep such
registration statement effective for three (3) months from the date of its
effectiveness;
(iii) Furnish to Blue Chip and Miami Valley such
number of copies of the prospectus forming a part of such registration statement
(including each preliminary prospectus) as Blue Chip or Miami Valley may
reasonably request;
(iv) Use its best efforts to register or qualify such
shares or other securities covered by such registration statement under the
securities or blue sky laws of such
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jurisdictions as Blue Chip or Miami Valley shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable Blue
Chip or Miami Valley to consummate the disposition of such shares or such other
securities during the period provided in Paragraph 12E(d)(ii) above; and
(v) Notify Blue Chip and Miami Valley during the
period when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event which causes the prospectus
forming a part of such registration statement to include an untrue statement of
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and at the request of Blue Chip or Miami Valley, prepare and furnish
Blue Chip and Miami Valley with a reasonable number of copies of the supplement
to or any amendment of such prospectus necessary so as to render such
prospectus, as amended or supplemented, in compliance with the provisions of the
Securities Act.
(e) EXPENSES. All expenses incurred by Regent in complying
with this Paragraph 12E, including without limitation all registration and
filing fees, printing expenses, expenses of complying with securities or blue
sky laws, fees and disbursements of counsel for Regent and counsel for any
underwriters of the offering and any accountants, fees and expenses incident to
or required by any such registration and all reasonable fees and disbursements
of any counsel retained by Blue Chip or Miami Valley, shall be borne by Regent
to the maximum extent permitted by law. All underwriting fees and commissions
incurred by Blue Chip and Miami Valley shall be borne by Blue Chip and Miami
Valley.
(f) INDEMNIFICATION.
(i) BY REGENT. In the event of any registration
of Blue Chip's or Miami Valley's shares of Conversion Stock or other securities
under this Paragraph 12E, Regent shall defend, indemnify and hold harmless each
of Blue Chip and Miami Valley, its officers, directors, partners, affiliates,
each underwriter thereof and each person which controls such entity or such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities and any action in respect thereof, joint or
several, to which Blue Chip or Miami Valley or any such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, other than that which is based upon information supplied by Blue
Chip or Miami Valley in writing, and Regent shall reimburse each of Blue Chip
and Miami Valley and such officers, directors, underwriters and controlling
persons for any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Regent shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or action
arises out of or is based upon information provided in writing to Regent by Blue
Chip or Miami Valley or any such officer, director, underwriter or controlling
person. This indemnity shall be in addition to any liability which Regent may
otherwise have.
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(ii) BY BLUE CHIP AND MIAMI VALLEY. In the
event of any registration of such shares or other securities under this
Paragraph 12E, Blue Chip and Miami Valley shall indemnify Regent, its officers,
directors, partners, affiliates, each underwriter thereof and each person which
controls such entity or underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities and any action in respect
thereof, joint or several, to which Regent or any such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, which is based upon information supplied by Blue Chip or Miami
Valley in writing, and such entity shall reimburse Regent for any legal or other
expenses reasonably incurred by Regent in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Blue Chip and Miami Valley shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon information provided to Regent by Regent or any of its
stockholders. This indemnity shall be in addition to any liability which Blue
Chip and Miami Valley may otherwise have.
(iii) CONTRIBUTION. If for any reason any
indemnification described in Paragraph 12E(f)(i) or (f)(ii) above may not be
provided by the party or parties required therein to provide such
indemnification (the "Indemnifying Parties"), in lieu of providing such
indemnification, the Indemnifying Parties shall contribute to the amount paid or
payable by the party or parties to be provided such indemnification (the
"Indemnified Parties") as a result of such losses, claims, damages, liabilities
or actions, in such proportion as is appropriate to reflect the relative fault
of the parties in connection with any statement or omission which resulted in
such losses, claims, damages, liabilities or actions, as well as any other
relevant equitable considerations. The relative fault of the Indemnifying
Parties and the Indemnified Parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by one
of the Indemnifying Parties or by one of the Indemnified Parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. The parties agree that it would not be just and equitable if
contribution pursuant hereto were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to herein. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
CONSIDERATION
13. (a) BASE CONSIDERATION. The consideration to be paid to the Faircom
Stockholders in the Merger before adjustments as provided in paragraph 13(b)
below (the "Base Considera-
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tion") shall be Preferred Stock in an aggregate liquidation preference amount of
Thirty-One Million One Hundred Sixty-Two Thousand Dollars ($31,162,000);
provided, however, that in the event the acquisition of the Shelby Station has
closed prior to the Closing Date, the Base Consideration will be increased by an
amount equal to 10.6 times the Shelby Station Pro Forma Broadcast Cash Flow less
the purchase price of the Shelby Station. In the event the acquisition of the
Shelby Station does not occur prior to the Closing for reasons beyond Faircom's
control, but the Net Working Capital of Faircom plus such available funds as
Faircom can readily borrow under its existing senior credit facility (as
certified in writing by its senior lender) is sufficient at Closing to fully
finance such acquisition, the Base Consideration will be increased as provided
in the immediately preceding sentence and the Net Working Capital of Faircom
shall be reduced by the purchase price of the Shelby Station and any financing
costs that would be incurred as if the closing of such acquisition had taken
place. If the acquisition of the Shelby Station does not occur prior to the
Closing and the Net Working Capital of Faircom plus such available funds as
Faircom can readily borrow under its existing senior credit facility (as
certified in writing by its senior lender) at Closing is not sufficient to fully
finance such acquisition, Regent shall assume the obligation of Faircom to
purchase the Shelby Station at the same purchase price previously agreed to
between Faircom and the seller thereof, and there shall be no increase in the
Base Consideration attributable to the acquisition of the Shelby Station. The
additional amount of Base Consideration, as so adjusted, shall be distributed to
the Faircom Stockholders as promptly as practicable after the closing of the
Shelby Station acquisition.
(b) CONSIDERATION AFTER ADJUSTMENTS.
(1) As soon as practicable but no later than
ten (10) days following the last to occur of the following, (A) the Registration
Statement is declared effective; (B) a Final Order has been obtained from the
Commission; and (C) the Faircom stockholders have approved the Merger, a
worksheet ("Closing Worksheet") shall be prepared by Faircom and delivered to
Regent setting forth as of the last day of the month immediately preceding the
Closing Date (the "Compilation Date") the amount of Faircom's Net Working
Capital (as hereinafter defined). The Base Consideration (as adjusted, if
necessary, in accordance with Paragraph 13(a) above) shall be (a) increased by
the amount of Faircom's Net Working Capital and (b) decreased by the outstanding
principal amount of and accrued interest on the Faircom Senior Debt, and by
one-half of the prepayment premium, if any, required to be paid upon payment of
the Faircom Senior Debt at Closing (which premium the parties will endeavor
through reasonable efforts and negotiations to eliminate). The Base
Consideration, as so adjusted, shall hereinafter be referred to as the
"Consideration After Adjustments".
As used herein, "Net Working Capital" shall mean current assets of
Faircom (defined as cash on hand and in banks, certificates of deposit, treasury
bills and marketable securities and other cash equivalents, accounts receivable
(less adequate reserves) and any other asset properly classified as current)
minus current liabilities. As used herein, the term "current liabilities" shall
mean the amount of all the liabilities of Faircom at the Compilation Date that
should be classified as such on a balance sheet or disclosed in the notes to the
financial statements as of that date prepared in accordance with generally
accepted accounting principles applied on a basis consistent with those followed
in the preparation of the financial statements described in paragraph 1(i) and
shall include (i) accounts payable, (ii) all indebtedness (other than the
Faircom Senior Debt and the Faircom Subordinated Notes), (iii) any unpaid
bonuses, severance or vacation pay accrued to employees for
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the period ending on the day prior to the Compilation Date, and (iv) trade and
barter obligations not offset by corresponding amounts of trade and barter
receivables.
Regent and/or its representatives shall examine the Closing Worksheet,
including an examination of such of Faircom's books and records as are deemed by
Regent and/or its representatives to be necessary or appropriate, to verify
Faircom's Net Working Capital as of the Compilation Date. If Regent shall
disagree with the Closing Worksheet, it shall notify Faircom within ten (10)
days of its receipt of the Closing Worksheet of its objection to such
computation, specifying each item or computation to which objection is taken and
the reason for such objection. In such event, Regent and Faircom shall use their
best efforts to resolve such objections and to agree upon the Closing Worksheet
through negotiation as expeditiously as possible. If Regent and Faircom are
unable to reconcile their differences and to mutually agree upon the Closing
Worksheet, within five (5) business days after such notice shall have been given
as aforesaid, Regent and Faircom shall designate a mutually agreeable
independent national accounting firm, or if such firm cannot act, another
national accounting firm (which has not been retained by either Joel M. Fairman,
Faircom, Regent or Terry S. Jacobs within the past ten (10) years) mutually
acceptable to such parties to act as arbitrator ("Arbitrator"). The Arbitrator
shall determine all issues in disagreement and shall make such adjustments, if
any, to the Closing Worksheet as are necessitated by such determinations, and
shall within fifteen (15) business days after its designation as Arbitrator
deliver to Regent and Faircom a written statement setting forth all adjustments
made by the Arbitrator to the Closing Worksheet. Such Closing Worksheet shall be
employed to determine any further adjustments required to the Consideration
After Adjustments pursuant to this Paragraph 13(b) ("Final Consideration"), and
such Final Consideration shall be final, conclusive and binding upon all parties
to this Agreement. The fees and expenses of Regent's accountants, if any, and
the Arbitrator in connection with the making of the Closing Worksheet and the
determinations herein provided for to resolve any differences over the Closing
Worksheet shall be paid one-half by Faircom (as a reduction in Net Working
Capital at Closing) and one-half by Regent.
(2) The maximum number of shares of Preferred Stock
available for distribution to the Faircom Stockholders (the "Maximum Number of
Shares to be Issued") shall be computed by dividing the Consideration After
Adjustments by $5.00 (the "Initial Number") less the number derived by
multiplying the Initial Number by a fraction, the numerator of which is the
number of shares of Faircom Stock issuable pursuant to options outstanding and
not exercised on the Closing Date (the "Option Shares") and the denominator of
which is the number of shares of Faircom Stock outstanding on the Closing Date
(including any shares issued on conversion of the Faircom Subordinated Notes on
or before the Closing Date) plus the Option Shares.
(3) The Maximum Number of Shares to be Issued shall
be affected by the following:
Blue Chip and Miami Valley shall have the
right, at Closing, to require the repayment in cash by Regent of up to
$2,500,000 principal amount of Faircom's Class B Convertible Subordinated
Promissory Notes in the aggregate (the "Optional Faircom Subordinated Notes") or
to convert the principal amount of the Optional Faircom Subordinated Notes into
Faircom Common Stock as provided therein. If either Blue Chip or Miami Valley
elects to require a repayment of all or a portion of the Optional Faircom
Subordinated Notes at Closing, then the Maximum Number of Shares to be Issued
shall be reduced to the extent of one share of Preferred Stock per $5.00 so
repaid by Regent. Of the shares of Preferred Stock for which the Faircom
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Subordinated Notes are converted into Faircom Common Stock as provided above
(other than the Optional Faircom Subordinated Notes), certain of the shares to
be issued in exchange for the shares of Faircom Common Stock issued upon the
conversion of the Class B Convertible Subordinated Promissory Notes will be
subject to the option of Blue Chip and Miami Valley to put such shares of
Preferred Stock to Regent for redemption in accordance with the terms of a
Redemption and Warrant Agreement between Blue Chip, Miami Valley and Regent in
substantially the form attached hereto as Exhibit 13(b)(3). All accrued interest
on the Faircom Subordinated Notes will be treated as a current liability of
Faircom at Closing (so as to reduce Net Working Capital) and paid in cash at
Closing.
(c) CONSIDERATION PER SHARE BEFORE APPRAISAL RIGHTS. In order
to determine the Consideration Per Share Before Appraisal Rights, the
Consideration After Adjustments will be divided by the total number of shares of
Faircom Stock treated as outstanding. The number of shares of Faircom treated as
outstanding will be the sum of the number of shares actually outstanding
(including any shares issued on conversion of the Faircom Subordinated Notes on
or before the Closing Date) plus the number of shares issuable upon the exercise
of all options to acquire shares of Faircom outstanding as of the Closing Date.
(d) DISTRIBUTIONS BY TRUSTEE. At Closing, the Trustee will
receive from Regent the Maximum Number of Shares to be Issued and cash in an
amount sufficient to make payment to the Faircom Stockholders in respect of
fractional shares, which securities and cash will be maintained, allocated and
distributed as follows:
(1) DISTRIBUTIONS TO FAIRCOM STOCKHOLDERS.
(i) Each Faircom Stockholder will be
allocated an amount equal to the product of the Consideration Per Share Before
Appraisal Rights times the number of shares of Faircom Stock (including shares
issuable pursuant to the conversion of all Faircom Subordinated Notes, including
all Optional Faircom Subordinated Notes, which are converted into Faircom Stock
on or before the Closing Date) held by such Faircom Stockholder on the Closing
Date. The amount determined as provided above to be allocable to each Faircom
Stockholder, as a percentage of the total amount allocable to all the Faircom
Stockholders, is referred to herein as that person's "Pro-Rata Percentage
Interest."
(ii) The Pro-Rata Percentage Interest
of each Faircom Stockholder who is not a dissenting Faircom Stockholder shall be
distributed as follows: each such Faircom Stockholder shall receive as soon as
practicable following Closing the number of shares of Preferred Stock (or, in
the event shares of Preferred Stock are not available to such Faircom
Stockholder pursuant to Paragraph 13(d)(1)(iii), the cash paid in lieu of such
shares of Preferred Stock) equal to the product of the Maximum Number of Shares
to be Issued multiplied by such Faircom Stockholder's Pro-Rata Percentage
Interest; and (B) cash as payment for any fractional shares of Preferred Stock
pursuant to Paragraph 13(d)(2).
(iii) AVAILABILITY OF PREFERRED STOCK.
In determining the extent to which shares of Preferred Stock are available for
distribution to any individual Faircom Stockholder, shares of Preferred Stock
shall not be available for distribution to any Faircom Stockholder who is the
resident of or who is otherwise located in a state in which the issuance of the
shares of Preferred
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Stock is prohibited or conditioned upon terms unacceptable to Regent under the
securities laws or by the securities administrator of such state.
(2) NO FRACTIONAL SHARES. No certificates or
scrip representing fractional shares of Preferred Stock will be issued upon
surrender of certificates for conversion pursuant to this Agreement. In the
event any Faircom Stockholder is allocated an interest in a fractional share of
Preferred Stock pursuant to this Paragraph 13, said fractional amount will be
rounded down to the nearest whole share and the Faircom Stockholder will be paid
in cash, without interest, an amount equal to the product of the fraction
multiplied by $5.00.
14. SURRENDER OF CERTIFICATES AND DELIVERY OF CONSIDERATION
AFTER ADJUSTMENTS.
At Effectiveness, Subsidiary or Regent shall take all steps
necessary to enable and cause Subsidiary or Regent to provide the Trustee with
the shares of Preferred Stock and cash in respect of fractional shares necessary
to deliver the Consideration After Adjustments to each Faircom Stockholder as
contemplated by Paragraph 13 hereof prior to the time that such deliveries are
required to be made by the Trustee as provided in this Paragraph 14. The Trustee
shall hold the shares of Preferred Stock and cash until the receipt by it of
joint instructions signed by a representative of each of Regent and Faircom
certifying that the parties have agreed to the Consideration After Adjustments
or the Final Consideration has been determined by the Arbitrator in accordance
with Paragraph 13(b)(1) hereof, and authorizing the distribution of said shares
and cash to the Faircom Stockholders.
Promptly after Effectiveness, the Trustee shall mail to each
record holder (as of Effectiveness) of an outstanding certificate or
certificates that immediately prior to Effectiveness represented outstanding
shares of Faircom Stock (the "Certificates"), a letter of transmittal in form
reasonably satisfactory to Regent and Faircom which specifies that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Trustee and instructions
for use in effecting the surrender of the Certificates in exchange for the
Consideration After Adjustments payable in respect of the shares of Faircom
Stock formerly represented by such Certificate. Subject to the foregoing
paragraph, upon surrender to the Trustee of a Certificate, together with such
letter of transmittal properly completed and duly executed, together with any
other required documents, the holder of such Certificate shall be entitled to
receive in exchange therefor the Consideration After Adjustments payable in
respect of the shares of Faircom Stock formerly represented by such Certificate,
and such Certificate shall forthwith be canceled. If payment is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of Regent
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this paragraph 14, each Certificate shall
represent for all purposes only the right to receive the Consideration After
Adjustments, without any interest on the value thereof.
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COMMISSION MATTERS
15. COMMISSION CONSENT TO TRANSFERS OF CONTROL. Notwithstanding
anything herein to the contrary, the terms and conditions of this Agreement are
subject to a Final Order prior to Closing granting consent to all transfers of
control as a result of the Merger.
16. APPLICATIONS FOR CONSENT - COOPERATION OF THE PARTIES. Regent and
Faircom shall file such applications for transfer of control as are required and
have not already been filed by not later than five (5) business days after the
date of this Agreement. They shall promptly and diligently file and
expeditiously prosecute all necessary or desired amendments to such
applications, briefs, pleadings, documents and supporting data, and take all
such actions and give all such notices as may be required or requested by the
Commission or as may be appropriate in an effort to expedite the consent of the
Commission to the transfers of control as a result of the Merger; provided,
however, that neither Regent nor Faircom shall be required to petition for
review or to file an appeal of any decision by the Commission or the staff of
the Commission denying such application.
17. COSTS AND EXPENSES. Except as set forth in Paragraphs 31 and 32
hereof, Faircom, Subsidiary and Regent each shall bear its own legal fees and
other costs and expenses with respect to this transaction, including preparation
and prosecution of Commission applications. The cost of filing fees and grant
fees, if any, imposed by the Commission shall be borne equally by the parties.
Except as provided in Paragraph 32 hereof, all fees and expenses payable by
Faircom but not paid prior to Closing shall be treated as a current liability of
Faircom at Closing (so as to reduce Net Working Capital) and will be paid by the
surviving entity at Closing.
18. OPERATION OF STATIONS BEFORE CLOSING. Between the date of this
Agreement and the Closing Date, each of Regent and Faircom (i) will continue to
operate its radio stations in good faith, in the ordinary and usual course of
business, under the terms of the Regent Licenses and the Faircom Licenses,
respectively, substantially in accordance with past practices, and as stated in
paragraphs 21(y) and 22(y) of this Agreement and (ii) will file with the
Commission all documents required to be filed in connection with the operation
of its radio stations. Between the date hereof and the Closing Date, Faircom and
Regent shall each provide the other with copies of all correspondence received
from or filed with the Commission relating to the Faircom Stations, the Regent
Station or the Park Lane Stations, as the case may be, the above applications or
any amendments of the same.
19. CONTROL AND ACCESS. Prior to Closing, neither Regent nor Faircom
nor their respective agents shall directly or indirectly (i) control, supervise
or direct, or (ii) attempt to control, supervise or direct, the operations of
the other's radio stations. Except as otherwise provided herein, such operations
shall be the sole responsibility of and in the complete discretion of the
respective owners of the radio stations. Each party shall, however, be permitted
reasonable observation, access and inspection of the records and property of the
other's radio stations during regular business hours and each of Faircom and
Regent shall furnish on a monthly basis (within twenty-five (25) days following
the end of each month) a profit and loss statement and such other financial
statements, including historical statements, relating to the radio stations as
the requesting party may reasonably request and as are regularly prepared by the
station owner in the ordinary course of the business of its stations.
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20. [Reserved].
COVENANTS, REPRESENTATIONS
AND WARRANTIES OF FAIRCOM
---------------------------
21. COVENANTS, REPRESENTATIONS AND WARRANTIES OF FAIRCOM. Faircom, on
behalf of itself and on behalf of each of the Faircom Subsidiaries, makes the
following covenants, representations and warranties (where meaningful, all
warranties, representations, and covenants relating to Faircom hereunder shall
apply equally to each of the Faircom Subsidiaries, as if any reference to
Faircom is a reference to either or each Faircom Subsidiary as the context
permits):
(a) CORPORATE STANDING AND AUTHORITY.
(i) Faircom is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby. Faircom is in good
standing as a corporation qualified to do business under the laws of the State
of New York (being the only state in which Faircom's offices, equipment,
facilities and other tangible assets are situated).
(ii) Each of the Faircom Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full corporate power to own or lease all of
its property and to carry on its business as it is now being conducted. Faircom
Flint Inc. is authorized to conduct business within the State of Michigan, and
Faircom Mansfield Inc is authorized to conduct business within the State of Ohio
(being the only jurisdictions in which the ownership or leasing of property by
each such subsidiary or the conduct of its business requires it to be so
qualified). All of the outstanding shares of capital stock of each of the
Faircom Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable, and except as set forth on Exhibit 21(a), are owned, of
record and beneficially, by Faircom, free and clear of all liens, encumbrances,
equities, options or claims whatsoever. Neither of the Faircom Subsidiaries has
outstanding any other equity securities or securities options, warrants or
rights of any kind, convertible into, exchangeable for, or otherwise entitling
any person to acquire, equity securities of such subsidiary.
(iii) This Agreement and the transactions
contemplated hereby have been adopted, ratified and approved by the Board of
Directors of Faircom and, assuming the Registration Statement has been declared
effective, will, by the Closing Date, have been duly and timely submitted to the
Faircom stockholders for authorization and approval (unless this Agreement is
terminated prior to Closing pursuant to the terms hereof), and copies of all
corporate proceedings of Faircom relating to such authorization and approval,
certified by its Secretary, have been or will be delivered to Subsidiary at the
Closing. Other than obtaining the approval of the Faircom stockholders, no
further corporate action on the part of Faircom is required. This Agreement,
upon approval by the Faircom stockholders in accordance with Delaware law, will
constitute a valid and binding obligation of Faircom, enforceable against it in
accordance with its terms, subject to bankruptcy laws, other federal and state
laws affecting creditors' rights generally and the availability of equitable
remedies.
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(b) CAPITALIZATION; FAIRCOM STOCK.
(i) The authorized capital stock of Faircom
(the "Capital Stock") consists of 35,000,000 shares of common stock ("Common
Stock"), of which 7,378,199 shares are issued and outstanding. Faircom has
reserved 19,012,000 shares of Common Stock for issuance upon conversion of the
Faircom Subordinated Notes and 1,943,700 shares for issuance upon exercise of
outstanding options, as more fully set forth below. All issued and outstanding
shares of Capital Stock constitute the Faircom Stock. All shares of Faircom
Stock are duly authorized, validly issued in compliance with all applicable
laws, fully paid and non-assessable and not subject to any preemptive,
subscription or other rights to purchase or acquire such securities created by
statute, the Certificate of Incorporation or By-Laws of Faircom or any agreement
to which Faircom is a party or by which it is bound. There are no restrictions
with respect to the exchange and conversion of the Faircom Stock in accordance
with the terms of this Agreement. No more than 25% of the Faircom Stock is owned
or voted by an alien or a foreign government or a corporation organized under
the laws of a foreign country or by the representative of any of the above.
(ii) Faircom has outstanding options to purchase
1,943,700 shares of Common Stock (the "Options"). Exhibit 21(b) sets forth for
each outstanding Option the name of the holder of such Option, the number of
shares of Faircom Stock subject to such Option and the exercise price of such
Option. All of such Options are currently exercisable except for options for
134,000 shares, which will be accelerated and fully exercisable as of the
Closing. Each Option has been duly authorized and validly issued in compliance
with all applicable laws. Except for the Options described in Exhibit 21(b) and
the Faircom Subordinated Notes, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which Faircom is
a party or by which it is bound obligating Faircom to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Faircom or obligating Faircom to
grant, extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such option, warrant, call, right, commitment or agreement.
Other than the transaction contemplated by this Agreement, there is outstanding
no vote, plan or pending proposal for any redemption of Faircom Stock or merger
or consolidation of Faircom with or into any other corporation.
(c) CORPORATE POWER. Each of the Faircom Subsidiaries:
(i) has all requisite corporate power
and authority to own, lease and operate the Faircom Broadcast Assets owned,
leased or operated by it and to carry on the business of the Faircom Stations as
now being conducted by it and as proposed to be conducted by it between the date
hereof and the Closing Date; and
(ii) has obtained all licenses, permits or
other authorizations and has taken all actions required by applicable law or
governmental regulations which are material to its business as now conducted.
(d) RESERVED.
(e) RESERVED.
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(f) AFFILIATES. Except as set forth on Exhibit 21(f), neither
Faircom nor either of the Faircom Subsidiaries owns, directly or indirectly, any
capital stock or other equity or ownership or proprietary interest in any
corporation, business trust, joint stock company or other business organization,
association, partnership, venture or other entity.
(g) RIGHTS TO ACQUIRE SECURITIES. Except as identified on
Exhibit 21(g), there are no outstanding rights, options, subscriptions,
agreements, or commitments giving anyone any current or future right to require
Faircom to sell or issue any capital stock or other securities or any agreement
or arrangement restricting the right of Faircom to issue or sell any capital
stock or other securities.
(h) CORPORATE RECORDS. The minute books of each of Faircom and
the Faircom Subsidiaries reflect accurately in all material respects all action
taken by the respective stockholders and Boards of Directors of such entities
and the minute book of Faircom will accurately reflect all action required to be
taken by the Closing by the Faircom Stockholders and its Board of Directors to
enable Faircom to execute and perform this Agreement and all transactions
contemplated hereunder (provided the requisite Stockholder vote is obtained for
approval of the transactions contemplated hereunder). The minute books of
Faircom and the Faircom Subsidiaries contain true and complete copies of the
Certificate of Incorporation and By-Laws of such entities and all amendments
thereto. The ownership and transfer records maintained by Faircom or its
transfer agent with respect to Faircom and the Faircom Subsidiaries reflect
accurately in all material respects all information called for thereon and all
issuances and transfers of the capital stock of such entities. All issuances and
transfers reflected in said ownership and transfer records were duly and validly
made in compliance with the laws of the applicable jurisdiction(s).
(i) TITLE TO FAIRCOM BROADCAST ASSETS. Faircom or one of the
Faircom Subsidiaries has good and marketable title to all of the Faircom
Broadcast Assets, free and clear of all liens, mortgages, pledges, conditional
sales agreements, security interests, charges and encumbrances, except those
listed on Exhibit 21(i), all of which will be released and discharged on or
prior to the Closing Date, except as noted on Exhibit 21(i).
(j) FINANCIAL STATEMENTS; BUDGET. The Faircom Financials
heretofore furnished to Regent, as well as all financial information supplied,
or to be supplied, pursuant to paragraphs 12A, 19 and 21(qq), fairly present or
will fairly present the consolidated financial position and consolidated results
of operations of Faircom and the Faircom Subsidiaries as of the dates thereof
and for the periods represented. All said Faircom Financials and financial
information, where applicable, have been and will be prepared in accordance with
generally accepted accounting principles consistently applied. Faircom interim
statements have been or will be prepared in accordance with generally accepted
accounting principles for interim financial information subject to year-end
audit adjustments and the absence of footnotes.
The Faircom Budget was prepared based upon assumptions which were
reasonable and justifiable at the time of its preparation and, after taking into
account actual conditions known to Faircom to, and as of, the date of this
Agreement, continue to be reasonable as of the date of this Agreement.
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(k) CONTRACTS.
(i) Exhibit 21(k-1) is a complete list or
description of all written and oral contracts relative to the Faircom Stations
in existence at the date of this Agreement which are enforceable against
Faircom, excluding:
(A) oral employment arrangements with
Faircom Station employees;
(B) written employment arrangements
with Faircom Station employees terminable without penalty or severance pay on no
more than two (2) weeks' notice;
(C) contracts for the sale of radio
time or advertising which conform to the representations of subparagraph (k)(ii)
below;
(D) contracts for the use, rental,
or lease of office equipment (other than telephone and computer equipment);
(E) contracts for the sale of broadcast
time or advertising in exchange for merchandise or services; and
(F) other miscellaneous contracts not
uncommon to broadcast properties which do not exceed $50,000 of expenditures or
revenues annually in the aggregate.
(ii) All contracts for the sale of broadcast
time or advertising on the Faircom Stations in exchange for merchandise or
services on or after the date hereof which will not be fully performed by the
Closing Date to which either Faircom, the Faircom Subsidiaries, or the Faircom
Stations is a party or by which it is bound are pre-emptible for cash sales and
none is subject to fixed positions (except for those contracts which provide for
the delivery of programming to the Faircom Stations in return for barter
advertising). True and complete copies of all contracts, leases and agreements
listed in Exhibit 21(k-1) have been made available to Regent. Faircom is current
in all of its obligations under all of the contracts, leases and agreements
listed on Exhibit 21(k-1), and each such contract, lease and agreement is in
full force and effect and will not be impaired by any acts or omissions within
the reasonable control of Faircom, its agents or employees except for those that
shall previously have expired by passage of time in accordance with their
respective terms.
(iii) Except as set forth on Exhibit 21(k-1) or
Exhibit 21(i), Faircom is not a party to any written or oral:
(A) agreement or indenture relating
to the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien on, any material asset or material group of assets of Faircom;
(B) guarantee of any obligation (other
than the endorsement of negotiable instruments for collection in the ordinary
course of business); or
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(C) agreement whereunder Faircom or
any successor is obligated to make any conditional or other payment based upon
the future performance of Faircom or the Faircom Stations.
(l) GOVERNMENT AUTHORIZATIONS.
(i) Exhibit 1(j) hereto contains a true and
complete list of all licenses, permits or other authorizations issued by the
Commission which are required for the lawful conduct of the business and
operations of the Faircom Stations in the manner and to the full extent they are
presently conducted (including, without limitation, auxiliary licenses
associated with each Faircom Station). Faircom has delivered to Regent true and
complete copies of the Faircom Licenses and all amendments and other
modifications thereto.
(ii) The entities specified on Exhibit 1(j) are
the authorized legal holders of the Faircom Licenses. Except as set forth
in Exhibit 1(j), none of the Faircom Licenses is subject to any restrictions or
conditions which would materially limit the full operation of the Faircom
Stations as now operated.
(iii) Except as set forth in Exhibit 1(j), and
except for matters affecting the radio broadcast industry generally, there are
no applications, complaints, petitions or proceedings pending or threatened as
of the date hereof before the Commission or any other governmental or
regulatory authority relating to the business or operations of the Faircom
Stations. Except as set forth in Exhibit 1(j), the Faircom Licenses are in good
standing, are in full force and effect and are unimpaired by any act or
omission of Faircom or its stockholders, officers, directors or employees. The
operations of the Faircom Stations are in accordance in all material respects
with the Faircom Licenses and the underlying construction permits. No
proceedings are pending or threatened, and there has not been any act or
omission of Faircom or any of its officers, directors, stockholders or
employees, which reasonably may result in the revocation, non-renewal,
suspension or material modification of any of the Faircom Licenses, the denial
of any pending applications, the issuance of any cease and desist order, the
imposition of any administrative actions by the Commission or any other
governmental or regulatory authority with respect to the Faircom Licenses or
which reasonably may affect Regent's ability to continue to operate the Faircom
Stations substantially as they are currently operated.
(iv) Each Faircom Station is operating with the
maximum facilities specified in the respective Faircom Station's License.
(v) None of the Faircom Stations is causing
objectionable interference to the transmissions of any other broadcast station
or communications facility nor has any of the Faircom Stations received any
complaints with respect thereto; and no other broadcast station or
communications facility is causing objectionable interference to the respective
transmissions of the Faircom Stations or the public's reception of such
transmissions.
(vi) Faircom has no reason to believe that the
Faircom Licenses will not be renewed in their ordinary course.
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(vii) All reports, forms, and statements required to
be filed by Faircom or the Faircom Subsidiaries with the Commission with respect
to the Faircom Stations since the grant of the last renewal of the Faircom
Licenses have been filed and are substantially complete and accurate.
(viii) There are no facts which, under the
Communications Act of 1934, as amended, or the existing rules and regulations of
the Commission, would disqualify Faircom as assignor of the Faircom Licenses or
cause the Faircom Licenses not to be renewed in their ordinary course.
(ix) The operation of the Faircom Stations and all
of the Faircom Broadcast Assets are in compliance in all material respects with
ANSI Radiation Standards C95.1 - 1992.
(m) MANAGEMENT, KEY EMPLOYEES AND ACCOUNTS. Exhibit 21(m-1)
sets forth the names of all employees whose compensation (including without
limitation, salaries, bonuses and commissions) from Faircom for the year ended
December 31, 1996 or for the current year on an annualized basis exceeds
$30,000. Exhibit 21(m-2) sets forth the name of each bank or savings institution
in which Faircom has an account or safe deposit box.
(n) TAX ELECTIONS. Faircom has not filed a consent to the
application of Section 341(f)(2) of the Internal Revenue Code with regard to any
property held, acquired or to be acquired at any time.
(o) RELATED TRANSACTIONS. All outstanding debts and other
obligations of Faircom to any Faircom Stockholders or officers or directors of
Faircom are listed on Exhibit 21(o), except for those incurred for normal travel
and entertainment in connection with the conduct of the business of Faircom and
the Faircom Stations, and were incurred in return for fair and adequate
consideration paid or delivered by them in cash, services, or other property.
All debts of any such Faircom Stockholders or any of Faircom's officers or
directors to Faircom are listed on Exhibit 21(o) and reflected on the Financial
Statements.
(p) TAXES. Except as set forth on Exhibit 21(p), Faircom has
filed all federal, state, local and foreign income, franchise, sales, use,
property, excise, payroll and other tax returns required by law to be filed by
it as of the date hereof. All returns identified on Exhibit 21(p) to be filed
will be filed and all taxes required to be paid in respect of the periods
covered by such returns will be paid prior to the Closing Date. Faircom has
delivered to Regent true and complete copies of all federal, state and local
income tax returns of Faircom as filed for the years ended December 31, 1994,
1995, and 1996. All of the tax liabilities of Faircom for the current year to
date and all prior years, whether or not they have become due and payable, and
whether or not shown on such returns, and all interest and penalties, whether
disputed or not, have been paid in full or adequately reserved for, and to the
extent tax liabilities have accrued but not become payable, they are reflected
on the books of Faircom or in the Faircom Financials. Faircom has not requested
any extension of time within which to file any tax returns which have not since
been filed, and no deficiencies for any tax, assessment or governmental charge
have been claimed, proposed or assessed by any taxing authority and there is no
basis for any such deficiency or claim. The federal income tax returns of
Faircom have been examined by the federal tax authorities or closed by
applicable statute and satisfied for all
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periods to and including fiscal year 1992; all deficiencies asserted as a result
of such examinations have been paid or finally settled; and no state of facts
exists or has existed which reasonably might constitute grounds for the
assessment of any further tax liability with respect to the periods which have
been audited by the federal, state, local or foreign taxing authorities. There
are no present disputes as to taxes of any nature payable by Faircom which in
any event reasonably could adversely affect any of the Faircom Broadcast Assets
or the operation of the Faircom Stations. Except as set forth on Exhibit 21(p),
Faircom has not been advised that any of its tax returns, federal, state, local
or foreign, have been or are being audited. Faircom does not have as of the date
hereof any unfunded liability, fixed or contingent, for any unpaid federal,
state or local taxes or other governmental or regulatory charges whatsoever
(including without limitation withholding and payroll taxes). As used herein,
the term "tax" includes, without limitation, all federal, state, local and
foreign income, profits, sales, use, occupancy, excise, added value, employees'
income withholding, social security, franchise, property, and all other
governmental taxes, license fees and other charges of every kind and description
and related governmental charges imposed by the laws and regulations of any
governmental jurisdiction, whether such taxes are due or claimed to be due from
Faircom by federal, state, local or foreign taxing authorities.
(q) EMPLOYEE BENEFIT PLANS. On the date hereof and on the
Closing Date, Faircom will not have in effect any bonus, premium, group
insurance, retirement, stock option, pension, profit sharing or similar plan or
any employment agreement with respect to any of its employees except as set
forth on Exhibit 21(q) and Exhibit 21(k-1).
(r) COMPLIANCE WITH COMMISSION REGULATIONS. Except as
specified in Exhibit 21(r), the operation of the Faircom Stations and all of the
Faircom Broadcast Assets are in compliance in all material respects with: (a)
all applicable engineering standards required to be met under applicable
Commission rules; and (b) all other applicable federal, state and local rules,
regulations, requirements and policies, including, but not limited to, equal
employment opportunity policies of the Commission, and all applicable painting
and lighting requirements of the Commission and the Federal Aviation
Administration to the extent required to be met under applicable Commission
rules and regulations, and there are no filed claims to the contrary.
(s) PERSONAL PROPERTY. Without material omission, Exhibit
21(s) hereto contains a list of all items of tangible personal property owned by
Faircom or either of the Faircom Subsidiaries and used in the conduct of the
business and operations of the Faircom Stations. Exhibit 21(s) also separately
lists any material tangible personal property leased by Faircom pursuant to
leases included within the Contracts. Except as disclosed in Exhibit 21(s),
Faircom or one of the Faircom Subsidiaries has good and marketable title to all
of the items of tangible personal property which are included in the Faircom
Broadcast Assets (other than those subject to lease) and none of such Faircom
Broadcast Assets is subject to any security interest, mortgage, pledge, lease,
license, lien, encumbrance, title defect or other charge, except for liens for
taxes not yet due and payable or which are immaterial. The properties listed in
Exhibit 21(s), along with those properties subject to lease and included among
the Contracts, constitute all material tangible personal property necessary to
operate the Faircom Stations in all material respects as the same are now being
operated. Except as set forth in Exhibit 21(s), all items of tangible personal
property included in the Faircom Broadcast Assets are, in all material respects,
in good and technically sound operating condition and repair (ordinary wear and
tear excepted), are free from substantially all material defect and damage, are
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suitable for the purposes for which they are now being used, and have been
maintained in a manner consistent with generally accepted standards of good
engineering practice.
(t) REAL PROPERTY.
(i) Exhibit 21(t) hereto contains a complete
and accurate list and description of all real property (including without
limitation, real property relating to the towers, transmitters, studio sites and
offices of the Faircom Stations) used by Faircom or the Faircom Subsidiaries in
connection with the operations of the Faircom Stations (the "Faircom Real
Estate") and includes the name of the record title holder(s) thereof and a list
of all indebtedness secured by a lien, mortgage or deed of trust thereon. The
Faircom Subsidiaries have good and marketable title in fee simple to all the
Faircom Real Estate specified as owned by them in Exhibit 21(t), free and clear
of all liens, charges, security interests, physical and financial encumbrances,
leases, covenants, restrictions, rights of way, easements, encroachments, other
matters affecting title, and adverse claims of any kind, direct or indirect,
whether accrued, absolute, contingent or otherwise, except for those of the
nature set forth in Exhibit 21(t). With respect to each of the buildings,
structures and appurtenances situated on the Faircom Real Estate, the Faircom
Subsidiaries have adequate rights of ingress and egress for operation of their
respective businesses in the ordinary course. None of the buildings, structures,
improvements, or fixtures constructed on the Faircom Real Estate, including
without limitation towers, guy wires and guy anchors, and ground radials, nor
the operation or maintenance thereto, violates any restrictive covenant or any
provision of any federal, state or local law, ordinance, rule or regulation, or
encroaches on any property owned by others. No condemnation proceeding is
pending or threatened which would preclude or impair the continued use of any
such property by the Faircom Subsidiaries for the purposes for which it is
currently used.
(ii) Except as described in Exhibit 21(t),
all buildings, structures, towers, antennae, improvements and fixtures situated
on the Faircom Real Estate are in all material respects in good and technically
sound operating condition, ordinary wear and tear excepted, have no latent
structural, mechanical or other defects of material significance, are reasonably
suitable for the purposes for which they are being used, and each real property
site used by the Faircom Subsidiaries has adequate rights of ingress and egress,
utility service for water and sewer, telephone, electric and/or gas, and
sanitary service for the conduct of the business and operations of the Faircom
Stations as presently conducted.
(u) ENVIRONMENTAL. Except as set forth in Exhibit 21(u),
Faircom has complied in all material respects with all federal, state and local
environmental laws, rules and regulations as in effect on the date hereof
applicable to each of the Faircom Stations and its operations, including but not
limited to the Commission's guidelines regarding RF radiation. The technical
equipment included in the Faircom Broadcast Assets does not contain any PCBs. No
hazardous or toxic waste, substance, material or pollutant (as those or similar
terms are defined under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601 ET SEQ., Toxic
Substances Control Act, 15 U.S.C. ss.ss.2601 ET SEQ., the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq. or any other applicable
federal, state and local environmental law, statute, ordinance, order, judgment
rule or regulation relating to the environment or the protection of human health
("Environmental Laws")), including but not limited to, any asbestos or
asbestos-related products, oils or petroleum-derived compounds, CFCs, PCBs, or
underground storage tanks, have been released, emitted or discharged (in
violation of applicable
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laws or regulations), or are currently located (in quantities in violation of
applicable laws and regulations) in, on, under, or about the real property on
which the Faircom Broadcast Assets are situated, including without limitation
the transmitter sites, or contained in the tangible personal property included
in the Faircom Broadcast Assets. The Faircom Broadcast Assets and Faircom's use
thereof are not in any material respect in violation of any Environmental Laws
or any occupational, safety and health or other applicable law now in effect.
(v) INSURANCE. Exhibit 21(q) and Exhibit 21(v) contain a list
and summary of the terms of all insurance coverage owned by Faircom. Until the
Closing Date, Faircom will maintain or cause to be maintained all insurance
coverage described in such Exhibits or obtain equivalent replacements therefor,
and copies of all insurance policies have been delivered to Regent or will be
delivered to Regent within three (3) days of when received by Faircom.
(w) ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable of Faircom reflected on the balance sheet of the Faircom Financials
or referred to in the notes thereto, and all accounts and notes receivable of
Faircom created after December 31, 1996, arose from valid transactions in the
ordinary course of business with unrelated third parties (except as otherwise
disclosed in the Faircom Financials or on Exhibit 21(o)), and are collectible at
their full amount except for bad debt allowance indicated therein.
(x) LAWS, REGULATIONS AND INSTRUMENTS. Neither Faircom nor the
Faircom Subsidiaries is in violation of any term of its respective Certificate
of Incorporation or By-Laws. On the date hereof, except as set forth on Exhibit
21(r), the Faircom Stations are in compliance in all material respects with all
applicable federal, state and local laws, ordinances and regulations. Faircom
agrees that prior to the Closing Date, if it becomes aware of any violations of
the Communications Act of 1934, as amended, or of the rules and regulations of
the Commission, it will remove all such violations or be responsible for the
costs of removing such, including the payment of any fines or forfeitures that
may be assessed before or after Closing for any such violations. Neither Faircom
nor the Faircom Subsidiaries is in default with respect to any judgment, order,
injunction or decree applicable to it of any court, administrative agency, or
other governmental authority.
(y) CONDUCT OF FAIRCOM STATIONS. Until the Closing Date, the
business of the Faircom Stations will be conducted in good faith in
substantially the same manner as heretofore. Faircom shall use its reasonable
best efforts (based upon the exercise of reasonably prudent business judgment)
to maintain and preserve the present character of the Faircom Stations, the
quality of their programs, their business organization and makeup and present
customers and present business reputation, to keep available to the Faircom
Stations the services of their present employees, and to maintain and preserve
the good will of their advertisers and listeners.
(z) DISPOSITION OF ASSETS. Between the date hereof and the
Closing Date, Faircom and the Faircom Subsidiaries will not, without the prior
written consent of Regent, transfer, convey or assign to any other person any of
the Faircom Broadcast Assets unless, (i) in the case of tangible assets included
in the Faircom Broadcast Assets, the same are replaced by assets of equal
quality and usefulness or (ii) such disposition is in the ordinary course of
Faircom's business and does not exceed $25,000 in the aggregate.
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(aa) TRANSMITTER SITES. Except as otherwise disclosed on
Exhibit 1(j), none of the Faircom Stations' transmitter sites is the subject of
any official complaint or notice of violation of any applicable zoning ordinance
or building code and no such violation is known to exist. Faircom has no
knowledge of any encroachment on adjacent property, violation of any zoning
ordinance or building code or use or occupancy restriction, or pending or
threatened condemnation proceeding which would preclude or impair the use of
such real estate or the improvements thereon by Regent, consistent with the
terms of any Faircom Station's transmitter site lease and in the manner and for
the purpose for which it is presently used.
(bb) LITIGATION. Except as disclosed in Exhibit 21(bb), there
is no litigation, action, suit, investigation or proceeding pending, or
threatened, against Faircom or against either of the Faircom Subsidiaries which
reasonably may give rise to any claim against any of the Faircom Broadcast
Assets material to the operation of the Faircom Stations or upon Faircom's
ability to perform in accordance with the terms of this Agreement, or which
might result in a monetary forfeiture in excess of $25,000, in any material
adverse effect upon the business operations or assets of Faircom or the Faircom
Subsidiaries, or in any impairment of the right or ability of Faircom or the
Faircom Subsidiaries to carry on in all material respects their business as now
conducted.
(cc) NO CONFLICT. Subject to obtaining the required consents
under material contracts, leases and agreements identified on Exhibits 2l(t),
21(k-1) and 21(i) and under paragraph 21(mm)(vii) and the approval of the
Faircom Stockholders and the Commission, the execution, delivery and performance
of this Agreement are not prohibited by and will not conflict with, constitute
grounds for termination of, or result in any breach or violation of, or
constitute a default under, the provisions of any material contract, the
Certificate of Incorporation or By-Laws (or other charter or organizational
documents) of Faircom or either of the Faircom Subsidiaries or, subject to
obtaining the required approval of the Faircom Stockholders and the Commission,
any applicable law, judgment, order, injunction, decree, rule, regulation or
ruling of any governmental authority to which Faircom or either of the Faircom
Subsidiaries is a party or by which Faircom or either of the Faircom
Subsidiaries or any of the Faircom Broadcast Assets are bound.
(dd) REQUIRED CONSENTS. Except as specifically identified in
Exhibits 2l(t), 21(k-1) and 21(i), neither Faircom nor either of the Faircom
Subsidiaries is a party to or bound by any mortgage, lien, deed of trust, lease,
agreement, instrument, order, judgment or decree which would require the consent
of another to the execution of this Agreement or prohibit or require the consent
of another to, or make unduly burdensome the consummation of, the Merger; and
the consummation of the Merger will not result (immediately or upon the giving
of notice and/or upon the passage of a period of time) in a breach of any term
or provision of or constitute a default under any mortgage, deed of trust, note
or other contract, agreement, instrument, license or permit to which Faircom or
either of the Faircom Subsidiaries is a party, or otherwise give any other party
thereto a right to terminate the same or result in an acceleration in the
payment due under any note or other contract, agreement, instrument, license or
permit which is binding on Faircom or the Faircom Subsidiaries, or in the
creation of any lien, security interest, encumbrance or charge under any of the
foregoing on any assets or properties of Faircom or the Faircom Subsidiaries,
except where such breach or default would be immaterial.
(ee) INTELLECTUAL PROPERTY. Exhibit 21(ee) hereto is a true
and complete list of all material Intellectual Property applied for, registered
or issued to, and owned by the Faircom
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Subsidiaries or under which the Faircom Subsidiaries are licensees and which is
used in the conduct of the respective business and operations of the Faircom
Subsidiaries. Except as set forth on Exhibit 21(ee): (i) the right, title and
interest of the Faircom Subsidiaries in the Intellectual Property as owner or
licensee, as applicable, is free and clear of all liens, claims, encumbrances,
rights, or equities whatsoever of any third party and, to the extent any of the
Intellectual Property is licensed to the Faircom Subsidiaries, such interest is
valid and uncontested by the licensor thereof or any third party; (ii) all
computer software located at the Faircom Stations' facilities or used in the
Faircom Stations' business or operations is properly licensed to the Faircom
Subsidiaries, and all of the uses by the Faircom Subsidiaries of such computer
software are authorized under such licenses; (iii) all of the right, title and
interest of the Faircom Subsidiaries in and to the Intellectual Property and
computer software shall be assignable to Regent at Closing, and upon such
assignment (should such assignment be necessary), Regent shall receive all of
Faircom's or the Faircom Subsidiaries', as the case may be, right, title, and
interest in and to all tangible and intangible property rights existing in the
Intellectual Property; and (iv) there are no infringements or unlawful use of
such Intellectual Property by Faircom or the Faircom Subsidiaries in connection
with the business or operations of Faircom or the Faircom Subsidiaries.
(ff) QUALIFICATIONS FOR TRANSFER OF CONTROL. The Faircom
Subsidiaries are presently licensees in good standing with the Commission, and
Faircom and the Faircom Subsidiaries have no knowledge of any fact or
circumstance that could reasonably prevent approval of the transaction
contemplated by this Agreement or the renewal of the Faircom Licenses.
(gg) PUBLIC INSPECTION FILE. All the documents
required by the rules, regulations and policies of the Commission to be
maintained in each Faircom Station's local public records file are contained in
such file and available for public inspection.
(hh) ABSENCE OF CERTAIN CHANGES. Since December 31,
1996, except as disclosed in this Agreement, in the Faircom Financials or in
Faircom's filings under the Exchange Act, or as set forth on Exhibit 21(hh):
(i) Faircom has not created, assumed, or
suffered any mortgage, pledge, lien or encumbrance on any of the Faircom
Broadcast Assets;
(ii) Faircom has conducted the business of
the Faircom Stations only in the ordinary course consistent with past practices;
(iii) there has not been:
(A) any material adverse change in the
business, assets, capitalization, operations, properties, prospects, or
condition (financial or otherwise) of Faircom or the Faircom Subsidiaries, or
any damage, destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of the Faircom Broadcast Assets;
(B) any sale, assignment, lease or
other transfer or disposition of any of the properties or assets used or
intended for use in the operation of the Faircom Stations except in the ordinary
course of business, in connection with the acquisition of similar property or
assets in the normal and usual course of business;
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(C) any lease, agreement, contract,
obligation, or commitment entered into in connection with the operation of the
Faircom Stations except in the ordinary course of business;
(D) any issuance of bonds, notes or
other corporate securities by Faircom;
(E) any declaration of payment or
payments or distribution of cash or other property to the Faircom Stockholders
with respect to Faircom's capital stock; or
(F) any purchase or redemption of any
shares of Faircom's capital stock.
(ii) PERSONNEL INFORMATION.
(i) Exhibit 21(ii) contains a true and
complete list of all persons employed full-time at the Faircom Stations,
including date of hire, a description of material compensation arrangements
(other than employee benefit plans set forth in Exhibit 21(q)) and a list of
other material terms of any and all agreements affecting such persons and their
employment by Faircom. Faircom has received no notice that, and Faircom is not
aware of, any individual employee who shall or is likely to terminate his or her
employment relationship with the Faircom Stations upon the execution of this
Agreement or after the Closing.
(ii) Faircom, with respect to the Faircom
Stations, is not a party to any contract or agreement with any labor
organization, nor has Faircom agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining unit been
certified as representing any employees of Faircom at the Faircom Stations.
Faircom has no knowledge of any organizational effort currently being made or
threatened by or on behalf of any labor union with respect to employees of
Faircom at the Faircom Stations.
(iii) Except as disclosed in Exhibit 21(ii),
Faircom, with respect to the Faircom Stations, has complied in all
material respects with all laws relating to the employment of labor, including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and those laws relating to wages, hours, collective
bargaining, unemployment insurance, workers' compensation, equal employment
opportunity and payment and withholding of taxes.
(jj) [Reserved].
(kk) OUTSTANDING DEBT. Exhibit 21(kk) correctly lists all
outstanding debt of Faircom as of the date specified therein (other than short
term debt payable on demand or within one year from the creation thereof and
incurred in the ordinary course of business).
(ll) NEGATIVE COVENANTS. Except for changes or actions in the
ordinary course of business consistent with past practices, between the date
hereof and the Closing Date, Faircom will not, without the prior written consent
of Regent:
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(i) Increase the compensation payable or to
become payable to any of the employees of Faircom except on a case by case basis
and then only such that any increase shall not exceed 6% of any such employee's
current salary or except pursuant to contractual commitments described on
Exhibit 21(k-1);
(ii) Enter into any contract, lease or
commitment or engage in any transaction relating to any of the Faircom Stations;
(iii) Cancel, modify, or amend in any material
manner, or in any manner within its reasonable control impair any of the
contracts, leases or other agreements identified on Exhibit 21(k-1) relating to
any of the Faircom Stations which are included in the Faircom Broadcast Assets;
(iv) Create any mortgage, pledge, lien or
encumbrance affecting any of the Faircom Broadcast Assets which cannot be repaid
concurrently with the Closing by Faircom or Regent;
(v) Sell, assign, lease or otherwise transfer
or dispose of any of the Faircom Broadcast Assets;
(vi) Consolidate with, merge into, or acquire
(with the exception of the Shelby Station) any other person or entity, or
permit any person or entity to acquire, merge into or consolidate with it;
(vii) Declare, make or incur any liability to make
any dividends or other distributions on its capital stock;
(viii) Redeem or otherwise acquire any shares of
its capital stock;
(ix) Issue or sell any shares of its capital
stock, warrants, options or other rights to acquire any shares of its capital
stock, except for shares issued pursuant to the exercise of options or the
conversion of the Faircom Subordinated Notes outstanding as of the date hereof;
(x) Amend its Certificate of Incorporation or
By-Laws; or
(xi) Borrow or incur any indebtedness unless
such indebtedness can be repaid concurrently with or prior to Closing.
(mm) AFFIRMATIVE COVENANTS. Between the date hereof and
the Closing Date, Faircom will:
(i) Give to Regent and its authorized
representatives, upon prior reasonable notice, full access during normal
business hours to all properties, books, records, contracts and documents and
furnish or cause to be furnished to Regent or its authorized representatives all
information with respect to the affairs and business of the Faircom Stations as
Regent may
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reasonably request, including monthly profit and loss statements and notice of
changes in full-time employees;
(ii) Notify Regent in writing upon obtaining knowledge of any
new litigation pending or threatened against Faircom or the Faircom Subsidiaries
or any damage to or destruction of any of the Faircom Broadcast Assets;
(iii) Continue promotional activity at the Faircom Stations
as the same level necessary in order to comply with the provisions of paragraph
21(y);
(iv) Furnish to Regent, at Faircom's expense, Faircom
Financials for the six months ended June 30, 1997 and for each month thereafter
through the Closing Date;
(v) Promptly notify Regent in writing of any material adverse
developments with respect to the business or operations of Faircom or the
Faircom Subsidiaries;
(vi) Call, give proper notice and hold a special meeting of
Faircom Stockholders for the purposes of submitting this Agreement and the
transactions provided for herein to the Faircom Stockholders for adoption and
approval, all in compliance with all applicable provisions of Delaware law,
which meeting shall be held as soon as practicable after effectiveness of the
Registration Statement; give the Faircom Stockholders due and proper notice of
such meeting; and include with such notice to each Stockholder a copy of the
proxy statement/prospectus constituting part of the Registration Statement, as
provided to it by Regent for such purpose;
(vii) Immediately following the execution of this Agreement,
diligently pursue obtaining all consents and approvals required to be obtained
by it, including those required under the material contracts, leases and
agreements identified on Exhibits 2l(t), 21(k-1) and 21(i), and the consent of
the Faircom Stockholders in accordance with paragraph 21(mm)(vi). Within
forty-five (45) days after the execution of this Agreement and at periodic
intervals as may be reasonably requested by Regent thereafter, Faircom will
notify Regent of the status of obtaining the required consents and approvals,
which consents and approvals have been obtained, and any other information
relating thereto; and
(nn) ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, Faircom agrees to use its reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transaction contemplated by this Agreement. In case at any time after the
Closing any further action is reasonably necessary to carry out the purposes of
this Agreement, Faircom shall take, or cause to be taken, such action.
(oo) JOIN IN EXECUTION OF DOCUMENTS. Faircom will join with
Subsidiary and Regent, at such time as all conditions precedent to the
transactions contemplated by this Agreement have been fulfilled, in executing
and delivering all documents which may be necessary or appropriate to effect the
transactions contemplated by this Agreement.
(pp) FULL DISCLOSURE. No representation or warranty made by
Faircom contained in this Agreement nor any certificate, document or other
instrument furnished or to be furnished by
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Faircom pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or shall omit to state any material fact required to
make any statement contained herein or therein not misleading. Faircom is not
aware of any impending or contemplated event or occurrence that would cause any
of the foregoing representations not to be true and complete on the date of such
event or occurrence as if made on that date. There is no fact which materially
adversely affects the business, conditions, affairs or operations of Faircom or
the Faircom Stations which has not been set forth in this Agreement, in the
Faircom Financials or in Faircom's filings under the Exchange Act, or otherwise
disclosed in writing by Faircom to Regent or its representatives. When the
Registration Statement is filed with the SEC and at all times subsequent
thereto, the portions of the Registration Statement and the proxy
statement/prospectus included therein, and any amendments or supplements thereto
which have been furnished by or on behalf of Faircom for inclusion therein
pursuant to paragraphs 12A and 21(qq), will comply in all material respects with
the requirements of the Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder; will not contain an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will not fail to
describe or contain as an exhibit any contract or document required to be
described in the Registration Statement or the proxy statement/prospectus
included therein or to be filed as an exhibit to the Registration Statement.
(qq) SUBMISSION OF MATERIAL FOR REGISTRATION STATEMENT.
Faircom shall provide or cause to be provided to Regent the Faircom Information,
on or before five (5) days after the date hereof (or as soon thereafter as such
information is available), for inclusion in the Registration Statement.
(rr) FAIRNESS AND TAX OPINIONS. The Board of Directors of
Faircom has received from Hoffman Schutz Media Capital, Inc., its financial
advisor, an opinion that the consideration to be paid to the Faircom
Stockholders as contemplated by this Agreement is fair to them from a financial
point of view (the "Fairness Opinion"), and Faircom has received from Fulbright
& Jaworski L.L.P., its legal counsel, an opinion, in form and substance
reasonably satisfactory to it, to the effect that the Merger will qualify as a
tax-free reorganization under Section 368 of the Internal Revenue Code, on the
basis of the facts, representations and assumptions set forth in such opinion
(the "Tax Opinion").
COVENANTS, REPRESENTATIONS
AND WARRANTIES OF REGENT AND SUBSIDIARY
---------------------------------------
22. COVENANTS, REPRESENTATIONS AND WARRANTIES OF REGENT AND REGENT
SUBSIDIARIES. Regent, on behalf of itself and on behalf of each of the Regent
Subsidiaries, makes the following covenants, representations, and warranties
(where meaningful, all warranties, representations, and covenants relating to
Regent hereunder shall apply equally to each of the Regent Subsidiaries, as if
any reference to Regent is a reference to any or each Regent Subsidiary as the
context permits):
(a) CORPORATE STANDING AND AUTHORITY.
---------------------------------
(i) Regent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is in good standing as a corporation qualified
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to do business under the laws of the Commonwealth of Kentucky (being the only
state in which Regent's offices, equipment, facilities and other tangible assets
are situated); and has all corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby.
(ii) Each of the Regent Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; and is qualified as a foreign corporation in good
standing under the laws of those states listed on Exhibit 22(a) attached hereto.
All of the outstanding shares of capital stock of each of the Regent
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, and except as set forth on Exhibit 22(a), are owned, of record
and beneficially, by Regent, free and clear of all liens, encumbrances,
equities, options or claims whatsoever. None of the Regent Subsidiaries has
outstanding any other equity securities or securities options, warrants or
rights of any kind, convertible into, exchangeable for, or otherwise entitling
any person to acquire, equity securities of such Subsidiary.
(iii) This Agreement and the transactions
contemplated hereby have been adopted, ratified and approved by the Boards of
Directors of Regent and Subsidiary and the stockholder of Subsidiary, and copies
of all corporate proceedings of each of Regent and Subsidiary relating to such
authorization and approval, certified by its Secretary, have been or will be
delivered to Faircom at the Closing. No further corporate action on the part of
Regent or Subsidiary is required. This Agreement constitutes a valid and binding
obligation of Regent and Subsidiary, enforceable in accordance with its terms,
subject to bankruptcy laws, other federal and state laws affecting creditors'
rights generally and availability of equitable remedies.
(b) CAPITALIZATION; REGENT STOCK. As of Effectiveness, the
authorized capital stock of Regent will be 30,000,000 shares of common stock
("Common Stock") (of which 240,000 shares were issued and outstanding as of the
date hereof), and 20,000,000 shares of preferred stock, of which 620,000 shares
will have been designated Series A Convertible Preferred Stock (600,000 shares
of which were issued and outstanding as of the date hereof); 1,000,000 shares
will have been designated Series B Senior Convertible Preferred Stock (none of
which were issued and outstanding as of the date hereof and 1,000,000 shares of
which may be issued and outstanding as of Effectiveness); 4,000,000 shares will
have been designated Series C Convertible Preferred Stock (none of which are
issued and outstanding as of the date hereof); 1,000,000 shares will have been
designated Series D Convertible Preferred Stock (none of which were issued and
outstanding as of the date hereof and 1,000,000 shares of which may be issued
and outstanding as of Effectiveness); and 5,000,000 shares will have been
designated as Series E Convertible Preferred Stock (none of which were issued
and outstanding as of the date hereof). As of the date hereof, the holders of
the preferred stock were entitled to convert the same into 600,000 shares of
Common Stock (without taking into account the application of the anti-dilution
provisions of such preferred stock). Except as stated herein, there are no other
outstanding rights, warrants, options, subscriptions, agreements, or commitments
giving any current or future right to require Regent to sell or issue any
capital stock or other securities or any agreement or arrangement restricting
the right of Regent to issue or sell any capital stock or other securities.
Between the date hereof and the Closing Date Regent will not issue any
additional shares of Common Stock or preferred stock, except (i) pursuant to the
conversion of the outstanding preferred stock, and (ii) pursuant to the exercise
of options which may be granted to management (up to but not to exceed an
aggregate of 15% of the outstanding shares of capital stock, assuming conversion
to Common Stock of all outstanding shares of Series A, B, C, D and E
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Convertible Preferred Stock and any series of preferred stock hereafter created
on a fully diluted basis).
All of the outstanding capital stock of Regent and Regent Subsidiary
has been duly and validly authorized and issued and is fully paid and
non-assessable and none of such securities has been issued or acquired in
violation of any preemptive, subscription or other rights to purchase or acquire
such securities or in violation of the Securities Act or the securities or blue
sky or any other applicable laws or regulations of any jurisdiction.
(c) CORPORATE POWER. Each of the Regent Subsidiaries:
(i) has all requisite corporate power
and authority to own, lease and operate the Regent Assets owned, leased or
operated by it and to carry on the business of the Regent Station as now being
conducted by it and as proposed to be conducted by it between the date hereof
and the Closing Date; and
(ii) has obtained all licenses, permits
or other authorizations and has taken all actions required by applicable law or
governmental regulations which are material to its business as now conducted.
(d) RESERVED.
(e) RESERVED.
(f) AFFILIATES. Except as set forth on Exhibit 22(f), neither
Regent nor any of the Regent Subsidiaries owns, directly or indirectly, any
interest in any corporation, business trust, joint stock company or other
business organization, association, partnership, venture or other entity.
(g) RIGHTS TO ACQUIRE SECURITIES. Except as identified on
Exhibit 22(g), there are no outstanding rights, options, subscriptions,
agreements, or commitments giving anyone any current or future right to require
Regent to sell or issue any capital stock or other securities or any agreement
or arrangement restricting the right of Regent to issue or sell any capital
stock or other securities.
(h) CORPORATE RECORDS. The minute books of each of Regent and
the Regent Subsidiaries accurately reflect in all material respects all action
taken by the respective Boards of Directors of such entities and the minute
books of Regent and Subsidiary will accurately reflect all action required to be
taken by the Closing by the Board of Directors of Regent and Subsidiary and the
stockholder of Subsidiary to enable Regent and Subsidiary to execute and perform
this Agreement and all transactions contemplated hereunder. The minute books of
Regent and the Regent Subsidiaries contain true and complete copies of the
Certificates of Incorporation and By-Laws of such entities, and all amendments
thereto. The stock certificate books and share ledgers of Regent and the Regent
Subsidiaries reflect accurately all information called for thereon and all
issuances and transfers of the capital stock of such entities. All issuances and
transfers reflected in said stock certificate books and ledger were duly and
validly made in compliance with the laws of the applicable jurisdiction(s).
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(i) TITLE TO REGENT ASSETS. The Regent Subsidiaries have, and
upon acquisition of the Park Lane Stations will have, good and marketable title
to all of the Regent Assets (other than those subject to lease), free and clear
of all liens, mortgages, pledges, conditional sales agreements, security
interests, charges and encumbrances, except liens for taxes not yet due and
payable and those listed on Exhibit 22(i).
(j) FINANCIAL STATEMENTS; PROJECTIONS. The Regent Financials
heretofore furnished to Faircom fairly present or will fairly present the
consolidated financial position and consolidated results of operations of Regent
and the Regent Subsidiaries as of the dates thereof and for the periods
represented. All said Regent Financials, where applicable, have been and will be
prepared in accordance with generally accepted accounting principles
consistently applied. Regent interim statements have been or will be prepared in
accordance with generally accepted accounting principles for interim financial
information subject to year-end audit adjustments and the absence of footnotes.
The Park Lane Financials are true, complete and correct, and have been
prepared in accordance with generally accepted accounting principles
consistently applied and maintained throughout the periods indicated, and
present fairly the financial position and results of operations of Park Lane as
of the dates thereof and for the periods covered thereby.
The Regent Projections were prepared based upon assumptions which were
reasonable and justifiable at the time of their preparation and, after taking
into account actual conditions known to Regent to, and as of, the date of this
Agreement, continue to be reasonable as of the date of this Agreement.
(k) CONTRACTS.
(i) Exhibit 22(k-1) is a complete list or
description of all written and oral contracts relative to the Regent Station and
the Park Lane Stations in existence at the date of this Agreement which are
enforceable against Regent or which will be enforceable against Regent upon the
acquisition by Regent of Park Lane, excluding:
(A) oral employment arrangements with
Regent Station or Park Lane Station employees;
(B) written employment arrangements
with Regent Station or Park Lane Station employees terminable without penalty or
severance pay on no more than two (2) weeks' notice;
(C) contracts for the sale of radio
time or advertising which conform to the representations of subparagraph (k)(ii)
below;
(D) contracts for the use, rental,
or lease of office equipment (other than telephone and computer equipment);
(E) contracts for the sale of broadcast
time or advertising in exchange for merchandise or services; and
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(F) other miscellaneous contracts
not uncommon to broadcast properties which do not exceed $50,000 of expenditures
or revenues annually in the aggregate.
(ii) All contracts for the sale of broadcast
time or advertising on the Regent Station or the Park Lane Stations in exchange
for merchandise or services on or after the date hereof which will not be fully
performed by the Closing Date to which either Regent, the Regent Subsidiaries or
Park Lane is a party or by which it is bound are pre-emptible for cash sales and
none is subject to fixed positions (except for those contracts which provide for
the delivery of programming to the Regent Station or the Park Lane Stations in
return for barter advertising). True and complete copies of all contracts,
leases and agreements listed in Exhibit 22(k-1) have been made available to
Faircom. Regent is current in all of its obligations under all of the contracts,
leases and agreements listed on Exhibit 22(k-1) which are enforceable against
Regent, and each such contract, lease and agreement is in full force and effect
and will not be impaired by any acts or omissions within the reasonable control
of Regent, its agents or employees except for those that shall previously have
expired by passage of time in accordance with their respective terms.
(iii) Except as set forth on Exhibit 22(k-1) or
Exhibit 22(i), neither Regent nor Park Lane is a party to any written or oral:
(A) agreement or indenture relating
to the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien on, any material asset or material group of assets of Regent, the
Regent Stations or the Park Lane Stations;
(B) guarantee of any obligation (other
than the endorsement of negotiable instruments for collection in the ordinary
course of business); or
(C) agreement whereunder Regent or
any successor is obligated to make any conditional or other payment based upon
the future performance of Regent or the Regent Station or the Park Lane
Stations.
(l) GOVERNMENT AUTHORIZATIONS.
--------------------------
(i) Exhibit 1(bb) hereto contains a true
and complete list of all licenses, permits or other authorizations issued by the
Commission which are required for the lawful conduct of the business and
operations of the Regent Station and the Park Lane Stations in the manner and to
the full extent they are presently conducted (including, without limitation,
auxiliary licenses associated with each Station). Regent has delivered to
Faircom true and complete copies of the Regent Licenses, including any and all
amendments and other modifications thereto.
(ii) The entities specified on Exhibit 1(bb) are
the authorized legal holders of the Regent Licenses. Except as set forth in
Exhibit 1(bb), none of the Regent Licenses is subject to any restrictions or
conditions which would materially limit the full operation of the Regent
Station or the Park Lane Stations as now operated.
(iii) Except as set forth in Exhibit 1(bb), and
except for matters affecting the radio broadcast industry generally, there are
no applications, complaints, petitions or proceedings
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pending or threatened as of the date hereof before the Commission or any other
governmental or regulatory authority relating to the business or operations of
the Regent Station or any of the Park Lane Stations. Except as set forth in
Exhibit 1(bb), the Regent Licenses are in good standing, are in full force and
effect and are unimpaired by any act or omission of Regent or its stockholders,
officers, directors or employees. The operations of the Regent Station and the
Park Lane Stations are in accordance in all material respects with the Regent
Licenses and the underlying construction permits. No proceedings are pending or
threatened, and there has not been any act or omission of Regent or any of its
officers, directors, stockholders or employees, which reasonably may result in
the revocation, non-renewal, suspension or material modification of any of the
Regent Licenses, the denial of any pending applications, the issuance of any
cease and desist order, the imposition of any administrative actions by the
Commission or any other governmental or regulatory authority with respect to the
Regent Licenses or which reasonably may affect Regent's ability to continue to
operate the Regent Station and the Park Lane Stations substantially as they are
currently operated.
(iv) The Regent Station and each of the Park Lane
Stations is operating with the maximum facilities specified in the Regent
License.
(v) Neither the Regent Station nor any of the
Park Lane Stations is causing objectionable interference to the transmissions of
any other broadcast station or communications facility nor has any of the Park
Lane Stations or the Regent Station received any complaints with respect
thereto; and (ii) no other broadcast station or communications facility is
causing objectionable interference to the respective transmissions of the Regent
Station or the Park Lane Stations or the public's reception of such
transmissions.
(vi) Regent has no reason to believe that the
Regent Licenses will not be renewed in their ordinary course.
(vii) All reports, forms, and statements required
to be filed by Regent or the Regent Subsidiaries with the Commission
with respect to the Regent Station and the Park Lane Stations since the grant
of the last renewal of the Regent Licenses have been filed and are
substantially complete and accurate.
(viii) There are no facts which, under the
Communications Act of 1934, as amended, or the existing rules and regulations of
the Commission, would cause the Regent Licenses not to be renewed in their
ordinary course.
(ix) The operation of the Regent Station and
the Park Lane Station and all of the Regent Assets are in compliance in all
material respects with ANSI Radiation Standards C95.1 - 1992.
(m) MANAGEMENT, KEY EMPLOYEES AND ACCOUNTS. Exhibit 22(m-1)
sets forth the names of all current employees whose compensation (including
without limitation, salaries, bonuses and commissions) from Regent and Park Lane
for the year ended December 31, 1996 or for the current year on an annualized
basis exceeds $30,000. Exhibit 22(m-2) sets forth the name of each bank or
savings institution in which Regent and Park Lane have an account or safe
deposit box.
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(n) TAX ELECTIONS. Neither Regent nor Park Lane has filed a
consent to the application of Section 341(f)(2) of the Internal Revenue Code
with regard to any property held, acquired or to be acquired at any time.
(o) RELATED TRANSACTIONS. All outstanding debts and other
obligations of Regent to any stockholders or officers or directors of Regent and
all outstanding debts and other obligations of Park Lane to any stockholders or
officers or directors of Park Lane are listed on Exhibit 22(o), except for those
incurred for normal travel and entertainment in connection with the conduct of
the business of Regent, the Regent Station, Park Lane, the Park Lane Stations,
and were incurred in return for fair and adequate consideration paid or
delivered by them in cash, services, or other property. All debts of any such
stockholders, officers or directors to Regent and Park Lane are listed on
Exhibit 22(o) and reflected on the Regent Financials or the Park Lane
Financials, respectively.
(p) TAXES. Except as set forth on Exhibit 22(p), each of
Regent and Park Lane has filed all federal, state, local and foreign income,
franchise, sales, use, property, excise, payroll and other tax returns required
by law to be filed by it as of the date hereof. All returns identified on
Exhibit 22(p) to be filed will be filed and all taxes required to be paid in
respect of the periods covered by such returns will be paid prior to the Closing
Date. Regent has delivered to Faircom true and complete copies of all federal,
state and local income tax returns of Regent and Park Lane as filed. Each of
Regent and Park Lane has duly paid or accrued all taxes required to be paid by
it in respect of the periods covered by all such returns, whether or not shown
on such returns, and all interest and penalties thereon, whether disputed or
not, and neither Regent nor Park Lane has any liability for taxes in excess of
the amounts so paid. All of the tax liabilities of Regent and Park Lane for the
current year to date and for the year 1996, whether or not they have become due
and payable, have been paid in full or adequately reserved for, and to the
extent tax liabilities have accrued but not become payable, they are reflected
on the books of Regent or in the Regent Financials or the Park Lane Financials.
Neither Regent nor Park Lane has requested any extension of time within which to
file any tax returns which have not since been filed, and no deficiencies for
any tax, assessment or governmental charge have been claimed, proposed or
assessed by any taxing authority and there is no basis for any such deficiency
or claim. There are no present disputes as to taxes of any nature payable by
Regent or Park Lane which in any event reasonably could adversely affect any of
the Regent Assets. Except as set forth on Exhibit 22(p), neither Regent nor Park
Lane has been advised that any of its tax returns, federal, state, local or
foreign, have been or are being audited. Neither Regent nor Park Lane has as of
the date hereof any unfunded liability, fixed or contingent, for any unpaid
federal, state or local taxes or other governmental or regulatory charges
whatsoever (including without limitation withholding and payroll taxes). As used
herein, the term "tax" includes, without limitation, all federal, state, local
and foreign income, profits, sales, use, occupancy, excise, added value,
employees' income withholding, social security, franchise, property, and all
other governmental taxes, license fees and other charges of every kind and
description and related governmental charges imposed by the laws and regulations
of any governmental jurisdiction, whether such taxes are due or claimed to be
due from Regent by federal, state, local or foreign taxing authorities.
(q) EMPLOYEE BENEFIT PLANS. On the date hereof and on the
Closing Date, neither Regent nor Park Lane will have in effect any bonus,
premium, group insurance, retirement, stock option, pension, profit sharing or
similar plan or any employment agreement with respect to any of its employees
except as set forth on Exhibit 22(q) and Exhibit 22(k-1).
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(r) COMPLIANCE WITH COMMISSION REGULATIONS. Except as
specified in Exhibit 22(r), the operation of the Regent Station, the Park Lane
Stations, and the Regent Assets are in compliance in all material respects with:
(a) all applicable engineering standards required to be met under applicable
Commission rules; and (b) all other applicable federal, state and local rules,
regulations, requirements and policies, including, but not limited to, equal
employment opportunity policies of the Commission, and all applicable painting
and lighting requirements of the Commission and the Federal Aviation
Administration to the extent required to be met under applicable Commission
rules and regulations, and there are no filed claims to the contrary.
(s) PERSONAL PROPERTY. Without material omission, Exhibit
22(s) hereto contains a list of all items of tangible personal property owned by
Regent and/or the Regent Subsidiaries and all items of tangible personal
property that are to be acquired by Regent upon the acquisition by Regent of
Park Lane, and used in the conduct of the business and operations of the Regent
Station and the Park Lane Stations. Exhibit 22(s) also separately lists any
material tangible personal property leased by Regent and Park Lane pursuant to
leases included within the contracts listed on Exhibit 22(k-1). Except as
disclosed on Exhibit 22(s), Regent or the Regent Subsidiaries have, and upon the
acquisition of the Park Lane Stations will have, good and marketable title to
all of the items of tangible personal property which are included in the Regent
Assets (other than those subject to lease) and none of such assets is subject to
any security interest, mortgage, pledge, lease, license, lien, encumbrance,
title defect or other charge, except for liens for taxes not yet due and payable
or which are immaterial. The properties listed in Exhibit 22(s), along with
those properties subject to lease and included among the contracts listed on
Exhibit 22(k-1), constitute all material tangible personal property necessary to
operate the Regent Station and the Park Lane Stations as the same are now being
operated. Except as set forth in Exhibit 22(s) and except as provided below, all
items of tangible personal property included in the Regent Assets are, in all
material respects, in good and technically sound operating condition and repair
(ordinary wear and tear excepted), are free from all material defect and damage,
are suitable for the purposes for which they are now being used, and have been
maintained in a manner consistent with generally accepted standards of good
engineering practice. Regent has discovered that certain conditions exist which
it believes are inconsistent with certain representations made to Regent by the
stockholders of Park Lane with respect to the condition of certain of its
equipment, and Regent has exercised its right to require Park Lane to cause this
equipment to be brought into compliance with its representations.
(t) REAL PROPERTY.
(i) Exhibit 22(t) hereto contains a complete
and accurate list and description of all real property (including without
limitation, real property relating to the towers, transmitters, studio sites and
offices of the Regent Station and the Park Lane Stations) used by Regent or the
Regent Subsidiaries in connection with the operations of the Regent Station (the
"Regent Real Estate") and a description of all real property that is to be
acquired upon the closing of the acquisition by Regent of Park Lane (the "Park
Lane Real Estate").
(ii) The Regent Subsidiaries have good and
marketable title in fee simple to all the Regent Real Estate specified as
owned by them in Exhibit 22(t), free and clear of all liens, charges, security
interests, physical and financial encumbrances, leases, covenants,
restrictions, rights of way, easements, encroachments, other matters affecting
title, and adverse claims of any
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kind, direct or indirect, whether accrued, absolute, contingent or
otherwise, except for those of the nature set forth in Exhibit 22(t). With
respect to each of the buildings, structures and appurtenances situated on the
Regent Real Estate, the Regent Subsidiaries have adequate rights of ingress and
egress for operation of their respective businesses in the ordinary course. None
of the buildings, structures, improvements, or fixtures constructed on the
Regent Real Estate, including without limitation towers, guy wires and guy
anchors, and ground radials, nor the operation or maintenance thereto, violates
any restrictive covenant or any provision of any federal, state or local law,
ordinance, rule or regulation, or encroaches on any property owned by others,
and all such buildings, structures, improvements and fixtures are constructed
and operated and used in conformance with all "set back" lines, easements,
covenants, restrictions, and all applicable building, fire, zoning and health
codes. No condemnation or other legal proceeding or action of any kind relating
to such real property and/or title thereto is pending or threatened which would
preclude or impair the continued use of any such property by the Regent
Subsidiaries for the purposes for which it is currently used.
(iii) Except as described in Exhibit 22(t), all
buildings, structures, towers, antennae, improvements and fixtures situated on
the Regent Real Estate are in all material respects in good and technically
sound operating condition, ordinary wear and tear excepted, have no latent
structural, mechanical or other defects of material significance, are reasonably
suitable for the purposes for which they are being used, and each real property
site used by the Regent Subsidiaries has adequate rights of ingress and egress,
utility service for water and sewer, telephone, electric and/or gas, and
sanitary service for the conduct of the business and operations of the Regent
Station as presently conducted.
(iv) With respect to the Park Lane Real Estate,
Park Lane has good and marketable title in fee simple to all of the Park
Lane Real Estate free and clear of all liens, charges, security interests,
physical and financial encumbrances, leases, covenants, restrictions, rights of
way, easements, encroachments, other matters affecting title, and adverse
claims of any kind, direct or indirect, whether accrued, absolute, contingent
or otherwise, except for those of the nature set forth in Exhibit 22(t). With
respect to each of the buildings, structures and appurtenances situated on the
Park Lane Real Estate, Park Lane has adequate rights of ingress and egress for
the operation of the business of Park Lane in the ordinary course. None of the
buildings, structures, improvements, or fixtures constructed on the Park Lane
Real Estate, including without limitation towers, guy wires and guy anchors,
and ground radials, nor the operation or maintenance thereto, violates any
restrictive covenant or any provision of any federal, state or local law,
ordinance, rule or regulation, or encroaches on any property owned by others.
No condemnation proceeding is pending or threatened which would preclude or
impair the continued use of any such property by Park Lane for the purposes for
which it is currently used. Except as described in Exhibit 22(t), all
buildings, structures, towers, antennae, improvements and fixtures situated on
the Park Lane Real Estate are in good and technically sound operating
condition, ordinary wear and tear excepted, have no latent structural,
mechanical or other defects of material significance, are reasonably suitable
for the purposes for which they are being used, and each has adequate rights of
ingress and egress, utility service for water and sewer, telephone, electric
and/or gas, and sanitary service for the conduct of the business and operations
of the Park Lane Stations as presently conducted.
(u) ENVIRONMENTAL. Except as set forth in Exhibit 22(u), each
of Regent and Park Lane has complied in all material respects with all federal,
state and local environmental laws, rules and regulations as in effect on the
date hereof applicable to the Regent Station and its operations
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and the Park Lane Stations and their operations, respectively, including but not
limited to the Commission's guidelines regarding RF radiation. The technical
equipment included in the assets used or held for use in the operation of the
Regent Station and the Park Lane Stations does not contain any PCBs. No
hazardous or toxic waste, substance, material or pollutant (as those or similar
terms are defined under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601 ET SEQ., Toxic
Substances Control Act, 15 U.S.C. ss.ss.2601 ET SEQ., the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq. or any other applicable
federal, stATe and local environmental law, statute, ordinance, order, judgment
rule or regulation relating to the environment or the protection of human health
("Environmental Laws")), including but not limited to, any asbestos or
asbestos-related products, oils or petroleum-derived compounds, CFCs, PCBs, or
underground storage tanks, have been released, emitted or discharged (in
violation of applicable laws or regulations), or are currently located (in
quantities in violation of applicable laws and regulations) in, on, under, or
about the real property on which the Regent Station and the Park Lane Stations
and their assets are situated, including without limitation the transmitter
sites, or contained in the tangible personal property included in the assets in
respect of the Regent Station and the Park Lane Stations. The Regent Assets and
Regent's use thereof are not in any material respect in violation of any
Environmental Laws or any occupational, safety and health or other applicable
law now in effect.
(v) INSURANCE. Exhibit 22(q) and Exhibit 22(v) contain a list
and summary of the terms of all insurance coverage owned by Regent and Park
Lane. Until the Closing Date, Regent and Park Lane will maintain or cause to be
maintained all insurance coverage described in such Exhibits or obtain
equivalent replacements therefor, and copies of all insurance policies have been
delivered to Faircom or will be delivered to Faircom within three (3) days of
when received by Regent.
(w) ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable of Regent reflected in the Regent Financials or referred to in the
notes thereto, and all accounts and notes receivable of Park Lane reflected in
the Park Lane Financials or referred to in the notes thereto, arose from valid
transactions in the ordinary course of business with unrelated third parties
(except as otherwise disclosed in the Regent Financials or in the Park Lane
Financials or on Exhibit 22(o)), and are collectible at their full amount except
for bad debt allowance indicated therein.
(x) LAWS, REGULATIONS AND INSTRUMENTS. Neither Regent, any of
the Regent Subsidiaries, nor Park Lane is in violation of any term of its
respective Certificate of Incorporation or By-Laws. On the date hereof, except
as set forth on Exhibit 22(r), the Regent Station and the Park Lane Stations are
in compliance in all material respects with all applicable federal, state and
local laws, ordinances and regulations. Regent agrees that prior to the Closing
Date, if it becomes aware of any violations of the Communications Act of 1934,
as amended, or of the rules and regulations of the Commission, it will remove
all such violations or be responsible for the costs of removing such, including
the payment of any fines or forfeitures that may be assessed before or after
Closing for any such violations. Neither Regent, any of the Regent Subsidiaries,
nor Park Lane is in default with respect to any judgment, order, injunction or
decree applicable to it of any court, administrative agency, or other
governmental authority.
(y) CONDUCT OF REGENT STATION AND PARK LANE STATIONS. Until
the Closing Date, Regent shall use its reasonable best efforts (based upon the
exercise of reasonably prudent business
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judgment) to maintain and preserve the present character of the Regent Station
and the Park Lane Stations, the quality of their programs, their business
organization and makeup and present customers and present business reputation,
to keep available to the Regent Station and the Park Lane Stations the services
of their present employees, and to maintain and preserve the good will of their
advertisers and listeners.
(z) DISPOSITION OF ASSETS. Between the date hereof and the
Closing Date, neither Regent, the Regent Subsidiaries nor Park Lane will,
without the prior written consent of Faircom, transfer, convey or assign to any
other person any of the Regent Assets unless, (i) in the case of tangible assets
included in the Regent Assets, the same are replaced by assets of equal quality
and usefulness or (ii) such disposition is in the ordinary course of Regent's
business and does not exceed $25,000 in the aggregate.
(aa) TRANSMITTER SITES. Except as otherwise disclosed on
Exhibit 1(bb), neither the Regent Station's transmitter site nor any of the Park
Lane Stations' transmitter sites is the subject of any official complaint or
notice of violation of any applicable zoning ordinance or building code and no
such violation is known to exist. Regent has no knowledge of any encroachment on
adjacent property, violation of any zoning ordinance or building code or use or
occupancy restriction, or pending or threatened condemnation proceeding which
would preclude or impair the use of such real estate or the improvements thereon
by Regent, consistent with the terms of the Regent Station's transmitter site
lease or any Park Lane Stations' transmitter site lease and in the manner and
for the purpose for which it is presently used.
(bb) LITIGATION. Except as disclosed in Exhibit 22(bb), there
is no litigation, action, suit, investigation or proceeding pending, or
threatened, against Regent, any of the Regent Subsidiaries, or Park Lane, which
reasonably may give rise to any claim upon any of Regent's Assets material to
the operation of the Regent Station or the Park Lane Stations or upon Regent's
or Subsidiary's ability to perform in accordance with the terms of this
Agreement, or which might result in a monetary forfeiture in excess of $25,000,
in any material adverse effect upon the business, operations or assets of Regent
or the Regent Subsidiaries, or in any impairment of the right or ability of
Regent or the Regent Subsidiaries to carry on in all material respects their
business as now conducted.
(cc) NO CONFLICT. Subject to obtaining the required consents
referred to in paragraph 22(dd) and the approval of the Commission, the
execution, delivery and performance of this Agreement are not prohibited by and
will not conflict with, constitute grounds for termination of, or result in any
breach or violation of, or constitute a default under, the provisions of any
material contract, the Certificate of Incorporation or By-Laws (or other charter
or organizational documents) of Regent, any of the Regent Subsidiaries, or Park
Lane, or any applicable law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority to which Regent, any of the
Regent Subsidiaries, or Park Lane is a party or by which Regent, any of the
Regent Subsidiaries, Park Lane, or any of the Regent Assets is bound.
(dd) REQUIRED CONSENTS. Except as specifically identified in
Exhibit 22(dd), neither Regent, the Regent Subsidiaries, nor Park Lane is a
party to or bound by any mortgage, lien, deed of trust, lease, agreement,
instrument, order, judgment or decree which would require the consent of another
to the execution of this Agreement or prohibit or require the consent of another
to
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or make unduly burdensome the consummation of, the Merger; and the consummation
of the Merger will not result (immediately or upon the giving of notice and/or
upon the passage of period of time) in a breach of any term or provision of or
constitute a default under any mortgage, deed of trust, note or other agreement
or instrument to which Regent, the Regent Subsidiaries, or Park Lane is a party,
or otherwise give any other party thereto a right to terminate the same or
result in an acceleration in the payment due under any note or other agreement
or instrument which is binding on Regent, the Regent Subsidiaries, or Park Lane,
or in the creation of any lien, security interest, encumbrance or charge under
any of the foregoing on any assets or properties of Regent, the Regent
Subsidiaries, or Park Lane, except where such breach or default would be
immaterial.
(ee) INTELLECTUAL PROPERTY. Exhibit 22(ee) hereto is a true
and complete list of all material Intellectual Property applied for, registered
or issued to, and owned by the Regent Subsidiaries and Park Lane or under which
the Regent Subsidiaries and Park Lane are licensees and which is used in the
conduct of the respective business and operations of the Regent Subsidiaries or
Park Lane. Except as set forth on Exhibit 22(ee): (i) the right, title and
interest of the Regent Subsidiaries and Park Lane in the Intellectual Property
as owner or licensee, as applicable, is free and clear of all liens, claims,
encumbrances, rights, or equities whatsoever of any third party and, to the
extent any of the Intellectual Property is licensed to the Regent Subsidiaries
and Park Lane, such interest is valid and uncontested by the licensor thereof or
any third party; (ii) all computer software located at the Regent Station's or
the Park Lane Stations' facilities or used in the Regent Station's or the Park
Lane Stations' business or operations is properly licensed to the Regent
Subsidiaries or Park Lane, as the case may be, and all of the uses by the Regent
Subsidiaries or Park Lane of such computer software are authorized under such
licenses; and (iii) there are no infringements or unlawful use of such
Intellectual Property by Regent, the Regent Subsidiaries or Park Lane in
connection with the business or operations of Regent, the Regent Subsidiaries,
or Park Lane.
(ff) QUALIFICATIONS FOR TRANSFER OF CONTROL. One of the Regent
Subsidiaries and either Park Lane or one or more of its subsidiaries is
presently a licensee in good standing with the Commission, and Regent has no
knowledge of any fact or circumstance that could reasonably prevent approval of
the transaction contemplated by this Agreement or the renewal of the Regent
Licenses.
(gg) PUBLIC INSPECTION FILE. All the documents
required by the rules, regulations and policies of the Commission to be
maintained in the Regent Station's and the Park Lane Stations' local public
records file are contained in such file and available for public inspection.
(hh) ABSENCE OF CERTAIN CHANGES. Since December 31,
1996, except as disclosed in this Agreement, in the Regent Financials or the
Park Lane Financials, or as set forth on Exhibit 22(hh):
(i) Neither Regent nor Park Lane has created,
assumed, or suffered any mortgage, pledge, lien or encumbrance on any of the
Regent Assets;
(ii) there has not been:
(A) any material adverse change in the
business, assets, capitalization, operations, properties, prospects or condition
(financial or otherwise) of Regent, the
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Regent Subsidiaries, or Park Lane, or any damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting the Regent
Assets;
(B) any sale, assignment, lease or
other transfer or disposition of any of the properties or assets used or
intended for use in the operation of the Regent Station and the Park Lane
Stations except in the ordinary course of business, in connection with the
acquisition of similar property or assets in the normal and usual course of
business;
(C) any lease, agreement, contract,
obligation, or commitment entered into in connection with the operation of the
Regent Station or the Park Lane Stations except in the ordinary course of
business;
(D) any issuance of bonds, notes or
other corporate securities by Regent;
(E) any declaration of payment or
payments or distribution of cash or other property to Regent's stockholders with
respect to Regent's capital stock; or
(F) any purchase or redemption of any
shares of Regent's capital stock.
(ii) PERSONNEL INFORMATION.
----------------------
(i) Exhibit 22(ii) contains a true and
complete list of all persons employed full-time at the Regent Station and the
Park Lane Stations, including date of hire, a description of material
compensation arrangements (other than employee benefit plans set forth in
Exhibit 22(q)) and a list of other material terms of any and all agreements
affecting such persons and their employment by Regent. Regent has received no
notice that, and Regent is not aware of, any individual employee who shall or is
likely to terminate his or her employment relationship with the Regent Station
or any of the Park Lane Stations upon the execution of this Agreement or after
the Closing.
(ii) Regent, with respect to the Regent Station and
the Park Lane Stations, is not a party to any contract or agreement with any
labor organization, nor has Regent agreed to recognize any union or other
collective bargaining unit, nor has any union or other collective bargaining
unit been certified as representing any employees of Regent at the Regent
Station or any of the Park Lane Stations. Regent has no knowledge of any
organizational effort currently being made or threatened by or on behalf of any
labor union with respect to employees of Regent at the Regent Station or any of
the Park Lane Stations.
(iii) Except as disclosed in Exhibit 22(ii), Regent,
with respect to the Regent Station and the Park Lane Stations, has complied in
all material respects with all laws relating to the employment of labor,
including, without limitation, ERISA, and those laws relating to wages, hours,
collective bargaining, unemployment insurance, workers' compensation, equal
employment opportunity and payment and withholding of taxes.
(jj) [Reserved].
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(kk) OUTSTANDING DEBT. Exhibit 22(kk) correctly lists all
outstanding debt of Regent and Park Lane as of the date specified therein (other
than short term debt payable on demand or within one year from the creation
thereof and incurred in the ordinary course of business).
(ll) NEGATIVE COVENANTS. Except for changes or actions in the
ordinary course of business consistent with past practices, and except as set
forth on Exhibit 22(ll) or as contemplated by this Agreement, between the date
hereof and the Closing Date, Regent will not, without the prior written consent
of Faircom:
(i) Increase the compensation payable or to
become payable to any of the employees of Regent except on a case by case basis
and then only such that any increase shall not exceed 6% of any such employee's
current salary or except pursuant to contractual commitments described on
Exhibit 22(k-1);
(ii) Enter into any contract, lease or
commitment or engage in any transaction relating to the Regent Station or any of
the Park Lane Stations;
(iii) Cancel, modify or amend in any material
manner, or in any manner within its reasonable control impair any of the
contracts, leases or other agreements identified on Exhibit 22(k-1) relating to
the Regent Station or any of the Park Lane Stations which are included in the
Regent Assets;
(iv) Create any mortgage, pledge, lien or
encumbrance affecting any of the Regent Assets;
(v) Sell, assign, lease or otherwise
transfer or dispose of any of the Regent Assets;
(vi) Consolidate with, merge into, or acquire any
other person or entity, or permit any person or entity to acquire, merge into or
consolidate with it; provided, however, that for purposes of this subparagraph
22(ll)(vi), the consent of either the President of Faircom or the General
Partner of Blue Chip shall constitute the consent of Faircom, and the consent of
Faircom shall not be required for those transactions listed on Exhibit 22(ll);
(vii) Declare, make or incur any liability to make
any dividends or other distributions on its capital stock;
(viii) Redeem or otherwise acquire any shares of
its capital stock;
(ix) Issue or sell any shares of its capital
stock, warrants, options or other rights to acquire any shares of its capital
stock, except pursuant to the conversion of the outstanding Preferred Stock,
and except for shares issued pursuant to the exercise of options which may be
granted to management (up to but not to exceed 15% of the outstanding shares of
capital stock of Regent, assuming conversion to Common Stock of all outstanding
shares of Series A, B, C, D and E and any series of preferred stock hereafter
created on a fully diluted basis);
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(x) Amend its Certificate of Incorporation
or By-Laws (other than to file its Amended and Restated Certificate of
Incorporation as provided in Paragraph 1(y) hereto); or
(xi) Borrow or incur any indebtedness unless
such indebtedness can be repaid concurrently with or prior to the Closing.
(mm) AFFIRMATIVE COVENANTS. Between the date hereof and
the Closing Date, Regent will:
(i) Give to Faircom and its authorized
representatives, upon prior reasonable notice, full access during normal
business hours to all properties, books, records, contracts and documents and
furnish or cause to be furnished to Faircom or its authorized representatives
all information with respect to the affairs and business of the Regent Station
or the Park Lane Stations as Faircom may reasonably request, including monthly
profit and loss statements and notice of changes in full-time employees;
(ii) Notify Faircom in writing of any new
litigation pending or threatened against Regent, the Regent Subsidiaries or any
of the Park Lane Stations or any damage to or destruction of any of the Regent
Assets;
(iii) Furnish to Faircom, at Regent's expense, the
Regent Financials and the Park Lane Financials;
(iv) Promptly notify Faircom in writing of any
material adverse developments with respect to the business or operations of
Regent or the Regent Subsidiaries; and
(v) Use its reasonable best efforts to
consummate the acquisition of the Park Lane Stations prior to or concurrently
with the Closing hereunder on substantially the terms previously disclosed to
Faircom, and use its reasonable best efforts to obtain all necessary financing
in connection with the pending acquisition of Park Lane.
(nn) ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, Regent and Subsidiary agree to use their reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement. In case at any time after the
Closing any further action by Regent or Subsidiary is reasonably necessary to
carry out the purposes of this Agreement, Regent and Subsidiary shall take, or
cause to be taken, such action.
(oo) JOIN IN EXECUTION OF DOCUMENTS. Regent and Subsidiary
will join with Faircom, at such time as all conditions precedent to the
transactions contemplated by this Agreement have been fulfilled, in executing
and delivering all documents which may be necessary or appropriate to effect the
transactions contemplated by this Agreement.
(pp) FULL DISCLOSURE. No representation or warranty made by
Regent contained in this Agreement nor any certificate, document or other
instrument furnished or to be furnished by Regent pursuant hereto contains or
will contain any untrue statement of a material fact, or omits or
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shall omit to state any material fact required to make any statement contained
herein or therein not misleading. Regent is not aware of any impending or
contemplated event or occurrence that would cause any of the foregoing
representations not to be true and complete on the date of such event or
occurrence as if made on that date. There is no fact which materially adversely
affects the business, conditions, affairs or operations of Regent or the Regent
Station which has not been set forth in this Agreement, in the Regent
Financials, or otherwise disclosed or to be disclosed in writing (pursuant to a
registration statement or otherwise) by Regent to Faircom, its representatives
or the Faircom Stockholders. When the Registration Statement is filed with the
SEC and at all times subsequent thereto, the portions of the Registration
Statement and the proxy statement/prospectus included therein, and any
amendments or supplements thereto which have been furnished by or on behalf of
Regent for inclusion therein, will comply in all material respects with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder, will not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will not fail to describe or contain as
an exhibit any contract or document required to be described in the Registration
Statement or the proxy statement/prospectus included therein or to be filed as
an exhibit to the Registration Statement.
(qq) ISSUANCE OF PREFERRED STOCK. The Preferred Stock, when
and if issued in accordance with the provisions of this Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any liens or
encumbrances (other than those created by the Faircom Stockholders), and will
not be subject to any restrictions on transferability by Regent's Certificate of
Incorporation, as amended and restated, or by any agreement to which Regent is a
party; provided, however, that such shares may be subject to restrictions on
transfer under state securities laws and federal communications and/or
securities laws.
(rr) TRANSFERABILITY OF PREFERRED STOCK. The Preferred Stock,
when issued pursuant to the Registration Statement and delivered to the Faircom
Stockholders pursuant to the terms hereof, will be freely tradable under the
Securities Act by Faircom Stockholders who are not deemed "affiliates" (as
defined under the Securities Act) of Regent or Faircom.
23. RESERVED.
RISK OF LOSS
24. RISK OF LOSS.
(a) FAIRCOM BROADCAST ASSETS. The risk of loss, damage or
destruction from any cause to the tangible Faircom Broadcast Assets shall be
borne by Faircom at all times between the date of this Agreement and the Closing
Date. In the event of any such loss, damage or destruction, Faircom shall
repair, replace or restore any such Faircom Broadcast Asset prior to the Closing
Date. In the event of substantial damage to any of the Faircom Broadcast Assets
or in the event of the occurrence of any damage or event which prevents
broadcast transmission of any of the Faircom Stations in the normal and usual
manner and substantially in accordance with its license, Faircom shall promptly
notify Regent of the same in writing, specifying with particularity the loss or
damage incurred, the cause thereof if known or reasonably ascertainable, and an
estimate of the extent to which restoration, replacement and repair of the
property lost or destroyed will be reimbursed under
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the insurance coverage. In the event the damage has not been restored or
repaired by the Closing Date, then Regent and Subsidiary shall have the option
to:
(i) postpone the Closing Date until such time,
not later than thirty (30) days after such loss, damage or destruction, as the
property has been completely repaired, replaced or restored; or
(ii) terminate this Agreement if Faircom has
not acted diligently to repair, replace or restore such Faircom Broadcast
Assets; or
(iii) elect to consummate the Closing and accept the
Faircom Broadcast Assets in their then condition.
In the event Regent and Subsidiary elect to postpone
the Closing Date, Faircom, Regent and Subsidiary will cooperate to extend the
time during which this Agreement must be closed as specified in the Commission's
Order.
(b) REGENT ASSETS. The risk of loss, damage or destruction
from any cause to the tangible Regent Assets shall be borne by Regent at all
times between the date of this Agreement and the Closing Date. In the event of
any such loss, damage or destruction, Regent shall repair, replace or restore
any such Regent Asset prior to the Closing Date. In the event of substantial
damage to any of the Regent Assets or in the event of the occurrence of any
damage or event which prevents broadcast transmission of the Regent Station or
any of the Park Lane Stations in the normal and usual manner and substantially
in accordance with its license, Regent shall promptly notify Faircom of the same
in writing, specifying with particularity the loss or damage incurred, the cause
thereof if known or reasonably ascertainable, and an estimate of the extent to
which restoration, replacement and repair of the property lost or destroyed will
be reimbursed under the insurance coverage. In the event the damage has not been
restored or repaired by the Closing Date, then Faircom shall have the option to:
(i) postpone the Closing Date until such time,
not later than thirty (30) days after such loss, damage or destruction, as the
property has been completely repaired, replaced or restored; or
(ii) terminate this Agreement if Regent has not acted
diligently to repair, replace or restore such Regent Assets; or
(iii) elect to consummate the Closing and accept the
Regent Assets in their then
condition.
In the event Faircom elects to postpone the
Closing Date, Faircom, Regent and Subsidiary will cooperate to extend the time
during which this Agreement must be closed as specified in the Commission's
Order.
(c) BROADCAST TRANSMISSION OF STATIONS PRIOR TO CLOSING.
Notwithstanding the provisions of paragraphs 24(a) and (b) above, if prior to
the Closing Date any event occurs which prevents the broadcast transmission of
any of the Faircom Stations or the Regent Station or any of
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the Park Lane Stations in the manner which it has heretofore been operating,
for a period of thirty-six (36) hours or more or five (5) periods of more than
five (5) hours each in any thirty (30) day period, then Faircom (in cases
involving the Faircom Stations) or Regent (in cases involving the Regent
Station or the Park Lane Stations) shall give prompt written notice thereof to
the other party. In such event, the owner of the affected station shall use its
best efforts to restore the operations to substantially full licensed power and
antenna height as soon as possible. If such facilities are not restored so that
operation is resumed with substantially full licensed power and antenna height
as described in the particular Station's licenses issued by the Commission
within seven (7) consecutive days or eight (8) non-consecutive days after the
date of the interruption, the party whose station is not subject to such
interruption in transmission shall have the right, by giving written notice to
the other party of its election to do so, to terminate this Agreement forthwith
without any further obligation hereunder, provided that such notice is given
before normal operation is resumed or within ten (10) days of first receiving
from the other party the notice of interruption.
CONDITIONS PRECEDENT TO SUBSIDIARY'S AND REGENT'S
OBLIGATION TO CLOSE
25. CONDITIONS PRECEDENT TO SUBSIDIARY'S AND REGENT'S OBLIGATIONS. If
at the Closing Date the following conditions are satisfied, Subsidiary, subject
to the provisions of paragraph 24, shall be obligated (and Regent shall be
obligated to cause Subsidiary) to consummate the Merger in accordance with the
terms and conditions of this Agreement:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Faircom contained herein or in any list,
certificate or document delivered pursuant to the terms hereof shall be true in
all material respects as of the date of this Agreement and as of and at the
Closing Date as though made on such date except for changes (i) expressly
permitted or contemplated by this Agreement; or (ii) in the ordinary course of
business which are not individually, or in the aggregate, material and adverse.
Faircom shall have performed and complied with all obligations and covenants
required by this Agreement to be performed or complied with by Faircom on or
prior to the Closing Date. Faircom shall have delivered to Regent a certificate
dated the Closing Date and signed by an officer of Faircom attesting to the
above.
(b) DELIVERY OF CLOSING DOCUMENTS. Faircom shall have
delivered to Subsidiary the Closing Documents described in Paragraph 27 of this
Agreement.
(c) FAIRCOM LICENSES. Faircom shall be the holder of the
Faircom Licenses, and such Faircom Licenses shall be free and clear of
conditions, competing applications, petitions to deny, complaints, appeals or
any restrictions as might materially limit the operation or prospects of the
Faircom Stations as presently authorized.
(d) CONSENTS. On the Closing Date, each person, association,
corporation or other entity, the consent or approval of which to the surrender
and exchange of the Faircom Stock and the Merger of Faircom into Subsidiary, as
herein provided (other than dissenting Faircom Stockholders), is then required
shall have duly consented thereto, and all other consents required under the
terms of the material contracts, leases and agreements identified on Exhibits
2l(t), 21(k-1) and 21(i) and under subparagraphs 21(mm)(vi) and (vii) shall have
been obtained.
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(e) FINAL ORDER. The Commission's Order shall have become a
Final Order, unless the failure to obtain the Final Order is caused by the
action or inaction of Regent.
(f) ADVERSE PROCEEDINGS. As of the Closing Date, no suit,
action, claim or governmental proceeding or investigation shall be pending or
shall have been instituted, taken, presented or threatened against Faircom which
makes unlawful the carrying out of this Agreement, causes this Agreement to be
rescinded, or imposes a lien on or requires Regent to divest itself of any of
the Faircom Broadcast Assets.
(g) EXAMINATION OF REAL PROPERTY. Regent shall have conducted
and/or obtained a satisfactory review and examination of the title to and
condition of all real property owned by Faircom (including such environmental
assessments of said properties as may be currently in existence or as Regent may
elect to have conducted at its expense, to be completed within sixty (60) days
after the execution of this Agreement).
(h) DISSENTERS' RIGHTS. Holders of less than ten percent (10%)
(excluding Blue Chip or Miami Valley) of the outstanding Faircom Stock shall
have taken all necessary steps to be entitled pursuant to the provisions of
Section 262 of the Delaware Code to make a written demand for payment of the
fair value of their shares.
(i) FAIRCOM INFORMATION. Faircom shall have provided to Regent
all of the Faircom Information for inclusion in the Registration Statement.
(j) STOCKHOLDER APPROVAL. The Faircom stockholders shall have
approved this Agreement and the Merger contemplated herein.
(k) REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective, unless the failure to obtain such effectiveness is
caused by the actions or inactions of Regent.
(l) REGENT FINANCING; ACQUISITION OF PARK LANE. Regent shall
have raised and/or shall have commitments for at least $13,700,000 of cash
equity and additional bank financing sufficient to finance the acquisition of
the assets of the Park Lane Stations, free and clear of all liabilities other
than the contracts, leases and agreements to be assumed by Regent, and the
closing of such acquisition shall have occurred prior to or concurrently with
the Closing hereunder.
(m) TAX OPINION OF REGENT'S COUNSEL. Regent shall have
received from Strauss & Troy, its legal counsel, to the effect that the Merger
will qualify as a tax-free reorganization under Section 368 of the Internal
Revenue Code, on the basis of the facts, representations and assumptions set
forth in such opinion.
(n) CONVERSION OF FAIRCOM SUBORDINATED NOTES. The holders of
the Faircom Subordinated Notes shall have converted such Notes (other than the
Optional Faircom Subordinated Notes) into Faircom Common Stock on or before the
Closing Date.
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CONDITIONS PRECEDENT TO FAIRCOM'S
---------------------------------
OBLIGATION TO CLOSE
-------------------
26. CONDITIONS PRECEDENT TO FAIRCOM'S OBLIGATIONS. If at the Closing
Date the following conditions are satisfied, Faircom, subject to the provisions
of Paragraph 24, shall be obligated to consummate the Merger in accordance with
the terms and conditions of this Agreement:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Regent and Subsidiary contained herein or in
any list, certificate or document delivered pursuant to the provisions hereof
shall be true in all material respects as of the date of this Agreement and as
of and at the Closing Date as though made on such date except for changes (i)
expressly permitted or contemplated by this Agreement; or (ii) in the ordinary
course of business which are not individually, or in the aggregate, material and
adverse. Regent and Subsidiary shall have performed and complied with all
obligations and covenants required by this Agreement to be performed or complied
with by Regent and Subsidiary on or prior to the Closing Date, including without
limitation taking all necessary and proper corporate action to enter into this
Agreement and to consummate the transactions referred to or set forth in this
Agreement. Regent and Subsidiary shall have delivered to Faircom a certificate
dated the Closing Date and signed by an officer of each entity attesting to the
above.
(b) CONSIDERATION. All consideration as set forth under
paragraphs 12 and 13 of this Agreement which is due on the Closing Date shall
have been paid in accordance with the terms of this Agreement.
(c) DELIVERY OF CLOSING DOCUMENTS. Regent and Subsidiary shall
have delivered to Faircom the Closing Documents described hereafter in paragraph
28 of this Agreement.
(d) REGENT LICENSES. Regent shall be the holder of the Regent
Licenses, and such Regent Licenses shall be free and clear of conditions,
competing applications, petitions to deny, complaints, appeals or any
restrictions as might materially limit the operation or prospects of the Regent
Station and the Park Lane Stations as presently authorized.
(e) FINAL ORDER. The Commission's Order shall have become a
Final Order, unless the failure to obtain the Final Order is caused by the
actions or inactions of Faircom.
(f) CONSENTS. On the Closing Date, each person, association,
corporation or other entity, the consent or approval of which to the issuance
and delivery of the Preferred Stock, if applicable, and the Merger of Faircom
into Subsidiary, as herein provided, is then required shall have duly consented
or approved such merger.
(g) ADVERSE PROCEEDINGS. As of the Closing Date, no suit,
action, claim or governmental proceeding or investigation shall be pending or
shall have been instituted, taken, presented or threatened against Regent or
Subsidiary which makes unlawful the carrying out of this Agreement, or causes it
to be rescinded.
(h) ISSUANCE OF PREFERRED STOCK. The issuance of the Preferred
Stock pursuant to the terms of this Agreement shall be legally permitted by all
applicable laws and regulations and
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shall be issued pursuant to an effective registration statement filed with the
SEC and pursuant to applicable state securities laws.
(i) EXAMINATION OF REAL PROPERTY. Faircom shall have conducted
and/or obtained a satisfactory review and examination of the title to and
condition of all real property owned by Regent (including such environmental
assessments of said properties as may be currently in existence or as Faircom
may elect to have conducted at its expense, to be completed within sixty (60)
days after the execution of this Agreement).
(j) REGENT FINANCING; ACQUISITION OF PARK LANE. Regent shall
have raised and/or shall have commitments for at least $13,700,000 of cash
equity and additional bank financing sufficient to finance the acquisition of
the assets of the Park Lane Stations, free and clear of all liabilities other
than the contracts, leases and agreements to be assumed by Regent, and the
closing of such acquisition shall have occurred prior to or concurrently with
the Closing hereunder.
(k) STOCKHOLDER APPROVAL. The Faircom Stockholders shall have
approved this Agreement and the Merger contemplated herein.
(l) REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective.
(m) TAX OPINION. The Tax Opinion shall not have been withdrawn
with reasonable justification, unless such withdrawal is caused by the action or
inaction of Faircom.
(n) FAIRNESS OPINION. The Fairness Opinion shall not have been
withdrawn with reasonable justification, unless such withdrawal is caused by the
action or inaction of Faircom.
(o) TAX OPINION OF REGENT'S COUNSEL. Strauss & Troy, legal
counsel to Regent, shall have delivered to Faircom an opinion, in form and
substance reasonably satisfactory to Faircom, to the effect that the Merger will
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code, on the basis of the facts, representations and assumptions set forth in
such opinion.
CLOSING DOCUMENTS
27. CLOSING DOCUMENTS TO BE DELIVERED BY FAIRCOM. On the Closing Date,
Faircom shall deliver to Regent and Subsidiary:
(a) A certificate signed by the President of Faircom
to the effect set forth in paragraph 25(a) hereof.
(b) Such other assignments, documents and instruments as
counsel for Regent and Subsidiary may reasonably require.
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(c) An opinion of Fulbright & Jaworski L.L.P., as legal
counsel for Faircom, in form satisfactory to counsel for Regent and Subsidiary,
dated the Closing Date, to the effect as set forth in Exhibit 27(c) attached
hereto.
(d) Copies of resolutions of Faircom's Board of Directors and
the Faircom stockholders authorizing the execution, delivery and performance of
this Agreement and all instruments referred to herein to which Faircom or the
Faircom Stockholders are a party, certified by its corporate secretary or an
assistant secretary as being in full force and effect without modification or
amendment.
(e) All necessary consents to be obtained by Faircom as set
forth under paragraph 25(d).
(f) The Faircom Financials, certified as true and correct
pursuant to an officer's certificate of Faircom.
(g) Certified copies of the Certificate of Incorporation and
certificate of good standing for Faircom and each of the Faircom Subsidiaries
from the Secretary of State of its state of incorporation and each other state
in which it is qualified as a foreign corporation to do business and a
certificate or other evidence of good standing as to payment of any applicable
taxes from the appropriate taxing authority of each of such states, each dated a
recent date prior to the Closing Date.
(h) Copies of the Bylaws of Faircom and each of the Faircom
Subsidiaries, certified in each case as of the Closing Date by its corporate
secretary or an assistant secretary.
(i) Signature and incumbency certificates of Faircom's
officers executing this Agreement.
28. CLOSING DOCUMENTS TO BE DELIVERED BY REGENT AND SUBSIDIARY. On the
Closing Date, Regent and Subsidiary shall deliver to the Trustee:
(a) Certificates for the number of shares of Preferred
Stock to be issued in accordance with Paragraphs 12 and 13 hereof.
(b) An opinion of Strauss & Troy, counsel for Regent and
Subsidiary, in form satisfactory to counsel for Faircom and dated the Closing
Date to the effect as set forth in Exhibit 28(b) attached hereto.
(c) A certificate signed by the President of Regent and
Subsidiary to the effect set forth in paragraph 26(a) hereof.
(d) Copies of resolutions of the Boards of Directors of Regent
and Subsidiary and Regent as sole stockholder of Subsidiary authorizing the
execution, delivery and performance of this Agreement and all instruments
referred to herein to which Regent or Subsidiary is a party, certified by its
corporate secretary or an assistant secretary as being in full force and effect
without modification or amendment.
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(f) A certified copy of a resolution of the Board of Directors
of Regent authorizing the issuance of the shares of Preferred Stock to be
transferred to the Faircom Stockholders by Subsidiary.
(g) All necessary consents to be obtained by Regent and
Subsidiary as set forth in Paragraph 25(d).
(h) The Regent Financials, certified as true and correct
pursuant to an officer's certificate of Regent.
(i) Certified copies of the Certificate of Incorporation and
certificate of good standing for Regent and each of the Regent Subsidiaries from
the Secretary of State of its state of incorporation and each other state in
which it is qualified as a foreign corporation to do business and a certificate
or other evidence of good standing as to payment of any applicable taxes from
the appropriate taxing authority of each of such states, each dated a recent
date prior to the Closing Date.
(j) Copies of the Bylaws of Regent and each of the Regent
Subsidiaries, certified in each case as of the Closing Date by its corporate
secretary or an assistant secretary.
(k) Signature and incumbency certificates of Regent's officers
executing this Agreement.
29. [Reserved].
30. TERMINATION. This Agreement constitutes the binding and irrevocable
agreement of the parties to consummate the transactions contemplated hereby, the
consideration for which is (i) the covenants set forth herein and (ii)
expenditures and obligations incurred and to be incurred by Regent and
Subsidiary, on the one hand, and by Faircom, on the other hand, in respect of
this Agreement, and this Agreement may be terminated or abandoned only as
follows:
(a) By the mutual consent of the Boards of Directors of
Faircom and Regent, notwithstanding prior approval by the stockholders of either
or both of such corporations;
(b) By the Boards of Directors of Regent and Faircom in
accordance with their respective rights under Paragraph 24;
(c) By the Board of Directors of Faircom after June 1, 1998,
if any of the conditions set forth in Paragraph 26, to which Faircom's
obligations are subject, have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by Faircom's act or failure
to act;
(d) By the Board of Directors of Regent after June 1, 1998, if
any of the conditions set forth in Paragraph 25, to which the obligations of
Regent are subject, have not been fulfilled or waived, unless such fulfillment
has been frustrated or made impossible by Regent's act or failure to act;
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(e) By the Board of Directors of Faircom if in the exercise of
its good faith determination and in the exercise of its reasonable business
judgment, as set forth in Paragraph 12D, as to its fiduciary duties to the
Faircom Stockholders imposed by law, the Board of Directors decides that such
termination is required.
(f) By the Boards of Directors of either Regent or Faircom if
the Commission fails, on its own and through no breach on the part of Regent or
Faircom, to give its consent to the transfers of control contemplated hereunder
in sufficient time to permit a Closing Date no later than June 1, 1998, or if
the FCC application for such transfers should be set for evidentiary hearing
(other than a hearing at which only oral arguments are to be presented) by the
Commission for any reason; provided, however, that the terminating party may not
so terminate this Agreement if it is in material breach under any provision of
this Agreement, or if such Commission consent has been given in sufficient time
prior to the delivery of written notice of termination to permit a Closing Date
on or before June 1, 1998.
31. REMEDIES ON TERMINATION OF AGREEMENT OR DEFAULT PRIOR TO CLOSING.
-----------------------------------------------------------------
(a) In the event this Agreement is terminated solely because
of a material breach by Subsidiary or Regent prior to Closing of any term
contained in this Agreement or any warranty or representation contained herein,
Faircom may terminate this Agreement only if Faircom has given Subsidiary or
Regent, as the case may be, thirty (30) days' written notice (or such lesser
number of days as are remaining until June 1, 1998 if such breach occurs prior
to June 1, 1998) of the specific nature of the breach and Subsidiary or Regent
have failed to correct it within that period.
(b) In the event of a material breach by Faircom prior to
Closing of any term or material covenant contained in this Agreement or any
warranty or representation contained herein, Regent and Subsidiary may, at their
option, terminate the Agreement and Regent and Subsidiary may recover damages
from Faircom or, without terminating this Agreement, obtain specific performance
of this Agreement, which Faircom acknowledges is an appropriate remedy because
the actual damages recoverable at law may be inadequate or there may not be any
other adequate remedy at law. The rights conferred by this subparagraph may not
be exercised unless either Subsidiary or Regent has given Faircom thirty (30)
days' written notice (or such lesser number of days as are remaining until June
1, 1998 if such breach occurs prior to June 1, 1998) of the specific nature of
the breach and Faircom has failed to correct it within that period.
(c) Notwithstanding the provisions of subparagraphs 30(a) and
(b) above, neither party shall be entitled to damages or expenses from the other
in the event this Agreement fails to close solely due to the failure to obtain
in a timely manner the Final Order or to obtain the consent of the Faircom
Stockholders described in paragraph 21(mm)(vi), provided that such failure is
not attributable, in whole or in part, to circumstances or events within the
control of a party hereto or to the failure of such party to use its best
efforts to obtain such Final Order or, except as contemplated by subparagraph
30(e), Faircom Stockholder consent.
(d) Except as provided in subparagraphs (e) and (f) below, and
except as provided in the immediately succeeding sentence, in the event of a
termination of this Agreement pursuant to Paragraph 30, each party shall pay the
costs and expenses incurred by it in connection with this Agreement, and no
party (or any of its officers, directors, employees, agents, representa-
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tives or stockholders) shall be liable to any other party for any costs,
expenses, damage or loss of anticipated profits hereunder. In the event of any
termination of this Agreement, the parties shall retain any and all rights
attendant to a breach of any covenant, representation or warranty hereunder.
(e) In the event this Agreement is terminated by Faircom in
accordance with subparagraph 30(e), or in the event this Agreement is not
terminated but the Faircom stockholders do not approve the Merger and, within
one year from the date of the Faircom Stockholders' meeting, Faircom consummates
a transaction pursuant to a Superior Proposal, Faircom shall promptly pay to
Regent a fee in the amount of $1,650,000.
(f) In the event this Agreement is terminated by Faircom in
accordance with subparagraph 31(a) above, Regent shall promptly pay to Faircom
$300,000 plus any out-of-pocket expenses incurred by Faircom in connection with
this transaction in excess of $300,000; provided that such expenses must be
properly documented by Faircom and shall be reasonable and charged at customary
hourly rates; and provided further, that in no event shall Regent be required to
pay to Faircom more than $823,000 in the aggregate.
(g) The parties acknowledge and agree that any and all amounts
paid by any party to the other pursuant to the provisions of this Paragraph 31
shall constitute liquidated damages.
32. BROKERAGE. The parties agree that other than The Crisler Company,
no broker or finder was connected with or brought about this transaction. Of the
fees due to The Crisler Company, Regent will pay $150,000, and will be entitled
to a reduction of the consideration to be paid for the Faircom Stock for the
balance of $50,000 to be paid by Faircom, as a reduction of Net Working Capital.
33. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements herein contained shall be deemed and
construed to be continuing representations, warranties, covenants, and
agreements which shall survive the consummation of this transaction; and neither
the acceptance of delivery of the Regent Stock nor any other consideration
hereunder shall constitute a waiver of any covenant, representation, or warranty
herein contained. Regent and Subsidiary, on the one hand, and Faircom, on the
other, shall remain liable to each other for any damage (subject to the
limitations contained in this Agreement) resulting from any breach, failure,
non-performance or non-fulfillment of any of their respective covenants,
representations or warranties herein, notwithstanding that the injured party may
elect to close this transaction with such breach outstanding. No waiver or
forbearance by either party in any instance shall constitute or be deemed a
waiver or forbearance in any other instance. Any party hereto may waive the
conditions to its performance hereunder other than those pertaining to
regulatory approval.
MISCELLANEOUS PROVISIONS
34. EMPLOYMENT AGREEMENT. Prior to the mailing of the Registration
Statement and effective as of the Closing, Regent and the Chairman and Chief
Executive Officer of Faircom shall execute an employment agreement (the
"Employment Agreement"). The Employment Agreement shall be substantially in the
form attached as Exhibit 34 hereto, with such additional terms and conditions as
may be mutually agreed to by the various parties thereto.
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35. HEADINGS. The headings of paragraphs of this Agreement are for
convenience of reference only, and do not form a part hereof, and do not in any
way modify, interpret or construe the meanings of the parties.
36. EXECUTION. This Agreement may be executed in one or more
counterparts, all of which shall be construed to be one and the same Agreement,
and shall become effective when one counterpart has been signed by each party
and delivered to the others hereto.
37. NOTICES. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing, including by
facsimile, and shall be deemed to have been duly delivered and received on the
date of personal delivery, on the third day after deposit in the U.S. mail if
mailed by registered or certified mail, postage prepaid and return receipt
requested, on the day after delivery to a nationally recognized overnight
courier service if sent by an overnight delivery service for next morning
delivery or when dispatched by facsimile transmission (with the facsimile
transmission confirmation being deemed conclusive evidence of such dispatch) and
shall be addressed to the following addresses, or to such other address as any
party may request, in the case of Faircom, by notifying Regent, and in the case
of Regent or Subsidiary, by notifying Faircom:
If to Regent or Subsidiary:
Terry S. Jacobs, Chairman
Regent Communications, Inc.
50 East RiverCenter Blvd., Suite 180
Covington, Kentucky 41011
Fax: (606) 292-0352
copy to:
Strauss & Troy
2100 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attn: Alan C. Rosser, Esq.
Fax: (513) 241-8289
If to Faircom:
Joel M. Fairman, Chairman
Faircom Inc.
333 Glen Head Road
Old Brookville, New York 11545
Fax: (516) 676-2631
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copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, N.Y. 10103
Attn: Anthony Pantaleoni, Esq.
Fax: (212) 752-5958
and a copy to:
Taft Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
Attn: Gerald S. Greenberg, Esq.
Fax: (513) 381-0205
38. DISCLOSURE. The parties hereto agree that the subject matter of
this Agreement is one of the utmost confidentiality and the release of
information is a matter of great importance to such parties. The parties hereto
agree that no disclosure of any aspect of this Agreement, no press release or
other publicity shall be released by either party without the consent of the
other; provided, however, the parties hereto may release any information that is
required by state or federal law, customarily transmitted to any potential or
present senior lender, or a matter of public record on file with the Commission.
39. RECEIPT OF PREFERRED STOCK. Receipt of the shares of the Preferred
Stock by a Faircom Stockholder shall be deemed to be acceptance, ratification
and consent by said Faircom Stockholder in all respects to the terms and
provisions of this Agreement.
40. ENTIRE AGREEMENT. This Agreement, together with the Exhibits
hereto, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof.
41. GOVERNING LAW. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware without reference to its
conflicts of laws provisions.
42. SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the
rights, interest or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation or law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
WITNESS: FAIRCOM INC.
/s/ By: /s/ Joel M. Fairman
- -------------------------- -----------------------------
Its: Chairman and Ceo
-----------------------------
WITNESS: REGENT MERGER CORP.
/s/ By: /s/ Terry S. Jacobs
- -------------------------- -----------------------------
Its: Chairman and Ceo
-----------------------------
WITNESS: REGENT COMMUNICATIONS, INC.
/s/ By: /s/ Terry S. Jacobs
- -------------------------- -----------------------------
Its: Chairman and Ceo
-----------------------------
The undersigned, Blue Chip Capital Fund II Limited Partnership and Miami Valley
Venture Fund L.P., hereby consent and agree to the terms and conditions of the
foregoing Merger Agreement (except that such parties shall not be subject to or
bound by the representations, warranties or covenants made therein by Faircom)
and do hereby covenant and agree that (i) they will convert at least $7.5
million of the outstanding principal amount of Faircom Subordinated Notes into
Faircom Common Stock not later than immediately prior to Effectiveness; and (ii)
they will enter into an agreement with Faircom to the effect that, upon such
conversion, they will have no voting rights with respect to the Faircom Stock
into which such Notes are converted until such time as approval of the
Commission is no longer required.
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: Blue Chip Venture Company, Ltd.
Its General Partner
By: /s/ John H. Wyant
---------------------------------
John H. Wyant
Its: Manager
MIAMI VALLEY VENTURE FUND L.P.
By: Blue Chip Venture Company of Dayton, Ltd.
Its Special Limited Partner
By: /s/ John H. Wyant
---------------------------------
John H. Wyant
Its: Manager
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I, _________________________, Secretary of Faircom Inc., a corporation
organized and existing under the laws of the State of Delaware ("Faircom"),
hereby certify, as such Secretary, that the Agreement of Merger dated December
______, 1997 between Faircom, Regent Merger Corp. and Regent Communications,
Inc., to which this certificate is attached, was duly submitted to the Faircom
Stockholders at a special meeting of said Faircom Stockholders called and held
after at least 20 days' notice by mail as provided by Section 251 of Title 8 of
the General Corporation Law of the State of Delaware on the ________ day of
__________________, 199___, for the purpose, among other things, of
consideration and taking action upon the proposed Agreement of Merger; that
_____________ shares of common stock of Faircom were on said date issued and
outstanding; that the proposed Agreement of Merger was approved by the
affirmative vote of the holders of a majority of the total number of shares of
the outstanding common stock of Faircom entitled to vote thereon, and that
thereby the Agreement of Merger was at such meeting duly adopted as the act of
the Faircom Stockholders and the duly adopted agreement of such corporation.
WITNESS my hand on this ________ day of ________________, 199___.
---------------------------------
Secretary
I, ______________________, Secretary of Regent Merger Corp., a
corporation organized and existing under the laws of the State of Delaware
("Subsidiary"), hereby certify, as such Secretary, that the Agreement of Merger
dated December _____, 1997, between Faircom Inc., Subsidiary and Regent
Communications, Inc., to which this certificate is attached, was duly consented
to in writing by Regent Communications, Inc., the holder of all the outstanding
stock of Subsidiary, in accordance with Section 228 of Title 8 of the General
Corporation Law of the State of Delaware and thereby such Agreement of Merger
was duly adopted as the act of the stockholder of Subsidiary, and the duly
adopted agreement of such corporation.
WITNESS my hand on this _________ day of __________________, 199___.
---------------------------------
Secretary
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The above Agreement of Merger, having been approved by the Board of
Directors of each of Faircom Inc. and Subsidiary, and having been adopted
separately by the stockholders of Faircom Inc. and the stockholder of
Subsidiary, in accordance with the provisions of the General Corporation Law of
the State of Delaware, and that fact having been certified on said Agreement of
Merger by the Secretary of each of Faircom Inc. and Subsidiary, the ____________
of Faircom Inc. and the ______________ of Regent Merger Corp., do now hereby
execute the said Agreement of Merger by authority of the directors and
stockholders of Faircom Inc. and the directors and stockholder of Regent Merger
Corp., as the respective act, deed and agreement of each of such corporations,
on this _____ day of _____________, 199___.
WITNESS: FAIRCOM INC.
By:
- --------------------------------------- --------------------------------
Its:
-------------------------------
WITNESS: REGENT MERGER CORP.
By:
- --------------------------------------- --------------------------------
Its:
-------------------------------
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Appendix B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REGENT COMMUNICATIONS, INC.
Regent Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that the
Corporation was originally incorporated under the name "JS Communications, Inc."
on November 4, 1996, and that its original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on the same date. The
Corporation further certifies that the Corporation changed its named from JS
Communications, Inc. to Regent Communications, Inc. upon the filing with the
Secretary of State of Delaware of a Certificate of Amendment on May 16, 1997.
The Corporation further certifies that this Amended and Restated Certificate of
Incorporation amends and restates the provisions previously filed with the
Secretary of State of the State of Delaware.
FIRST: NAME. The name of the Corporation is Regent Communications, Inc.
SECOND: REGISTERED OFFICE AND REGISTERED AGENT. The registered office
of the Corporation in the State of Delaware is 1209 Orange Street, New Castle
County, Wilmington, Delaware 19801. The Registered Agent at the same address is
The Corporation Trust Company.
THIRD: PURPOSES. The purposes of the Corporation are to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: CAPITAL STOCK.
A. AUTHORIZED CAPITAL STOCK. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is Fifty Million
(50,000,000) shares, consisting of a class of Thirty Million (30,000,000) shares
of Common Stock, par value of $.01 per share, and a class of Twenty Million
(20,000,000) shares of Preferred Stock, par value of $.01 per share.
B. COMMON STOCK. The Common Stock shall have full voting rights and
other characteristics of common stock recognized under the General Corporation
Law of the State of
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Delaware subject to the rights and preferences of Preferred Stock; provided,
however, in the event the Corporation holds (directly or indirectly) a license
or franchise from a governmental agency to conduct its business and such license
or franchise is conditioned upon some or all of the holders of its capital stock
possessing prescribed qualifications, such Common Stock and the Preferred Stock
shall be subject to redemption by the Corporation, to the extent necessary to
prevent the loss of such license or franchise or to reinstate it, for cash,
property or rights, including other securities of the Corporation, at such time
or times as the Board of Directors determines upon notice and following the same
procedures as are applicable to redemption of Preferred Stock at a redemption
price equal to its fair market value.
C. PREFERRED STOCK. The Board of Directors is authorized, subject to
the limitations prescribed by law and the provisions of this Article FOURTH, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
[1] The number of shares constituting that series and the
distinctive designation of that series;
[2] The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
[3] Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
[4] Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
[5] Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
[6] Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
[7] The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares of that series;
[8] Any other relative rights, preferences and limitations of
that series.
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D. DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK. A series of the
Preferred Stock of the Corporation is hereby created and authorized, and the
designations, amount and stated value of such series of Preferred Stock and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon, are as follows:
SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE.
The shares of such series shall be designated as "Series A Convertible
Preferred Stock" (the "Series A Preferred") and the number of shares
constituting such series shall be 620,000 shares. The stated value of the Series
A Preferred shall be $5 per share, the original per share issue price (the
"Stated Value") .
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
The holders of shares of the Series A Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, cumulative dividends payable
quarterly in cash on the first business day of January, April, July and October
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), accruing commencing with the date of issue of such shares, on shares of
the Series A Preferred at the rate of $.35 per share per annum. No interest
shall be paid on accrued but unpaid dividends.
SECTION 3. VOTING RIGHTS.
In addition to voting rights required by law or by this Amended
Certificate of Incorporation, as amended or restated from time to time (the
"Certificate of Incorporation"), subject to restrictions contained in this
Certificate of Incorporation the holders of Series A Preferred shall be entitled
to vote on all matters submitted to a vote of the Corporation's stockholders.
Except as otherwise required by law or provided by this Certificate of
Incorporation, the holders of the Series A Preferred, the holders of the Series
C Preferred, the holders of the Series D Preferred (under certain conditions),
the holders of the Series E Preferred and the holders of the Corporation's
Common Stock shall vote together as one class with one vote per share (in the
case of Preferred Stock, subject to adjustments as provided in Section 7 below
and if convertible into Common Stock, one vote per share of Common Stock into
which such convertible Preferred Stock is then convertible) on all matters
submitted to a vote of the Corporation's stockholders.
SECTION 4. CERTAIN RESTRICTIONS.
Whenever dividends payable on the Series A Preferred as provided in
Section 2 are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series A Preferred outstanding shall have been paid
in full or declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred, except dividends paid
ratably on the Series A Preferred and all such parity stock on which dividends
are payable or in
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arrears in proportion to the total amounts to which the holders of all such
shares are then entitled, (C) redeem or purchase or otherwise acquire for
consideration any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior to the Series A Preferred or in satisfaction of
contractual obligations to do so entered into with the written consent of the
holders of a majority of outstanding shares of Series A Preferred, or (D)
purchase or otherwise acquire for consideration any shares of the Series A
Preferred, or any shares of stock ranking on a parity with the Series A
Preferred except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series of classes.
SECTION 5. REACQUIRED SHARES.
Any shares of the Series A Preferred which have been converted to
Common Stock or have been purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, or otherwise in accordance with Delaware General
Corporation Law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of the Series A Preferred unless,
prior thereto, the holders of the Series B Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (B) to the holders of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Preferred
unless, prior thereto, the holders of Series A Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (C) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred, except distributions made ratably on the Series A Preferred and all
other such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up.
SECTION 7. CONVERSION.
7A. OPTIONAL CONVERSION. Each share of the Series A Preferred may be
converted at any time, at the option of the holder thereof, into shares of
Common Stock of the Corporation, on the terms and conditions set forth below in
this Section 7A:
[a] Subject to the provisions for adjustment hereinafter set
forth, each share of the Series A Preferred shall be convertible at the
option of the holder thereof, in the manner hereinafter set forth, into
one (1) fully paid and nonassessable share of Common Stock of the
Corporation.
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[b] The number of shares of Common Stock into which each share
of the Series A Preferred is convertible shall be adjusted from time to
time as follows:
[i] In case the Corporation shall at any time or from
time to time after the issuance of such share of Series A
Preferred declare or pay any dividend on its Common Stock
payable in its Common Stock or effect a subdivision of the
outstanding shares of its Common Stock into a greater number
of shares of Common Stock (by reclassification or otherwise),
then, and in each such case, the number of shares of Common
Stock into which each share of the Series A Preferred is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the sum of (I) the number of shares of Common Stock
into which such share was convertible immediately prior to the
occurrence of such event plus (II) the number of shares of
Common Stock which such holder would have been entitled to
receive in connection with the occurrence of such event had
such share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this sub-paragraph b[i] shall become
effective (a) in the case of any such dividend, immediately
after the close of business on the record date for the
determination of holders of Common Stock entitled to receive
such dividend, or (b) in the case of any such subdivision, at
the close of business on the day immediately prior to the day
upon which such corporate action becomes effective.
[ii] In case the Corporation at any time or from time
to time after the issuance of such share of Series A Preferred
shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock,
by reclassification or otherwise, then, and in each such case,
the number of shares of Common Stock into which each share of
the Series A Preferred is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the number of shares which
the holder would have owned after giving effect to such event
had such share been converted immediately prior to the
occurrence of such event and the denominator of which is the
number of shares of Common Stock into which such share was
convertible immediately prior to the occurrence of such event.
An adjustment made pursuant to this subparagraph b(ii] shall
become effective at the close of business on the date
immediately prior to the day upon which such corporate action
becomes effective.
[iii] In case the Corporation after the issuance of
such share of Series A Preferred shall: (A) issue any options,
warrants, or other rights (excluding those to Blue Chip
Capital Fund II Limited Partnership and/or to Miami Valley
Venture Fund L.P. as a holder of Series C Preferred pursuant
to the terms of a Redemption and Warrant Agreement among the
Corporation and them, dated during December, 1997, excluding
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those issued in exchange for options to purchase common stock
in Faircom Inc. pursuant to the terms of a merger, and
excluding stock options to management of the Corporation
exercisable for up to fifteen percent (15%) of the equity
securities of the Corporation, on a fully-diluted basis)
entitling the holder thereof to subscribe for, or purchase,
Common Stock at a price per share which, when added to the
amount of consideration received or receivable by the
Corporation for such options, warrants, or other rights, is
less than the then fair market value per share of the Common
Stock at the date of such issuance; (B) issue or sell
securities of the Corporation convertible into, or
exchangeable for, Common Stock at a price per share which,
when added to the amount of consideration received or
receivable, from the Corporation for such exchangeable or
convertible securities, is less than the then fair market
value of a share of Common Stock at the date of such issuance;
or (C) issue or sell additional shares of Common Stock for
consideration representing less than the then fair market
value of the Common Stock at the date of such issuance; then
the number of shares of Common Stock into which each share of
the Series A Preferred is convertible shall be adjusted so
that, thereafter, until further adjusted, the holder of each
share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (w) the number of shares of Common
Stock into which such shares are convertible immediately prior
to the occurrence of such event by (x) a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding prior to such issuance PLUS the number of
additional shares of Common Stock issuable upon exercise of
such options, warrants, or rights, or exchangeable or
convertible securities, or the additional number of shares of
Common Stock issued at such time, and the denominator of which
shall be the number of shares of Common Stock outstanding
prior to such issuance PLUS the number of shares of Common
Stock that either (y) the sum of the aggregate exercise price
of the total number of shares of Common Stock issuable upon
exercise of such options, warrants, or rights, or upon
conversion or exchange of such convertible securities, and the
aggregate amount of consideration, if any, received or
receivable by the Corporation for such options, warrants, or
rights, or convertible or exchangeable securities, or (z) the
aggregate consideration received in connection with the sale
of shares of its Common Stock for less than the then fair
market value, as the case may be, would purchase at the then
fair market value.
[iv] In the event that, at any time, or from time to
time, after the issuance such share of the Series A Preferred,
the Common Stock issuable upon conversion of the Series A
Preferred Stock is changed into the same or a different number
of shares of any class or classes of stock, whether by
recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 7A), then, and in any
such event, each holder of Series A Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable
upon such recapitalization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such shares of Series A Preferred could have been converted
immediately prior to such recapitalization, reclassification,
or change, all subject to further adjustment as provided
herein.
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[v] If at any time, or from time to time after the
issuance such share of the Series A Preferred there is a
capital reorganization of the Common Stock other than a
recapitalization, subdivision, combination, reclassification,
or exchange of shares provided for elsewhere in this Section
7A) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all, or substantially
all, of the Corporations' properties and assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the
holders of the Series A Preferred shall thereafter be entitled
to receive upon conversion of the Series A Preferred the
number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7A with respect
to the rights of the holders of Series A Preferred after the
reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 7A shall be applicable after
that event and be as nearly equivalent as may be practicable.
[vi] Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which caused an
adjustment pursuant to this Section 7 to be made, if any
thereof shall not have been exercised, the number of shares of
Common Stock into which each share of the Series A Preferred
is convertible shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (a) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (b)
such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Corporation upon
such exercise plus the aggregate consideration, if any,
actually received by the Corporation for the issuance, sale or
grant of all such rights, options, warrants or conversion or
exchange privileges, whether or not exercised.
[c] If any adjustment in the number of shares of Common Stock
into which each share of the Series A Preferred may be converted
required pursuant to this Section 7A would result in an increase or
decrease of less than 1% in the number of shares of Common Stock into
which each share of the Series A Preferred is then convertible, the
amount of any such adjustment shall be carried forward and adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least 1% of
the number of shares of Common Stock into which each share of the
Series A Preferred is then convertible; provided that any such
adjustments carried forward shall be made immediately following receipt
of notice from a holder of the intent to convert all or a portion of
the Series A Preferred such that upon conversion the holder shall
receive such number of shares of Common Stock as such holder is
entitled, taking into account all adjustments required by this Section
7A. All calculations under this paragraph [c] shall be made to the
nearest one-hundredth of a share.
[d] Subject to the limitation in Section 7A[f] below, the
holder of any shares of the Series A Preferred may convert such shares
into shares of Common Stock by surrendering for such purpose to the
Corporation, at its principal office or at such other office or agency
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tained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series A Preferred to be
converted accompanied by a written notice stating that such holder
elects to convert all or a specified number of such shares in
accordance with the provisions of this Section 7A and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or
names. As promptly as practicable, and in any event within five
business days after the surrender of such certificates and the receipt
of such notice relating thereto and, if applicable, payment of all
transfer taxes, the Corporation shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid
and nonassessable shares of Common Stock of the Corporation to which
the holder of the Series A Preferred so converted shall be entitled and
(ii) if less than the full number of shares of the Series A Preferred
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversions
shall be deemed to have been made at the close of business on the date
of giving of such notice and of such surrender of the certificate or
certificates representing the shares of the Series A Preferred to be
converted so that the rights of the holder thereof shall cease except
for the right to receive Common Stock of the corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
[e] Upon conversion of any shares of the Series A Preferred,
the holder thereof shall be entitled to receive any accumulated,
accrued or unpaid dividends in respect of the shares so converted,
including any dividends on such shares of the Series A Preferred
declared prior to such conversion if such holder held such shares on
the record date fixed for the determination of holders of the Series A
Preferred entitled to receive payment of such dividend.
[f] Shares of the Series A Preferred may not be converted
after the close of business on the third business day preceding the
Redemption Date pursuant to Section 8.
[g] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series A Preferred.
[h] For purposes of this Section, "fair market value" shall be
as determined by the Board of Directors in such manner as they shall
deem appropriate in their discretion, unless the holder(s) of more than
twenty-five percent (25%) of the outstanding shares of Preferred Stock
of the Company demand in writing that "fair market value" be determined
by an appraiser who shall be mutually acceptable to the Board of
Directors and such holders, whose determination shall be binding and
whose fees and expenses shall be paid equally by the Company and such
holders.
[i] The provisions in subpart 7A[b][ii] above shall not apply
to, and no adjustment shall be made as a result of, a reverse stock split of
Common Stock made by the Corporation on December 1, 1997.
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7B. MANDATORY CONVERSION. Each share of the Series A Preferred shall be
converted, at the option of the Board of Directors, into shares of Common Stock
of the Corporation, on the terms and conditions set forth below in this Section
7B:
[a] Subject to the provisions for adjustment set forth in this
Section 7, each share of the Series A Preferred shall be convertible at
the option of the Board of Directors, under the conditions hereinafter
set forth, into one (1) fully paid and nonassessable share of Common
Stock of the Corporation.
[b] The Board of Directors of the Corporation may require
conversion of all shares of the Series A Preferred into shares of
Common Stock in preparation for or upon any of the following:
[i] A public offering of equity securities of the
Corporation of at least $10,000,000 in gross proceeds;
[ii] A private placement of equity securities of the
Corporation of at least $25,000,000 in gross proceeds;
[iii] A private placement of equity securities of the
Corporation of at least $10,000,000 in gross proceeds under
circumstances where the investor(s) reasonably believe the
conversion of the Series A Preferred is necessary to achieve
its (their) investment objectives;
[iv] A merger of the Corporation with another
corporation or other entity, whether or not the Corporation is
a survivor of such transaction whereby as a result the
stockholders of the Corporation hold less than 50% of the
outstanding capital stock of the surviving entity; or
[v] An acquisition of equity securities of the
Corporation in one transaction or in a series of related
transactions which results in a transfer of majority voting
control of the Corporation.
[c] The Series A Preferred shall convert to Common Stock of
the Corporation automatically upon notice in writing to the
stockholders or upon publication (as determined by the Board of
Directors). As promptly as practicable after such notice, and in any
event within five business days after the surrender of certificates for
the Series A Preferred (if required by the Board of Directors), the
Corporation shall deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation to which the holder of the
Series A Preferred so converted shall be entitled. Such conversion
shall be deemed to have been made at the close of business on the date
of giving of such notice of mandatory conversion so that the rights of
the holder thereof shall cease with or without surrender of
certificates for the Series A Preferred, except for the right to
receive Common Stock of the Corporation in accordance herewith, and the
converting holder shall be treated for all purposes as having become
the record holder of such Common Stock of the Corporation at such time.
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[d] Upon conversion of the Series A Preferred, the holder
thereof shall be entitled to receive any accumulated, accrued or unpaid
dividends in respect of the shares so converted, including any
dividends on such shares of the Series A Preferred declared prior to
such conversion if such holder held such shares on the record date
fixed for the determination of holders of the Series A Preferred
entitled to receive payment of such dividend.
[e] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series A Preferred.
SECTION 8. REDEMPTION.
[a] The Corporation may, at the election of its Board of
Directors, at any time or from time to time, redeem the whole or part
of the Series A Preferred, at the Stated Value, plus an amount equal to
all unpaid dividends thereon, including accrued dividends, whether or
not declared, to the date of redemption. In case the Corporation shall
elect to redeem less than all the Series A Preferred, the Corporation
shall select pro rata the shares so to be redeemed, except that if the
Board of Directors determines in its reasonable business judgment that
to do so by lot would be in the best interests of the Corporation, then
the shares so to be redeemed shall be selected by lot in such manner as
shall be prescribed by the Board of Directors.
[b] Notice of every such redemption shall be mailed, first
class postage prepaid, not less than thirty (30) nor more than sixty
(60) days prior to the date fixed for redemption ("Redemption Date"),
to each holder of record of the shares to be redeemed, at his or her
address as the same appears on the record of stockholders; but neither
failure to mail any such notice to one or more such holders nor any
defect in any such notice shall affect the sufficiency of the
proceedings for redemptions as to other holders. Each such notice shall
state the Redemption Date; the number of shares of Series A Preferred
to be redeemed, and, if less than all the shares of Series A Preferred
held by such holder are to be redeemed, the manner of selecting by lot
the shares to be redeemed; the place or places where such shares are to
be surrendered for payment; that dividends on the shares to be redeemed
will cease on such Redemption Date; and the effect of such redemption
on the right of conversion.
[c] Notice having been mailed as aforesaid, from and after the
Redemption Date, all dividends on the shares so called for redemption
shall cease to accrue, said shares shall no longer be deemed to be
outstanding, all rights of the holders thereof as stockholders of the
Corporation (except the right to receive payment for the shares, the
right to receive declared dividends pursuant to Section 7A[e] above,
and the right to convert such shares into shares of Common Stock of the
Corporation until the close of business on the third business day
preceding the Redemption Date, as provided in Section 7) shall cease,
and, upon surrender in accordance with said notice of the certificates
for any such shares (properly endorsed or assigned for transfer, if the
Board of Directors shall so require), such shares shall be redeemed by
the Corporation in accordance with this Section 8. In connection with
the determination of the amount of dividends accruing with respect to
any conversion in the period between a notice of redemption and the
Redemption Date, on a date which is not a Quarterly Dividend Payment
Date, the amount of any such dividends shall be prorated based upon the
number of days which have elapsed since the immediately preceding
Quarterly Dividend Payment Date (excluding such Quarterly Dividend
Payment Date itself).
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SECTION 9. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which the shares of
the Series A Preferred are convertible is adjusted as provided in Section 7, the
Corporation will (A) promptly compute such adjustment and furnish to each
transfer agent for the Series A Preferred a certificate, signed by a principal
financial officer of the Corporation, setting forth the number of shares of
Common Stock into which each share of the Series A Preferred is convertible as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective and (B) promptly mail to the holders of record of the outstanding
shares of the Series A Preferred a notice stating that the number of shares into
which the shares of Series A Preferred are convertible has been adjusted and
setting forth the new number of shares into which each share of the Series A
Preferred is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation shall
incur no liability for its failure to take any action set forth in this Section
9, nor shall such failure affect the validity, rights or preferences of any
shares of the Series A Preferred.
SECTION 10. RANKING.
The Series A Preferred shall rank senior to the Common Stock and any
other series of Preferred Stock of the Corporation hereafter created (except the
Series B Preferred, which shall rank senior to the Series A Preferred, and the
Series C Preferred, the Series D Preferred, and the Series E Preferred with
which it shall rank equal), as to the payment of dividends and the distribution
of assets and rights upon liquidation, dissolution or winding up of the
Corporation.
SECTION 11. DIRECTORSHIP.
The holders of the Series A Preferred, as a class, shall be entitled to
be represented on the Board of Directors by one Director (the "Series A
Director") who, upon nomination by such holders, as a class, will stand for
election by voting by the holders of the Series A Preferred, the Series B
Preferred (subject to limitation contained in Article FOURTH, Subpart E, Section
11), the Series C Preferred, the Series D Preferred (subject to limitations
contained in Article FOURTH, Subpart G, Sections 3 and 11), the Series E
Preferred and holders of Common Stock, except under circumstances where the
number of individuals nominated for election exceeds the number of Directors to
be elected. In the event the number of individuals nominated for election
exceeds the number of Directors to be elected, then the holders of the Series A
Preferred shall have the sole right to vote for, elect and remove the individual
nominated by them, as a class, to serve as the Series A Director, and in such
event no right to vote for, elect or remove any of the other Directors. The
Series A Director, upon being elected, will serve for the same term and have the
same voting powers as other Directors. In addition, the Series A Director shall
serve as a member of the Compensation, Audit, and Nominating Committees of the
Board of Directors (or any other committee of the Board performing such
functions), which Committees will be composed of at least one Director, in
addition to the Series A Director, who is not an employee of the Corporation.
E. DESIGNATION OF SERIES B SENIOR CONVERTIBLE PREFERRED STOCK. A series
of the Preferred Stock of the corporation is hereby created and authorized, and
the designations, amount and stated value of such series of Preferred Stock and
the voting powers, preferences and relative, participating,
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optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereon, are as follows:
SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE.
The shares of such series shall be designated as Series B Senior
Convertible Preferred (the "Series B Preferred") and the number of shares
constituting such series shall be 1,000,000 shares. The stated value of the
Series B Preferred shall be $5 per share, the original per share issue price
(the "Stated Value").
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
The holders of shares of the Series B Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, cumulative dividends payable
quarterly in cash on the first business day of January, April, July and October
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), accruing commencing with the date of issue of such shares, on shares of
the Series B Preferred at the rate of $.35 per share per annum. No interest
shall be paid on accrued but unpaid dividends.
SECTION 3. VOTING RIGHTS.
Except as provided herein or otherwise required by law, the voting
power of the Corporation shall be vested in the holders of shares of Common
Stock, Series A Preferred, Series C Preferred, Series E Preferred, and such
other series of voting preferred stock as are from time to time designated, and
the holders of shares of Series B Preferred and the Series D Preferred shall
have no voting power except that with respect to the events described below the
holders of the Series A Preferred, the holders of the Series B Preferred, the
holders of the Series C Preferred, the holders of the Series D Preferred, the
holders of the Series E Preferred, and the holders of the Corporation's Common
Stock shall vote together as one class with one vote per share (in the case of
Preferred Stock, subject to adjustments as provided in Section 7 below and if
convertible into Common Stock, one vote per share of Common Stock into which
such convertible Preferred Stock is then convertible), to the extent such of the
following events are otherwise subject to the vote of any holders of capital
stock of the Corporation:
[a] any amendment of this Amended and Restated Certificate of
Incorporation;
[b] a sale of all or substantially all of the assets of the
Corporation;
[c] the dissolution, liquidation or termination of the
Corporation;
[d] any acquisition of, or merger of the Corporation with,
another corporation or other entity, whether or not the Corporation is
a survivor of such transaction;
[e] any change in the fundamental nature of the business of
the Corporation;
[f] any transaction with affiliates, except upon fair and
reasonable terms comparable to an arms-length transaction; and
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[g] any change in the Corporation's capital structure in a
manner that dilutes the ownership interest of the holders of Series B
Preferred.
SECTION 4. CERTAIN RESTRICTIONS.
Whenever dividends payable on the Series B Preferred as provided in
Section 2 are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series B Preferred outstanding shall have been paid
in full or declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred, except dividends paid
ratably on the Series B Preferred and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled, (C) redeem or purchase or
otherwise acquire for consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior to the Series B Preferred or in
satisfaction of contractual obligations to do so entered into with the written
consent of the holders of a majority of outstanding shares of Series B
Preferred, or (D) purchase or otherwise acquire for consideration any shares of
the Series B Preferred, or any shares of stock ranking on a parity with the
Series B Preferred except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series of classes.
SECTION 5. REACQUIRED SHARES.
Any shares of the Series B Preferred which have been converted to
Common Stock or have been purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, or otherwise in accordance with Delaware General
Corporation Law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred unless, prior thereto, the holders of Series B Preferred shall have
received the Stated Value per share, plus an amount equal to unpaid dividends
thereon, including accrued dividends, whether or not declared, to the date of
such payment or (B) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred, except distributions made ratably on the Series B Preferred and all
other such parity
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stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up.
SECTION 7. CONVERSION.
Each share of the Series B Preferred may be converted at any time, at
the option of the holder thereof, into shares of Common Stock of the
Corporation, on the terms and conditions set forth below in this Section 7:
[a] Subject to the provisions for adjustment hereinafter set
forth, each share of the Series B Preferred shall be convertible at the
option of the holder thereof, in the manner hereinafter set forth, into
one-half (1/2) fully paid and nonassessable share of Common Stock of
the Corporation.
[b] The number of shares of Common Stock into which each share
of the Series B Preferred is convertible shall be adjusted from time to
time as follows:
[i] In case the Corporation shall at any time or from
time to time after the issuance of such share of Series B
Preferred declare or pay any dividend on its Common Stock
payable in its Common Stock or effect a subdivision of the
outstanding shares of its Common Stock into a greater number
of shares of Common Stock (by reclassification or otherwise),
then, and in each such case, the number of shares of Common
Stock into which each share of the Series B Preferred is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the sum of (I) the number of shares of Common Stock
into which such share was convertible immediately prior to the
occurrence of such event plus (II) the number of shares of
Common Stock which such holder would have been entitled to
receive in connection with the occurrence of such event had
such share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this subparagraph b[i] shall become effective
(a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of
holders of Common Stock entitled to receive such dividend, or
(b) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which
such corporate action becomes effective.
[ii] In case the Corporation at any time or from time
to time after the issuance of such share of Series B Preferred
shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock,
by reclassification or otherwise, then, and in each such case,
the number of shares of Common Stock into which each share of
the Series B Preferred is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the
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numerator of which is the number of shares which the holder
would have owned after giving effect to such event had such
share been converted immediately prior to the occurrence of
such event and the denominator of which is the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event. An
adjustment made pursuant to this subparagraph b[ii] shall
become effective at the close of business on the date
immediately prior to the day upon which such corporate action
becomes effective.
[iii] In case the Corporation at any time or from
time to time after the issuance of such share of Series B
Preferred shall issue warrants, options or other rights to
subscribe for or purchase Common Stock (whether or not at the
time exercisable) to Blue Chip Capital Fund II Limited
Partnership and/or to Miami Valley Venture Fund L.P., as a
holder of Series C Preferred, then in such case the number of
shares of Common Stock into which each share of the Series B
Preferred is convertible shall be adjusted as provided below
on the basis that the maximum number of additional shares of
Common Stock necessary to effect the conversion or exchange of
all such warrants, options or other rights shall be deemed to
have been issued as of the date for the determination of the
adjusted number of shares of Common Stock as hereinafter
provided. For the purpose of this subparagraph 7[b][iii], the
date as of which the adjusted number of shares of Common Stock
shall be computed shall be the earlier of (A) the date on
which the Corporation shall enter into an unconditional
contract for the issuance of such warrants, options or other
rights, or (B) the date of actual issuance of such warrants,
options or other rights.
Upon the issuance or sale of warrants,
options, or other rights as provided in the foregoing
paragraph, the holder of each share of Series B Preferred
shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock equal to the quotient of (A)
an amount equal to the product of (x) the number of shares of
Common Stock which such holder would have been entitled to
receive upon conversion of the Series B Preferred immediately
prior to such issuance or sale multiplied by (y) the total
number of shares of Common Stock deemed outstanding
immediately after such issuance or sale divided by (B) the
total number of shares of Common Stock deemed outstanding
immediately prior to such issuance or sale. For purposes of
this subsection 7[b][iii], the number of shares of Common
Stock deemed outstanding shall include the number of shares
actually issued and outstanding and the number of shares
issuable upon the conversion of the Preferred Stock and the
exercise of all warrants and options.
[iv] In case the Corporation after the issuance of
such share of Series B Preferred shall: (A) issue any options,
warrants, or other rights entitling the holder thereof to
subscribe for, or purchase, Common Stock at a price per share
which, when added to the amount of consideration received or
receivable by the Corporation for such options, warrants, or
other rights, is less than the then fair market value per
share of the Common Stock at the date of such issuance (other
than an issuance of warrants or other rights of the
Corporation subject to subsection (b)(iii) above and also
other than stock options issued in exchange for options to
purchase common stock in Faircom Inc. pursuant to the terms of
a merger and stock options to management of the Corporation
exercisable for up to fifteen percent (15%) of the
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equity securities of the Corporation, on a fully-diluted
basis); (B) issue or sell securities of the Corporation
convertible into, or exchangeable for, Common Stock at a price
per share which, when added to the amount of consideration
received or receivable, from the Corporation for such
exchangeable or convertible securities, is less than the then
fair market value of a share of Common Stock at the date of
such issuance; or (C) issue or sell additional shares of
Common Stock for consideration representing less than the then
fair market value of the Common Stock at the date of such
issuance; then the number of shares of Common Stock into which
each share of the Series B Preferred is convertible shall be
adjusted so that, thereafter, until further adjusted, the
holder of each share thereof shall be entitled to receive,
upon the conversion thereof, the number of shares of Common
Stock determined by multiplying (w) the number of shares of
Common Stock into which such shares are convertible
immediately prior to the occurrence of such event by (x) a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding prior to such issuance PLUS the
number of additional shares of Common Stock issuable upon
exercise of such options, warrants, or rights, or exchangeable
or convertible securities, or the additional number of shares
of Common Stock issued at such time, and the denominator of
which shall be the number of shares of Common Stock
outstanding prior to such issuance PLUS the number of shares
of Common Stock that either (y) the sum of the aggregate
exercise price of the total number of shares of Common Stock
issuable upon exercise of such options, warrants, or rights,
or upon conversion or exchange of such convertible securities,
and the aggregate amount of consideration, if any, received or
receivable by the Corporation for such options, warrants, or
rights, or convertible or exchangeable securities, or (z) the
aggregate consideration received in connection with the sale
of shares of its Common Stock for less than the then fair
market value, as the case may be, would purchase at the then
fair market value.
[v] In the event that, at any time, or from time to
time, after the issuance of such share of the Series B
Preferred, the Common Stock issuable upon conversion of the
Series B Preferred is changed into the same or a different
number of shares of any class or classes of stock, whether by
recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 7), then, and in any
such event, each holder of Series B Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable
upon such recapitalization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such shares of Series B Preferred could have been converted
immediately prior to such recapitalization, reclassification,
or change, all subject to further adjustment as provided
herein.
[vi] If at any time, or from time to time after the
issuance of such share of the Series B Preferred there is a
capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification,
or exchange of shares provided for elsewhere in this Section
7) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all, or substantially
all, of the Corporation's properties and assets to any other
person, then, as a part of such
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reorganization, merger, consolidation, or sale, provision
shall be made so that the holders of the Series B Preferred
shall thereafter be entitled to receive upon conversion of the
Series B Preferred the number of shares of stock or other
securities or property to which a holder of the number of
shares of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions
of this Section 7 with respect to the rights of the holders of
Series B Preferred after the reorganization, merger,
consolidation, or sale to the end that the provisions of this
Section 7 shall be applicable after that event and be as
nearly equivalent as may be practicable.
[vii] Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which caused an
adjustment pursuant to this Section 7 to be made, if any
thereof shall not have been exercised, the number of shares of
Common Stock into which each share of the Series B Preferred
is convertible shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (a) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (b)
such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Corporation upon
such exercise plus the aggregate consideration, if any,
actually received by the Corporation for the issuance, sale or
grant of all such rights, options, warrants or conversion or
exchange privileges, whether or not exercised.
[c] If any adjustment in the number of shares of Common Stock
into which each share of the Series B Preferred may be converted
required pursuant to this Section 7 would result in an increase or
decrease of less than 1% in the number of shares of Common Stock into
which each share of the Series B Preferred is then convertible, the
amount of any such adjustment shall be carried forward and adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least 1% of
the number of shares of Common Stock into which each share of the
Series B Preferred is then convertible; provided that any such
adjustments carried forward shall be made immediately following receipt
of notice from a holder of the intent to convert all or a portion of
the Series B Preferred such that upon conversion the holder shall
receive such number of shares of Common Stock as such holder is
entitled, taking into account all adjustments required by this Section
7. All calculations under this paragraph [c] shall be made to the
nearest one-hundredth of a share.
[d] Subject to the limitation in Section 7[f] below, the
holder of any shares of the Series B Preferred may convert such shares
into shares of Common Stock by surrendering for such purpose to the
Corporation, at its principal office or at such other office or agency
maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series B Preferred to be
converted accompanied by a written notice stating that such holder
elects to convert all or a specified number of such shares in
accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by
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payment of all transfer taxes payable upon the issuance of shares of
Common Stock in such name or names. As promptly as practicable, and in
any event within five business days after the surrender of such
certificates and the receipt of such notice relating thereto and, if
applicable, payment of all transfer taxes, the Corporation shall
deliver or cause to be delivered (I) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common
Stock of the Corporation to which the holder of the Series B Preferred
so converted shall be entitled and (ii) if less than the full number of
shares of the Series B Preferred evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares
converted. Such conversions shall be deemed to have been made at the
close of business on the date of giving of such notice and of such
surrender of the certificate or certificates representing the shares of
the Series B Preferred to be converted so that the rights of the holder
thereof shall cease except for the right to receive Common Stock of the
Corporation in accordance herewith, and the converting holder shall be
treated for all purposes as having become the record holder of such
Common Stock of the Corporation at such time.
[e] Upon conversion of any shares of the Series B Preferred,
the holder thereof shall be entitled to receive any accumulated,
accrued or unpaid dividends in respect of the shares so converted,
including any dividends on such shares of the Series B Preferred
declared prior to such conversion if such holder held such shares on
the record date fixed for the determination of holders of the Series B
Preferred entitled to receive payment of such dividend.
[f] Shares of the Series B Preferred may not be converted
after the close of business on the third business day preceding the
Redemption Date pursuant to Section 8.
[g] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series B Preferred.
[h] For purposes of this Section, "fair market value" shall be
as determined by the Board of Directors in such manner as they shall
deem appropriate in their discretion, unless the holder(s) of more than
twenty-five percent (25%) of the outstanding shares of Preferred Stock
of the Company demand in writing that "fair market value" be determined
by an appraiser, who shall be mutually acceptable to the Board of
Directors and such holders, whose determination shall be binding and
whose fees and expenses shall be paid equally by the Company and such
holders.
SECTION 8. REDEMPTION.
[a] The Corporation may, at the election of its Board of
Directors, at any time or from time to time, redeem the whole or part
of the Series B Preferred, at the Stated Value, plus an amount equal to
all unpaid dividends thereon, including accrued dividends, whether or
not declared, to the date of redemption. In case the Corporation shall
elect to redeem less than all the Series B Preferred, the Corporation
shall select pro rata the shares so to be redeemed, except that if the
Board of Directors determines in its reasonable business judgment that
to do so by lot would be in the best interests of the Corporation, then
the shares so to be redeemed shall be selected by lot in such manner as
shall be prescribed by the Board of Directors.
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[b] Notice of every such redemption shall be mailed, first
class postage prepaid, not less than thirty (30) nor more than sixty
(60) days prior to the date fixed for redemption ("Redemption Date"),
to each holder of record of the shares to be redeemed, at his or her
address as the same appears on the record of stockholders; but neither
failure to mail any such notice to one or more such holders nor any
defect in any such notice shall affect the sufficiency of the
proceedings for redemptions as to other holders. Each such notice shall
state the Redemption Date; the number of shares of Series B Preferred
to be redeemed, and, if less than all the shares of Series B Preferred
held by such holder are to be redeemed, the manner of selecting by lot
the shares to be redeemed; the place or places where such shares are to
be surrendered for payment; that dividends on the shares to be redeemed
will cease on such Redemption Date; and the effect of such redemption
on the right of conversion.
[c] Notice having been mailed as aforesaid, from and after the
Redemption Date, all dividends on the shares so called for redemption
shall cease to accrue, said shares shall no longer be deemed to be
outstanding, all rights of the holders thereof as stockholders of the
Corporation (except the right to receive payment for the shares, and
the right to convert such shares into shares of Common Stock of the
Corporation until the close of business on the third business day
preceding the Redemption Date, as provided in Section 7) shall cease,
and, upon surrender in accordance with said notice of the certificates
for any such shares (properly endorsed or assigned for transfer, if the
Board of Directors shall so require), such shares shall be redeemed by
the Corporation in accordance with this Section 8. In connection with
the determination of the amount of dividends accruing with respect to
any conversion in the period between a notice of redemption and the
Redemption Date, on a date which is not a Quarterly Dividend Payment
Date, the amount of any such dividends shall be prorated based upon the
number of days which have elapsed since the immediately preceding
Quarterly Dividend Payment Date (excluding such Quarterly Dividend
Payment Date itself)
SECTION 9. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which the shares of
the Series B Preferred are convertible is adjusted as provided in Section 7, the
Corporation will (A) promptly compute such adjustment and furnish to each
transfer agent for the Series B Preferred a certificate, signed by a principal
financial officer of the Corporation, setting forth the number of shares of
Common Stock into which each share of the Series B Preferred is convertible as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective and (B) promptly mail to the holders of record of the outstanding
shares of the Series B Preferred a notice stating that the number of shares into
which the shares of Series B Preferred are convertible has been adjusted and
setting forth the new number of shares into which each share of the Series B
Preferred is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation shall
incur no liability for its failure to take any action set forth in this Section
9, nor shall such failure affect the validity, rights or preferences of any
shares of the Series B Preferred.
SECTION 10. RANKING.
The Series B Preferred shall rank senior to the Common Stock, the
Series A Preferred, the Series C Preferred, the Series D Preferred, the Series E
Preferred, and any other series of Preferred
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Stock of the Corporation hereafter created, as to the payment of dividends and
the distribution of assets and rights upon liquidation, dissolution or winding
up of the Corporation.
SECTION 11. DIRECTORSHIP. The holders of the Series B Preferred, as a
class, shall be entitled to be represented on the Board of Directors by one
Director (the "Series B Director") who, upon nomination by such holders, as a
class, will stand for election by voting by the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred (subject
to limitations contained in Article FOURTH, Subpart G, Sections 3 and 11),
Series E Preferred, and holders of Common Stock, except under circumstances (a)
where the right to nominate and vote for the Series B Director would (i) result
in attribution of the media interests of the Corporation to, or present any
other FCC regulatory issue for, the holders of the Series B Preferred under the
rules and written policies of the Federal Communications Commission ("FCC") for
so long as the holders of the Series B Preferred seek to have their ownership
interest in the Corporation deemed non-attributable under such rules and
policies or (ii) in the opinion of FCC counsel to the Corporation, the form of
such opinion and the identity of such counsel to be reasonably satisfactory to
the holders of the Series B Preferred, present any FCC regulatory issues for the
Corporation or (b) where the number of individuals nominated for election
exceeds the number of Directors to be elected. In the event the holders of the
Series B Preferred have nominated and can vote on an individual for election to
the Board of Directors and the number of individuals nominated for election
exceeds the number of Directors to be elected, then the holders of the Series B
Preferred shall have the sole right to vote for, elect and remove the individual
nominated by them, as a class, to serve as the Series B Director, and in such
event no right to vote for, elect or remove any of the other Directors. The
Series B Director, upon being elected, will serve for the same term and have the
same voting powers as other Directors. The right to elect the Series B Director
pursuant to the terms hereof shall be exercisable by the holders of a majority
of the Series B Preferred at their option upon at least 60 days notice to the
Corporation; provided, however, if the Corporation is subject to the reporting
requirements of the Securities Exchange Act of 1934, such notice must be
provided on or before the date established by the Corporation for the submission
of proposals pursuant to the proxy rules promulgated under the Securities
Exchange Act of 1934.
F. DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK. A series of the
Preferred Stock of the corporation is hereby created and authorized, and the
designations, amount and stated value of such series of Preferred Stock and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon, are as follows:
SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE.
The shares of such series shall be designated as Series C Convertible
Preferred (the "Series C Preferred") and the number of shares constituting such
series shall be 4,000,000 shares. The stated value of the Series C Preferred
shall be $5 per share, the original per share issue price (the "Stated Value").
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
The holders of shares of the Series C Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, cumulative dividends payable
quarterly in cash on the first business day of January, April, July and October
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), accruing
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commencing with the date of issue of such shares, on shares of the Series C
Preferred at the rate of $.35 per share per annum. No interest shall be paid on
accrued but unpaid dividends.
SECTION 3. VOTING RIGHTS.
In addition to voting rights required by law or by the Certificate of
Incorporation, subject to restrictions contained in this Certificate of
Incorporation the holders of Series C Preferred shall be entitled to vote on all
matters submitted to a vote of the Corporation's stockholders. Except as
otherwise required by law or provided by this Certificate of Incorporation, the
holders of the Series C Preferred, the holders of the Series A Preferred (under
certain conditions), the holders of the Series D Preferred, the holders of the
Series E Preferred, and the holders of the Corporation's Common Stock shall vote
together as one class with one vote per share (in the case of Preferred Stock,
subject to adjustments as provided in Section 7 below and if convertible into
Common Stock, one vote per share of Common Stock into which such convertible
Preferred Stock is then convertible) on all matters submitted to a vote of the
Corporation's stockholders.
SECTION 4. CERTAIN RESTRICTIONS.
Whenever dividends payable on the Series C Preferred as provided in
section 2 are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series C Preferred outstanding shall have been paid
in full or declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred, except dividends paid
ratably on the Series C Preferred and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled, (C) redeem or purchase or
otherwise acquire for consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior to the Series C Preferred or in
satisfaction of contractual obligations to do so entered into with the written
consent of the holders of a majority of outstanding shares of Series C
Preferred, or (D) purchase or otherwise acquire for consideration any shares of
the Series C Preferred, or any shares of stock ranking on a parity with the
Series C Preferred except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series of classes.
SECTION 5. REACQUIRED SHARES.
Any shares of the Series C Preferred which have been converted to
Common Stock or have been purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series
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of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, or otherwise in accordance with Delaware General Corporation Law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of the Series C Preferred unless,
prior thereto, the holders of the Series B Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (B) to the holders of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series C Preferred
unless, prior thereto, the holders of Series C Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (C) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Preferred, except distributions made ratably on the Series C Preferred and all
other such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up.
SECTION 7. OPTIONAL CONVERSION.
Each share of the Series C Preferred may be converted at any time, at
the option of the holder thereof, into shares of Common Stock of the
Corporation, on the terms and conditions set forth below in this Section 7:
[a] Subject to the provisions for adjustment hereinafter set
forth, each share of the Series C Preferred shall be convertible at the
option of the holder thereof, in the manner hereinafter set forth, into
one (1) fully paid and nonassessable share of Common Stock of the
Corporation.
[b] The number of shares of Common Stock into which each share
of the Series C Preferred is convertible shall be adjusted from time to
time as follows:
[i] In case the Corporation shall at any time or from
time to time after the issuance of such share of Series C
Preferred declare or pay any dividend on its Common Stock
payable in its Common Stock or effect a subdivision of the
outstanding shares of its Common Stock into a greater number
of shares of Common Stock (by reclassification or otherwise),
then, and in each such case, the number of shares of Common
Stock into which each share of the Series C Preferred is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the sum of (I) the number of shares of Common Stock
into which such share was convertible immediately prior to the
occurrence of such event plus (II) the number of shares of
Common Stock which such holder would have been entitled to
receive in connection with the occurrence of such event had
such share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made
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pursuant to this subparagraph b[i] shall become effective (a)
in the case of any such dividend, immediately after the close
of business on the record date for the determination of
holders of Common Stock entitled to receive such dividend, or
(b) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which
such corporate action becomes effective.
[ii] In case the Corporation at any time or from time
to time after the issuance of such share of Series C Preferred
shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock,
by reclassification or otherwise, then, and in each such case,
the number of shares of Common Stock into which each share of
the Series C Preferred is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the number of shares which
the holder would have owned after giving effect to such event
had such share been converted immediately prior to the
occurrence of such event and the denominator of which is the
number of shares of Common Stock into which such share was
convertible immediately prior to the occurrence of such event.
An adjustment made pursuant to this subparagraph b[ii] shall
become effective at the close of business on the date
immediately prior to the day upon which such corporate action
becomes effective.
[iii] In case the Corporation after the issuance of
such share of Series C Preferred shall: (A) issue any options,
warrants, or other rights (excluding those to Blue Chip
Capital Fund II Limited Partnership and/or to Miami Valley
Venture Fund L.P. as a holder of Series C Preferred pursuant
to the terms of a Redemption and Warrant Agreement among the
Corporation and them, dated during December, 1997 and
excluding stock options to management of the Corporation
exercisable for up to fifteen percent (15%) of the equity
securities of the Corporation, on a fully-diluted basis)
entitling the holder thereof to subscribe for, or purchase,
Common Stock at a price per share which, when added to the
amount of consideration received or receivable by the
Corporation for such options, warrants, or other rights, is
less than the then fair market value per share of the Common
Stock at the date of such issuance: (B) issue or sell
securities of the Corporation convertible into, or
exchangeable for, Common Stock at a price per share which,
when added to the amount of consideration received or
receivable, from the Corporation for such exchangeable or
convertible securities, is less than the then fair market
value of a share of Common Stock at the date of such issuance;
or (C) issue or sell additional shares of Common Stock for
consideration representing less than the then fair market
value of the Common Stock at the date of such issuance; then
the number of shares of Common Stock into which each share of
the Series C Preferred is convertible shall be adjusted so
that, thereafter, until further adjusted, the holder of each
share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (w) the number of shares of Common
Stock into which such shares are convertible immediately prior
to the occurrence of such event by (x) a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding prior to such issuance PLUS the number of
additional
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shares of Common Stock issuable upon exercise of such options,
warrants, or rights, or exchangeable or convertible
securities, or the additional number of shares of Common Stock
issued at such time, and the denominator of which shall be the
number of shares of Common Stock outstanding prior to such
issuance PLUS the number of shares of Common Stock that either
(y) the sum of the aggregate exercise price of the total
number of shares of Common Stock issuable upon exercise of
such options, warrants, or rights, or upon conversion or
exchange of such convertible securities, and the aggregate
amount of consideration, if any, received or receivable by the
Corporation for such options, warrants, or rights, or
convertible or exchangeable securities, or (z) the aggregate
consideration received in connection with the sale of shares
of its Common Stock for less than the then fair market value,
as the case may be, would purchase at the then fair market
value.
[iv] In the event that, at any time, or from time to
time, after the issuance of such share of the Series C
Preferred, the Common Stock issuable upon conversion of the
Series C Preferred is changed into the same or a different
number of shares of any class or classes of stock, whether by
recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 7), then, and in any
such event, each holder of Series C Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable
upon such recapitalization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such shares of Series C Preferred could have been converted
immediately prior to such recapitalization, reclassification,
or change, all subject to further adjustment as provided
herein.
[v] If at any time, or from time to time after the
issuance of such share of the Series C Preferred there is a
capital reorganization of the Common Stock other than a
recapitalization, subdivision, combination, reclassification,
or exchange of shares provided for elsewhere in this Section
7) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all, or substantially
all, of the Corporations' properties and assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the
holders of the Series C Preferred shall thereafter be entitled
to receive upon conversion of the Series C Preferred the
number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7 with respect
to the rights of the holders of Series C Preferred after the
reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 7 shall be applicable after
that event and be as nearly equivalent as may be practicable.
[vi] Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which caused an
adjustment pursuant to this Section 7 to be made, if any
thereof shall not have been exercised, the number of shares of
Common Stock into which each share of the Series B Preferred
is convertible shall, upon such
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expiration, be readjusted and shall thereafter be such as it
would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) as
if (a) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon
the exercise of such rights, options, warrants or conversion
or exchange privileges and (b) such shares of Common Stock, if
any, were issued or sold for the consideration actually
received by the Corporation upon such exercise plus the
aggregate consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all such
rights, options, warrants or conversion or exchange
privileges, whether or not exercised.
[c] If any adjustment in the number of shares of Common Stock
into which each share of the Series C Preferred may be converted
required pursuant to this Section 7 would result in an increase or
decrease of less than 1% in the number of shares of Common Stock into
which each share of the Series C Preferred is then convertible, the
amount of any such adjustment shall be carried forward and adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least 1% of
the number of shares of Common Stock into which each share of the
Series C Preferred is then convertible; provided that any such
adjustments carried forward shall be made immediately following receipt
of notice from a holder of the intent to convert all or a portion of
the Series C Preferred such that upon conversion the holder shall
receive such number of shares of Common Stock as such holder is
entitled, taking into account all adjustments required by this Section
7. All calculations under this paragraph [c] shall be made to the
nearest one-hundredth of a share.
[d] The holder of any shares of the Series C Preferred may
convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such
other office or agency maintained by the Corporation for that purpose,
a certificate or certificates representing the shares of Series C
Preferred to be converted accompanied by a written notice stating that
such holder elects to convert all or a specified number of such shares
in accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or
names. As promptly as practicable, and in any event within five
business days after the surrender of such certificates and the receipt
of such notice relating thereto and, if applicable, payment of all
transfer taxes, the Corporation shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid
and nonassessable shares of Common Stock of the Corporation to which
the holder of the Series C Preferred so converted shall be entitled and
(ii) if less than the full number of shares of the Series C Preferred
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversions
shall be deemed to have been made at the close of business on the date
of giving of such notice and of such surrender of the certificate or
certificates representing the shares of the Series C Preferred to be
converted so that the rights of the holder thereof shall cease except
for the right to receive Common Stock of the Corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
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[e] Upon conversion of any shares of the Series C Preferred,
the holder thereof shall be entitled to receive any accumulated,
accrued or unpaid dividends in respect of the shares so converted,
including any dividends on such shares of the Series C Preferred
declared prior to such conversion if such holder held such shares on
the record date fixed for the determination of holders of the Series C
Preferred entitled to receive payment of such dividend.
[f] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series C Preferred.
[g] For purposes of this Section, "fair market value" shall be
as determined by the Board of Directors in such manner as they shall deem
appropriate in their discretion, unless the holder(s) of more than twenty-five
percent (25%) of the outstanding shares of Preferred Stock of the Company demand
in writing that "fair market value" be determined by an appraiser who shall be
mutually acceptable to the Board of Directors and such holders, whose
determination shall be binding and whose fees and expenses shall be paid equally
by the Company and such holders.
SECTION 8. MANDATORY CONVERSION.
Each share of the Series C Preferred shall be converted, at the option
of the Board of Directors, into shares of Common Stock of the Corporation, on
the terms and conditions set forth below in this Section 8:
[a] Subject to the provisions for adjustment set forth in
Section 7, which shall also apply to conversions pursuant to this
Section 8, each share of the Series C Preferred shall be convertible at
the option of the Board of Directors, under the conditions hereinafter
set forth, into one (1) fully paid and nonassessable share of Common
Stock of the Corporation.
[b] The Board of Directors of the Corporation may require
conversion of all shares of the Series C Preferred into shares of
Common Stock upon any of the following if, and only if, all other
outstanding shares of Preferred Stock of the Corporation, other than
those which rank senior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C preferred, are concurrently
either redeemed or converted:
[i] A public offering of equity securities of the
Corporation of at least $10,000,000 in gross proceeds;
[ii] A private placement of equity securities of the
Corporation of at least $25,000,000 in gross proceeds;
[iii] A private placement of equity securities of the
Corporation of at least $10,000,000 in gross proceeds under
circumstances where the investor(s) reasonably believe the
conversion of the Series C Preferred is necessary to achieve
its (their) investment objectives;
[iv] A merger of the Corporation with another
corporation or other entity, whether or not the Corporation is
a survivor of such transaction whereby as a result the
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stockholders of the Corporation hold less than 50% of the
outstanding capital stock of the surviving entity; or
[v] An acquisition of equity securities of the
Corporation in one transaction or in a series of related
transactions which results in a transfer of majority voting
control of the Corporation.
[c] The Series C Preferred shall convert to Common Stock of
the Corporation automatically upon notice in writing to the
stockholders or upon publication (as determined by the Board of
Directors). As promptly as practicable after such notice, and in any
event within five business days after the surrender of certificates for
the Series C Preferred (if required by the Board of Directors), the
Corporation shall deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation to which the holder of the
Series C Preferred so converted shall be entitled. Such conversion
shall be deemed to have been made at the close of business on the date
of giving of such notice of mandatory conversion so that the rights of
the holder thereof shall cease with or without surrender of
certificates for the Series C Preferred, except for the right to
receive Common Stock of the Corporation in accordance herewith, and the
converting holder shall be treated for all purposes as having become
the record holder of such Common Stock of the Corporation at such time.
[d] Upon conversion of the Series C Preferred, the holder
thereof shall be entitled to receive any accumulated, accrued or unpaid
dividends in respect of the shares so converted, including any
dividends on such shares of the Series C Preferred declared prior to
such conversion if such holder held such shares on the record date
fixed for the determination of holders of the Series C Preferred
entitled to receive payment of such dividend.
[e] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series C Preferred.
SECTION 9. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which the shares of
the Series C Preferred are convertible is adjusted as provided in Section 7, the
Corporation will (A) promptly compute such adjustment and furnish to each
transfer agent for the Series C Preferred a certificate, signed by a principal
financial officer of the Corporation, setting forth the number of shares of
Common Stock into which each share of the Series C Preferred is convertible as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective and (B) promptly mail to the holders of record of the outstanding
shares of the Series C Preferred a notice stating that the number of shares into
which the shares of Series C Preferred are convertible has been adjusted and
setting forth the new number of shares into which each share of the Series C
Preferred is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation shall
incur no liability for its failure to take any action set forth in this Section
9, nor shall such failure affect the validity, rights or preferences of any
shares of the Series C Preferred.
SECTION 10. RANKING.
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The Series C Preferred shall rank senior to the Common Stock and any
other series of Preferred Stock of the Corporation hereafter created (except the
Series B Preferred, which shall rank senior to the Series C Preferred, and the
Series A Preferred, the Series D Preferred and the Series E Preferred, with
which it shall rank equal), as to the payment of dividends and the distribution
of assets and rights upon liquidation, dissolution or winding up of the
Corporation.
SECTION 11. DIRECTORSHIP.
The holders of the Series C Preferred, as a class, shall be entitled to
be represented on the Board of Directors by one Director (the "Series C
Director") who, upon nomination by such holders, as a class, will stand for
election by voting by the holders of the Series A Preferred, Series B Preferred
(subject to limitations contained in Article FOURTH, Subpart E, Section 11),
Series C Preferred, Series D Preferred (subject to limitations contained in
Article FOURTH, Subpart G, Section 3 and 11), Series E Preferred, and holders of
Common Stock, except under circumstances where the number of individuals
nominated for election exceeds the number of Directors to be elected, then the
holders of the Series C Preferred shall have the sole right to vote for, elect
and remove the individuals nominated by them, as a class, to serve as the Series
C Director, and in such event no right to vote for, elect or remove any of the
other Directors. The Series C Director, upon being elected, will serve for the
same term and have the same voting powers as other Directors. The right to elect
the Series C Director pursuant to the terms hereof shall be exercisable by the
holders of a majority of the Series C Preferred at their option upon at least 60
days notice to the Corporation; provided, however, if the Corporation is subject
to the reporting requirements of the Securities Exchange Act of 1934, such
notice must be provided on or before the date established by the Corporation for
the submission of proposals pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934. The Series C Director, if not an employee of
the Corporation, shall serve as a member of the Compensation, Audit, and
Nominating Committees of the Board of Directors (or any other Committee of the
Board performing such functions), which Committees will be composed of at least
one Director, in addition to the Series C Director, who is not an employee of
the Corporation.
G. DESIGNATION OF SERIES D CONVERTIBLE PREFERRED STOCK. A series of the
Preferred Stock of the corporation is hereby created and authorized, and the
designations, amount and stated value of such series of Preferred Stock and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon, are as follows:
SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE.
The shares of such series shall be designated as Series D Convertible
Preferred (the "Series D Preferred") and the number of shares constituting such
series shall be 1,000,000 shares. The stated value of the Series D Preferred
shall be $5 per share, the original per share issue price (the "Stated Value").
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
The holders of shares of the Series D Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, cumulative dividends payable
quarterly in cash on the first business day of January, April, July and
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October (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), accruing commencing with the date of issue of such shares, on
shares of the Series D Preferred at the rate of $.35 per share per annum. No
interest shall be paid on accrued but unpaid dividends.
SECTION 3. VOTING RIGHTS.
Except as provided herein or otherwise required by law, the voting
power of the Corporation shall be vested in the holders of shares of Common
Stock, Series A Preferred, Series C Preferred, Series E Preferred, and such
other series of voting preferred stock as are from time to time designated, and
the holders of shares of Series B Preferred and the Series D Preferred shall
have no voting power except that with respect to the events described below the
holders of the Series A Preferred, the holders of the Series B Preferred, the
holders of the Series C Preferred, the holders of the Series D Preferred, the
holders of the Series E Preferred, and the holders of the Corporation's Common
Stock shall vote together as one class with one vote per share (in the case of
Preferred Stock, subject to adjustments as provided in Section 7 below and if
convertible into Common Stock, one vote per share of Common Stock into which
such convertible Preferred Stock is then convertible), to the extent such of the
following events are otherwise subject to the vote of any holders of capital
stock of the Corporation:
[a] any amendment of this Amended and Restated Certificate of
Incorporation, including the same as it may hereafter be amended or
restated, which (i) authorizes, or modifies the rights, preferences or
terms of, any security that is or would be senior in any respect to the
Series D Preferred, (ii) modifies any of the rights, preferences or
terms of the Series D Preferred, or (iii) would otherwise significantly
and adversely affect the Series D Preferred.
[b] a sale of all or substantially all of the assets of the
Corporation;
[c] the dissolution, liquidation or termination of the
Corporation;
[d] any merger of the Corporation with another corporation or
entity, whether or not the Corporation is the survivor;
[e] any material change in the fundamental nature of the
business of the Corporation;
[f] any transaction with affiliates, except upon fair and
reasonable terms comparable to an arms-length transaction; and
[g] any change in the Corporation's capital structure in a
manner that dilutes the economic interest of the holders of Series D
Preferred.
At such time as the holders of the Series D Preferred shall have
obtained the consent (which does not need to have become final) of the Federal
Communications Commission to the exercise by the holders of the Series D
Preferred of the voting rights set forth below or at such time as the consent of
the Federal Communications Commission is not necessary under applicable law,
rule or regulation (in the opinion of counsel acceptable to the Board of
Directors),
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then on the election of a majority of the holders of the Series D Preferred, in
addition to voting rights required by law, the holders of Series D Preferred
shall be entitled to vote on all matters submitted to a vote of the
Corporation's stockholders in accordance with the next sentence. Except as
otherwise required by law or this Certificate of Incorporation, the holders of
the Series D Preferred and the holders of the Corporation's Common Stock shall
vote together as part of the same class and each of the outstanding shares of
the Series D Preferred shall have a number of votes per share on a matter equal
to the quotient of (a) the lesser of (1) the number of shares of Common Stock
into which the outstanding shares of Series D Preferred are then convertible,
and (2) the difference between (A) the product of (i) the fraction equal to
0.049 divided by 0.951, multiplied by (ii) the sum of the number of votes
entitled to be a cast by the Corporation's Common Stock and any Series of
Preferred (other than the Series D Preferred) which votes as a class with the
Corporation's Common Stock on such matter minus (B) the number of shares of the
Corporation's Common Stock issued pursuant to Section 7[a][i] of this Subarticle
G of Article 4 (fully adjusted to reflect the events described in Section
7[c][i] and [ii], divided by (b) the number of outstanding shares of Series D
Preferred. It is the intention of this provision that it should be construed
consistently with the limitations to which bank holding companies and foreign
banks treated as bank holding companies are subject with respect to the
ownership or control of voting securities under the Bank Holding Company Act of
1956, as amended.
SECTION 4. CERTAIN RESTRICTIONS.
Whenever dividends payable on the Series D Preferred as provided in
section 2 are in arrears,, thereafter and until dividends, including all accrued
dividends, on shares of the Series D Preferred outstanding shall have been paid
in full or declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series D
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Preferred, except dividends paid
ratably on the Series D Preferred and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled, (C) redeem or purchase or
otherwise acquire for consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series D
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior to the Series D Preferred or in
satisfaction of contractual obligations to do so entered into with the written
consent of the holders of a majority of outstanding shares of Series D
Preferred, or (D) purchase or otherwise acquire for consideration any shares of
the Series D Preferred, or any shares of stock ranking on a parity with the
Series D Preferred except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series of classes.
SECTION 5. REACQUIRED SHARES.
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Any shares of the Series D Preferred which have been converted to
Common Stock or have been purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, or otherwise in accordance with Delaware General
Corporation Law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of the Series D Preferred unless,
prior thereto, the holders of the Series B Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (B) to the holders of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series D Preferred
unless, prior thereto, the holders of Series D Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (C) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series D
Preferred, except distributions made ratably on the Series D Preferred and all
other such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up.
SECTION 7. CONVERSION.
Subject to Section 7[a], each share of the Series D Preferred may be
converted, at the option of the holder thereof, into shares of Common Stock of
the Corporation on the terms and conditions set forth below in this Section 7:
[a] Shares of Series D Preferred may be converted by a holder
only:
[i] To acquire a number of shares of Common Stock
which, when added to all of the shares of Common Stock
previously acquired on conversion of Series D Preferred under
this provision (fully adjusted to reflect the events described
in Section 7[c], does not exceed 4.99% of the total shares of
Common Stock then outstanding; or
[ii] In a widely dispersed public distribution of the
resulting Common Stock; or
[iii] In connection with a private placement in which
no one party directly or indirectly acquires the right to
purchase in excess of 2% of the Common Stock; or
[iv] In an assignment to one or more financial
intermediaries (e.g., broker-dealer or investment banker) for
the purpose of conducting a widely dispersed distribution of
the resulting Common Stock on behalf of the holder; or
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[v] On effectiveness of an amendment to or repeal of
the Bank Holding Company Act of 1956, as amended (including
any replacement law, "BHCA"), or the International Banking Act
of 1978, as amended ("IBA"), as a result of which a bank
holding company (as defined in the BHCA) and a foreign bank
with a U.S. branch or agency may acquire the resulting shares
of Common Stock without limitation; or
[vi] On receipt and finality of an order approving
the transaction from the Board of Governors of the Federal
Reserve System (including any successor agency responsible for
supervision and enforcement under the BHCA or IBA, "FRB")
under the BHCA or the IBA.
[b] Subject to the provisions for adjustment hereinafter set
forth, each share of the Series D Preferred shall be convertible at the
option of the holder thereof, in the manner hereinafter set forth, into
one (1) fully paid and nonassessable share of Common Stock of the
Corporation.
[c] The number of shares of Common Stock into which each share
of the Series D Preferred is convertible shall be adjusted from time to
time as follows:
[i] In case the Corporation shall at any time or from
time to time after the issuance of such share of Series D
Preferred declare or pay any dividend on its Common Stock
payable in its Common Stock or effect a subdivision of the
outstanding shares of its Common Stock into a greater number
of shares of Common Stock (by reclassification or otherwise),
then, and in each such case, the number of shares of Common
Stock into which each share of the Series D Preferred is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the sum of (I) the number of shares of Common Stock
into which such share was convertible immediately prior to the
occurrence of such event plus (II) the number of shares of
Common Stock which such holder would have been entitled to
receive in connection with the occurrence of such event had
such share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this subparagraph b[i] shall become effective
(a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of
holders of Common Stock entitled to receive such dividend, or
(b) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which
such corporate action becomes effective.
[ii] In case the Corporation at any time or from time
to time after the issuance of such share of Series D Preferred
shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock,
by reclassification or otherwise, then, and in each such case,
the number of shares of Common Stock into which each share of
the Series D Preferred is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by
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multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the number of shares which the holder would have
owned after giving effect to such event had such share been
converted immediately prior to the occurrence of such event
and the denominator of which is the number of shares of Common
Stock into which such share was convertible immediately prior
to the occurrence of such event. An adjustment made pursuant
to this subparagraph b[ii] shall become effective at the close
of business on the date immediately prior to the day upon
which such corporate action becomes effective.
[iii] In case the Corporation after the issuance of
such share of Series D Preferred shall: (A) issue any options,
warrants, or other rights (excluding those to Blue Chip
Capital Fund II Limited Partnership and/or to Miami Valley
Venture Fund L.P. as a holder of Series C Preferred Stock
pursuant to the terms of a Redemption and Warrant Agreement
among the Corporation and them, dated during December, 1997,
excluding those issued in exchange for options to purchase
common stock in Faircom Inc. pursuant to the terms of a
merger, and excluding stock options to management of the
Corporation exercisable for up to fifteen percent (15%) of the
equity securities of the Corporation, on a fully-diluted
basis) entitling the holder thereof to subscribe for, or
purchase, Common Stock at a price per share which, when added
to the amount of consideration received or receivable by the
Corporation for such options, warrants, or other rights, is
less than the then fair market value per share of the Common
Stock at the date of such issuance; (B) issue or sell
securities of the Corporation convertible into, or
exchangeable for, Common Stock at a price per share which,
when added to the amount of consideration received or
receivable, from the Corporation for such exchangeable or
convertible securities, is less than the then fair market
value of a share of Common Stock at the date of such issuance;
or (C) issue or sell additional shares of Common Stock for
consideration representing less than the then fair market
value of the Common Stock at the date of such issuance; then
the number of shares of Common Stock into which each share of
the Series D Preferred is convertible shall be adjusted so
that, thereafter, until further adjusted, the holder of each
share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (w) the number of shares of Common
Stock into which such shares are convertible immediately prior
to the occurrence of such event by (x) a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding prior to such issuance PLUS the number of
additional shares of Common Stock issuable upon exercise of
such options, warrants, or rights, or exchangeable or
convertible securities, or the additional number of shares of
Common Stock issued at such time, and the denominator of which
shall be the number of shares of Common Stock outstanding
prior to such issuance PLUS the number of shares of Common
Stock that either (y) the sum of the aggregate exercise price
of the total number of shares of Common Stock issuable upon
exercise of such options, warrants, or rights, or upon
conversion or exchange of such convertible securities, and the
aggregate amount of consideration, if any, received or
receivable by the Corporation for such options, warrants, or
rights, or convertible or exchangeable securities, or (z) the
aggregate consideration received in connection with the sale
of shares of its Common Stock for less than the then fair
market value, as the case may be, would purchase at the then
fair market value.
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[iv] In the event that, at any time, or from time to
time, after the issuance of such share of the Series D
Preferred, the Common Stock issuable upon conversion of the
Series D Preferred is changed into the same or a different
number of shares of any class or classes of stock, whether by
recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 7), then, and in any
such event, each holder of Series D Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable
upon such recapitalization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such shares of Series D Preferred could have been converted
immediately prior to such recapitalization, reclassification,
or change, all subject to further adjustment as provided
herein.
[v] If at any time, or from time to time after the
issuance of such share of the Series D Preferred, there is a
capital reorganization of the Common Stock other than a
recapitalization, subdivision, combination, reclassification,
or exchange of shares provided for elsewhere in this Section
7) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all, or substantially
all, of the Corporations' properties and assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the
holders of the Series D Preferred shall thereafter be entitled
to receive upon conversion of the Series D Preferred the
number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7 with respect
to the rights of the holders of Series D Preferred after the
reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 7 shall be applicable after
that event and be as nearly equivalent as may be practicable.
[vi] Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which caused an
adjustment pursuant to this Section 7 to be made, if any
thereof shall not have been exercised, the number of shares of
Common Stock into which each share of the Series D Preferred
is convertible shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (a) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (b)
such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
privileges, whether or not exercised.
[d] If any adjustment in the number of shares of Common Stock
into which each share of the Series D Preferred may be converted
required pursuant to this Section 7 would
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result in an increase or decrease of less than 1% in the number of
shares of Common Stock into which each share of the Series D Preferred
is then convertible, the amount of any such adjustment shall be carried
forward and adjustment with respect thereto shall be made at the time
of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall
aggregate at least 1% of the number of shares of Common Stock into
which each share of the Series D Preferred is then convertible;
provided that any such adjustments carried forward shall be made
immediately following receipt of notice from a holder of the intent to
convert all or a portion of the Series D Preferred such that upon
conversion the holder shall receive such number of shares of Common
Stock as such holder is entitled, taking into account all adjustments
required by this Section 7. All calculations under this paragraph [c]
shall be made to the nearest one-hundredth of a share.
[e] Subject to the limitation in Section 7[g] below, the
holder of any shares of the Series D Preferred may convert such shares
into shares of Common Stock by surrendering for such purpose to the
Corporation, at its principal office or at such other office or agency
maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series D Preferred to be
converted accompanied by a written notice stating that such holder
elects to convert all or a specified number of such shares in
accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or
names. As promptly as practicable, and in any event within five
business days after the surrender of such certificates and the receipt
of such notice relating thereto and, if applicable, payment of all
transfer taxes, the Corporation shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid
and nonassessable shares of Common Stock of the Corporation to which
the holder of the Series D Preferred so converted shall be entitled and
(ii) if less than the full number of shares of the Series D Preferred
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversions
shall be deemed to have been made at the close of business on the date
of giving of such notice and of such surrender of the certificate or
certificates representing the shares of the Series D Preferred to be
converted so that the rights of the holder thereof shall cease except
for the right to receive Common Stock of the Corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
[f] Upon conversion of any shares of the Series D Preferred,
the holder thereof shall be entitled to receive any accumulated,
accrued or unpaid dividends in respect of the shares so converted,
including any dividends on such shares of the Series D Preferred
declared prior to such conversion if such holder held such shares on
the record date fixed for the determination of holders of the Series D
Preferred entitled to receive payment of such dividend.
[g] Shares of the Series D Preferred may not be converted
after the close of business on the third business day preceding the
Redemption Date pursuant to Section 8.
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[h] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series D Preferred.
[i] For purposes of this Section, "fair market value" shall be
as determined by the Board of Directors in such manner as they shall
deem appropriate in their discretion, unless the holder(s) of more than
twenty-five percent (25%) of the outstanding shares of Preferred Stock
of the Company demand in writing that "fair market value" be determined
by an appraiser, who shall be mutually acceptable to the Board of
Directors and such holders, whose determination shall be binding and
whose fees and expenses shall be paid equally by the Company and such
holders.
SECTION 8. REDEMPTION.
[a] The Corporation may, at the election of its Board of
Directors, at any time or from time to time, redeem the whole or part
of the Series D Preferred, at the Stated Value, plus an amount equal to
all unpaid dividends thereon, including accrued dividends, whether or
not declared, to the date of redemption. In case the Corporation shall
elect to redeem less than all the Series D Preferred, the Corporation
shall select pro rata the shares so to be redeemed, except that if the
Board of Directors determines in its reasonable business judgment that
to do so by lot would be in the best interests of the Corporation, then
the shares so to be redeemed shall be selected by lot in such manner as
shall be prescribed by the Board of Directors.
[b] Notice of every such redemption shall be mailed, first
class postage prepaid, not less than thirty (30) nor more than sixty
(60) days prior to the date fixed for redemption ("Redemption Date"),
to each holder of record of the shares to be redeemed, at his or her
address as the same appears on the record of stockholders; but neither
failure to mail any such notice to one or more such holders nor any
defect in any such notice shall affect the sufficiency of the
proceedings for redemptions as to other holders. Each such notice shall
state the Redemption Date; the number of shares of Series D Preferred
to be redeemed, and, if less than all the shares of Series D Preferred
held by such holder are to be redeemed, the manner of selecting by lot
the shares to be redeemed; the place or places where such shares are to
be surrendered for payment; that dividends on the shares to be redeemed
will cease on such Redemption Date; and the effect of such redemption
on the right of conversion.
[c] Notice having been mailed as aforesaid, from and after the
Redemption Date, all dividends on the shares so called for redemption
shall cease to accrue, said shares shall no longer be deemed to be
outstanding, all rights of the holders thereof as stockholders of the
Corporation (except the right to receive payment for the shares, the
right to receive declared dividends pursuant to Section 7(e) above, and
the right to convert such shares into shares of Common Stock of the
Corporation until the close of business on the third business day
preceding the Redemption Date, as provided in Section 7) shall cease,
and, upon surrender in accordance with said notice of the certificates
for any such shares (properly endorsed or assigned for transfer, if the
Board of Directors shall so require), such shares shall be redeemed by
the Corporation in accordance with this Section 8. In connection with
the determination of the amount of dividends accruing with respect to
any conversion in the period between a notice of redemption and the
Redemption Date, on a date which is not a Quarterly Dividend Payment
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Date, the amount of any such dividends shall be prorated based upon the
number of days which have elapsed since the immediately preceding
Quarterly Dividend Payment Date (excluding such Quarterly Dividend
Payment Date itself).
SECTION 9. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which the shares of
the Series D Preferred are convertible is adjusted as provided in Section 7, the
Corporation will (A) promptly compute such adjustment and furnish to each
transfer agent for the Series D Preferred a certificate, signed by a principal
financial officer of the Corporation, setting forth the number of shares of
Common Stock into which each share of the Series D Preferred is convertible as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective and (B) promptly mail to the holders of record of the outstanding
shares of the Series D Preferred a notice stating that the number of shares into
which the shares of Series D Preferred are convertible has been adjusted and
setting forth the new number of shares into which each share of the Series D
Preferred is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation shall
incur no liability for its failure to take any action set forth in this Section
9, nor shall such failure affect the validity, rights or preferences of any
shares of the Series D Preferred.
SECTION 10. RANKING.
The Series D Preferred shall rank senior to the Common Stock and any
other series of Preferred Stock of the Corporation hereafter created (except the
Series B Preferred, which shall rank senior to the Series D Preferred, and the
Series A Preferred, the Series C Preferred and the Series E Preferred, with
which it shall rank equal), as to the payment of dividends and the distribution
of assets and rights upon liquidation, dissolution or winding up of the
Corporation.
SECTION 11. DIRECTORSHIP.
[a] After the occurrence of the events described in Section
11[b] below, the holders of the Series D Preferred, as a class, shall be
entitled to be represented on the Board of Directors by one Director (the
"Series D Director") who, upon nomination by such holders, as a class, will
stand for election by voting by the holders of the Series A Preferred, Series B
Preferred (subject to limitations contained in Article FOURTH, Subpart E,
Section 11), Series C Preferred, Series D Preferred (subject to limitations
contained in Article FOURTH, Subpart G, Section 3 and 11), Series E Preferred,
and holders of Common Stock, except under circumstances where the number of
individuals nominated for election exceeds the number of Directors to be
elected. In the event the number of individuals nominated for election exceeds
the number of Directors to be elected, then the holders of the Series D
Preferred shall have the sole right to vote for, elect and remove the individual
nominated by them, as a class, to serve as the Series D Director, and in such
event no right to vote for, elect or remove any of the other Directors. The
Series D Director, upon being elected, will serve for the same term and have the
same voting powers as other Directors. The right to elect the Series D Director
pursuant to the terms hereof shall be exercisable by the holders of a majority
of the Series D Preferred at their option upon at least 60 days notice to the
Corporation provided, however, if the Corporation is subject to the reporting
requirements of the Securities Exchange Act of 1934, such notice must be
provided on or before the date established by the Corporation for the submission
of proposals pursuant to the proxy rules promulgated under the Securities Act of
1934.
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[b] The right set forth in Section 11[a] may be exercised only
after:
[i][A] Effectiveness of an amendment to or repeal of
the BHCA or IBA, as a result of which amendment or repeal a
bank holding company (as defined in the BHCA) and a foreign
bank with a U.S. branch or agency may appoint a director of
Corporation without limitation, or [B] on receipt and finality
of an order approving the power to elect a director from the
FRB under the BHCA or the IBA; and
[ii] On receipt and finality of an order of the
Federal Communications Commission consenting thereto, if such
consent is then required under applicable law, rule or
regulation.
H. DESIGNATION OF SERIES E CONVERTIBLE PREFERRED STOCK. A series of the
Preferred Stock of the Corporation is hereby created and authorized, and the
designations, amount and stated value of such series of Preferred Stock and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon, are as follows:
SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE.
The shares of such series shall be designated as "Series E Convertible
Preferred Stock" (the "Series A Preferred") and the number of shares
constituting such series shall be 5,000,000 shares. The stated value of the
Series E Preferred shall be $5 per share, the original per share issue price
(the "Stated Value") .
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
The holders of shares of the Series E Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, cumulative dividends payable
quarterly in cash on the first business day of January, April, July and October
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), accruing commencing with the date of issue of such shares, on shares of
the Series E Preferred at the rate of $.35 per share per annum. No interest
shall be paid on accrued but unpaid dividends.
SECTION 3. VOTING RIGHTS.
In addition to voting rights required by law or by this Amended
Certificate of Incorporation, as amended or restated from time to time (the
"Certificate of Incorporation"), subject to restrictions contained in this
Certificate of Incorporation the holders of Series E Preferred shall be entitled
to vote on all matters submitted to a vote of the Corporation's stockholders.
Except as otherwise required by law or provided by this Certificate of
Incorporation, the holders of the Series A Preferred, the holders of the Series
C Preferred, the holders of the Series D Preferred (under certain conditions),
the holders of the Series E Preferred and the holders of the Corporation's
Common Stock shall vote together as one class with one vote per share (in the
case of Preferred Stock, subject to adjustments as provided in Section 7 below
and if convertible into Common Stock, one vote per share of Common Stock into
which such convertible Preferred Stock is then convertible) on all matters
submitted to a vote of the Corporation's stockholders.
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SECTION 4. CERTAIN RESTRICTIONS.
Whenever dividends payable on the Series E Preferred as provided in
Section 2 are in arrears, thereafter and until dividends, including all accrued
dividends, on shares of the Series E Preferred outstanding shall have been paid
in full or declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series E
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
such junior stock, (B) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series E Preferred, except dividends paid
ratably on the Series E Preferred and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled, (C) redeem or purchase or
otherwise acquire for consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series E
Preferred, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior to the Series E Preferred or in
satisfaction of contractual obligations to do so entered into with the written
consent of the holders of a majority of aggregate outstanding shares of Series A
Preferred and Series E Preferred outstanding as of the date of the creation of
such contractual obligations, or (D) purchase or otherwise acquire for
consideration any shares of the Series E Preferred or any shares of stock
ranking on a parity with the Series E Preferred except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series of classes.
SECTION 5. REACQUIRED SHARES.
Any shares of the Series E Preferred which have been converted to
Common Stock or have been purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, or otherwise in accordance with Delaware General
Corporation Law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of the Series E Preferred unless,
prior thereto, the holders of the Series B Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (B) to the holders of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series E Preferred
unless, prior thereto, the holders of Series E Preferred shall have received the
Stated Value per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment, or (C) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series E
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Preferred, except distributions made ratably on the Series E Preferred and all
other such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up.
SECTION 7. OPTIONAL CONVERSION.
Each share of the Series E Preferred may be converted at any time, at
the option of the holder thereof, into shares of Common Stock of the
Corporation, on the terms and conditions set forth below in this Section 7:
[a] Subject to the provisions for adjustment hereinafter set
forth, each share of the Series E Preferred shall be convertible at the
option of the holder thereof, in the manner hereinafter set forth, into
one (1) fully paid and nonassessable share of Common Stock of the
Corporation.
[b] The number of shares of Common Stock into which each share
of the Series E Preferred is convertible shall be adjusted from time to
time as follows:
[i] In case the Corporation shall at any time or from
time to time after the issuance of such share of Series E
Preferred declare or pay any dividend on its Common Stock
payable in its Common Stock or effect a subdivision of the
outstanding shares of its Common Stock into a greater number
of shares of Common Stock (by reclassification or otherwise),
then, and in each such case, the number of shares of Common
Stock into which each share of the Series E Preferred is
convertible shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by
multiplying (a) the number of shares of Common Stock into
which such share was convertible immediately prior to the
occurrence of such event by (b) a fraction, the numerator of
which is the sum of (I) the number of shares of Common Stock
into which such share was convertible immediately prior to the
occurrence of such event plus (II) the number of shares of
Common Stock which such holder would have been entitled to
receive in connection with the occurrence of such event had
such share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this sub-paragraph b[i] shall become
effective (a) in the case of any such dividend, immediately
after the close of business on the record date for the
determination of holders of Common Stock entitled to receive
such dividend, or (b) in the case of any such subdivision, at
the close of business on the day immediately prior to the day
upon which such corporate action becomes effective.
[ii] In case the Corporation at any time or from time
to time after the issuance of such share of Series E Preferred
shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock,
by reclassification or otherwise, then, and in each such case,
the number of shares of Common Stock into which each share of
the Series E Preferred is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the number of shares which
the holder would have owned after giving effect to such event
had such share been converted immediately prior to the
occurrence of such event and the denominator of which is the
number of shares of Common Stock into which such share was
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convertible immediately prior to the occurrence of such event.
An adjustment made pursuant to this subparagraph b(ii] shall
become effective at the close of business on the date
immediately prior to the day upon which such corporate action
becomes effective.
[iii] In case the Corporation after the issuance of
such share of Series E Preferred shall: (A) issue any options,
warrants, or other rights (excluding those to Blue Chip
Capital Fund II Limited Partnership and/or to Miami Valley
Venture Fund L.P. as a holder of Series C Preferred pursuant
to the terms of a Redemption and Warrant Agreement among the
Corporation and them, dated during December, 1997, excluding
those issued in exchange for options to purchase common stock
in Faircom Inc. pursuant to the terms of a merger, and
excluding stock options to management of the Corporation
exercisable for up to fifteen percent (15%) of the equity
securities of the Corporation, on a fully-diluted basis)
entitling the holder thereof to subscribe for, or purchase,
Common Stock at a price per share which, when added to the
amount of consideration received or receivable by the
Corporation for such options, warrants, or other rights, is
less than the then fair market value per share of the Common
Stock at the date of such issuance; (B) issue or sell
securities of the Corporation convertible into, or
exchangeable for, Common Stock at a price per share which,
when added to the amount of consideration received or
receivable, from the Corporation for such exchangeable or
convertible securities, is less than the then fair market
value of a share of Common Stock at the date of such issuance;
or (C) issue or sell additional shares of Common Stock for
consideration representing less than the then fair market
value of the Common Stock at the date of such issuance; then
the number of shares of Common Stock into which each share of
the Series E Preferred is convertible shall be adjusted so
that, thereafter, until further adjusted, the holder of each
share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (w) the number of shares of Common
Stock into which such shares are convertible immediately prior
to the occurrence of such event by (x) a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding prior to such issuance PLUS the number of
additional shares of Common Stock issuable upon exercise of
such options, warrants, or rights, or exchangeable or
convertible securities, or the additional number of shares of
Common Stock issued at such time, and the denominator of which
shall be the number of shares of Common Stock outstanding
prior to such issuance PLUS the number of shares of Common
Stock that either (y) the sum of the aggregate exercise price
of the total number of shares of Common Stock issuable upon
exercise of such options, warrants, or rights, or upon
conversion or exchange of such convertible securities, and the
aggregate amount of consideration, if any, received or
receivable by the Corporation for such options, warrants, or
rights, or convertible or exchangeable securities, or (z) the
aggregate consideration received in connection with the sale
of shares of its Common Stock for less than the then fair
market value, as the case may be, would purchase at the then
fair market value.
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[iv] In the event that, at any time, or from time to
time, after the issuance of such share of the Series E
Preferred, the Common Stock issuable upon conversion of the
Series E Preferred is changed into the same or a different
number of shares of any class or classes of stock, whether by
recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 7), then, and in any
such event, each holder of Series E Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable
upon such recapitalization, reclassification, or other change,
by holders of the number of shares of Common Stock into which
such shares of Series E Preferred could have been converted
immediately prior to such recapitalization, reclassification,
or change, all subject to further adjustment as provided
herein.
[v] If at any time, or from time to time after the
issuance of such share of the Series E Preferred there is a
capital reorganization of the Common Stock other than a
recapitalization, subdivision, combination, reclassification,
or exchange of shares provided for elsewhere in this Section
7) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all, or substantially
all, of the Corporations' properties and assets to any other
person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the
holders of the Series E Preferred shall thereafter be entitled
to receive upon conversion of the Series E Preferred the
number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7 with respect
to the rights of the holders of Series E Preferred after the
reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 7 shall be applicable after
that event and be as nearly equivalent as may be practicable.
[vi] Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which caused an
adjustment pursuant to this Section 7 to be made, if any
thereof shall not have been exercised, the number of shares of
Common Stock into which each share of the Series E Preferred
is convertible shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (a) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (b)
such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
privileges, whether or not exercised.
[c] If any adjustment in the number of shares of Common Stock
into which each share of the Series E Preferred may be converted
required pursuant to this Section 7 would result in an increase or
decrease of less than 1% in the number of shares of Common Stock
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into which each share of the Series E Preferred is then convertible,
the amount of any such adjustment shall be carried forward and
adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate at least 1% of the number of shares of Common Stock into
which each share of the Series E Preferred is then convertible;
provided that any such adjustments carried forward shall be made
immediately following receipt of notice from a holder of the intent to
convert all or a portion of the Series B Preferred such that upon
conversion the holder shall receive such number of shares of Common
Stock as such holder is entitled, taking into account all adjustments
required by this Section 7. All calculations under this paragraph [c]
shall be made to the nearest one-hundredth of a share.
[d] The holder of any shares of the Series E Preferred may
convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such
other office or agency maintained by the Corporation for that purpose,
a certificate or certificates representing the shares of Series E
Preferred to be converted accompanied by a written notice stating that
such holder elects to convert all or a specified number of such shares
in accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or
names. As promptly as practicable, and in any event within five
business days after the surrender of such certificates and the receipt
of such notice relating thereto and, if applicable, payment of all
transfer taxes, the Corporation shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid
and nonassessable shares of Common Stock of the Corporation to which
the holder of the Series E Preferred so converted shall be entitled and
(ii) if less than the full number of shares of the Series E Preferred
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversions
shall be deemed to have been made at the close of business on the date
of giving of such notice and of such surrender of the certificate or
certificates representing the shares of the Series E Preferred to be
converted so that the rights of the holder thereof shall cease except
for the right to receive Common Stock of the corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
[e] Upon conversion of any shares of the Series E Preferred,
the holder thereof shall be entitled to receive any accumulated,
accrued or unpaid dividends in respect of the shares so converted,
including any dividends on such shares of the Series E Preferred
declared prior to such conversion if such holder held such shares on
the record date fixed for the determination of holders of the Series E
Preferred entitled to receive payment of such dividend.
[f] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series E Preferred.
[g] For purposes of this Section, "fair market value" shall be
as determined by the Board of Directors in such manner as they shall
deem appropriate in their discretion, unless the
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holder(s) of more than twenty-five percent (25%) of the outstanding
shares of Preferred Stock of the Company demand in writing that "fair
market value" be determined by an appraiser, who shall be mutually
acceptable to the Board of Directors and such holders, whose
determination shall be binding and whose fees and expenses shall be
paid equally by the Company and such holders.
SECTION 8. MANDATORY CONVERSION.
Each share of the Series E Preferred shall be converted, at the option
of the Board of Directors, into shares of Common Stock of the Corporation, on
the terms and conditions set forth below in this Section 8:
[a] Subject to the provisions for adjustment set forth in this
Section 7, which shall also apply to conversions pursuant to this
Section 8, each share of the Series E Preferred shall be convertible at
the option of the Board of Directors, under the conditions hereinafter
set forth, into one (1) fully paid and nonassessable share of Common
Stock of the Corporation.
[b] The Board of Directors of the Corporation may require
conversion of all shares of the Series E Preferred into shares of
Common Stock in preparation for or upon any of the following:
[i] A public offering of equity securities of the
Corporation of at least $10,000,000 in gross proceeds;
[ii] A private placement of equity securities of the
Corporation of at least $25,000,000 in gross proceeds;
[iii] A private placement of equity securities of the
Corporation of at least $10,000,000 in gross proceeds under
circumstances where the investor(s) reasonably believe the
conversion of the Series E Preferred is necessary to achieve
its (their) investment objectives;
[iv] A merger of the Corporation with another
corporation or other entity, whether or not the Corporation is
a survivor of such transaction whereby as a result the
stockholders of the Corporation hold less than 50% of the
outstanding capital stock of the surviving entity; or
[v] An acquisition of equity securities of the
Corporation in one transaction or in a series of related
transactions which results in a transfer of majority voting
control of the Corporation.
[c] The Series E Preferred shall convert to Common Stock of
the Corporation automatically upon notice in writing to the
stockholders or upon publication (as determined by the Board of
Directors). As promptly as practicable after such notice, and in any
event within five business days after the surrender of certificates for
the Series E Preferred (if required by the Board of Directors), the
Corporation shall deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation to which the holder of the
Series E Preferred so converted shall be
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entitled. Such conversion shall be deemed to have been made at the
close of business on the date of giving of such notice of mandatory
conversion so that the rights of the holder thereof shall cease with or
without surrender of certificates for the Series E Preferred, except
for the right to receive Common Stock of the Corporation in accordance
herewith, and the converting holder shall be treated for all purposes
as having become the record holder of such Common Stock of the
Corporation at such time.
[d] Upon conversion of the Series E Preferred, the holder
thereof shall be entitled to receive any accumulated, accrued or unpaid
dividends in respect of the shares so converted, including any
dividends on such shares of the Series E Preferred declared prior to
such conversion if such holder held such shares on the record date
fixed for the determination of holders of the Series E Preferred
entitled to receive payment of such dividend.
[e] The Corporation shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares
of Common Stock of the Corporation issuable upon the conversion of all
outstanding shares of the Series E Preferred.
SECTION 9. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which the shares of
the Series E Preferred are convertible is adjusted as provided in Section 7, the
Corporation will (A) promptly compute such adjustment and furnish to each
transfer agent for the Series E Preferred a certificate, signed by a principal
financial officer of the Corporation, setting forth the number of shares of
Common Stock into which each share of the Series E Preferred is convertible as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective and (B) promptly mail to the holders of record of the outstanding
shares of the Series E Preferred a notice stating that the number of shares into
which the shares of Series E Preferred are convertible has been adjusted and
setting forth the new number of shares into which each share of the Series E
Preferred is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation shall
incur no liability for its failure to take any action set forth in this Section
9, nor shall such failure affect the validity, rights or preferences of any
shares of the Series E Preferred.
SECTION 10. RANKING.
The Series E Preferred shall rank senior to the Common Stock and any
other series of Preferred Stock of the Corporation hereafter created (except the
Series B Preferred, which shall rank senior to the Series E Preferred, and the
Series A Preferred, Series C Preferred, and the Series D Preferred with which it
shall rank equal), as to the payment of dividends and the distribution of assets
and rights upon liquidation, dissolution or winding up of the Corporation.
FIFTH: INCORPORATOR. The name and mailing address of the incorporator
is Terry Jacobs, 50 East RiverCenter Boulevard, Covington, Kentucky 41011, whose
powers as incorporator have ceased by virtue of the election of the Board of
Directors.
SIXTH: ELIMINATION OF DIRECTOR LIABILITY. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
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<PAGE> 354
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the filing of the Certificate of
Incorporation of which this Article is a part to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
SEVENTH: RIGHT TO INDEMNIFICATION.
A. INDEMNIFICATION. The Corporation shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party, or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding"), by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another Corporation or of a partnership, joint venture, trust, enterprise or
non-profit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses reasonably incurred by such
person. The Corporation shall be required to indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
B. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses of
directors and executive officers of the Corporation, and may pay the expenses of
all other officers, employees or agents of the Corporation, incurred in
defending any proceeding, in advance of its final disposition, PROVIDED,
however, that the payment of expenses incurred by a director, officer, employee
or agent in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the director, officer, employee or agent
to repay all amounts advanced if it should be ultimately determined that the
director, officer, employee or agent is not entitled to be indemnified under
this Article SEVENTH or otherwise.
C. CLAIMS. If a claim for indemnification or payment of expenses under
this Article is not paid in full within sixty days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
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<PAGE> 355
D. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Article SEVENTH shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
E. OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust, enterprise or nonprofit entity, shall be reduced by any amount such
person may collect as indemnification from such other Corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise.
F. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
provisions of this Article SEVENTH shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
EIGHTH: BYLAWS. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal bylaws of the Corporation.
*******
II. That thereafter, pursuant to resolution of its Board of Directors,
consents of the stockholders of the corporation were executed, in accordance
with Section 228 of the General Corporation Law of the State of Delaware, by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Pursuant to Section
228 of the General Corporation Law of the State of Delaware, written notice has
been given to stockholders who have not consented in writing.
III. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Terry S. Jacobs, its Chairman, and William J. Stakelin, its Secretary,
this 4th day of December, 1997.
By: /S/ TERRY S. JACOBS
------------------------------
Terry S. Jacobs, Chairman
ATTEST:
/S/ WILLIAM S. STAKELIN
------------------------------
William J. Stakelin, Secretary
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Appendix C
AMENDED AND RESTATED BY-LAWS
OF
REGENT COMMUNICATIONS, INC.
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders,
for the purpose of electing directors to succeed those whose terms
expire and for the transaction of such other business as may properly
come before the meeting, shall be held at such place, on such date, and
at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months of the last annual meeting of
stockholders or, if no such meeting has been held, the date of
incorporation.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes prescribed in the notice of
the meeting, may be called by the Chairman of the Board, the President,
or the Board of Directors, and shall be called by the President or the
Secretary upon the written request of stockholders holding of record
twenty percent (20%) or more of all shares of stock outstanding and
entitled to vote thereat, to be held at such place, on such date and at
such time as the caller of such meeting shall fix. No business other
than that specified in the notice shall be considered at any special
meeting except with the unanimous consent of all stockholders entitled
to receive notice of such meeting.
SECTION 3. NOTICES OF MEETINGS. Except as otherwise required
by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of
Incorporation or By-laws of the Corporation), a written notice of each
annual and special meeting of stockholders stating the date, time and
place thereof, and in the case of a special meeting, the purpose or
purposes thereof, shall be personally delivered, or deposited, postage
prepaid, in the U.S. mail for delivery, to each stockholder of record
entitled to notice of such meeting, not more than sixty (60) days nor
less than ten (10) days before the date on which such meeting is to be
held. If mailed, such notice shall be addressed to each stockholder at
his address as it appears upon the records of the Corporation. Notice
of adjournment of a meeting need not be given if the time and place to
which it is adjourned are fixed and announced at such meeting;
provided, however, that if the date of any adjourned meeting is more
than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned
meeting, written notice of the place, date, and time of the adjourned
meeting shall be given in accordance with this Section. At an adjourned
meeting, any business may be transacted which could have been
transacted at the original meeting.
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Notice of the time, place, and purposes of any meeting of
stockholders, whether or not required by law, may be waived in writing,
either before or after the holding of such meeting, by any stockholder,
which writing shall be filed with or entered upon the records of the
meeting. The attendance of any stockholder at any such meeting without
protesting, prior to or at the commencement of the meeting, the lack of
proper notice shall be deemed to be a waiver by him of notice of such
meeting; provided, however, that such waiver shall not be deemed to
permit consideration at a special meeting of any business not specified
in the notice.
SECTION 4. QUORUM; ADJOURNMENT. At any meeting of
stockholders, the holders of a majority of the outstanding shares of
stock entitled to vote at the meeting, present in person or by proxy,
shall constitute a quorum for all purposes, except when a greater
proportion is required by law. Where a separate vote by a class or
classes of stock is to be taken, a majority of the outstanding shares
of stock of such class or classes, present in person or by proxy, shall
constitute a quorum entitled to take action with respect to that vote
on that matter.
At any meeting, whether a quorum is present or not, the
chairman of the meeting or the holders of a majority of the shares of
stock entitled to vote who are present, in person or by proxy, may
adjourn the meeting to another place, date or time without notice other
than by announcement at the meeting. At any such adjourned meeting at
which a quorum is presented, any business may be transacted which could
have been transacted at the original meeting.
SECTION 5. ORGANIZATION OF MEETINGS. Such person as the Board
of Directors may have designated or, in the absence of such a person,
the chief executive officer of the Corporation or, in his absence, such
person as may be chosen by the holders of a majority of the shares of
stock entitled to vote who are present, in person or by proxy, shall
call to order any meeting of the stockholders and act as chairman of
the meeting. The Secretary of the Corporation shall act as secretary of
the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of the
meeting appoints to act as such.
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as may
seem to him to be in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will
vote at the meeting shall be announced at the meeting.
SECTION 6. PROXIES AND VOTING. Every stockholder entitled to
vote at a meeting of stockholders or to consent or dissent to corporate
action in writing without a meeting may authorize another person to act
for him as proxy pursuant to an instrument in writing or by a
transmission permitted by law filed in accordance
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with the procedure established for the meeting. The instrument
appointing a proxy must be in writing and must be either signed by the
person making the appointment or, in the case of a authorization by
means of telegram, cablegram or other form of electronic transmission,
must set forth or be submitted with such information from which it may
be determined that such telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or
transmission duly constituting the appointment of a proxy may be
substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission
could be used, provided that such copy, facsimile telecommunication or
other reproduction shall be a complete reproduction of the entire
original writing or transmission. A vote in accordance with the terms
of a duly authorized and filed proxy shall be valid notwithstanding the
previous death or incapacity of the principal or revocation of the
appointment unless notice in writing of such death, incapacity or
revocation shall have been given to the Corporation before such vote is
taken. The presence of a stockholder at a meeting shall not operate to
revoke a proxy unless and until notice of such revocation is given to
the Corporation in writing or in open meeting.
Except as otherwise required by law, all voting, including on
the election of directors, may be conducted by voice vote unless a
stock vote is demanded by a stockholder entitled to vote or his proxy.
Every stock vote shall be taken by written ballot, each of which shall
state the name of the stockholder or the proxy voting and such other
information as may be required under the procedure established for the
meeting. The Corporation may, and to the extent required by law, shall,
in advance of any meeting of stockholders, appoint one or more
inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate
is able to act at a meeting of stockholders, the person presiding at
the meeting may, and to the extent required by law, shall, appoint one
or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take an oath and sign
faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability. Every vote taken by ballots
shall be conducted by an inspector or inspectors appointed by the
chairman of the meeting.
In all matters other than the election of directors, the
affirmative vote of the majority of shares present, in person or by
proxy, at the meeting and entitled to vote on the matter shall
constitute the act of the stockholders. The election of directors shall
be determined by a plurality of the votes of the shares present, in
person or by proxy, at the meeting and entitled to vote in the election
of directors. Where a separate vote by class or classes is required,
the affirmative vote of the majority of shares of each such class
present in person or represented by proxy at the meeting shall be the
act of such class.
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SECTION 7. STOCK LIST. A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in
alphabetical order for each class of stock and showing the address of
each such stockholder and the number of shares of stock registered in
his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of
any such stockholder who is present. The list shall presumptively
determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
SECTION 8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action which is required or may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed
by the holders of the outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, to its principal place
of business, or to an officer or agent of the Corporation having
custody of the book in which proceedings or meetings of stockholders
are recorded. Delivery made to the Corporation's registered office
shall be made by hand or by certified or registered mail, return
receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless,
within sixty (60) days of the date of the earliest dated consent
delivered to the Corporation, a written consent or consents signed by a
sufficient number of holders to take action are delivered to the
Corporation in the manner prescribed in the first paragraph of this
Section.
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ARTICLE II
----------
DIRECTORS
---------
SECTION 1. NUMBER OF DIRECTORS. The number of directors that
shall constitute the entire Board shall be such number as the Board of
Directors shall from time to time designate pursuant to the affirmative
vote of a majority of the directors then in office, except that in the
absence of any such designation, such number of directors shall be two
(2). Any decrease in the authorized number of directors shall not
become effective until the expiration of the term of the directors then
in office, unless, at the time of such decrease, there are vacancies on
the Board of Directors which are being eliminated by the decrease.
SECTION 2. ELECTION OF DIRECTORS AND TERM OF OFFICE. At all
elections of directors the candidates receiving the greatest number of
votes shall be elected. Each director shall hold office until the
annual meeting of stockholders next succeeding his election and until
his successor is elected and qualified, or until his earlier
resignation, removal from office, or death.
SECTION 3. QUALIFICATION OF DIRECTORS. Directors of the
Corporation need not be stockholders of the Corporation.
SECTION 4. VACANCIES IN THE BOARD OF DIRECTORS. In the event a
vacancy in the Board of Directors or any director's office is created
by reason of death, resignation, disqualification, removal or other
cause or by reason of an increase in the authorized number of
directors, the directors then in office, though less than a majority of
the whole authorized number of directors, by the vote of a majority of
their number, or a sole remaining director, may fill such vacancy for
the unexpired term.
SECTION 5. REGULAR MEETINGS OF DIRECTORS. An annual meeting of
the Board of Directors shall be held immediately following the
adjournment of each annual meeting of stockholders of the Corporation.
The Board of Directors may, by resolution, provide for other regular
meetings of the Board, to be held at such place or places, on such date
or dates, and at such time or times as may established by the Board of
Directors and published among all of the directors. Notice of the
annual and any such other regular meeting of the Board of Directors
shall not be required.
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SECTION 6. SPECIAL MEETINGS OF DIRECTORS. Special meetings of
the Board of Directors may be called by one-third (1/3) of the
directors then in office (rounded up to the nearest whole number) or by
the Chairman of the Board or the President and shall be held at such
place, on such date, and at such time as the caller of such meeting
shall fix. Notice of the place, date, and time of each such special
meeting shall be given each director by whom it is not waived by
mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same
not less than twenty-four (24) hours before the meeting. Such notice
may be waived in writing, either before or after the holding of such
meeting, by any director, which writing shall be filed with or entered
upon the records of the meeting. The attendance of any director at any
such meeting without protesting, prior to or at the commencement of the
meeting, the lack of proper notice shall be deemed to be a waiver by
him of notice of such meeting. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting of
directors.
SECTION 7. QUORUM. At any meeting of the Board of Directors, a
majority of the whole authorized number of directors shall constitute a
quorum for all purposes, except that a majority of the directors then
in office shall constitute a quorum for filling a vacancy in the Board
of Directors. Whenever less than a quorum is present at any time and
place appointed for a meeting of the Board, a majority of those present
may, by announcement at the meeting, adjourn the meeting to another
place, date or time without further notice or waiver thereof.
SECTION 8. PARTICIPATION IN MEETINGS BY COMMUNICATIONS
EQUIPMENT. Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each
other and such participation shall constitute presence in person at
such meeting.
SECTION 9. CONDUCT OF BUSINESS AT A MEETING OF THE BOARD. At
any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and
all matters shall be determined by the vote of a majority of the
directors present, except as otherwise required by law. The act of a
majority of directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the act of a greater
number is required by law.
SECTION 10. CONSENT OF DIRECTORS IN LIEU OF MEETING. Action
may be taken by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
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SECTION 11. POWER OF THE BOARD OF DIRECTORS. The Board of
Directors may, except as otherwise required by law, exercise all such
powers and do all such acts and things as may be exercised or dome by
the Corporation.
SECTION 12. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees
and other forms of compensation for their services as directors,
including, without limitation, their services as members of committees
of the Board of Directors.
ARTICLE III
-----------
COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------
SECTION 1. COMMITTEES. The Board of Directors, by the vote of
a majority of the whole Board, may from time to time designate one or
more committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure, direction and
control of the Board. The resolution establishing each such committee
shall specify a designation by which it shall be known, fix its powers
and authority, and elect a director or directors to serve as its member
or members, designating, if the Board desires, other directors as
alternate committee members who may replace any absent or disqualified
member at any meeting of the committee. An act or authorization of an
act by any such committee within the authority lawfully delegated to it
by the resolution establishing it shall be as effective for all
purposes as the act or authorization of the Board of Directors.
SECTION 2. CONDUCT OF BUSINESS AT COMMITTEE MEETINGS. Each
committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise
provided by law. Adequate provision shall be made for notice to members
of all meetings. One-third (1/3) of the members shall constitute a
quorum. All matters shall be determined by a majority vote of the
members present. Action may be taken by any committee without a meeting
if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such
committee.
ARTICLE IV
----------
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the Corporation shall be
a Chairman of the Board, President, Secretary, and Treasurer, and such
other officers and assistant officers as the Board of Directors may
from time to time determine. Any number of offices may be held by the
same person. The Chairman of the Board shall be elected from among the
members of the Board of Directors.
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SECTION 2. ELECTION AND TERM OF OFFICE. Each officer of the
Corporation shall be elected by the Board of Directors, and shall hold
office until the annual meeting of the Board of Directors following his
election or until his earlier resignation, removal from office, or
death. The Board of Directors may remove any officer at any time, with
or without cause. The Board of Directors may fill any vacancy in any
office occurring from whatever cause.
SECTION 3. DUTIES OF OFFICERS. Each officer and assistant
officer shall have such duties, responsibilities, powers and authority
as are prescribed below and as are assigned to him by the Board of
Directors from time to time. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
(a) CHAIRMAN OF THE BOARD. The Chairman of the Board
shall be the chief executive officer of the Corporation. Subject to the
provisions of these By-laws and to the direction of the Board of
Directors, he shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to
the office of chief executive and those which are delegated to him by
the Board of Directors. He shall preside at all meetings of the
stockholders and the Board of Directors. He shall have the power to
sign all stock certificates, contracts and other instruments of the
Corporation which are authorized.
(b) PRESIDENT. The President shall be the chief
operating officer of the Corporation. Subject to the provisions of
these By-laws and to the direction of the Board of Directors, he shall
have the responsibility for the general operations of the Corporation
and shall perform all duties and have all powers which are commonly
incident to the office of chief operating officer and those delegated
to him by the Board of Directors. He shall have the power to sign all
stock certificates, contracts and other instruments of the Corporation
which are authorized.
(c) VICE PRESIDENT. The Vice President, if one be
elected, shall perform such duties as may from time to time be assigned
to him by the Board of Directors. At the request of the Chairman of the
Board or the President, or in the absence or disability of the
President, the Vice President designated by the Chairman of the Board
or the President (or in the absence of such designation, the Vice
President designated by the Board of Directors), shall perform all the
duties of the President, and when so acting, shall have all the powers
of the President. The authority of the Vice President to sign in the
name of the corporation all certificates for shares and authorized
deeds, mortgages, bonds, contracts, notes and other instruments shall
be coordinated with like authority of the President.
(d) SECRETARY. The Secretary shall issue all
authorized notices for, and shall keep the minutes of, all proceedings
of the Board of Directors and of the stockholders and make a proper
record of the same, which shall be
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attested by him. He shall keep such books as may be required by the
Board of Directors, shall, in the absence of a duly appointed transfer
agent, take charge of the stock book of the Corporation, and shall
issue and attest all certificates of stock. He shall have the authority
to sign all deeds, mortgages, bonds, contracts, notes and other
instruments requiring his signature at the express direction of the
Board of Directors or with the countersignature of the Chairman of the
Board, the President, or of any other officer expressly authorized to
do so. He shall further have such other powers as are commonly incident
to the office of Secretary and all the powers and duties which the
Board of Directors may, from time to time, assign to him.
(e) TREASURER. The Treasurer shall have the
responsibility for maintaining the financial records of the
Corporation. He shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. He shall perform such other duties as are commonly
incident to the office of Treasurer and as may from time to time be
assigned by the Board of Directors to him.
(f) ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may
deem desirable. Each such officer shall hold office during the pleasure
of the Board of Directors and perform such duties as the Board of
Directors may prescribe.
SECTION 4. ACTION WITH RESPECT TO SECURITIES OF OTHER
ENTITIES. Unless otherwise directed by the Board of Directors, the
Chairman of the Board, the President or any other officer of the
Corporation authorized by the Chairman of the Board or the President
shall have the power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of, or with respect
to any action taken by, the stockholders, partners, members or other
equity owners of any corporation, partnership, limited liability
company or other entity in which the Corporation may hold securities,
and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in
such other entity.
ARTICLE V
---------
STOCK
-----
SECTION 1. CERTIFICATES OF STOCK. The interest of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares in such form as the Board of Directors may from
time to time prescribe, signed by, or in the name of the Corporation,
by the Chairman of the Board or the President or a Vice President, and
by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, certifying the number of shares owned. Any and all
of the signatures on the certificate may be by facsimile.
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SECTION 2. TRANSFERS OF STOCK. The shares of stock of the
Corporation shall be transferable only on the stock transfer books of
the Corporation kept at an office of the Corporation or by transfer
agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of
ARTICLE V of these By-laws, an outstanding certificate shall be
surrendered for cancellation before a new certificate representing the
same shares is issued.
Shares of stock of the Corporation are transferable upon
surrender for cancellation of a certificate or certificates
representing the shares to be transferred, with an assignment and power
of transfer endorsed thereon or attached thereto, duly executed, and
with such proof of the authenticity of the signature as the Corporation
or its transfer agent may reasonably require.
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. In the
event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning such proof of loss, theft
or destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.
SECTION 4. OTHER REGULATIONS. The issue, transfer, conversion
and registration of certificates of stock shall be governed by such
other regulations as the Board of Directors may establish.
ARTICLE VI
----------
RECORD DATE
-----------
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders of the
Corporation, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in
respect if such change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date
shall be not more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting of stockholders, nor more than sixty
(60) days prior to the time of any dividend or distribution payment
date or any date for the allotment of rights, or other matter provided
by law. If no record date has been so fixed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting
of stockholders, then such record date shall be the close of business
on the day next preceding the day on which notice of the meeting is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. If no record date has
been so fixed for the purpose of determining stockholders entitled to
receive payment of any dividend or other
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distribution or allotment of rights or to exercise any rights of
change, conversion or exchange of stock or for any other purpose, the
record date shall be at the close of business on the day on which the
Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
The Board of Directors may close the books of the Corporation
against transfer of shares during the whole or any part of the period
commencing with the record date and continuing until completion of the
meeting (including all adjournments thereof) or the transaction to
which the record date pertains.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting,
the Board of Directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall be not more than
ten (10) days after the date upon which the resolution fixing the
record date is adopted. If no record date has been fixed by the Board
of Directors and no prior action by the Board of Directors is required
by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation in the
manner prescribed by ARTICLE I, Section 8 hereof. If no record date has
been fixed by the Board of Directors and prior action by the Board of
Directors is required by the Delaware General Corporation Law with
respect to the proposed action by written consent of the stockholders,
the record date for determining stockholders entitled to consent to
corporation action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such
prior action.
ARTICLE VII
-----------
INDEMNIFICATION OF DIRECTORS AND OTHER PERSONS
----------------------------------------------
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as
it presently exists or may hereafter be amended, any person who was or
is made or is threatened to be made a party, or is otherwise involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact
that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation or of a partnership, joint
venture, trust, enterprise or non-profit entity, including
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service with respect to employee benefit plans, against all liability
and loss suffered and expenses reasonably incurred by such person. The
Corporation shall be required to indemnify a person in connection with
a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
SECTION 2. PREPAYMENT OF EXPENSES. The Corporation shall pay
the expenses of directors and executive officers of the Corporation,
and may pay the expenses of all other officers, employees or agents of
the Corporation, incurred in defending any proceeding, in advance of
its final disposition, PROVIDED, however, that the payment of expenses
incurred by a director, officer, employee or agent in advance of the
final disposition of the proceeding shall be made only upon receipt of
an undertaking by the director, officer, employee or agent to repay all
amounts advanced if it should be ultimately determined that the
director, officer, employee or agent is not entitled to be indemnified
under this Article VII or otherwise.
SECTION 3. CLAIMS. If a claim for indemnification or payment
of expenses under this Article VII is not paid in full within sixty
days after a written claim therefor has been received by the
Corporation, the claimant may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim. In any such action the
Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Article VII shall not be exclusive of any other
rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, bylaws,
agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 5. OTHER INDEMNIFICATION. The Corporation's
obligation, if any, to indemnify any person who was or is serving at
its request as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust, enterprise or nonprofit
entity, shall be reduced by any amount such person may collect as
indemnification from such other Corporation, partnership, joint
venture, trust, enterprise or non-profit enterprise.
SECTION 6. INSURANCE. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any person
who is or was a director, officer, trustee, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as
a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust or other enterprise (including, without
limitation, an employee benefit plan), against any expense, liability,
or loss, whether or not the Corporation would
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have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
SECTION 7. AMENDMENT OR REPEAL. Any repeal or modification of
the foregoing provisions of this Article VII shall not adversely affect
any right or protection hereunder of any person in respect of any act
or omission occurring prior to the time of such repeal or modification.
ARTICLE VIII
------------
AMENDMENT
---------
These By-laws may be amended or repealed by the Board of
Directors at any meeting or by the stockholders at any meeting or
written consent in lieu thereof in accordance with these By-laws.
ARTICLE IX
----------
MISCELLANEOUS
-------------
SECTION 1. NOTICES. Except as otherwise provided herein or as
required by law, any notices required to be delivered pursuant to these
By-laws shall be in writing and shall be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the
U.S. mails, postage pre-paid, or by sending such notice by pre-paid
telegram or mailgram addressed to the recipient at his last known
address on the books of the Corporation. The time when such notice is
received, if hand delivered, or the time when such notice is
dispatched, if delivered through the mails or by telegram or mailgram,
shall be the time of the giving of the notice.
A written waiver of any notice, signed by the person entitled
to such notice, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice
required to be given to such person. With respect to the waiver of
notice of any meeting, neither the business nor the purpose of the
meeting need be specified the waiver.
SECTION 2. CORPORATE SEAL. The Board of Directors may provide
a suitable seal, containing the name of the Corporation, which seal
shall be in the charge of the Secretary. If and when so directed by the
Board of Directors or a committee thereof, duplicates of such seal may
be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each
director, member of any committee designated by the Board of Directors,
and each officer of the Corporation shall, in the performance of his
duties, be fully protected in relying in good faith on the books of
account or other records of the Corporation and upon
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such information, opinions, reports or statements presented to the
Corporation by any of its officers or employees or the committees of
the Board of Directors, or by any other person as to matters which such
director or committee member reasonably believes are within such other
person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation
shall be as fixed by the Board of Directors.
SECTION 5. TIME PERIODS. In applying any provision of these
By-laws which requires that an act be done or not be done a specified
number of days prior to an event or during a period of a specified
number of days prior to an event, calendar days shall be used, the day
of the doing of the act shall be excluded, and the day of the event
shall be included."
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Appendix D
HOFFMAN
SCHUTZ
MEDIA
CAPITAL, INC.
December 4, 1997
Board of Directors
Faircom Inc.
333 Glen Head Road
Old Brookville, NY 11545
Gentlemen:
Faircom Inc. ("Faircom") proposes to enter into an Agreement of Merger (the
"Merger") with Regent Communications, Inc. ("Regent") and Regent Merger Corp., a
wholly owned subsidiary of Regent. As of the closing of the Merger, Faircom
shareholders will receive total consideration of $31,162,000 increased by the
value of a radio station in Shelby, Ohio (to be acquired by Faircom prior to the
Merger) and by the net working capital of Faircom and decreased by Faircom's
senior and subordinated debt then outstanding, in the form of Regent's Series C
Convertible Preferred Stock. Such Convertible Preferred Stock will be registered
under the Securities Act of 1933 and is convertible into common shares of Regent
at a rate of $5 of Convertible Preferred per Regent common share.
Immediately prior to the Merger, Regent will acquire the assets of twelve other
radio stations currently owned by five other companies. The consummation of
these acquisitions will require Regent to raise significant amounts of capital
from banks and various institutional sources. Regent will also issue significant
additional amounts of different classes of Convertible Preferred Stock with
terms similar to the Series C Convertible Preferred Stock that the Faircom
shareholders are to receive in exchange for their existing Faircom common
shares.
Hoffman Schutz Media Capital, Inc. has been retained by the Board of Directors
of Faircom to review the proposed merger with Regent and to determine the
fairness, from a financial point of view, of the consideration to be received by
Faircom's common shareholders. In arriving at the opinion set forth herein, we
have, among other things:
1. Reviewed Faircom's Annual Reports on Forms 10K and related financial
information for the three fiscal years ended December 31, 1996 and
Faircom's Form 10Q for the first three quarters of 1997;
2. Conducted discussions with the management of Faircom concerning the
company's business and prospects for each of its stations;
3. Conducted discussions with the senior management of Regent concerning
certain strategic, financial and operational issues relating to the
combination of the Regent and Faircom stations.
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Board of Directors
Faircom Inc.
December 4, 1997
PAGE 2
4. Reviewed the terms and conditions of the proposed merger as set forth
in the Plan of Acquisition and Capitalization dated December, 1997
prepared by The Crisler Company, with particular attention to the value
of the contribution of each of the merger participants relative to the
consideration each is proposed to receive under the terms of the merger
agreement;
5. Compared the financial terms of the Merger with the financial terms of
certain other business combinations which we deemed relevant;
6. Visited and inspected the five radio stations owned by Faircom in
Michigan and Ohio, as well as the new station in Shelby, Ohio, that
Faircom has contracted to purchase. Reviewed their current business
operations with Faircom's local management to determine current
business activity and future prospects. This included a review of local
competition, projections for local radio advertising expenditures, and
anticipated future financial performance for the stations in 1998 and
beyond;
7. Visited and inspected each of the radio stations in seven cities which
Regent is contracted to purchase from Park Lane Group, Inc., and which
Regent has been operating under "Time Brokerage Agreements" since
August of 1997. These inspections included extensive meetings with
Regent's local station managers to assess current and future business
prospects in a manner identical to that done with the stations owned by
Faircom;
8. Inspected the studios and offices of the radio stations which Regent is
proposing to acquire in Bullhead City, Arizona and Victorville,
California;
9. Reviewed audited and unaudited financial operating information for the
full years 1995 and 1996, interim operating statements for the first
nine months of 1997 and operating budgets for the last 3 months of 1997
for each of the Faircom stations and each of the Park Lane stations
currently being leased by Regent;
10. Created financial operating models for each of the station groups in
the nine radio markets where Regent and Faircom stations now operate.
Calculated the current fair market value of the operating assets of
each station combination using the discounted cash flow valuation
method;
11. Compared the computed fair market values of the assets contributed by
Faircom and Regent, with allowances for existing Faircom liabilities
and proposed Regent liabilities as outlined in the above mentioned
"Plan of Acquisition and Capitalization". These were then compared with
the consideration which each of the participants will receive according
to such plan; and
12. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessments of likely changes in
regulatory, general economic, and monetary conditions.
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Board of Directors
Faircom Inc.
December 4, 1997
PAGE 3
In preparing our opinion, we have relied on the accuracy and completeness of all
information that was available to us, including that supplied to us by Regent,
Faircom and the individual stations involved in this merger. We have assumed no
responsibility for the independent verification of such information.
Where we have used projections, estimates or budgets not prepared by us, we have
assumed that they were reasonably prepared to reflect the best available
estimates of the future performance of the subject stations. We have also not
undertaken an independent verification of the outstanding indebtedness of
Faircom, Regent or any of the individual companies which currently own the
stations proposed to be acquired by Regent. We have assumed that (i) all
material assets and liabilities of Faircom and Regent are as set forth in their
respective financial statements; and (ii) the Merger will qualify as a
reorganization for tax purposes with respect to the common shareholders of
Faircom. Our opinion is based upon regulatory, economic and monetary conditions
existing as of this date. Further, we express no opinion as to the price or
trading ranges at which the Convertible Preferred shares (or the common shares
into which the preferred shares are convertible) will trade after the effective
date of the Merger.
Our opinion is directed to the Board of Directors of Faircom and does not
constitute a recommendation to any shareholder of Faircom as to how any such
shareholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and other transactions or business strategies, if
any, that may have been discussed by the Board of Directors of Faircom as
alternatives to the Merger or the decision of the Board of Directors of Faircom
to proceed with the Merger. We were not requested to, and did not, solicit third
party indications of interest in acquiring all or any portion of the stock or
assets of Faircom .
This opinion has been prepared at the request and for the use of the Board of
Directors of Faircom and shall not be reproduced, summarized, described,
referred to or given to any other person or otherwise made public without our
prior written consent; provided, however, that this letter may be reproduced in
full in the Proxy Statement/Prospectus relating to the Merger.
In delivering our opinion to the Board of Directors of Faircom in connection
with the Merger, we will receive a flat fee for performing such services. This
fee is in no way dependent upon the results of our analyses or conclusions, nor
is it dependent upon the consummation of the Merger.
Neither we nor our principals have any financial association with Faircom,
Regent, Regent Merger Corp, or any of the entities which now own stations which
are expected to be involved in the Merger.
ON THE BASIS OF, AND SUBJECT TO THE FOREGOING, WE ARE OF THE OPINION THAT, AS OF
THIS DATE, THE CONSIDERATION TO BE RECEIVED BY THE COMMON STOCKHOLDERS OF
FAIRCOM IN CONNECTION WITH THE MERGER IS FAIR, FROM A FINANCIAL POINT OF VIEW,
TO SUCH HOLDERS.
Very truly yours,
Hoffman Schutz Media Capital, Inc.
/s/ Hoffman Schutz Media Capital, Inc.
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APPENDIX E
APPRAISAL RIGHTS
SECTION 262, DELAWARE
GENERAL CORPORATION LAW
Section 262. (a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
Section 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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<PAGE> 374
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may,
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within 20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more the 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices
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by mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
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approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Count
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
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Appendix F
Preliminary Copy
PROXY
FAIRCOM INC.
Special Meeting of
Stockholders,
_________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE AGREEMENT OF MERGER.
The undersigned hereby appoints Joel M. Fairman and Anthony Pantaleoni, and
each of them, as Proxy Holders for the undersigned, with full power of
substitution, to appear and vote all of the shares of Faircom Inc. which the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at ______________, ____________, ________ on ____________, 1998 at ___
a.m., local time, and at any adjournment thereof, and hereby revokes any and all
Proxies heretofore given.
I hereby authorize the above-named holders and any of them to vote all the
shares of Faircom Inc. represented by this Proxy as follows:
1. Proposal to approve the Agreement of Merger dated as of December 5, 1997
among Faircom Inc., Regent Communications, Inc., Regent Merger Corp.,
Blue Chip Capital Fund II Limited Partnership and Miami Valley Venture
Fund L.P.
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. To act in accordance with their best judgment on any other business
which may properly come before the meeting.
If this Proxy is properly marked, the shares represented by this Proxy will
be voted at the Special Meeting, and at any adjournment thereof, in accordance
with the choice marked. If no directions are given above, the shares represented
by this Proxy will be voted "FOR" the proposal set forth in paragraph 1 above.
Please date, sign and promptly return
in the accompanying envelope.
( ) I plan to attend the Special Meeting.
-----------------------------------------
(Signature of Stockholder)
-----------------------------------------
(Title)
-----------------------------------------
(Signature of Stockholder)
-----------------------------------------
(Title)
Dated: __________________, 1998
Please sign exactly as your name appears on this proxy. If the shares
represented by this proxy are held by joint tenants, both must sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If stockholder is a corporation, please sign in full
corporate name by President or other authorized officer. If stockholder is a
partnership, please sign in partnership name by authorized person.
<PAGE> 379
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware (the "DGCL"), the Amended and Restated Certificate of
Incorporation of the Registrant (the "Certificate of Incorporation") provides
that a director of the Registrant shall not be personally liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the Certificate of Incorporation of the Registrant
requires that the liability of a director of the Registrant must be eliminated
or limited to the fullest extent permitted by the DGCL, as so amended. Further,
any repeal or modification of this provision of the Certificate of Incorporation
of the Registrant by the stockholders of the Registrant shall not adversely
affect any right or protection of a director of the Registrant existing at the
time of such repeal or modification.
In accordance with Section 145 of the DGCL, the Certificate of
Incorporation and the Amended and Restated By-Laws ("By-Laws") of the Registrant
provide that the Registrant shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may hereafter be
amended, any person who was or is threatened to be made a party, or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he, or a person for
whom he is a legal representative, is or was a director, officer, employee or
agent of the Registrant or of a partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses reasonably incurred by such
person. The indemnification and advancement of expenses pursuant to the
Certificate of Incorporation and By-Laws are not exclusive of any other rights
which the person seeking indemnification may have under any statute, provision
of such Certificate of Incorporation, By-Laws, agreement, vote of stockholders
or disinterested directors or otherwise. Pursuant to the terms of the
Certificate of Incorporation and the By-Laws, the Registrant is required to
indemnify a person in connection with a proceeding initiated by such person only
if the proceeding was authorized by the Board of Directors of the Registrant.
The Certificate of Incorporation and the By-Laws further provide that the
Registrant shall pay the expenses of directors and executive officers of the
Registrant, and may pay the expenses of all other officers, employees or agents
of the Registrant, incurred in defending any proceeding, in advance of its final
disposition, upon receipt of an undertaking by the director, officer, employee
or agent to repay all amounts advanced if it should be ultimately determined
that such person is not entitled to be indemnified under the provisions of the
Certificate of Incorporation, the By-Laws or otherwise.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145 or in the defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that indemnification provided
for by Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators.
The Certificate of Incorporation and the By-Laws provide that the
Registrant's obligation, if any, to indemnify any person who was or is serving
at its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity, shall be
reduced by any amount such person may collect as indemnification from such other
entity.
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If the indemnification provisions of the Certificate of Incorporation or
By-Laws are repealed or modified, such repeal or modification will not adversely
affect any right or protection thereunder of any person in respect of any act or
omission occurring prior to the time of such repeal or modification.
Pursuant to the Merger Agreement, in the event of any registration of the
Faircom Subordinated
Noteholders' shares of the Registrant's Common Stock as provided in the Merger
Agreement, the Registrant is required to defend, indemnify and hold harmless
each of the Faircom Subordinated Noteholders, its officers, directors, partners,
affiliates, and each underwriter thereof and each person who controls such
entity or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities and any claim in respect thereof, joint
or several, to which any such party may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
or final prospectus contained therein, or any amendment or supplement thereto,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement therein not misleading,
other than that which is based upon information supplied by the Faircom
Subordinated Noteholders, in writing, and the Registrant shall reimburse each of
the Faircom Subordinated Noteholders, and such officers, directors, underwriters
and controlling person for any legal or other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability or actions (except to the extent the foregoing arises out of
or is based upon information provided in writing to the Registrant by the person
or entity seeking indemnification).
The Merger Agreement further provides that, in the event of any
registration of the Faircom Subordinated Noteholders' shares of the Registrant's
Common Stock as provided in the Merger Agreement, the Faircom Subordinated
Noteholders are required to defend, indemnify and hold harmless the Registrant,
its officers, directors, partners, affiliates, and each underwriter thereof and
each person who controls such entity or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities and any claim
in respect thereof, joint or several, to which the Registrant may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary or final prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, which is based upon information supplied by
the Faircom Subordinated Noteholders, in writing, and such entities are required
to reimburse the Registrant for any legal or other expenses reasonably incurred
by the Registrant in connection with investigating or defending any such loss,
claim, damage, liability or actions (except to the extent the foregoing arises
out of or is based upon information provided by Registrant or any of its
stockholders).
Pursuant to the Merger Agreement, if for any reason any indemnification
described above may not be provided by the party or parties required to provide
such indemnification, the indemnifying parties are required, in lieu of such
indemnification, to contribute to the amount paid or payable by the party or
parties seeking indemnification, in such proportion as is appropriate to reflect
the relative fault of the parties in connection with any statement or omission
which resulted in such losses, claims, damages, liabilities or actions, as well
as any other relevant equitable considerations.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<S> <C>
2 -- 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 (included as
Appendix A to the Proxy Statement/Prospectus filed as part of this
Registration Statement) (excluding exhibits not deemed material or filed
separately in executed form)
3(a) -- Amended and Restated Certificate of Incorporation of Regent Communications,
Inc. (included as Exhibit 1(x) to Appendix A to the Proxy
Statement/Prospectus filed as part of this Registration Statement)
3(b)* -- Amended and Restated By-Laws of Regent Communications, Inc.
4(a)* -- Specimen stock certificate
4(b)* -- Stock Purchase Agreement dated as of May 20, 1997 between Terry S. Jacobs
and Regent Communications, Inc.
4(c)* -- Stock Purchase Agreement dated as of May 20, 1997 between River Cities
Capital Fund Limited Partnership and Regent Communications, Inc.
4(d)* -- Stock Purchase Agreement dated as of November 26, 1997 and Terry S. Jacobs
and Regent Communications, Inc.
4(e)* -- Stock Purchase Agreement dated as of December 1, 1997 between William L.
Stakelin and Regent Communications, Inc.
4(f)* -- Stock Purchase Agreement dated as of December 8, 1997 between Regent
Communications, Inc. and General Electric Capital Corporation
4(g)* -- Stock Purchase Agreement dated as of December 8, 1997 between Regent
Communications, Inc. and BMO Financial, Inc.
4(h)* -- First Amended and Restated Stockholders' Agreement dated as of December 8,
1997 among Regent Communications, Inc., Terry S. Jacobs, William L.
Stakelin, River Cities Capital Fund Limited Partnership, BMO Financial,
Inc. and General Electric Capital Corporation
4(i)* -- Redemption and Warrant Agreement dated as of December 5, 1997 among Regent
Communications, Inc., Blue Chip Capital Fund II Limited Partnership, Miami
Valley Venture Fund L.P. and Faircom Inc., as amended
4(j)* -- 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)
4(k)* -- 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 1 below)
5* -- Opinion of Strauss & Troy as to legality of the securities being registered
8(a)* -- Opinion of Fulbright & Jaworski L.L.P. regarding certain tax matters
8(b)* -- Opinion of Strauss & Troy regarding certain tax matters
10(a)* -- Agreement of Merger dated as of December 17, 1997 among Regent
Communications, Inc., Regent Broadcasting of Victorville, Inc. and Topaz
Broadcasting, Inc.
10(b)* -- Asset Purchase Agreement dated December 17, 1997 between Regent
Broadcasting of Victorville, Inc. and Ruby Broadcasting, Inc.
10(c)* -- Asset Purchase Agreement dated December 9, 1997 between Regent Broadcasting
of Kingman, Inc. and Continental Radio Broadcasting, L.L.C.
</TABLE>
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<PAGE> 382
<TABLE>
<S> <C>
10(d)* -- Agreement of Merger among Alta California Broadcasting, Inc., Regent
Acquisition Corp. and Regent Communications, Inc. dated October 10, 1997
10(e)* -- Asset Purchase Agreement dated September 10, 1997 between Regent
Broadcasting of Dayton, Inc. and Great Trails Broadcasting Corporation
10(f)* -- Regent Communications, Inc. Faircom Conversion Stock Option Plan
10(g)* -- Regent Communications, Inc. 1998 Management Stock Option Plan
10(h)* -- Employment Agreement between Regent Communications, Inc. and Terry S.
Jacobs
10(i)* -- Employment Agreement between Regent Communications, Inc. and William L.
Stakelin
10(j)* -- Form of Employment Agreement between Regent Communications, Inc. and Joel
M. Fairman
10(k)* -- Stock Purchase Agreement dated as of June 16, 1997 among Regent
Communications, Inc. and the shareholders of The Park Lane Group, as
amended
10(l)* -- $1,500,000 Promissory Note made by Regent Communications, Inc. in favor of
Citicasters Co. dated December 3, 1997
10(m)* -- Security Agreement between Regent Communications, Inc. and Citicasters Co.
dated December 3, 1997
10(n)* -- $1,500,000 Limited Recourse Promissory Note made by Southwind Broadcasting,
Inc. in favor of Regent Communications, Inc. dated December 3, 1997
10(o)* -- Assignment dated as of December 3, 1997 among Wicks Broadcast Group Limited
Partnership, WBG License Co., L.L.C. and Regent Communications, Inc.
10(p)* -- Time Brokerage Agreement dated as of October 10, 1997 among Redwood
Broadcasting, Inc., Alta California Broadcasting, Inc., Power Surge, Inc.,
Northern California Broadcasting, Inc. and Regent Communications, Inc.
10(q)* -- Time Brokerage Agreement dated as of June 16, 1997 between Regent
Communications, Inc. and The Park Lane Group, as amended (assigned by the
Registrant to its subsidiaries by a certain Assignment and Assumption of
Time Brokerage Agreement dated as of August 18, 1997)
10(r)* -- Time Brokerage Agreement dated as of December 17, 1997 between Topaz
Broadcasting, Inc. and Regent Communications, Inc.
10(s)* -- Time Brokerage Agreement dated as of December 17, 1997 between Ruby
Broadcasting, Inc. and Regent Communications, Inc.
10(t)* -- Time Brokerage Agreement dated effective as of December 3, 1997 between
Southwind Broadcasting, Inc. and Regent Communications, Inc.
10(u)* -- Deposit Escrow Agreement dated as of December 17, 1997 among Regent
Broadcasting of Victorville, Inc., Ruby Broadcasting, Inc., Topaz
Broadcasting, Inc., Regent Communications, Inc., Thomas P. Gammon and
Security Title & Guaranty, Inc., as escrow agent
10(v)* -- Deposit Escrow Agreement dated as of December 9, 1997 among Regent
Broadcasting of Kingman, Inc., Continental Radio Broadcasting, L.L.C. and
Star Media, as escrow agent
10(w)* -- Deposit Escrow Agreement dated as of October 10, 1997 among Regent
Communications, Inc., Redwood Broadcasting, Inc. and Security Title &
Guaranty Agency, Inc., as escrow agent
10(x)* -- Deposit Escrow Agreement dated as of June 16, 1997 among Regent
Communications, Inc., Star Media and the stockholders of The Park Lane
Group
10(y)* -- Deposit Escrow Agreement dated as of September 10, 1997 among Regent
Broadcasting of Dayton, Inc., Great Trails Broadcasting Corporation and
Bank One Trust Company, NA
</TABLE>
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<PAGE> 383
<TABLE>
<S> <C>
10(z)* -- Lease Agreement dated January 17, 1994 between CPX -- Rivercenter
Development Corporation and Regent Communications, Inc.
10(aa)* -- Lease dated September 13, 1983 between KCBQ, Inc. as Lessor and The Audio
House, Inc. as Lessee, as subsequently assigned and amended
10(bb)* -- Amended and Restated Promissory Note issued by Regent Licensee of San
Diego, Inc. and Regent Broadcasting of San Diego, Inc. to Citicasters Co.
in the principal amount of $6,000,000
10(cc)* -- Non-Recourse Guaranty Agreement dated as of June 6, 1997 between Regent
Communications, Inc. and Citicasters Co.
10(dd)* -- Amended and Restated Security Agreement dated as of September 10, 1997
among Regent Broadcasting of San Diego, Inc., Regent Licensee of San Diego,
Inc. and Citicasters Co.
10(ee)* -- Stock Pledge Agreement dated as of June 6, 1997 between Regent
Communications, Inc. and Citicasters Co.
10(ff)* -- Subsidiary Guaranty dated as of November 14, 1997 by each of the
subsidiaries of Regent Communications, Inc. in favor of Bank of Montreal,
Chicago Branch
10(gg)* -- Pledge and Security Agreement dated as of November 14, 1997 among Regent
Communications, Inc. and each of its subsidiaries and Bank of Montreal,
Chicago Branch
10(hh)* -- Collateral Account Agreement dated as of November 14, 1997 between Regent
Communications, Inc. and Bank of Montreal, Chicago Branch
12* -- Statements regarding computation of ratios
21* -- Subsidiaries of the Registrant
23(a) -- Consents of Coopers & Lybrand L.L.P.
Consent of Strauss & Troy (contained in Exhibit 5 and 8(b)
Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 8(a)
Consent of Hoffman Schutz Media Capital, Inc. (contained in Appendix D to
the Proxy
Statement/Prospectus filed as part of this Registration Statement)
Consent of BDO Seidman, LLP
Consents of Stockman Kast Ryan & Scruggs, P.C.
Consent of Kopperman & Wolf Co.
24 -- Powers of Attorney (included as part of the Signature Page)
</TABLE>
- ---------------
* To be filed by amendment.
Note:
1. Two substantially identical notes were issued to Bank of Montreal, Chicago
Branch in the principal amounts of $15,000,000 and $20,000,000.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 384
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference in to the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE> 385
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
caused this registration statement to be signed on its behalf by the undersigned
thereto duly authorized, in the City of Covington, Commonwealth of Kentucky, on
February 17, 1998.
REGENT COMMUNICATIONS, INC.
By: /s/ TERRY S. JACOBS
------------------------------------
Terry S. Jacobs, Chairman of the
Board,
Chief Executive Officer and
Treasurer
POWER OF ATTORNEY
NOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Terry S. Jacobs, William L. Stakelin and Matthew
A. Yeoman, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power an authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
/s/ TERRY S. JACOBS Chairman of the Board, Chief February 17, 1998
- --------------------------------------------- Executive Officer and
Terry S. Jacobs Treasurer (Principal
Executive and Financial
Officer)
/s/ MATTHEW A. YEOMAN Vice President -- Finance February 17, 1998
- --------------------------------------------- (Principal Accounting
Matthew A. Yeoman Officer)
/s/ TERRY S. JACOBS Director February 17, 1998
- ---------------------------------------------
Terry S. Jacobs
/s/ WILLIAM L. STAKELIN Director February 17, 1998
- ---------------------------------------------
William L. Stakelin
</TABLE>
II-7
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-XXX) of our report dated January 30, 1998, on our audits of the
financial statements of Regent Communications, Inc. We also consent to the
reference to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 16, 1998
<PAGE> 2
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-XXX) of our report dated March 21, 1997, except for Notes 5 and 9, for
which the date is March 31, 1997 and January 29, 1998, respectively, on our
audits of the financial statements of The Park Lane Group. We also consent to
the reference to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Menlo Park, California
February 16, 1998
<PAGE> 3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-4 (File
No. 333-XXX) of our report dated February 10, 1998, on our audits of the
financial statements of Continental Radio Broadcasting, L.L.C. We also consent
to the reference to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 16, 1998
<PAGE> 4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-XXX) of our report dated January 9, 1998, on our audits of the
Statement of Revenues and Direct Expenses of Ruby Broadcasting, Inc. We also
consent to the reference to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 16, 1998
<PAGE> 5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Faircom Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 14, 1997, relating to the
consolidated financial statements of Faircom, Inc., which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Mitchel Field, New York
February 17, 1998
<PAGE> 6
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Regent Communications,
Inc. on Form S-4 of our reports, dated June 25, 1997 and October 10, 1997
relating to the consolidated financial statements of Alta California
Broadcasting, Inc. and subsidiary as of March 31, 1997 and for the year then
ended, and dated May 9, 1997 relating to the financial statements of KARZ/KNRO
(A Division of Merit Broadcasting Corporation) as of December 31, 1996 and for
the year then ended, appearing in the Prospectus, which is part of this
Registration Statement and to the reference to us under the heading "Experts"
in such Prospectus.
/s/Stockman Kast Ryan & Scruggs, P.C.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
February 17, 1998
<PAGE> 7
K&W CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
2000 KEITH BUILDING, CLEVELAND, OHIO 44115
(216) 696-1730 - FAX (216) 696-8234
KOPPERMAN & WOLF
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-XXX) of our report dated January 9, 1997, on our audits of the
financial statements of Treasure Radio Associates Limited Partnership. We also
consent to the reference to our firm under the caption "Experts".
/s/ KOPPERMAN & WOLF CO.
Cleveland, Ohio
February 16, 1998
