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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............ to .............
Commission file number 0-15392
REGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1492857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 East RiverCenter Boulevard
Suite 180
Covington, Kentucky 41011
(Address of principal executive offices) (Zip Code)
(606) 292-0030
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Series C Convertible Preferred Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 10, 2000, the aggregate market value of registrant's common equity
held by non-affiliates of registrant was approximately $249,158,000 based upon
the closing sale price of $10.875 on the Nasdaq Stock Market's National Market
for that date.
The number of common shares of registrant outstanding as of March 10, 2000 was
34,515,839.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be filed during
April 1999 in connection with the 2000 Annual Meeting of Stockholders presently
scheduled to be held on May 18, 2000 are incorporated by reference into Part III
of this Form 10-K.
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REGENT COMMUNICATIONS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
----
Part I
Item 1 Business................................................... 3
Item 2 Properties................................................. 22
Item 3 Legal Proceedings.......................................... 23
Item 4 Submission of Matters to a Vote of Security Holders........ 23
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 23
Item 6 Selected Financial Data.................................... 24
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 25
Item 7A Quantitative and Qualitative Disclosures
about Market Risk........................................ 31
Item 8 Financial Statements and Supplementary Data ............... 31
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .................. 67
Part III
Item 10 Directors and Executive Officers of the Registrant......... 67
Item 11 Executive Compensation..................................... 67
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................... 67
Item 13 Certain Relationships and Related Transactions ............ 68
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 68
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PART I
ITEM 1. BUSINESS
General Development of Business
We are a radio broadcasting company focused on acquiring, developing
and operating radio stations in mid-sized and small markets. We currently own
and operate 29 FM and 15 AM radio stations in 12 markets in Arizona, California,
Michigan, Minnesota, New York, Ohio, Pennsylvania and Texas. We have entered
into written agreements to acquire a total of ten additional stations in two new
markets (Albany, New York and Grand Rapids, Michigan) and one existing market
(Chico, California) and to sell our stations in four of our existing markets
(Mansfield, Ohio; Palmdale, California; Victorville, California; and Flagstaff,
Arizona). Upon completion of these pending acquisitions and sales, we will own
and operate 28 FM and 12 AM radio stations in ten markets. Our assembled
clusters of radio stations rank first or second in terms of revenue share in all
of our markets.
Our primary strategy is to secure and maintain a leadership position in
the markets we serve and to expand into additional mid-sized and small markets
where we can achieve a leadership position. After we enter a market, we seek to
acquire stations that, when integrated with our existing operations, will allow
us to reach a wider range of demographic groups that appeal to advertisers,
increase revenue and achieve substantial cost savings. Additionally, we believe
that our advertising pricing on the basis of cost per thousand impressions,
combined with the added reach of our radio station clusters, allows us to
compete successfully for advertising revenue against non-traditional competitors
such as print media, television and outdoor advertising.
Relative to the largest radio markets in the United States, we believe
that the mid-sized and small markets represent attractive operating environments
because they are generally characterized by:
- a greater use of radio advertising compared to the national
average;
- substantial growth in advertising revenues as national and
regional retailers expand into mid-sized and small markets;
- a weaker competitive environment characterized by small
independent operators, many of whom lack the capital to produce
locally-originated programming or to employ more sophisticated
research, marketing, management and sales techniques;
- less direct format competition due to a smaller number of
stations in any given market; and
- lower overall susceptibility to fluctuations in general economic
conditions due to a lower percentage of national versus local
advertising revenues.
We believe that these operating characteristics, coupled with the
opportunity to establish or expand radio station clusters within a specific
market, create the potential for revenue growth and cost efficiencies.
Our portfolio of radio stations is diversified in terms of geographic
location, target demographics and format. We believe that this diversity helps
insulate us from downturns in specific markets and changes in format
preferences.
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Recently Completed Acquisitions and Dispositions
We completed the following acquisitions and dispositions of radio
stations during 1999 and the first quarter of 2000. The purchase prices set
forth below were paid in cash, except where otherwise indicated, and include,
where applicable, amounts paid under consulting and noncompetition agreements
but do not include transaction-related costs.
Acquisitions
------------
<TABLE>
<CAPTION>
No. of Purchase Price Date
Seller Market Stations Call Letters (in millions) Completed
------ ------ -------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
WJON Broadcasting Company St. Cloud, MN 3 KMXK(FM) $12.7 5/6/99
WJON(AM)
WWJO(FM)
Media One Erie, PA 3 WXKC(FM) $13.5 9/1/99
Group-Erie, Ltd. WRIE(AM)
WXTA(FM)
Forever of NY, Inc. and Utica-Rome, NY 5 WODZ(FM) $44.7(1) 1/28/00
related entities WLZW(FM)
WFRG(FM)
WIBX(AM)
WRUN(AM)
Watertown, NY 4 WCIZ(FM)
WFRY(FM)
WTNY(AM)
WUZZ(AM)
New Wave Broadcasting, El Paso, TX 3 KLAQ(FM) $23.5 1/31/00
L.P. KSII(FM)
KROD(AM)
</TABLE>
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(1) The purchase price paid consisted of approximately $43.8 million in cash and
100,000 shares of our common stock.
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Dispositions
------------
<TABLE>
<CAPTION>
No. of Sale Price Date
Purchaser Market Stations Call Letters (in millions) Completed
--------- ------ -------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Concord Media Group, Inc. Charleston, SC 1 WSSP(FM) $1.6 3/15/99
Concord Media Group of San Diego, CA 1 KCBQ(AM) $6.0 8/1/99
California, Inc.
Mag Mile Media, L.L.C. Kingman, AZ 4 KFLG(AM) $5.4 10/15/99
KFLG(FM)
KZZZ(FM)
KAAA(AM)
Commonwealth Lake Tahoe, CA 2 KRLT(FM) $1.2 11/1/99
Communications, LLC KOWL(AM)
</TABLE>
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Pending Transactions
We currently have transactions pending which, if completed, will result
in the purchase by us of ten additional radio stations and the sale by us of 14
radio stations. Closing of each of these transactions is subject to certain
conditions, including required governmental approvals.
Albany and Grand Rapids Acquisition; Sale of Mansfield, Palmdale and
Victorville Stations. On March 12, 2000, we entered into an Asset Exchange
Agreement with Clear Channel Broadcasting, Inc., Capstar Radio Operating Company
and their related entities to acquire substantially all of the assets of four FM
and two AM radio stations in Albany, New York and three FM radio stations in
Grand Rapids, Michigan in exchange for substantially all of the assets of our
seven FM and four AM radio stations in the Mansfield, Ohio; Palmdale,
California; and Victorville, California markets; and the payment by us of $67.0
million in cash. We have made a cash escrow deposit in the amount of $5.0
million and have agreed to pay liquidated damages in the amount of $28.0 million
if we fail to perform our obligations under the asset exchange agreement in
certain circumstances.
The sale to us of the Albany and Grand Rapids stations is part of a
sell-off of stations which regulatory agencies are requiring in order to allow
for the completion of the pending merger of Clear Channel Communications, Inc.
and AMFM, Inc. That merger requires the prior approvals of the shareholders of
Clear Channel and AMFM, as well as approvals from various regulatory
authorities, including the Federal Communications Commission, the Federal Trade
Commission, the U.S. Department of Justice, and state antitrust enforcement
agencies. These regulatory authorities are requiring divestiture of the Albany
and Grand Rapids stations and many other stations to comply with multiple
ownership and market concentration policies and other public interest
considerations. These approvals and the consummation of the Clear Channel and
AMFM merger are conditions precedent which must be met before the exchange of
the Albany and Grand Rapids stations for our Mansfield, Palmdale and Victorville
stations can take place. It is anticipated that these transactions could be
completed during the third quarter of 2000; but there can be no assurance the
shareholder and regulatory approvals will be obtained or, if obtained, when that
will occur.
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Chico Acquisition. On March 29, 2000, we entered into an agreement of
merger with KZAP, Inc. by which we will acquire control of radio station
KZAP(FM) located in Chico, California in consideration for 233,333 shares of our
common stock. We anticipate closing this acquisition during the second quarter
of 2000 following receipt of FCC approval. We are currently providing
programming and selling air time for KZAP(FM) under a time brokerage agreement
pending consummation of the acquisition.
Sale of Flagstaff Stations. On March 29, 2000, we entered into an asset
purchase agreement with Yavapai Broadcasting Corporation to sell substantially
all of the assets of our two FM and one AM radio stations in Flagstaff, Arizona
for a cash purchase price of $2.0 million. We anticipate closing this
acquisition during the second quarter of 2000 following receipt of FCC approval.
Earlier in March 2000, we terminated a March 1999 agreement by which we had
agreed to sell our Flagstaff assets to another party for a cash purchase price
of approximately $2.4 million. Action on the FCC application for approval of
that sale had been delayed since May 1999 due to the filing of an objection by
the owner of a competing station in the Flagstaff market based on the alleged
ownership concentration that the proposed buyer would have had following the
sale.
Acquisition Strategy
Our acquisition strategy is to expand within our existing markets and
into new mid-sized and small markets where we believe we can effectively use our
operating strategies. In considering new markets, we focus on those markets that
have a minimum of $8.0 million in gross radio advertising revenue where we
believe we can build a station cluster that will generate at least $1.0 million
in annual broadcast cash flow. Although significant competition exists among
potential purchasers for suitable radio station acquisitions throughout the
United States, we believe that there is currently less competition, particularly
from the larger radio operators, in the mid-sized and small markets. This has
afforded us relatively more attractive acquisition opportunities in these
markets. After entering a market, we seek to acquire additional stations that
will allow us to reach a wider range of demographic groups to appeal to
advertisers and increase revenue. We also integrate these stations into our
existing operations in an effort to achieve substantial cost savings. We have
sold or will sell stations in different markets that did not or do not fit
within our existing acquisition strategy.
We believe that the creation of strong station clusters in our local
markets is essential to our operating success. In evaluating an acquisition
opportunity in a new market, we assess our potential to build a leading radio
station cluster in that market over time. We will not consider entering a new
market unless we can acquire multiple stations in that market. We also analyze a
number of additional factors we believe are important to success, including the
number and quality of commercial radio signals broadcasting in the market, the
nature of the competition in the market, our ability to improve the operating
performance of the radio station or stations under consideration and the general
economic conditions of the market.
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We believe that our acquisition strategy, if properly implemented,
could have a number of benefits, including:
- greater revenue and broadcast cash flow diversity;
- improved broadcast cash flow margins through the consolidation of
facilities and the elimination of redundant expenses;
- enhanced revenue by offering advertisers a broader range of
advertising packages;
- improved negotiating leverage with various key vendors;
- enhanced appeal to top industry management talent; and
- increased overall scale, which should facilitate our capital
raising activities.
We have developed a process for integrating newly acquired properties
into our overall culture and operating philosophy, which involves the following
key elements:
- assess format quality and effectiveness so that we can refine
station formats in order to increase audience and revenue share;
- upgrade transmission, audio processing and studio facilities;
- expand and strengthen sales staff through active recruiting and
in-depth training;
- convert acquired stations to our communications network and
centralized networked accounting system; and
- establish revenue and expense budgets consistent with the
programming and sales strategy and corresponding cost
adjustments.
From time to time, in compliance with applicable law, we enter into a
time brokerage agreement (under which separately owned and licensed stations
agree to function cooperatively in terms of programming, advertising, sales and
other matters), or a similar arrangement, with a target property prior to FCC
final approval and the consummation of the acquisition, in order to gain a head
start on the integration process.
Operating Strategy
Our operating strategy focuses on maximizing our radio stations' appeal
to listeners and advertisers and, consequently, increasing our revenue and cash
flow. To achieve these goals, we have implemented the following strategies:
Ownership of Strong Radio Station Clusters. We seek to secure and
maintain a leadership position in the markets we serve by owning multiple
stations in those markets. By coordinating programming, promotional and sales
strategies within each local station cluster, we attempt to capture a wider
range of demographic listeners to appeal to advertisers. We believe that the
diversification of our programming formats and inventory of available
advertising time strengthen relationships with advertisers, increasing our
ability to maximize the value of our inventory. We believe that operating
multiple stations in a market enhances our ability to market the advantages of
advertising on radio versus other media, such as newspapers and television.
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We believe that our ability to utilize the existing programming and
sales resources of our radio station clusters enhances the growth potential of
both new and underperforming stations while reducing the risks associated with
the implementation of station performance improvements such as new format
launches. We believe that operating leading station clusters allows us to
attract and retain talented local personnel, who are essential to our operating
success. Furthermore, we seek to achieve cost savings within a market through
the consolidation of facilities, sales and administrative personnel, management
and operating resources, such as on-air talent, programming and music research,
and the reduction of other redundant expenses.
Aggressive Sales and Marketing. We seek to maximize our share of local
advertising revenue in each of our markets through aggressive sales and
marketing initiatives. We provide extensive training through in-house sales and
time management programs and independent consultants who hold frequent seminars
and are available for consultation with our sales personnel. We emphasize
regular, informal exchanges of ideas among our management and sales personnel
across our various markets. We seek to maximize our revenue by utilizing
sophisticated inventory management techniques to provide our sales personnel
with frequent price adjustments based on regional and local market conditions.
We further strengthen our relationship with some advertisers by offering the
ability to create customer traffic through an on-site event staged at, and
broadcast from, the advertiser's business location. We believe that, prior to
their acquisition, many of our newly acquired stations had underperformed in
sales, due primarily to undersized sales staffs. Accordingly, we have
significantly expanded the sales forces of many of our acquired stations.
Targeted Programming and Promotion. To maintain or improve our position
in each market, we combine extensive market research with an assessment of our
competitors' vulnerabilities in order to identify significant and sustainable
target audiences. We then tailor the programming, marketing and promotion of
each radio station to maximize its appeal to the targeted audience. We attempt
to build strong markets by:
- creating distinct, highly visible profiles for our on-air
personalities, particularly those broadcasting during morning
drive time, which traditionally airs between 6:00 a.m. and 10:00
a.m.;
- formulating recognizable brand names for select stations; and
- actively participating in community events and charities.
Decentralized Operations. We believe that radio is primarily a local
business and that much of our success will be the result of the efforts of
regional and local management and staff. Accordingly, we decentralize much of
our operations at these levels. Each of our station clusters is managed by a
team of experienced broadcasters who understand the musical tastes, demographics
and competitive opportunities of their particular market. Local managers are
responsible for preparing annual operating budgets and a portion of their
compensation is linked to meeting or surpassing their operating targets.
Corporate management approves each station cluster's annual operating budget and
imposes strict financial reporting requirements to track station performance.
Corporate management is responsible for long range planning, establishing
corporate policies and serving as a resource to local management.
Station Portfolio
When our pending acquisition and sale transactions are completed, we
will own 28 FM and 12 AM radio stations in ten mid-sized and small markets. The
following table sets forth information about the stations that we own and expect
to own after giving effect to our pending transactions.
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As you review the information in the following table, you should note
the following:
- The abbreviation "MSA" in the table means the market's rank among
the largest metropolitan statistical areas in the United States.
- The symbol "*" indicates a station that is the subject of one of
our pending acquisitions. The symbol # indicates a station that
we have agreed to sell. The completion of each of the pending
acquisition and sale transactions is subject to certain
conditions, including governmental approvals and in some cases
shareholder approvals. There can be no assurance that these
conditions will be satisfied in any particular case.
- In the Primary Demographic Target column, the letter "A"
designates adults, the letter "W" designates women and the letter
"M" designates men. The numbers following each letter designate
the range of ages included within the demographic group.
- Station Cluster Rank by Market Revenue Share in the table is the
ranking, by radio cluster market revenue, of each of our radio
clusters in its market among all other radio clusters in that
market.
- We obtained all metropolitan statistical area rank information,
market revenue information and station cluster market rank
information for all of our markets (except the Flagstaff,
Arizona; Palmdale, California; Victorville, California; and
Mansfield, Ohio markets) from Investing in Radio 1999 Market
Report (4th ed.) published by BIA Publications, Inc.
- We obtained all market revenue and station cluster market revenue
rank information for the Palmdale market from the February 2000
Miller, Kaplan Market Revenue Report, a publication of Miller,
Kaplan, Arase & Co., Certified Public Accountants.
- Market data are not available for the Flagstaff, Victorville and
Mansfield markets.
- We obtained all audience share information from the Fall 1999
Radio Market Report published by The Arbitron Company. We derived
station cluster audience share based on persons ages 12 and over,
listening Monday through Sunday, 6:00 a.m. to 12:00 midnight.
<TABLE>
<CAPTION>
Station
Station Primary Station Cluster Cluster
Radio Market/ Programming Demographic Rank by Market 12+ Audience
Station Call Letters MSA Rank Format Target Revenue Share Share
-------------------- -------- ------------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Albany, NY...................59 2 19.9
WQBJ(FM)* Rock M 18-49
WQBK(FM)* Rock M 18-49
WABT(FM)* Oldies A 35+
WGNA(FM)* Country A 25-54
WGNA(AM)* Country A 25-54
WTMM(AM)* Sports M 35+
</TABLE>
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<TABLE>
<CAPTION>
Station
Station Primary Station Cluster Cluster
Radio Market/ Programming Demographic Rank by Market 12+ Audience
Station Call Letters MSA Rank Format Target Revenue Share Share
-------------------- -------- ------------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Chico, CA.................. 192 1 13.6
KFMF(FM) Rock M 18-49
KALF(FM) Country A 25-54
KQPT(FM) Alternative A 18-34
KZAP(FM)* Adult Contemporary A 25-54
El Paso, TX................ 70 2 20.9
KSII(FM) Hot Adult Contemporary W 25-54
KLAQ(FM) Rock M 18-49
KROD(AM) News/Talk A 35+
Erie, PA................... 155 1 26.4
WXKC(FM) Adult Contemporary W 25-54
WXTA(FM) Country A 25-54
WRIE(AM) Nostalgia A 35+
Flagstaff, AZ.............. N/A N/A N/A
KZGL(FM)# Rock M 18-34
KVNA(FM)# Adult Contemporary A 25-54
KVNA(AM)# News/Talk A 35+
Flint, MI.................. 116 2 16.3
WCRZ(FM) Adult Contemporary W 25-54
WWBN(FM) Rock M 18-49
WFNT(AM) Nostalgia A 35+
Grand Rapids, MI........... 66 2 14.4
WLHT(FM)* Adult Contemporary W 25-54
WGRD(FM)* Rock M 18-49
WTRV(FM)* Soft Adult Contemporary W 35+
Mansfield, OH.............. N/A N/A N/A
WYHT(FM)# Adult Contemporary W 25-54
WSWR(FM)# Oldies A 35-54
WMAN(AM)# News/Talk/Sports A 35+
Palmdale, CA............... N/A 1 N/A
KTIP(FM)# Country A 25-54
KOSS(FM)# Adult Contemporary W 25-54
KAVC(AM)# Religion A 35+
</TABLE>
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<TABLE>
<CAPTION>
Station
Station Primary Station Cluster Cluster
Radio Market/ Programming Demographic Rank by Market 12+ Audience
Station Call Letters MSA Rank Format Target Revenue Share Share
-------------------- -------- ------------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Redding, CA.................. 218 1 40.6
KSHA(FM) Soft Adult Contemporary W 25-54
KNNN(FM) Current Hit Radio A 18-34
KRDG(FM) Oldies A 35-54
KRRX(FM) Rock M 18-49
KNRO(AM) Classic Country M 35+
KQMS(AM) News/Talk/Sports A 35+
St. Cloud, MN................ 216 1 29.2
KMXK(FM) Adult Contemporary W 25-54
WWJO(FM) Country A 25-54
WJON(AM) News/Talk A 35+
Utica-Rome, NY............... 150 1 39.2
WODZ(FM) Oldies A 35-54
WLZW(FM) Adult Contemporary W 25-54
WFRG(FM) Country A 25-54
WRUN(AM) Sports A 35+
WIBX(AM) News/Talk M 35+
Victorville, CA.............. N/A N/A N/A
KZXY(FM)# Adult Contemporary A 18-49
KATJ(FM)# Country A 25-54
KIXA(FM)# Rock M 18-49
KROY(AM)# News/Talk A 35+
KIXW(AM)# Nostalgia A 35+
Watertown, NY................ 252 1 43.2
WCIZ(FM) Classic Hits A 25-54
WFRY(FM) Country A 25-54
WTNY(AM) Talk A 35+
WUZZ(AM) R&B Oldies A 35+
</TABLE>
Advertising Sales
Virtually all of our revenue is generated from the sale of local,
regional and national advertising for broadcast on our radio stations. In 1999,
approximately 84.9% of our net broadcast revenue was generated from the sale of
local and regional advertising. Additional broadcast revenue is generated from
the sale of national advertising, network compensation payments and other
miscellaneous transactions. The major categories of our advertisers include
telephone companies, restaurants, fast food chains, automotive companies and
grocery stores.
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Each station's local sales staff solicits advertising either directly
from the local advertiser or indirectly through an advertising agency. We pay a
higher commission rate to our sales staff for direct advertising sales. Through
direct advertiser relationships, we can better understand the advertiser's
business needs and more effectively design advertising campaigns to sell the
advertiser's products. We employ personnel in each of our markets to produce
commercials for the advertiser. In-house production combined with effectively
designed advertising establishes a stronger relationship between the advertiser
and the station cluster. National sales are made by a firm specializing in radio
advertising sales on the national level in exchange for a commission based on
gross revenue. Regional sales, which we define as sales in regions surrounding
our markets to companies that advertise in our markets, are generally made by
our local sales staff.
Depending on the programming format of a particular station, we
estimate the optimum number of advertising spots available. The number of
advertisements that can be broadcast without jeopardizing listening levels is
limited in part by the format of a particular station. Our stations strive to
maximize revenue by managing advertising inventory. Our stations adjust pricing
based on local market conditions and the ability to provide advertisers with an
effective means of reaching a targeted demographic group. Each of our stations
has a general target level of on-air inventory. This target level of inventory
may be different at different times of the day but tends to remain stable over
time. Much of our selling activity is based on demand for our radio stations'
on-air inventory and, in general, we respond to this demand by varying prices
rather than our target inventory level for a particular station. Therefore, most
changes in revenue can be explained by demand-driven pricing changes.
A station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to the station and the time they spend listening.
Each station's ratings are used by its advertisers and advertising
representatives to consider advertising with the station and are used by us to
chart audience levels, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is The Arbitron Company, which
publishes periodic ratings surveys for significant domestic radio markets. These
surveys are our primary source of audience ratings data.
We believe that radio is one of the most efficient and cost-effective
means for advertisers to reach specific demographic groups. Advertising rates
charged by radio stations are based primarily on:
- the supply of, and demand for, radio advertising time;
- a station's share of audiences in the demographic groups targeted
by advertisers, as measured by ratings surveys estimating the
number of listeners tuned to the station at various times; and
- the number of stations in the market competing for the same
demographic groups.
Rates are generally highest during morning and afternoon commuting
hours.
Competition
The radio broadcasting industry is highly competitive. The success of
each station depends largely upon audience ratings and its share of the overall
advertising revenue within its market. Stations compete for listeners and
advertising revenue directly with other radio stations within their respective
markets. Radio stations compete for listeners primarily on the basis of program
content that appeals to a particular demographic group. Building a strong
listener base consisting of a specific demographic group in a market enables an
operator to attract advertisers seeking to reach those listeners. Companies that
operate radio stations must be alert to the possibility of another station
changing format to compete
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directly for listeners and advertisers. A station's decision to convert to a
format similar to that of another radio station in the same geographic area may
result in lower ratings and advertising revenue, increased promotion and other
expenses and, consequently, lower broadcast cash flow.
Factors that are material to a radio station's competitive position
include management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. Recent changes in FCC policies and rules permit increased ownership
and operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as local
marketing agreements or joint sales agreements may in certain circumstances have
lower operating costs and may be able to offer advertisers more attractive rates
and services.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC, and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules regulating the number of stations that may be owned and
controlled by a single entity. The FCC's multiple ownership rules have changed
significantly as a result of the Telecommunications Act of 1996.
Stations compete for advertising revenue with other media, including
newspapers, broadcast television, cable television, magazines, direct mail,
coupons and outdoor advertising. In addition, the radio broadcasting industry is
subject to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems, by satellite and by digital audio broadcasting. Digital audio
broadcasting may deliver by satellite to nationwide and regional audiences,
multi-channel, multi-format, digital radio services with sound quality
equivalent to compact discs. The delivery of information through the Internet
also could create a new form of competition.
The FCC has recently authorized spectrum for the use of a new
technology, satellite digital audio radio services, to deliver audio
programming. Digital audio radio services may provide a medium for the delivery
by satellite or terrestrial means of multiple new audio programming formats to
local and national audiences. It is not known at this time whether this digital
technology also may be used in the future by existing radio broadcast stations
either on existing or alternate broadcasting frequencies. The FCC has adopted
rules creating a new low power radio service that will open up opportunities for
new FM radio stations. The radio broadcasting industry historically has grown
despite the introduction of new technologies for the delivery of entertainment
and information. A growing population and greater availability of radios,
particularly car and portable radios, have contributed to this growth.
Employees
At March 10, 2000, we employed 531 persons. Thirteen of our employees
in Watertown, New York are covered by a collective bargaining agreement. None of
our other employees is covered by collective bargaining agreements. We consider
our relations with our employees to be good.
Federal Regulation of Radio Broadcasting
Introduction. Our ownership, operation, purchase and sale of radio
stations is regulated by the FCC, which acts under authority derived from the
Communications Act of 1934, as amended. The Telecommunications Act of 1996 made
changes in several broadcast laws. Among other things, the FCC:
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- assigns frequency bands for broadcasting;
- issues, renews, revokes and modifies station licenses;
- determines whether to approve changes in ownership or control of
station licenses;
- regulates equipment used by stations; and
- adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment
practices of stations.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including fines, the grant of abbreviated license renewal
terms or, for particularly egregious violations, the denial of a license renewal
application, the revocation of a license or the denial of FCC consent to acquire
additional radio stations.
License Grant and Renewal. Radio stations operate under renewable
broadcasting licenses that are ordinarily granted by the FCC for maximum terms
of eight years. Licenses are renewed through an application to the FCC.
Petitions to deny license renewals can be filed by interested parties, including
members of the public. These petitions may raise various issues before the FCC.
The FCC is required to hold hearings on renewal applications if the FCC is
unable to determine that renewal of a license would serve the public interest,
convenience and necessity, or if a petition to deny raises a substantial and
material question of fact as to whether the grant of the renewal application
would be inconsistent with the public interest, convenience and necessity. If,
as a result of an evidentiary hearing, the FCC determines that the licensee has
failed to meet certain requirements and that no mitigating factors justify the
imposition of a lesser sanction, then the FCC may deny a license renewal
application. Historically, FCC licenses have generally been renewed. We are not
currently aware of any facts that would prevent the timely renewal of our
licenses to operate our radio stations, although we cannot assure you that all
of our licenses will be renewed.
The FCC classifies each AM and FM station. An AM station operates on
either a clear channel, regional channel or local channel. A clear channel is
one on which AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as either: Class A stations, which operate on an
unlimited time basis and are designated to render primary and secondary service
over an extended area; Class B stations, which operate on an unlimited time
basis and are designed to render service only over a primary service area; or
Class D stations, which operate either during daytime hours only, during limited
times only or on an unlimited time basis with low nighttime power. A regional
channel is one on which Class B and Class D AM stations may operate and serve
primarily a principal center of population and the rural areas contiguous to it.
A local channel is one on which AM stations operate on an unlimited time basis
and serve primarily a community and the suburban and rural areas immediately
contiguous thereto. Class C AM stations operate on a local channel and are
designed to render service only over a primary service area that may be reduced
as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
The following table sets forth the market, call letters, FCC license
classification, antenna height above average terrain (HAAT), power and frequency
of each of the stations that are owned and operated by us or that are the
subject of a pending acquisition, and the date on which each station's FCC
license expires.
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<TABLE>
<CAPTION>
Expiration
Station Call FCC HAAT in Power in Date of
Market Letters Class Meters Kilowatts Frequency FCC License
------ ------- ----- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Albany, NY............ WQBJ(FM)* B 150.0 50.0 103.5 MHz 6/1/06
WQBK(FM)* A 92.0 6.0 103.9 MHz 6/1/06
WABT(FM)* A 107.0 5.0 104.5 MHz 6/1/06
WGNA(FM)* B 300.0 12.50 107.7 MHz 6/1/06
WGNA(AM)* B N/A 5.0 1460 kHz 6/1/06
WTMM(AM)* B N/A 5.0 1300 kHz 6/1/06
Chico, CA............. KFMF(FM) B1 344 2.0 93.9 MHz 12/1/05
KPPL(FM) B 193 28.0 107.5 MHz 12/1/05
KALF(FM) B 386 7.0 95.7 MHz 12/1/05
KZAP(FM)* B1 393 1.5 96.7 MHz 12/1/05
El Paso, TX........... KSII(FM) C 433 98.0 93.1 MHz 8/1/05
KLAQ(FM) C 424 88.0 95.5 MHz 8/1/05
KROD(AM) B N/A 5.0 600 kHz 8/1/05
Erie, PA.............. WXKC(FM) B 150 50.0 99.9 MHz 8/1/06
WRIE(AM) B N/A 5.0 1260 kHz 8/1/06
WXTA(FM) B1 154 10.0 97.9 MHz 8/1/06
Flagstaff. AZ......... KZGL(FM)# C1 760.0 9.0 95.9 MHz 10/1/05
KVNA(FM)# C 460.0 100.0 horizontal+ 97.5 MHz 10/1/05
43.0 vertical+
KVNA(AM)# D N/A .04800 600 kHz 10/1/05
Flint, MI............. WCRZ(FM) B 331 50.0 107.9 MHz 10/1/04
WFNT(AM) B N/A 5.0 daytime 1470 kHz 10/1/04
1.0 night
WWBN(FM) A 328 6.0 101.7 MHz 10/1/04
Grand Rapids, MI...... WLHT(FM)* B 168.0 40.0 95.7 MHz 10/1/04
WGRD(FM)* B 180.0 13.0 97.9 MHz 10/1/04
WTRV(FM)* A 92.0 3.50 100.5 MHz 10/1/04
Mansfield, OH......... WYHT(FM)# B 67 17.5 105.3 MHz 10/1/04
WMAN(AM)# C N/A 0.92 1400 kHz 10/1/04
WSWR(FM)# A 91 3.0 100.1 MHz 10/1/04
Palmdale, CA.......... KAVC(AM)# C N/A 1.0 1340 kHz 12/1/05
KOSS(FM)# A 94 2.9 105.5 MHz 12/1/05
KTPI(FM)# A 176 1.9 103.1 MHz 12/1/05
Redding, CA........... KRRX(FM) C 600 100.0 106.1 MHz 12/1/05
KNNN(FM) A 100 5.3 99.3 MHz 12/1/05
KNRO(AM) B N/A 1.0 600 kHz 12/1/05
KQMS(AM) C N/A 1.0 1400 kHz 12/1/05
KSHA(FM) C 475 100.0 104.3 MHz 12/1/05
KRDG(FM) C2 325 9.9 105.3 MHz 12/1/05
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Expiration
Station Call FCC HAAT in Power in Date of
Market Letters Class Meters Kilowatts Frequency FCC License
------ ------- ----- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
St. Cloud, MN......... KMXK(FM) C2 150 50.0 94.9 MHz 4/1/05
WJON(AM) C N/A 1.0 1240 kHz 4/1/05
WWJO(FM) C 305 97.0 98.1 MHz 4/1/05
Utica-Rome, NY........ WODZ(FM) B1 184 7.4 96.1 MHz 6/1/06
WLZW(FM) B 201 25.0 98.7 MHz 6/1/06
WFRG(FM) B 151 100.0 104.3 MHz 6/1/06
WIBX(AM) B N/A 5.0 950 kHz 6/1/06
WRUN(AM) B N/A 5.0 daytime 1150 kHz 6/1/06
1.0 night
Victorville, CA....... KZXY(FM)# A 100 6.0 102.3 MHz 12/1/05
KIXW(AM)# D N/A 5.0 daytime 960 kHz 12/1/05
0.029 night
KATJ(FM)# A 472 0.26 100.7 MHz 12/1/05
KIXA(FM)# A 325 0.56 106.5 MHz 12/1/05
KROY(AM)# D N/A 0.5 daytime 1590 kHz 12/1/05
0.131 night
Watertown, NY......... WCIZ(FM) A 100 6.0 93.3 MHz 6/1/06
WFRY(FM) C1 145 97.0 97.5 MHz 6/1/06
WTNY(AM) B N/A 1.0 790 kHz 6/1/06
WUZZ(AM) B N/A 5.0 daytime 1410 kHz 6/1/06
1.0 night
</TABLE>
______________
* Stations indicated with an asterisk (*) are subject to acquisition by us under
an existing agreement.
# We have agreed to sell those stations indicated with a pound sign (#).
+ Due to the polarity of this station's transmission antennae and the licensed
parameters of its operation, the power level for this station is different
for horizontally and vertically oriented reception antennae.
Transfers or Assignment of Licenses. The Communications Act prohibits
the assignment or transfer of a broadcast license without the prior approval of
the FCC. In determining whether to grant approval, the FCC considers a number of
factors pertaining to the licensee (and proposed licensee), including:
- compliance with the various rules limiting common ownership of
media properties in a given market;
- the "character" of the licensee and those persons holding
"attributable" interests in the licensee; and
- compliance with the Communications Act's limitations on alien
ownership as well as compliance with other FCC regulations and
policies.
To obtain FCC consent to assign or transfer control of a broadcast
license, appropriate applications must be filed with the FCC. If the application
involves a "substantial change" in ownership
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or control, the application must be placed on public notice for not less than 30
days during which time period petitions to deny or other objections against the
application may be filed by interested parties, including members of the public.
If the application does not involve a "substantial change" in ownership or
control, it is a "pro forma" application. The "pro forma" application is
nevertheless subject to having informal objections filed against it. When
passing on an assignment or transfer application, the FCC is prohibited from
considering whether the public interest might be served by an assignment or
transfer of the broadcast license to any party other than the assignee or
transferee specified in the application.
Multiple Ownership Rules. The Communications Act, the
Telecommunications Act of 1996 and FCC rules impose specific limits on the
number of commercial radio stations an entity can own in a single market. These
rules preclude us from acquiring certain stations we might otherwise seek to
acquire. The rules also effectively prevent us from selling stations in a market
to a buyer that has reached its ownership limit in the market. The local radio
ownership rules are as follows:
- in markets with 45 or more commercial radio stations, ownership
is limited to eight commercial stations, no more than five of
which can be either AM or FM;
- in markets with 30 to 44 commercial radio stations, ownership is
limited to seven commercial stations, no more than four of which
can be either AM or FM;
- in markets with 15 to 29 commercial radio stations, ownership is
limited to six commercial stations, no more than four of which
can be either AM or FM; and
- in markets with 14 or fewer commercial radio stations, ownership
is limited to five commercial stations or no more than 50.0% of
the market's total, whichever is lower, and no more than three of
which can be either AM or FM.
The FCC is also reportedly considering proposing a policy that would
review a proposed transaction if it would enable a single owner to attain a high
degree of revenue concentration in a market. The FCC has also periodically
invited comment on the impact of concentration in public notices concerning
specific proposed transactions, and has delayed or refused its consent in some
cases because of revenue concentrations.
In addition to the limits on the number of radio stations that a single
owner may own in a particular geographic market, the FCC also has
cross-ownership rules which limit or prohibit radio station ownership by the
owner of television stations or a newspaper in the same market. The FCC recently
revised its radio/television cross-ownership rule to allow for greater common
ownership of radio and television stations. The revised radio/television
cross-ownership rule permits a single owner to own up to two television
stations, consistent with the FCC's rules on common ownership of television
stations, and one radio station in all markets. In addition, an owner can own
additional radio stations, subject to local ownership limits for the market, as
follows:
- in markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one
television station, an additional six radio stations; and
- in markets where ten media voices will remain, an owner may own
an additional three radio stations.
A "media voice" includes each independently-owned, full power television and
radio station and each newspaper, plus one voice for all cable television
systems operating in the market. The FCC's
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broadcast/newspaper cross-ownership rule prohibits the same owner from owning a
broadcast station and a daily newspaper in the same geographic market.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations directly or indirectly controlling broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5.0% or more of the corporation's voting
stock are generally attributable. In addition, certain passive investors are
attributable if they hold 20.0% or more of the corporation's voting stock. If a
single individual or entity controls more than 50.0% of a corporation's voting
stock, however, the interests of other shareholders are generally not
attributable unless the shareholders are also officers or directors of the
corporation.
The FCC recently adopted a new rule, known as the equity-debt-plus
rule, that causes certain creditors or investors to be attributable owners of a
station, regardless of whether there is a single majority shareholder. Under
this new rule, a major programming supplier or a same-market owner will be an
attributable owner of a station if the supplier or owner holds debt or equity,
or both, in the station that is greater than 33.0% of the value of the station's
total debt plus equity. A major programming supplier includes any programming
supplier that provides more than 15.0% of the station's weekly programming
hours. A same-market owner includes any attributable owner of a media company,
including broadcast stations, cable television, and newspapers, located in the
same market as the station, but only if the owner is attributable under an FCC
attribution rule other than the equity-debt-plus rule. If attribution under the
equity-debt-plus rule results in a violation of the FCC's multiple ownership
rules, each affected party must come into compliance with those rules, by
reducing or eliminating the party's interest in the affected media outlets or
obtaining a waiver from the FCC, no later than August 5, 2000. The attribution
rules limit the number of radio stations we may acquire or own in any market and
may also limit the ability of certain potential buyers of stations owned by us
from being able to purchase some or all of the stations which they might
otherwise wish to purchase from us
Alien Ownership Rules: The Communications Act prohibits the issuance or
holding of broadcast licenses by aliens, including any corporation if more than
20.0% of its capital stock is owned or voted by aliens. In addition, the FCC may
prohibit any corporation from holding a broadcast license if the corporation is
directly or indirectly controlled by any other corporation of which more than
25.0% of the capital stock is owned of record or voted by aliens, if the FCC
finds that the prohibition is in the public interest. Our charter provides that
our capital stock is subject to redemption by us by action of the Board of
Directors to the extent necessary to prevent the loss of any license held by us,
including any FCC license.
Time Brokerage. Over the past few years, a number of radio stations
have entered into what have commonly been referred to as time brokerage
agreements or local marketing agreements. While these agreements may take
varying forms, under a typical time brokerage agreement, 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 arrangements, separately-owned
stations could agree to function cooperatively in programming, advertising sales
and similar matters, subject to the requirement that the licensee of each
station maintain independent control over the programming and operations of its
own station. One typical type of time brokerage agreement is a programming
agreement between two separately-owned radio stations serving a common service
area, whereby the licensee of one station provides substantial portions of the
broadcast programming for airing on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during those program segments.
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<PAGE> 19
The FCC's rules provide that a radio station that brokers more than
15.0% of its weekly broadcast time on another station serving the same market
will be considered to have an attributable ownership interest in the brokered
station for purposes of the FCC's multiple ownership rules. As a result, in a
market where we own a radio station, we would not be permitted to enter into a
time brokerage agreement with another local radio station in the same market
that we could not own under the local ownership rules, unless our programming on
the brokered station constituted 15.0% or less of the other local station's
programming time on a weekly basis. FCC rules also prohibit a radio station from
duplicating more than 25.0% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage agreement
where the brokered and brokering stations which it owns or programs serve
substantially the same area.
Programming and Operation. The Communications Act requires broadcasters
to serve the public interest. Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain records demonstrating such responsiveness. Complaints from listeners
concerning a station's programming will be considered by the FCC when it
evaluates the licensee's renewal application, although listener complaints may
be filed and considered at any time and must be maintained in the station's
public file.
Stations also must pay regulatory and application fees and follow
various FCC rules that regulate, among other things, political advertising, the
broadcast of obscene or indecent programming, the advertisement of casinos and
lotteries, sponsorship identification and technical operations, including limits
on radio frequency radiation.
On January 20, 2000, the FCC adopted new rules prohibiting employment
discrimination by broadcast stations on the basis of race, religion, color,
national origin, and gender; and requiring broadcasters to implement programs to
promote equal employment opportunities at their stations. The rules generally
require broadcast stations to disseminate information about job openings widely
so that all qualified applicants, including minorities and women, have an
adequate opportunity to compete for the job. Broadcasters may fulfill this
requirement by sending the station's job vacancy information to organizations
that request it, participating in community outreach programs or designing an
alternative recruitment program. Broadcasters with five or more full-time
employees must place in their public files annually a report detailing their
recruitment efforts and must file a statement with the FCC certifying compliance
with the rules every two years. Broadcasters with ten or more full-time
employees must file their annual reports with the FCC midway through their
license term. Broadcasters also must file employment information with the FCC
annually for statistical purposes.
The FCC recently issued a decision holding that a broadcast station may
not deny a candidate for federal political office a request for broadcast
advertising time solely on the grounds that the amount of time requested is not
the standard length of time which the station offers to its commercial
advertisers. This decision is currently being reconsidered by the FCC. The
effect that this FCC decision will have on our programming and commercial
advertising is uncertain.
In 1985, the FCC adopted rules regarding human exposures to levels of
radio frequency radiation. These rules require applicants for new broadcast
stations, renewals of broadcast licenses or modifications of existing licenses
to inform the FCC at the time of filing such applications whether a new or
existing broadcast facility would expose people to radio frequency radiation in
excess of FCC guidelines. In August 1996, the FCC adopted more restrictive
radiation limits. These limits became effective on September 1, 1997 and govern
applications filed after that date. We anticipate that such regulations will not
have a material effect on our business.
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Periodically, we may be required to obtain special temporary authority
from the FCC to operate the one or more of the stations in a manner different
from the licensed parameters so that we can complete scheduled construction or
maintenance or so that we may repair damaged or broken equipment without
interrupting service.
Proposed and Recent Changes: Congress and the FCC from time to time
have under consideration, and may in the future consider and adopt, new laws,
regulations and policies regarding a wide variety of matters that could,
directly or indirectly, affect the operation, ownership and profitability of our
radio stations, result in the loss of audience share and advertising revenue for
our radio stations, and affect our ability to acquire additional radio stations
or finance such acquisitions. Such matters include:
- proposals to impose spectrum use or other fees on FCC licensees;
- technical and frequency allocation matters;
- proposals to restrict or prohibit the advertising of beer, wine
and other alcoholic beverages;
- changes in the FCC's attribution and multiple ownership policies;
- changes to broadcast technical requirements;
- proposals to allow telephone or cable television companies to
deliver audio and video programming to the home through existing
phone, cable television or other communication lines; and
- proposals to limit the tax deductibility of advertising expenses
by advertisers.
In January 1995, the FCC adopted rules to allocate spectrum for
satellite digital audio radio service. Satellite digital audio radio service
systems potentially could provide for regional or nationwide distribution of
radio programming with fidelity comparable to compact discs. The FCC has issued
two authorizations to launch and operate satellite digital audio radio service.
The FCC currently is considering standards for evaluating, authorizing,
and implementing terrestrial digital audio broadcasting technology, including
In-Band On-Channel(TM) technology, for FM radio stations. Digital audio
broadcasting's advantages over traditional analog broadcasting technology
include improved sound quality and the ability to offer a greater variety of
auxiliary services. In-Band On-Channel(TM) technology would permit an FM station
to transmit radio programming in both analog and digital formats, or in digital
only formats, using the bandwidth that the radio station is currently licensed
to use. It is unclear what regulations the FCC will adopt regarding digital
audio broadcasting or In-Band On-Channel(TM) technology and what effect such
regulations would have on our business or the operations of our radio stations.
The FCC has authorized an additional 100 kHz of bandwidth for the AM
band and on March 17, 1997, adopted an allotment plan for the expanded band,
which identified the 88 AM radio stations selected to move into the band. At the
end of a five-year transition period, those licensees will be required to return
to the FCC either the license for their existing AM band station or the license
for the expanded AM band station.
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On January 20, 2000, the FCC voted to adopt rules creating a new low
power FM radio service. The new low power stations will operate at a maximum
power of between 10 and 100 watts in the existing FM commercial and
non-commercial band. Low power stations may be used by governmental and
non-profit organizations to provide noncommercial educational programming or
public safety and transportation radio services. No existing broadcaster or
other media entity, including Regent, will be permitted to have an ownership
interest or enter into any program or operating agreement with any low power FM
station. During the first two years of the new service, applicants must be based
in the area that they propose to serve. Applicants will not be permitted to own
more than one station nationwide during the initial two year period. After the
initial two year period, entities will be allowed to own up to five stations
nationwide, and after three years, the limit will be raised to ten stations
nationwide. A single person or entity may not own two low power stations whose
transmitters are less than seven miles from each other. The authorizations for
the new stations will not be transferable. The FCC has stated that it intends to
begin accepting applications for new stations in the next several months.
At this time it is difficult to assess the competitive impact of these
new stations. Although the new low power stations must comply with certain
technical requirements aimed at protecting existing FM radio stations from
interference, we cannot be certain of the level of interference that low power
stations will cause after they begin operating. Moreover, if low power FM
stations are licensed in the markets in which we operate, the low power stations
may compete for listeners and advertisers. The low power stations may also limit
our ability to obtain new licenses or to modify our existing facilities, or
cause interference to areas of existing service that are not protected by the
FCC's rules, any of which may have a material adverse affect on our business.
Finally, the FCC has adopted procedures for the auction of broadcast
spectrum in circumstances where two or more parties have filed for new or major
change applications which are mutually exclusive. Such procedures may limit our
efforts to modify or expand the broadcast signals of our stations.
We cannot predict what other matters might be considered in the future
by the FCC or Congress, nor can we judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on our business.
Federal Antitrust Considerations. The Federal Trade Commission and the
United States Department of Justice, which evaluate transactions to determine
whether those transactions should be challenged under the federal antitrust
laws, have been increasingly active recently in their review of radio station
acquisitions, particularly where an operator proposes to acquire additional
stations in its existing markets.
For an acquisition meeting certain size thresholds, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
promulgated thereunder, require the parties to file Notification and Report
Forms with the Federal Trade Commission and the Department of Justice and to
observe specified waiting period requirements before consummating the
acquisition. During the initial 30-day period after the filing, the agencies
decide which of them will investigate the transaction. If the investigating
agency determines that the transaction does not raise significant antitrust
issues, then it will either terminate the waiting period or allow it to expire
after the initial 30 days. On the other hand, if the agency determines that the
transaction requires a more detailed investigation, then, at the conclusion of
the initial 30-day period, it will issue a formal request for additional
information. The issuance of a formal request extends the waiting period until
the 20th calendar day after the date of substantial compliance by all parties to
the acquisition. Thereafter, the waiting period may only be extended by court
order or with the consent of the parties. In practice, complying with a formal
request can take a significant amount of time. In addition, if the investigating
agency raises substantive issues in connection with a proposed transaction, then
the parties frequently engage in lengthy discussions or negotiations with the
investigating agency concerning possible means of addressing those issues,
including persuading the agency that the proposed acquisition
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would not violate the antitrust laws, restructuring the proposed acquisition,
divestiture of other assets of one or more parties, or abandonment of the
transaction. These discussions and negotiations can be time consuming, and the
parties may agree to delay completion of the acquisition during their pendency.
At any time before or after the completion of a proposed acquisition,
the Federal Trade Commission or the Department of Justice could take such action
under the antitrust laws as it considers necessary or desirable in the public
interest, including seeking to enjoin the acquisition or seeking divestiture of
the business or other assets acquired. Acquisitions that are not required to be
reported under the Hart-Scott-Rodino Act may be investigated by the Federal
Trade Commission or the Department of Justice under the antitrust laws before or
after completion. In addition, private parties may under certain circumstances
bring legal action to challenge an acquisition under the antitrust laws.
In June 1998, we received a civil investigative demand from the
Antitrust Division of the Department of Justice requesting certain information
regarding our acquisition of radio stations in Redding, California to enable the
DOJ to determine, among other things, whether our Redding acquisitions resulted
in excessive concentration in the market. We have responded to the information
request and the matter is still pending. Even if the Department of Justice were
to proceed with and successfully challenge the Redding acquisitions and we were
required to divest one or more radio stations in Redding, the result would not
have a material adverse effect on our financial condition or results of
operations.
As part of its increased scrutiny of radio station acquisitions, the
Department of Justice has stated publicly that it believes that commencement of
operations under time brokerage agreements, local marketing agreements, joint
sales agreements and other similar agreements customarily entered into in
connection with radio station transfers prior to the expiration of the waiting
period under the Hart-Scott-Rodino Act could violate the Hart-Scott-Rodino Act.
In connection with acquisitions subject to the waiting period under the
Hart-Scott-Rodino Act, so long as the Department of Justice policy on the issue
remains unchanged, we would not expect to commence operation of any affected
station to be acquired under time brokerage agreement, local marketing agreement
or similar agreement until the waiting period has expired or been terminated.
ITEM 2. PROPERTIES
The types of properties required to support each of our radio stations
include offices, studios, transmitter sites and antenna sites. A station's
studios are generally housed with its offices in business districts. The
transmitter sites and antenna sites are generally located so as to provide
maximum market coverage.
We currently own studio facilities in Redding, California; Burton
(Flint), Michigan; St. Cloud, Minnesota; Mansfield, Ohio; Whitestown
(Utica-Rome), New York; and Watertown, New York. We own transmitter and antenna
sites in Mojave (Palmdale), California; Redding, California; Victorville,
California; Burton (Flint), Michigan; St. Cloud, Stearns County and Graham
Township (St. Cloud), Minnesota; Mansfield, Ohio; Whitestown, Deerfield and
Kirkland (Utica-Rome), New York; Watertown and Rutland (Watertown), New York;
and El Paso, Texas. We expect to acquire additional real estate and to dispose
of certain real estate in connection with our pending transactions. We lease our
remaining studio and office facilities, including corporate office space in
Covington, Kentucky and Old Brookville, New York, and our remaining transmitter
and antenna sites. We do not anticipate any difficulties in renewing any
facility leases or in leasing alternative or additional space, if required. We
own substantially all of our other equipment, consisting principally of
transmitting antennae, towers, transmitters, studio equipment and general office
equipment.
We believe that our properties are generally in good condition and
suitable for our operations. However, we continually look for opportunities to
upgrade our properties and intend to upgrade studios, office space and
transmission facilities in several markets.
The two AM stations we acquired in the Watertown, New York market and
one of the AM stations we acquired in the Utica-Rome, New York market have been
operating under special temporary authorities granted by the FCC since January
1998. Two of these authorities will
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<PAGE> 23
expire in May 2000 and one will expire in August 2000. We expect that we will be
able to complete our evaluation of these facilities and complete any necessary
repairs before these dates or that the FCC will grant further extensions of
these special temporary authorities to allow us time to repair those
transmission facilities to return the stations to licensed operations. However,
due to the long period of time prior to our acquisition of these stations during
which they have been operating under temporary authorizations, there can be no
guarantee that the FCC will grant further extensions, in which event we might be
required to interrupt service on these stations. An interruption in service at
these stations would not have a material adverse effect on our financial
condition or results of operations, as these stations represent less than 2% of
our net revenue in the Watertown and Utica-Rome markets.
Substantially all of our personal property and equipment serve as
collateral for our obligations under our existing credit facility.
ITEM 3. LEGAL PROCEEDINGS
We currently and from time to time are involved in litigation
incidental to the conduct of our business, but we are not a party to any lawsuit
or proceeding that, in our opinion, is likely to have a material adverse effect
on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no matter submitted to our security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Shares of our common stock have been quoted on The Nasdaq Stock Market
under the symbol RGCI since January 25, 2000 following effectiveness of the
registration statement for the initial public offering of our common stock. The
following table sets forth, for the period from January 25, 2000 through March
10, 2000, the high and low closing sale prices of our common stock as reported
in the Nasdaq National Market.
High Low
-------- --------
January 25 through March 10, 2000 $14.0000 $10.3125
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<PAGE> 24
As of March 10, 2000, there were 311 holders of record of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of securities brokers, dealers and registered
clearing agencies.
We have never declared or paid cash dividends on our common stock and
do not intend to do so in the foreseeable future. In addition, our credit
agreement with our lenders prohibits the payment of cash dividends on our common
stock.
On December 14, 1999, we issued a total of 3,545,453 shares of our
Series K convertible preferred stock at $5.50 per share for an aggregate
purchase price of $19,499,992 to Blue Chip Capital Fund III Limited Partnership,
WPG Corporate Development Associates V, L.L.C., WPG Corporate Development
Associates V (Overseas), L.P., PNC Bank, N.A., Custodian, Mesirow Capital
Partners VII and The Prudential Insurance Company of America. The terms of the
Series K convertible preferred stock provided that the shares could be converted
at any time at the option of the holder into shares of our common stock on a
one-for-one basis. Subsequently, on January 28, 2000, 3,270,301 of these Series
K shares were converted to shares of our common stock. The remaining 275,152
shares of Series K convertible preferred stock were sold back to us by an
affiliate of one of the underwriters in our public offering consummated on
January 28, 2000 in order to comply with rules of the National Association of
Securities Dealers Inc.
Under our 1998 Management Stock Option Plan we granted to certain key
employees on April 29, 1999 options to purchase a total of 287,678 shares of our
common stock at $5.00 per share and on October 28, 1999 options to purchase a
total of 30,000 shares of our common stock at $5.50 per share. All of the
options granted in October 1999 and 37,500 of the options granted in April 1999
are exercisable in five annual increments (up to one-fifth each year) beginning
on the first anniversary of the date of grant. Of the remaining 250,178 options
granted in April 1999, 25,018 options will vest on April 29, 2008, and the
balance is exercisable in equal one-third increments at the end of each of the
first three years following the grant.
The Series K convertible preferred stock and the employee stock options
were issued in private transactions to a limited number of select persons based
upon exemptions from the registration requirements of the Securities Act of
1933, as amended, provided under Section 4(2) of that Act and the rules and
regulations promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 (1) 1997 1996 1995
------------ ------------ ------------ ----------- -----------
Operating results:
<S> <C> <C> <C> <C> <C>
Net broadcasting revenues $ 23,853,809 $ 14,771,523 $ 5,993,291 $ 4,873,954 $ 5,113,582
Income (loss) from operations (612,398) (433,321) 1,015,144 1,222,829 1,511,481
Income (loss)
Before extraordinary items (6,299,521) (3,289,924) (362,537) 278,840 244,816
Extraordinary items (471,216) (1,170,080) (4,333,310) -- --
Net income (loss) (6,770,737) (4,460,004) (4,695,847) 278,840 244,816
Preferred stock dividend requirements (5,205,526) (2,165,471) -- -- --
Preferred stock accretion (17,221,154) (4,787,311) -- -- --
Basic and diluted net income (loss)
Per common share:
Income (loss)
Before extraordinary items $ (119.69) $ (42.67) $ (1.51) $ 1.16 $ 1.02
Extraordinary items (1.96) (4.88) (18.06) -- --
------------ ------------ ------------ ----------- -----------
Basic net income (loss)
Per common share $ (121.65) $ (47.55) $ (19.57) $ 1.16 $ 1.02
Weighted average number of common
shares used in basic and diluted
calculation 240,000 240,000 240,000 240,000 240,000
Balance sheet data:
Current assets $ 10,329,208 $ 11,618,745 $ 1,919,232 $ 1,305,585 $ 1,311,916
Total assets 83,727,155 67,617,870 13,010,554 4,326,453 4,546,508
Current liabilities 3,114,586 13,027,306 859,631 1,068,021 1,037,239
Long-term debt 25,331,307 34,617,500 21,911,661 7,276,884 7,828,883
Redeemable preferred stock 89,265,352 27,406,152 -- -- --
Total stockholders deficit (37,809,315) (10,076,667) (10,181,788) (5,485,941) (5,764,781)
</TABLE>
- -------------
(1) - See Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of comparability
between years.
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
Our company was formed in November 1996 to acquire, own and operate
clusters of radio stations in small and mid-sized markets. During 1997, we
acquired our first radio station and entered into agreements to acquire 32
additional stations in ten additional markets. Also during 1997, we provided
programming and other services to 24 of the radio stations we had agreed to
acquire.
Effective June 15, 1998, we consummated a number of mergers,
acquisitions, borrowings and issuances of additional equity. One of these June
15, 1998 transactions was a merger with Faircom Inc. in which Faircom merged
into one of our subsidiaries. Even though our subsidiary was the surviving
entity in the merger, Faircom was deemed to be the "accounting acquirer," and
the historical financial statements of Faircom became our historical financial
statements. Accordingly, our results of operations and those of the other
entities that merged with or were acquired by us as part of the transactions
completed June 15, 1998 have been included in our consolidated financial
statements only from June 15, 1998. This affects the comparability of the
different periods.
The principal source of our revenue is the sale of broadcasting time on
our radio stations for advertising. As a result, our revenue is affected
primarily by the advertising rates our radio stations charge. Correspondingly,
the rates are based upon the station's ability to attract audiences in the
demographic groups targeted by its advertisers, as measured principally by
periodic Arbitron Radio Market Reports. The number of advertisements that can be
broadcast without jeopardizing listening levels, and the resulting ratings, are
limited in part by the format of a particular station. Each of our stations has
a general pre-determined level of on-air inventory that it makes available for
advertising. Available inventory may vary at different times of the day but
tends to remain stable over time. Much of our selling activity is based on
demand for our radio stations' on-air inventory and, in general, we respond to
this demand by varying prices rather than by changing the available inventory.
In the broadcasting industry, radio stations often utilize trade, or
barter, agreements to exchange advertising time for goods or services, such as
other media advertising, travel or lodging, in lieu of cash. In order to
preserve most of our on-air inventory for cash advertising, we generally enter
into trade agreements only if the goods or services bartered to us will be used
in our business. We have minimized our use of trade agreements and have
generally sold over 90.0% of our advertising time for cash. In addition, we
generally do not preempt advertising spots paid for in cash with advertising
spots paid for in trade.
Historically, our broadcast revenues have varied through the year. As
is typical in the radio broadcasting industry, our first calendar quarter will
be expected to produce the lowest revenues for the year, and the fourth calendar
quarter will be expected to produce the highest revenues for the year. Our
operating results in any period may be affected by the incurrence of advertising
and promotion expenses that do not necessarily produce commensurate revenues
until the impact of the advertising and promotion is realized in future periods.
The primary operating expenses incurred in the ownership and operation
of radio stations include employee salaries and commissions, programming
expenses and advertising and promotional expenses. We strive to control these
expenses by working closely with local station management. We also incur and
will continue to incur significant depreciation and amortization expense as a
result of completed and future acquisitions of stations.
In 1999, our radio stations derived approximately 84.9% of their net
broadcast revenues from local and regional advertising in the markets in which
they operated, and the remainder resulted principally from the sale of national
advertising. Local and regional advertising is sold primarily by each station's
sales staff. To generate national advertising sales, we engage national
advertising representative firms. We believe that the volume of national
advertising revenue tends to adjust to shifts in a station's audience share
position more rapidly than does the volume of local and regional advertising
revenue. Therefore, we focus on sales of local and regional advertising. During
the year ended December 31, 1999, no single advertiser accounted for as much as
1.0% of our net broadcasting revenue.
Our advertising revenue is typically collected within 120 days of the
date on which the related advertisement is aired. Most accrued expenses,
however, are paid within 45 to 60 days. As a result of this time lag, working
capital requirements have increased as we have grown and will likely increase in
the future.
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<PAGE> 26
Historically, we have generated net losses primarily as a result of
significant charges for depreciation and amortization relating to the
acquisition of radio stations and interest charges on outstanding debt. We have
historically amortized the FCC licenses and goodwill attributable to
substantially all of our radio station acquisitions made prior to 2000 over a
15- to 40-year period. Based upon the large number of acquisitions we
consummated within the last two years, we anticipate that depreciation and
amortization charges will continue to be significant for several years. To the
extent that we complete additional acquisitions, our interest expense and
depreciation and amortization charges are likely to increase. Based upon
new standards proposed by the Financial Accounting Standards Board related to
business combinations and intangible assets, goodwill and other intangible
assets will be amortized over their economic life, which is not to exceed twenty
years. Accordingly, we expect to amortize the FCC licenses and goodwill
attributable to our acquisitions in 2000 and beyond over a useful life not to
exceed twenty years. If this occurs, we would expect to continue to incur net
losses.
Our financial results are dependent on a number of factors, including
the general strength of the local and national economies, population growth, the
ability to provide popular programming, local market and regional competition,
relative efficiency of radio broadcasting compared to other advertising media,
signal strength and government regulation and policies. From time to time the
markets in which we operate experience weak economic conditions that may
negatively affect our revenue. We believe, however, that this impact is somewhat
mitigated by our diverse geographical presence.
The performance of a radio station group, such as ours, is customarily
measured by its ability to generate broadcast cash flow. The term "broadcast
cash flow" means operating income (loss) before depreciation and amortization
and corporate general and administrative expenses, excluding barter activity.
Although broadcast cash flow is not a measure of performance calculated in
accordance with generally accepted accounting principles, we believe that
broadcast cash flow is accepted by the broadcasting industry as a generally
recognized measure of performance and is used by analysts who report publicly on
the performance of broadcasting companies. Nevertheless, this measure should not
be considered in isolation or as a substitute for operating income, net income,
net cash provided by operating activities or any other measure for determining
our operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles.
Results of Operations
1999 Compared to 1998
As a result of the transactions completed on June 15, 1998, we expanded
from a small broadcaster (represented, from an accounting standpoint, by
Faircom's six stations in two markets) to a group broadcaster operating 33
stations in ten different markets. Because of our June 1998 acquisitions and, to
a lesser extent, our acquisitions of stations in St. Cloud, Minnesota and Erie,
Pennsylvania in 1999, we experienced substantial increases in net broadcast
revenues, station operating expenses, depreciation and amortization, corporate
general and administrative expenses, and interest expense in 1999 compared to
1998. Accordingly, the results of our operations in 1999 are not comparable to
those of the prior period, nor are they necessarily indicative of results in the
future.
For 1999 compared to 1998, net broadcast revenues increased 61.5% from
$14,772,000 to $23,854,000, station operating expenses increased 65.8% from
$11,051,000 to $18,325,000, and depreciation and amortization increased 48.0%
from $2,281,000 to $3,368,000. We experienced a 48.0% increase from $1,872,000
to $2,773,000 in corporate general and administrative expenses in 1999 compared
to 1998. This increase was comparatively less than the increase in net
broadcasting revenues and station operating expenses because these expenses in
1998 included $530,000 in additional compensation expense resulting from our
issuance of stock options in the Faircom merger to two officers of Faircom, as
provided in the merger agreement. Interest expense increased 82.0% from
$2,883,000 to $5,249,000 as a result of increased borrowings used to finance the
various acquisitions and a $1,136,000 charge to interest expense due to an
increase in our warrant liability, along with a $162,000 charge related to the
write-off of deferred financing fees in connection with the modification of our
former bank credit facility.
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While acquisitions have affected the comparability of our 1999
operating results to those of 1998, we believe meaningful quarter-to-quarter
comparisons can be made for results of operations for those markets in which we
have been operating for five full quarters, exclusive of any markets held for
sale. This group of comparable markets is currently represented by six markets
and 24 stations. In these comparable markets, for the six months ended December
31, 1999 as compared to the same period in 1998, our net broadcast revenues,
excluding barter revenues, increased 3.2% and broadcast cash flow increased by
1.1%.
These comparative results were adversely affected by circumstances in
our Flint, Michigan market. The competitive environment in Flint changed in late
1997 with the addition of a new commercial FM radio station. The Flint school
system previously owned this station and operated it as a non-commercial
facility. The school board sold the station at auction to an experienced
commercial broadcaster. In 1998, and shortly before we took control of Faircom's
cluster of three stations in the Flint market, the new commercial station
changed format and in 18 months became the top station in the marketplace in
terms of adult listenership. Its success impacted advertising market rates and
the distribution of advertising dollars to stations in the market, adversely
affecting our market share of revenues, along with that of other competitors. It
was estimated by an industry source that in 1999, its first full year of
commercial operation, the new station would capture approximately 17% of the
market revenue. In January 1999, we made significant changes in the management
structure and personnel at our Flint stations, which had been delayed due to
certain contractual arrangements. The acclimation of the new management team and
related operational changes took most of 1999 to have effect. For these reasons,
we do not believe the results of our Flint stations will be comparable to those
of the prior year until the end of the first quarter of 2000.
For the 21 stations in our other five comparable markets, net broadcast
revenues, excluding barter revenues, increased 7.3% and broadcast cash flow
increased 12.9% for the six months ended December 31, 1999 as compared to the
same period in 1998.
1998 Compared to 1997
As a result of the significant change in the size of our operations
brought about by the acquisitions made by us on June 15, 1998, our net broadcast
revenues grew from $5,993,000 to $14,771,000. Our key focus in 1998 was
developing the platform from which we could carry out our operating strategies
as a much larger radio company. Development of the platform required significant
expenditures. We viewed these costs as investment costs that would provide
returns to us in future years. Operationally, we replaced general managers in
eight of our markets and added or replaced general sales managers in six markets
in order to implement aggressive sales programs. We invested significantly in
the hiring and training of sales personnel and in increased promotional spending
in all markets. Finally, we developed a corporate staff designed to support a
much larger operation. In 1997, the Faircom corporate office was a very small
operation. While that facility and expense have been maintained, our primary
administrative offices are now located in Covington, Kentucky. The cost of
additional executive personnel and administrative expense amounted to $940,000
from June 16, 1998 through December 31, 1998 as a result of the Faircom merger.
Additionally, the issuance of stock options granted as of June 15, 1998 to two
officers of Faircom under the terms of the merger agreement with Faircom
resulted in the recognition, as of such date of grant, of approximately $530,000
in additional compensation expense which is included in corporate general and
administrative expense for 1998. Consequently, our 1998 operating loss of
$433,000 compared unfavorably with operating income of $1,015,000 in 1997.
Interest expense was $2,883,000 in 1998 as compared with $1,331,000 in
1997 principally due to the debt incurred in connection with the transactions we
completed on June 15, 1998 and, to a lesser extent, to debt incurred in
connection with Faircom's acquisition of the stations in Mansfield and Shelby,
Ohio.
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<PAGE> 28
There were no federal, state or local income taxes in 1998 as a result
of a net loss.
In 1998, net loss declined to $4,460,000 from $4,696,000 in 1997 as a
result of the increase in operating losses and the increase in interest expense
being offset by lower net extraordinary losses from debt extinguishment.
Seasonality.
The financial results of the Company's business are seasonal. Revenues
are generally higher in the second, third and fourth calendar quarters than in
the first quarter.
Liquidity and Capital Resources
In 1999, we used net cash in operating activities of $2,378,000
compared with $385,000 for 1998. In 1999, proceeds of $41,754,000 from the
issuance of convertible preferred stock and $16,500,000 from long-term
borrowings, together with $13,999,000 of proceeds from the sale of radio
stations, provided substantially all of the funds used in operating activities,
and for acquisitions, capital expenditures, principal payments on long-term debt
and other investing and financing activity cash requirements. We experienced a
net increase in cash of $2,932,000 in 1999 compared with a net decrease of
$57,000 in 1998.
Our borrowings were made under our former bank credit facility, which
provided for a senior reducing revolving credit facility with an original
commitment of up to $55,000,000 expiring March 31, 2005 (the commitment was
$32,425,000 at December 31, 1999). This facility permitted the borrowing of
available credit for working capital and acquisitions, including related
acquisition expenses. In addition, subject to available credit, we could request
from time to time that our lenders issue letters of credit on the same terms as
the credit facility. At December 31, 1999, we had borrowed $24,761,000 under
this facility. The remaining unused portion of this facility of $7,664,000 was
available to finance other acquisitions, subject to restrictions contained in
the facility. During the fourth quarter, we used the $6,400,000 in net proceeds
from the sales of our stations in Kingman, Arizona and Lake Tahoe, California to
reduce borrowings under our former bank credit facility. Additionally, on
December 14, 1999, we issued 3,545,453 shares of Series K convertible preferred
stock at $5.50 per share. From the net proceeds, we reduced borrowings under our
former bank credit facility by $15,775,000. In conjunction with these reductions
of our borrowings, we took an interest charge of $162,000 along with an
extraordinary charge of $471,000 to reflect the write-off of a portion of the
deferred financing fees. The remaining $1,036,000 of deferred financing fees
relating to the former bank credit facility will be written off in the first
fiscal quarter of 2000.
On January 28, 2000, we entered into a new $125,000,000 senior secured
seven-year reducing revolving bank credit facility. This facility also provides
for an additional $50,000,000 on substantially the same terms to fund future
acquisitions, which would be available for 24 months and thereafter would
convert to a term loan maturing December 31, 2006. This new bank credit facility
permits the borrowing of available credit for working capital requirements and
general corporate purposes, including transaction fees and expenses, to repay
our existing bank credit facility and to fund pending and permitted future
acquisitions. The new facility permits us to request from time to time that the
lenders issue letters of credit in an amount up to $25,000,000 in accordance
with the same lending provisions. The commitment, and our maximum borrowings,
will reduce over five years beginning in 2002 as follows:
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<PAGE> 29
December 31, Commitment Amount
2001............................... $125,000,000
2002............................... 106,250,000
2003............................... 87,500,000
2004............................... 62,500,000
2005............................... 37,500,000
2006............................... 0
The $25,000,000 letter of credit sub-limit also reduces proportionately but not
below $15,000,000. Mandatory prepayments and commitment reductions will also be
required from certain asset sales, subordinated debt proceeds, excess cash flow
amounts and sales of equity securities.
Under the new bank credit facility, we are required to maintain a
minimum interest rate coverage ratio, minimum fixed charge coverage ratio,
maximum corporate overhead and maximum financial leverage ratio and to observe
negative covenants customary for facilities of this type. Borrowings under the
new credit facility bear interest at a rate equal to (a) the higher of the rate
announced or published publicly from time to time by the agent as its corporate
base rate of interest or the Overnight Federal Funds Rate plus 0.5%, in either
case plus the applicable margin determined under the credit facility, or (b) the
reserve-adjusted Eurodollar Rate plus the applicable margin. We are required to
pay certain fees to the agent and the lenders for the underwriting commitment,
administration and use of the credit facility. Our indebtedness under the new
bank credit facility is collateralized by liens on substantially all of our
assets and by a pledge of our operating and license subsidiaries' stock and
is guaranteed by those subsidiaries.
On January 28, 2000, we closed on an offering of 16,000,000 shares of
our common stock. On February 7, 2000 the underwriters exercised their
overallotment of an additional 2,400,000 shares. All shares were sold at $8.50
per share, resulting in gross proceeds of $156,400,000. Net proceeds were
approximately $143,836,000. Approximately $26,761,000 of the proceeds were used
to repay all borrowings under our former bank credit facility along with the
fees associated with entering into the new bank credit facility. Approximately
$67,325,000 of the proceeds were used to fund our acquisitions in Utica-Rome and
Watertown, New York which closed on January 28, 2000 and our acquisition in El
Paso, Texas, which closed on January 31, 2000. Approximately $5,900,000 of the
proceeds were used to redeem our Series B convertible preferred stock and pay
accrued dividends. Approximately $7,300,000 were used to pay accrued dividends
on all other series of convertible preferred stock and those shares were
converted to common stock on an one-for-one basis. Finally, approximately
$1,500,000 were used to repurchase 275,152 shares of common stock from an
affiliate of one of the underwriters in order to comply with the NASD's rules.
These expenditures have left us with proceeds remaining from the offering of
approximately $35,000,000, with virtually no debt.
Over the next six months, we anticipate the need to direct
approximately $67,000,000 toward the completion of our pending acquisitions.
These funds will be provided by the remaining net proceeds from our offering and
by borrowings under our new credit facility. We also expect over the next 12
months to incur up to $2,800,000 of capital expenditures to upgrade our
equipment and facilities, primarily at stations recently acquired and at those
in the process of being acquired, in order to remain competitive and to create
cost savings over the long term. This is expected to include upgrades necessary
to return two of the stations we are acquiring, which are operating under
special temporary authorities, to licensed operations. We expect to have
sufficient cash from operations to fund these anticipated capital expenditures
in 2000.
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<PAGE> 30
After borrowings necessary to complete our pending acquisitions in
Grand Rapids and Albany, we expect to have approximately $93,000,000 in
remaining borrowing capability under our new credit agreement for working
capital and future acquisitions, together with the additional $50,000,000 of
available borrowing reserved for future acquisitions, subject in all cases to
specified borrowing limitations.
We believe that cash generated from operations, proceeds from the
sale of our Flagstaff, Arizona stations and available borrowings under our new
bank credit facility will be sufficient to meet our requirements for corporate
expenses and capital expenditures for the foreseeable future, based on our
projected operations and indebtedness.
Year 2000 System Compliance
Beginning in 1998, we developed and have worked through a Year 2000
compliance plan to address the material risks of noncompliance to our business
operations and assets as a result of the calendar year rollover to the Year
2000. By the end of the fourth quarter of 1999, we had completed all
assessments, upgrades, replacements and testing of our information technology
and non-information technology systems, identified and polled significant
suppliers and key business partners as to their Year 2000 readiness and
developed contingency plans to address the greatest areas of risk of Year 2000
noncompliance. As of December 31, 1999, expenditures to address potential Year
2000 problems totaled $53,000. As of March 30, 2000, we have experienced no
material disruptions in our business processes or operations related to the Year
2000 issue. To our knowledge, none of our material suppliers or key business
partners has suffered material problems related to Year 2000 compliance that we
believe would be likely to materially adversely affect our business. Despite the
fact that we have not been adversely affected in any material respect by Year
2000 problems to date, we cannot be sure that we will not experience unexpected
costs or be exposed to unexpected threats to our operations or assets from Year
2000 issues in the future. The impact of these uncertainties on our results of
operations, liquidity and financial condition is not determinable.
Market Risk
We were exposed to the impact of interest rate changes because of
borrowings under our former bank credit facility. It is our policy to enter into
interest rate transactions only to the extent considered necessary to meet our
objectives and to comply with the requirements of this facility. We have not
entered into interest rate transactions for trading purposes.
To satisfy the requirements imposed under the terms of our former
credit facility, we entered into a two-year collar agreement with the Bank of
Montreal effective August 17, 1998 for a notional amount of $34.4 million to
mitigate the risk of interest rates increasing under this facility. On February
9, 2000 we terminated the collar agreement due to the fact that we no longer had
any borrowings outstanding under a credit facility. In the event that we have
material borrowing under our new credit agreement at some time in the future, we
would consider entering into a new collar agreement.
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-K includes certain forward-looking statements with respect
to our company and its business that involve risks and uncertainties. These
statements are influenced by our financial position, business strategy, budgets,
projected costs and the plans and objectives of management for future
operations. They use words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend," "project" and other similar expressions. Although we believe
our expectations reflected in these forward-looking statements are based on
reasonable assumptions, we cannot assure you that our expectations will prove
correct. Actual results and developments may differ materially from those
conveyed in the
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<PAGE> 31
forward-looking statements. For these statements, we claim the protections of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Important factors that could cause actual results to differ materially
from the expectations reflected in the forward-looking statements made in this
Form 10-K 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 we operate, including, in particular, increased
competition for attractive radio properties and advertising dollars,
fluctuations in the cost of operating radio properties, and changes in the
regulatory climate affecting radio broadcast companies. The forward-looking
statements speak only as of the date on which they are made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date of this Form 10-K. If we do update or correct one
or more forward-looking statements, you should not conclude that we will make
additional updates or corrections with respect to those or any other
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item 7A is set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risk" and is incorporated under this Item 7A by this
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Regent Communications, Inc.
Index to Financial Statements
- -------------------------------------------------------------------------------
Page
Reports of Independent Accountants.................................... 32
Financial Statements:
Consolidated Statements of Operations for
the three years ended December 31, 1999, 1998 and 1997....... 34
Consolidated Balance Sheets at December 31, 1999 and 1998.... 35
Consolidated Statements of Cash Flows for the
three years ended December 31, 1999, 1998 and 1997........... 37
Statement of Changes in Stockholders' Deficit................ 38
Notes to Consolidated Financial Statements................... 39
Financial Statement Schedules:
II - Valuation and Qualifying Accounts....................... 66
31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Regent Communications, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' deficit present fairly, in all material respects, the financial
position of Regent Communications, Inc. (the "Company") at December 31, 1999 and
1998, and the results of its operations and its cash flows for the two years
ended December 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The
consolidated financial statements of the Company, prior to the retroactive
adjustments referred to below, for the period ended December 31, 1997 were
audited by other independent accountants whose report dated January 21, 1998
expressed an unqualified opinion on those statements.
We also audited the adjustments described in Note 1 to the consolidated
financial statements that were applied to retroactively adjust the 1997
financial statements. In our opinion, such adjustments are appropriate and have
been properly applied.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 28, 2000
32
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Faircom Inc.
We have audited the consolidated statements of operations, changes in
stockholders' deficit, and cash flows of Faircom Inc. for the year ended
December 31, 1997 (see Note 1). 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 presentation of the financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Faircom Inc. for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Melville, New York
January 21, 1998
33
<PAGE> 34
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Gross broadcast revenues $ 25,612,933 $ 16,046,968 $ 6,696,564
Less agency commissions (1,759,124) (1,275,445) (703,273)
------------ ------------ -----------
Net broadcast revenues 23,853,809 14,771,523 5,993,291
Station operating expenses 18,324,729 11,051,165 3,860,331
Depreciation and amortization 3,368,416 2,281,497 726,564
Corporate general and administrative expenses 2,773,062 1,872,182 391,252
------------ ------------ -----------
Operating income (loss) (612,398) (433,321) 1,015,144
Interest expense (5,248,546) (2,883,251) (1,330,676)
Write-down of carrying value of assets held for sale (602,226) -- --
Other income, net 163,649 26,648 24,537
------------ ------------ -----------
Loss before income taxes and
extraordinary items (6,299,521) (3,289,924) (290,995)
Income tax expense -- -- (71,542)
------------ ------------ -----------
Loss before extraordinary items (6,299,521) (3,289,924) (362,537)
Extraordinary net loss from debt
extinguishments, net of taxes (471,216) (1,170,080) (4,333,310)
------------ ------------ -----------
Net loss $ (6,770,737) $ (4,460,004) $(4,695,847)
============ ============ ===========
Loss applicable to common shares:
Net loss $ (6,770,737) $ (4,460,004) $(4,695,847)
Preferred stock dividend requirements (5,205,526) (2,165,471) --
Preferred stock accretion (17,221,154) (4,787,311) --
------------ ------------ -----------
Loss applicable to common shares $(29,197,417) $(11,412,786) $(4,695,847)
============ ============ ===========
Basic and diluted net loss per common share:
Loss before extraordinary items $ (119.69) $ (42.67) $ (1.51)
Extraordinary items (1.96) (4.88) (18.06)
------------ ------------ -----------
Net loss per common share $ (121.65) $ (47.55) $ (19.57)
============ ============ ===========
Weighted average number of common shares
used in basic and diluted calculation 240,000 240,000 240,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------
1999 1998
----------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 3,410,410 $ 478,545
Accounts receivable, less allowance of $231,000 and
$268,000 at December 31, 1999 and 1998, respectively 4,681,802 3,439,372
Other current assets 236,996 200,828
Assets held for sale 2,000,000 7,500,000
----------- -----------
Total current assets 10,329,208 11,618,745
Property and equipment, net 12,373,274 9,303,975
Intangible assets, net 58,869,287 45,023,940
Other assets, net 2,155,386 1,671,210
----------- -----------
Total assets $83,727,155 $67,617,870
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,061,757 $ 1,005,327
Accrued expenses 1,879,135 2,772,612
Interest payable 111,194 769,367
Current portion of long-term debt 62,500 980,000
Notes payable -- 7,500,000
----------- -----------
Total current liabilities 3,114,586 13,027,306
----------- -----------
Long-term debt, less current portion 25,331,307 34,617,500
Other long-term liabilities 3,825,225 2,643,579
----------- -----------
Total liabilities $32,271,118 $50,288,385
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 36
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Redeemable preferred stock:
Series A convertible preferred stock, $5.00 stated value, 620,000 shares
authorized; 620,000 shares issued and outstanding-liquidation value:
$3,650,109 and $3,433,109 at December 31, 1999 and 1998, respectively $ 4,580,109 $ 3,433,109
Series B senior convertible preferred stock, $5.00 stated value, 1,000,000
shares authorized; 1,000,000 shares issued and outstanding-liquidation
value: $5,822,054 and $5,372,054 at December 31, 1999 and 1998,
respectively 7,322,054 5,372,054
Series C convertible preferred stock, $5.00 stated value, 400,640 shares issued and
outstanding-liquidation value: $2,220,259 and $2,079,459 at December 31, 1999 and
1998, respectively 670,318 530,094
Series D convertible preferred stock, $5.00 stated value, 1,000,000 shares
authorized; 1,000,000 shares issued and outstanding-liquidation value:
$5,581,441 and $5,231,441 at December 31, 1999 and 1998, respectively 7,081,441 5,231,441
Series F convertible preferred stock, $5.00 stated value, 4,100,000 shares
authorized; 4,100,000 and 2,450,000 shares issued and outstanding at
December 31, 1999 and 1998, respectively-liquidation value: $23,052,566
and $12,839,454 at December 31, 1999 and 1998, respectively 29,202,566 12,839,454
Series G convertible preferred stock, $5.00 stated value, 1,800,000 shares authorized;
372,406 shares issued and outstanding-liquidation value: $2,049,837 2,608,446 --
Series H convertible preferred stock, $5.50 stated value, 2,200,000 shares authorized
2,181,817 shares issued and outstanding-liquidation value: $12,476,988 14,658,805 --
Series K convertible preferred stock, $5.50 stated value, 4,100,000 shares authorized
3,545,453 shares issued and outstanding-liquidation value: $19,596,160 23,141,613 --
------------ ------------
Total redeemable preferred stock 89,265,352 27,406,152
Stockholders' deficit:
Preferred stock:
Series C convertible preferred stock, $5.00 stated value, 4,000,000 shares
authorized; 3,382,693 and 3,319,980 shares issued and outstanding at
December 31, 1999 and 1998, respectively-liquidation value: $18,718,925
and $17,231,832 at December 31, 1999 and 1998, respectively 1,445,126 1,131,561
Series E convertible preferred stock, $5.00 stated value, 5,000,000 shares
authorized; 447,842 shares issued and outstanding-liquidation value:
$2,481,842 and $2,324,453 at December 31, 1999 and 1998, respectively 2,239,210 2,239,210
Common stock, $.01 par value, 60,000,000 shares authorized;
240,000 shares issued and outstanding (Note 1) 2,400 2,400
Additional paid-in capital -- 3,871,549
Retained deficit (41,496,051) (17,321,387)
------------ ------------
Total stockholders' deficit (37,809,315) (10,076,667)
------------ ------------
Total liabilities and stockholders' deficit $ 83,727,155 $ 67,617,870
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 37
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (6,770,737) $ (4,460,004) $ (4,695,847)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,368,416 2,281,497 726,564
Amortization of deferred rental income (33,979) (34,008) (34,008)
Provision for doubtful accounts 389,615 174,051 46,308
Noncash interest expense 1,575,758 234,897 --
Noncash charge for debt extinguishments 471,216 804,580 4,333,310
Noncash charge for compensation -- 530,264 --
Gain on sale of radio stations (124,696) -- --
Write-down of carrying value of assets held for sale 602,226 -- --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (1,481,379) (344,209) (234,538)
Other assets (36,168) 335,644 (13,326)
Accounts payable (339,255) (401,283) 10,427
Accrued expenses 659,505 (167,344) 24,751
Interest payable (658,173) 660,976 254,603
------------ ------------ ------------
Net cash (used in) provided by operating activities (2,377,651) (384,939) 418,244
Cash flows from investing activities:
Acquisitions of radio stations, net of cash acquired (27,532,988) (31,440,795) (7,831,180)
Capital expenditures (1,977,466) (818,919) (131,701)
Proceeds from sale of radio stations 13,998,693 -- --
------------ ------------ ------------
Net cash used in investing activities (15,511,761) (32,259,714) (7,962,881)
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible
preferred stock 41,753,668 20,150,000 --
Proceeds from long-term debt 16,500,000 36,000,000 23,000,000
Principal payments on long-term debt (26,703,693) (20,749,410) (13,194,135)
Payment of notes payable (7,500,000) -- --
Payment for deferred financing costs (426,649) (1,292,042) (834,137)
Payment of issuance costs (2,802,049) (1,520,662) --
Payment of appraisal right liability -- -- (1,015,000)
------------ ------------ ------------
Net cash provided by financing activities 20,821,277 32,587,886 7,956,728
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,931,865 (56,767) 412,091
Cash and cash equivalents at beginning of period 478,545 535,312 123,221
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,410,410 $ 478,545 $ 535,312
============ ============ ============
Supplemental schedule of non-cash investing and financing activities:
Conversion of Faircom Inc.'s convertible subordinated
promissory notes to Faircom Inc. common stock $ -- $ 10,000,000 $ --
Liabilities assumed in acquisitions -- 11,680,322 --
Series E convertible preferred stock issued in conjunction with
the acquisition of Alta California Broadcasting, Inc. and
Topaz Broadcasting, Inc. -- 2,239,210 --
Series C convertible preferred stock issued in conjunction with
the merger between Faircom Inc. and the Company -- 1,618,681 --
Series A and B convertible preferred stock warrants -- 310,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 38
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES C SERIES E
Convertible Convertible Additional Total
Preferred Preferred Common Paid-In Retained Stockholders
Stock Stock Stock Capital Deficit Deficit
----------- ----------- ------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $2,400 $2,677,195 $ (8,165,536) $ (5,485,941)
Net loss (4,695,847) (4,695,847)
---------- ---------- ------ ---------- ------------ ------------
Balance, December 31, 1997 (see Note 1) 2,400 2,677,195 (12,861,383) (10,181,788)
Conversion of Faircom Inc.'s Class A and Class
B convertible subordinated promissory notes 10,000,000 10,000,000
Issuance of 3,720,620 shares of Series C
convertible preferred stock and retirement of
26,390,199 shares of Faircom Inc. common
stock and recordation of the effect of
recapitalization due to the reverse merger
with Faircom Inc. $1,584,820 (3,000,000) (1,415,180)
Reclassification of Series C convertible preferred
stock to outside of stockholders' deficit due to
such shares being redeemable (453,259) (453,259)
Issuance of Faircom Inc. employee stock options
immediately converted into options to purchase
157,727 shares of Series C convertible preferred
stock in conjunction with the merger 530,264 530,264
Issuance of Series A redeemable preferred stock
warrants exercisable for 80,000 shares of
common stock 160,000 160,000
Issuance of 205,250 shares of Series E convertible
preferred stock in connection with the
acquisition of Alta California Broadcasting, Inc. $1,026,250 1,026,250
Issuance of 242,592 shares of Series E convertible
preferred stock in connection with the
acquisition of Topaz Broadcasting, Inc. 1,212,960 1,212,960
Dividends and accretion on mandatorily
redeemable convertible preferred stock (6,495,910) (6,495,910)
Net loss (4,460,004) (4,460,004)
----------- ---------- ------ ---------- ------------ ------------
Balance, December 31, 1998 1,131,561 2,239,210 2,400 3,871,549 (17,321,387) (10,076,667)
Exercise of stock options on 62,713 shares of
Series C convertible preferred stock 313,565 (171,918) 141,647
Dividends and accretion on mandatorily
redeemable convertible preferred stock (3,699,631) (13,858,474) (17,558,105)
Beneficial conversion feature related to issuance
of redeemable convertible preferred stocks (3,545,453) (3,545,453)
Net loss (6,770,737) (6,770,737)
---------- ---------- ------ ---------- ------------ ------------
Balance, December 31, 1999 $1,445,126 $2,239,210 $2,400 $ -- $(41,496,051) $(37,809,315)
========== ========== ====== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 39
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Regent Communications, Inc. (including its wholly-owned subsidiaries,
the "Company") was formed to acquire, own and operate radio stations in
small and medium-sized markets in the United States. On June 15, 1998,
the Company acquired, pursuant to an agreement of merger, all of the
outstanding common stock of Faircom Inc. ("Faircom") for 3,720,620
shares of the Company's Series C Convertible Preferred Stock. The
acquisition has been treated for accounting purposes as the acquisition
of the Company by Faircom under the purchase method of accounting, with
Faircom as the accounting acquirer. Consequently, the historical
financial statements prior to June 15, 1998, the date of merger, are
those of Faircom. Faircom operated radio stations through its
wholly-owned subsidiaries in Flint, Michigan and, effective June 30,
1997, in Mansfield, Ohio (see Note 2). As a result of the Faircom
merger, Faircom's historical stockholders' deficit prior to the merger
has been retroactively restated to reflect the number of common shares
outstanding subsequent to the merger, with the difference between the
par value of the Company's and Faircom's common stock recorded as an
offset to additional paid-in capital.
2. ACQUISITIONS AND DISPOSITIONS
1999 Acquisitions and Dispositions
----------------------------------
On March 1, 1999, the Company sold the FCC licenses and related assets
used in the operations of WSSP (FM) in Charleston, South Carolina for
approximately $1,600,000 in cash. The Company had previously issued a
note for $1,500,000 to a third party which was collateralized by the
assets of the station (See Note 10). Upon consummation of the sale, the
note was repaid. The sale resulted in a $100,000 gain to the Company
which has been included in other income in the accompanying
consolidated Statement of Operations for the year ended December 31,
1999.
On May 6, 1999, the Company consummated the acquisition of the FCC
licenses and related assets of WJON (AM), WWJO (FM) and KMXK (FM) in
St. Cloud, Minnesota (the "St. Cloud Stations") for approximately
$12,700,000 in cash. The purchase was financed by approximately
$5,082,000 in proceeds from the issuance of Series F Convertible
Preferred Stock and borrowings under the Company's senior reducing
credit facility. Approximately $9,093,000 of the purchase price was
allocated to the FCC licenses and goodwill and is being amortized over
a 40-year period, and the remaining $3,607,000 was allocated to
property and equipment.
On August 1, 1999, the Company sold the FCC licenses and related assets
used in the operations of KCBQ (AM) in San Diego, California for
approximately $6,000,000 in cash (See Note 10).
39
<PAGE> 40
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 1, 1999, the Company purchased the FCC licenses and
related assets used in the operations of radio stations WXKC (FM) and
WRIE (AM) licensed to Erie, Pennsylvania and WXTA (FM) licensed to
Edinboro, Pennsylvania (the "Erie Stations") for approximately
$13,500,000 in cash. The purchase was financed by approximately
$6,300,000 in proceeds from the issuance of Series H Convertible
Preferred Stock and borrowings under the Company's senior reducing
credit facility. Approximately $12,400,000 of the purchase price has
been allocated to the FCC licenses and goodwill and is being amortized
over a 40-year period. The remaining $1,100,000 was allocated to
property and equipment and to a non-compete agreement.
On October 15, 1999, the Company consummated the sale of the FCC
licenses and related assets of KZGL (FM), KVNA (FM) and KVNA (AM) (the
"Kingman Stations") for approximately $5,400,000.
On November 5, 1999, the Company sold the FCC licenses and related
assets used in the operations of radio stations KRLT (FM) and KOWL (AM)
in Lake Tahoe, California (the "Lake Tahoe Stations") for approximately
$1,250,000.
On November 8, 1999 the Company signed a letter of intent to purchase
all of the outstanding capital stock of KZAP, Inc., owner of radio
station KZAP (FM) located in Chico, California for a purchase price of
$1.4 million. The purchase price for the stock will be payable, in
whole or in part, at the option of the seller, in cash or in shares of
common stock at a stated value of $6.00 per share. On December 1, 1999,
the Company began operating the Station under a time brokerage
agreement ("TBA").
1998 Acquisitions:
------------------
On January 21, 1998, Faircom acquired substantially all of the assets
and operations of radio station WSWR-FM in Shelby, Ohio (the "Shelby
Station") for $1,125,000 in cash. The acquisition was accounted for
under the purchase method of accounting and was principally financed
through the borrowing of $1,100,000 represented by a subordinated
promissory note. Faircom allocated substantially all of the purchase
price to the related FCC licenses. The excess cost over the fair market
value of net assets acquired and the FCC licenses related to this
acquisition are being amortized over a 15 year period.
On June 15, 1998, concurrent with the Faircom merger, the following
acquisitions (the "June 15 Acquisitions") were consummated. The
acquisitions were accounted for under the purchase method of
accounting. Goodwill and FCC licenses related to the June 15
Acquisitions are being amortized over a 40-year period.
The Company acquired all of the outstanding capital stock of The Park
Lane Group ("Park Lane") for approximately $24,038,000 in cash and
assumed liabilities. Park Lane owned 16 radio stations in California
and Arizona. At the time of the acquisition, the Company entered into a
one-year consulting and non-competition agreement with the President of
Park Lane, providing for the payment of a fee of $200,000.
40
<PAGE> 41
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company acquired the FCC licenses and related assets used in the
operation of radio stations KIXW (AM) and KZWY (FM) in Apple Valley,
California from Ruby Broadcasting, Inc. (the "Ruby Stations"), an
affiliate of Topaz Broadcasting, Inc. ("Topaz"), for $5,985,000 in
cash. The Company acquired all of the outstanding capital stock of
Topaz for 242,592 shares of the Company's Series E Convertible
Preferred Stock. Immediately following the acquisition of Topaz, the
Company acquired the FCC licenses and operating assets of radio station
KIXA (FM) in Lucerne Valley, California for $215,000 in cash and
assumed liabilities, pursuant to an Asset Purchase Agreement between
Topaz and RASA Communications Corp.
The Company acquired the FCC licenses and related assets used in the
operation of radio stations KFLG (AM) and KFLG (FM) in Bullhead City,
Arizona from Continental Radio Broadcasting, L.L.C. (the "Continental
Stations") for approximately $3,747,000 in cash. The Company separately
acquired the accounts receivables of these stations for an additional
purchase price of approximately $130,000.
The Company acquired all of the outstanding capital stock of Alta
California Broadcasting, Inc. ("Alta") for $2,635,000 in cash and
assumed liabilities and 205,250 shares of the Company's Series E
Convertible Preferred Stock. Alta owned four radio stations in
California.
The sources for the cash portion of the consideration paid by the
Company for the June 15 Acquisitions and the Faircom merger,
aggregating approximately $52,900,000 (including approximately
$21,100,000 of debt assumed and refinanced with borrowings under the
Company's senior reducing revolving credit facility and $3,700,000 of
transaction costs) were $34,400,000 borrowed under the Company's senior
reducing revolving credit Facility (see Note 4), $18,150,000 in
additional equity from the sale of the Company's convertible preferred
stock (see Note 5) and approximately $350,000 of the Company's funds.
On November 30, 1998, the Company purchased substantially all of the
assets of radio station KOSS (FM) (formerly KAVC (FM)) located in
Lancaster, California from Oasis Radio, Inc. for $1,600,000 in cash.
The acquisition was financed through the issuance of additional shares
of Series F convertible preferred stock (see Note 5). The acquisition
was accounted for under the purchase method of accounting. The excess
cost over the fair market value of net assets acquired and FCC licenses
related to this acquisition are being amortized over a 40-year period.
41
<PAGE> 42
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company allocated the aggregate purchase price from all
acquisitions in 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accounts receivable $ -- $ 143,000
Broadcasting equipment and furniture and equipment 4,675,000 6,503,000
FCC license 21,310,000 30,328,000
Goodwill 65,000 1,853,000
Other 150,000 360,000
----------- -----------
$26,200,000 $39,187,000
----------- -----------
</TABLE>
The fair values of the assets acquired were determined by an
independent valuation. The results of operations of the acquired
businesses are included in the Company's financial statements since the
respective dates of acquisition.
The following unaudited pro forma data summarizes the combined results
of operations of the Company, Faircom, the Mansfield Stations, the June
15 Acquisitions, KOSS (FM), the St. Cloud Stations, the Erie Stations
and the dispositions of the Lake Tahoe Stations, Kingman Stations, KCBQ
(AM) and WSSP (FM) as though the acquisitions and dispositions had
occurred at the beginning of each year.
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
-------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Net broadcast revenues $24,633,000 $24,489,000
Net loss before extraordinary items (7,121,000) (5,534,000)
Net loss (7,592,000) (6,704,080)
Net loss per common share before extraordinary items:
Basic and diluted $ (125.96) $ (54.87)
Net loss per common share:
Basic and diluted $ (127.92) $ (59.75)
</TABLE>
These unaudited pro forma amounts do not purport to be indicative of
the results that might have occurred if the foregoing transactions had
been consummated on the indicated dates nor is it indicative of future
results of operations. The acquisition of the Shelby Station has not
been included in the above pro forma information, due to it not having
a material effect on the operating results of the Company.
42
<PAGE> 43
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1997 Acquisitions:
------------------
On June 30, 1997, Faircom acquired the assets and operations of two
commercial radio stations located in Mansfield, Ohio (the "Mansfield
Stations"), pursuant to the terms of an asset purchase agreement dated
May 20, 1997 for $7,350,000 in cash. In addition, Faircom paid $300,000
in cash to one of the sellers in consideration of a five year
non-compete agreement. The acquisition was accounted for under the
purchase method of accounting and was financed with borrowings under
Faircom's senior secured term notes (see Note 4). Faircom allocated
approximately $1,089,000 of the purchase price to property and
equipment and approximately $6,261,000 to the related Federal
Communication Commission ("FCC") licenses. The excess cost over the
fair market value of the net assets acquired and the FCC licenses
related to this acquisition are being amortized over three to 15-year
periods.
3. SUMMARY OF ACCOUNTING POLICIES
a. CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions and balances have been
eliminated in consolidation. Certain prior year amounts and
balances have been reclassified to conform to the current
classifications with no effect on financial results.
b. 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.
c. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and depreciated on the
straight-line basis over the estimated useful life of the assets.
Buildings are depreciated over forty years, broadcasting
equipment over a six-to-thirteen year life and furniture and
fixtures generally over a five-year life. Leasehold improvements
are amortized over the shorter of their useful lives or the terms
of the related leases. For property and equipment retired or
sold, the gain or loss is classified in other income, net in the
Statement of Operations.
43
<PAGE> 44
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
d. INTANGIBLE ASSETS:
Intangible assets consist principally of the value of FCC
licenses and the excess of the purchase price over the fair value
of net assets of acquired radio stations (goodwill). These assets
are amortized on a straight-line basis over lives ranging from 15
to 40 years. The periods of amortization are evaluated annually
to determine whether they warrant revision.
e. LONG-LIVED ASSETS:
Long-lived assets (including related goodwill and other
intangible assets) are evaluated periodically if events or
circumstances indicate a possible inability to recover their
carrying amount. Such evaluation is based on various analyses,
including cash flows and profitability projections. If future
expected undiscounted cash flows are insufficient to recover the
carrying amounts of the asset, then an impairment loss is
recognized based upon the excess of the carrying value of the
asset over the anticipated cash flows on a discounted basis.
f. DEFERRED FINANCING COSTS AND OTHER ASSETS:
Deferred financing costs are generally amortized on a
straight-line basis over the term of the related debt.
Non-compete agreements are amortized over the terms of the
related agreements.
g. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily 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
Company. The Company also maintains cash in bank accounts at
financial institutions where the balance, at times, exceeds
federally insured limits.
h. REVENUE RECOGNITION:
BROADCAST REVENUE
Broadcast revenue for commercial broadcasting advertisements is
recognized when the commercial is broadcast.
44
<PAGE> 45
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BARTER TRANSACTIONS
Barter transactions (advertising provided in exchange for goods
and services) are reported at the estimated fair value of the
products or services received. Revenue from barter transactions
is recognized when advertisements are broadcast, and merchandise
or services received are charged to expense when received or
used. If merchandise or services are received prior to the
broadcast of the advertising, a liability (deferred barter
revenue) is recorded. If advertising is broadcast before the
receipt of the goods or services, a receivable is recorded.
Barter revenue was approximately $2,157,800 and $731,000, and
barter expense was approximately $2,001,900 and $800,000 for the
years ended December 31, 1999 and 1998, respectively.
i. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SHORT-TERM INVESTMENTS
Due to their short term maturity, the carrying amount of accounts
receivable, accounts payable, accrued expenses and notes payable
approximated their fair value at December 31, 1999 and 1998.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based
on the current rates offered to the Company for debt of the same
remaining maturities. Based on borrowing rates currently
available, the fair value of long-term debt approximates its
carrying value at December 31, 1999.
REDEEMABLE PREFERRED STOCK
The carrying amounts of the Company's Series A, B, D, F, G, H and
K redeemable convertible preferred stock represent the fair
market value of the shares at December 31, 1999 plus accrued
dividends.
The Series C redeemable convertible preferred stock carrying
value is based on an allocated amount of the total Series C basis
from the June 15, 1998 merger (see Note 1) plus accrued
dividends. The fair value of these shares is approximately
$2,604,000 at December 31, 1999.
j. RECLASSIFICATION:
Certain balances in the December 31, 1998 and 1997 statements
have been reclassified to conform with the December 31, 1999
presentation. These changes had no impact on previously reported
results of operations.
45
<PAGE> 46
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Senior reducing revolving credit facility (a) $ 24,761,307 $ 34,900,000
Subordinated promissory note (b) 600,000 600,000
Non-compete agreements (c) 32,500 97,500
------------ ------------
25,393,807 35,597,500
Less: current portion of long-term debt (62,500) (980,000)
------------ ------------
$ 25,331,307 $ 34,617,500
============ ============
</TABLE>
Repayment of long-term debt required over each of the years following
December 31, 1999 consists of:
2000 $ 62,500
2001 4,562,056
2002 5,312,398
2003 5,312,398
2004 6,062,741
Thereafter 4,081,714
-----------
$25,393,807
===========
a. SENIOR REDUCING REVOLVING CREDIT FACILITY:
On June 15, 1998, the Company extinguished its existing loan
facility using funds obtained from the Company's senior reducing
revolving credit facility. As a result of the extinguishment of
debt, the Company recognized an extraordinary loss of $1,170,080,
net of income taxes, in 1998 consisting of a $366,000 prepayment
penalty and the write-off of approximately $804,000 of related
deferred financing costs. The effective tax rate applied to the
extraordinary gain and loss was zero due to the Company's
cumulative loss carryforward position.
46
<PAGE> 47
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has an agreement with a group of lenders (as amended,
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"). 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.
During 1998, in conjunction with financing the June 15
Acquisitions, refinancing certain existing debt and providing for
additional working capital, the Company borrowed $34,900,000 under
the Credit Agreement.
The Credit Agreement provides for the reduction of the commitment
under the Revolver for each of the four quarters ended December
31, 1999 and by increasing quarterly amounts thereafter, and,
under certain circumstances, requires mandatory prepayments of any
outstanding loans and further commitment reductions. The
indebtedness of the Company under the Credit Agreement is
collateralized by liens on substantially all of the assets of the
Company and its operating and license subsidiaries and by a pledge
of the operating and license subsidiaries' stock, and is
guaranteed by these 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.
Interest under the Credit Agreement is payable, at the option of
the Company, at alternative rates equal to the LIBOR rate (6.50%
at December 31, 1999) plus 1.25% to 3.50% or the base rate
announced by the Bank of Montreal (8.50% at December 31, 1999)
plus 0% to 2.25%. The spreads over the LIBOR rate and such base
rate vary from time to time, depending upon the Company's
financial leverage. The Company must pay quarterly commitment fees
equal to 3/8% to 1/2% per annum, depending upon the Company's
financial leverage, on the unused portion of the commitment under
the Credit Agreement. The Company is also 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.
As a condition of the Credit Agreement, the Company entered into a
two-year collar agreement (the "Collar Agreement") with the Bank
of Montreal on August 17, 1998 for a notional amount of
$34,400,000. The Collar Agreement is based on the three month
LIBOR rate, provides for a CAP Rate, as defined, of 6.5% and a
Floor Rate, as defined, of 5.28% plus, in each case, the
additional spread stipulated under the Credit Agreement.
Effective January 1, 1999, the Company amended the Credit
Agreement in order to cure violations of certain restrictive
covenants that existed as of December 31, 1998. The amended Credit
Agreement stipulated that the Company must reduce the outstanding
amount under the Credit Agreement by $915,000 during the first
quarter of 1999; consequently, such amount has been classified as
current portion of long term debt at December 31, 1998. The
Company also agreed to sell its properties located in Lake Tahoe,
California, Flagstaff and Kingman, Arizona (see Note 2), and make
certain capital expenditures according to an agreed-upon
timetable. In addition, the amended Credit Agreement increased the
spread applied to the LIBOR rate from 1.25% to 2.75% to 1.50% to
3.50% and the spread applied to the base rate announced by the
Bank of Montreal from 0% to 1.50% to .25% to 2.25%.
47
<PAGE> 48
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On November 11, 1999, the Company and its senior lenders amended
the Credit Agreement again in order to cure non-compliance by the
Company as of September 30, 1999 with certain restrictive
covenants. Under the amendment, the Company agreed that it would
(a) borrow no additional funds during the balance of 1999, (b)
obtain by no later than November 30, 1999, written commitments in
form and substance satisfactory to the lenders for the issuance of
at least $10,000,000 of additional net equity and (c) issue such
equity no later than December 30, 1999. Of the net proceeds
raised, subject to the provisions of the Credit agreement, the
first $10,000,000 must be applied to reduce permanently the senior
debt. To the extent the Company raised more than $10,000,000, a
substantial portion of the additional proceeds had to be applied
to reduce permanently the senior revolving credit facility.
On December 14, 1999, the Company issued 3,545,453 shares of
Series K Convertible Preferred Stock at $5.50 per share. From the
net proceeds of approximately $19,100,000, $15,775,000 was used to
permanently reduce the senior revolving credit facility. An
additional $6,398,600 from the net proceeds of the sale of the
Kingman Stations and the Lake Tahoe Stations was used to
permanently reduce the outstanding borrowings under the credit
facility.
As a result of the debt facility paydown in accordance with the
original terms of the credit facility, the Company recognized an
extraordinary loss of $471,000, net of income tax, from the
write-off of related deferred financing costs. The effective tax
rate applied to the extraordinary loss was zero due to the
Company's cumulative loss carryforward position. In addition, as a
result of the modification to the credit facility in November
1999, which permanently reduced the overall availability, the
Company wrote-off a portion of deferred financing costs and
recognized a charge to interest expense of approximately $162,000.
At December 31, 1999, the Company had related unamortized deferred
financing fees totaling approximately $1,187,661 which are
classified as other assets in the accompanying Consolidated
Balance Sheet.
On January 27, 2000, Regent Broadcasting, Inc., a wholly owned
subsidiary of the Company, as the borrower, and the Company, as a
guarantor, entered into a new credit agreement with a group of
lenders which provides for a senior secured reducing revolving
credit facility expiring December 31, 2006 with an initial
aggregate revolving commitment of up to $125,000,000 (including a
commitment to issue letters of credit of up to $25,000,000 in
aggregate face amount, subject to the maximum revolving commitment
amount available). This revolving credit facility is available for
working capital and acquisitions, including related acquisition
expenses.
On January 28, 2000 the Company paid off the outstanding amount of
debt and related fees totaling approximately $25,096,000 to the
Bank of Montreal. The pay off was completed using proceeds from an
initial public offering of Common stock which also occurred on
January 28, 2000 (See Note 15). This final paydown resulted in an
extraordinary loss of approximately $1,036,000, net of income tax
from the write-off of the remaining deferred financing costs in
January 2000.
48
<PAGE> 49
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. SUBORDINATED PROMISSORY NOTE:
In conjunction with the June 15 Acquisitions, the Company assumed
a subordinated promissory note (the "McNulty Note") to McNulty
Broadcasting, Inc. ("McNulty") for $600,000. The McNulty Note
provides for quarterly principal payments of $15,000 beginning on
August 1, 2000. The remaining principal is due May 1, 2005.
Interest on the McNulty Note is payable quarterly at a rate of
8.0%.
c. NON-COMPETE AGREEMENTS:
In conjunction with the June 15 Acquisitions, the Company assumed
five year non-compete agreements with McNulty and Island
Broadcasting Associates, L.P. in the amounts of $125,000 and
$200,000, respectively (the "Non-Compete Agreements"). The
Non-compete Agreements require quarterly payments of $16,250
through May 2000.
5. CAPITAL STOCK AND REDEEMABLE PREFERRED STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
common stock and 40,000,000 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"), 5,000,000 shares are Series E Convertible Preferred Stock
("Series E"), 4,100,000 as Series F Convertible Preferred Stock
("Series F"), 4,000,000 shares as Series G Convertible Preferred Stock
("Series G"), 2,200,000 shares as Series H Convertible Preferred Stock
("Series H") and 4,100,000 shares of Series K Convertible Preferred
Stock ("Series K"). The stated value of Series A through Series G
preferred stock is $5.00 per share and the stated value of Series H and
Series K is $5.50 per share.
Series A, Series C, Series E, Series F, Series G, Series H and Series K
generally have the same voting rights as common stock and each share
may be converted at the option of the holder into one share of common
stock, subject to adjustment. Series B has no voting power except for
specific events and ranks senior to all other series of preferred
stock. Each Series B share may be converted at the option of the holder
into one-half share of common stock, subject to adjustment. Series D
has limited voting power and each share may be converted at the option
of the holder into one share of common stock, which would also have the
same limited voting power in certain circumstances. The Company's Board
of Directors also has the right to require conversion of all shares of
Series A, B, C, D, E, F, G, H and K upon the occurrence of certain
events. Series A, Series C, Series D, Series E, Series F, Series G,
Series H and Series K have equal rights for the payment of dividends
and the distribution of assets and rights upon liquidation, dissolution
or winding up of the Company.
49
<PAGE> 50
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Upon liquidation of the Company, no distribution shall be made (a) to
holders of stock ranking junior to the Series B unless the holder of
the Series B has 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 rateably on the
Series B and all other such parity stock. Dividends accrue cumulatively
on all series of preferred stock, except Series F, Series G, Series H
and Series K at an annual rate of $0.35 per share. Dividends accrue
cumulatively on Series F and Series G at an annual rate of $0.50 per
share and Series H and Series K at an annual rate of $0.55 per share
and, to the extent not paid in cash, are compounded quarterly at a rate
of 10% per annum. 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. Undeclared dividends in arrears
on all outstanding series of preferred stock amounted to approximately
$7,532,000 and $2,327,000 at December 31, 1999 and 1998, respectively.
Dividends on a per share basis are as follows:
<TABLE>
<CAPTION>
PREFERRED SERIES
----------------------------
DECEMBER 31, A B C D E F G H K
- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $ 0.89 $ 0.82 $ 0.53 $ 0.58 $ 0.54 $ 0.62 $ 0.50 $ 0.22 $ 0.03
1998 $ 0.54 $ 0.37 $ 0.19 $ 0.23 $ 0.19 $ 0.24 - - -
</TABLE>
In conjunction with the closing of the Faircom merger and the June 15
Acquisitions, BMO Financial, Inc., an existing shareholder of the
Company, purchased 780,000 shares of Series D for $3,900,000, General
Electric Capital Corporation ("GE Capital") paid $3,900,000 to complete
its purchase of 1,000,000 shares of Series B and the Chief Operating
Officer of the Company purchased 20,000 shares of Series A for
$100,000.
On June 15, 1998, pursuant to a stock purchase agreement with the
Company (the "Series F Stock Purchase Agreement"), Waller-Sutton Media
Partners, L.P. ("Waller-Sutton") purchased 1,000,000 shares of Series F
for $5,000,000. Also on that date, WPG Corporate Development Associates
V, L.L.C. and WPG Corporate Development Associates V (Overseas), L.P.,
purchased a total of 650,000 shares of Series F for $3,250,000; the
Chairman of Waller-Sutton Management Group, which manages
Waller-Sutton, purchased 50,000 shares of Series F for $250,000; GE
Capital purchased 250,000 shares of Series F for $1,250,000; and River
Cities Capital Fund Limited Partnership ("River Cities") purchased
100,000 shares of Series F for $500,000. In connection with these
purchases, the purchasers acquired 10-year warrants to purchase an
aggregate of 860,000 shares of the Company's common stock for $5.00 per
share. Such warrants can be "put" back to the Company after five years.
The 860,000 warrants issued in conjunction with the Series F have been
assigned a fair value of $3,539,000 and $2,459,000 at December 31, 1999
and 1998, respectively and have been classified under other long-term
liability due to the associated "put" rights. During 1999, $1,080,000
was charged to interest expense to account for the increase in the fair
value of the warrants.
The Series F Stock Purchase Agreement provides that the terms of the
Series F include the right of the holders to require the Company to
repurchase the Series F at any time after five years at a price equal
to the greater of its fair market value, as defined, or the sum of its
stated value of $5.00 per share and all accrued but unpaid dividends
thereon, as
50
<PAGE> 51
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
well as any warrants held by such holders at a price equal to the fair
market value of the Company's common stock less the exercise price of
such warrants. Holders of the Series A, Series B, certain Series C,
Series D, Series G, Series H and Series K would have similar "put"
rights only if the holders of the Series F were to exercise their "put"
rights. Series A, Series B, a portion of Series C, Series D and Series
F, Series G, Series H and Series K (but not the remaining Series C and
Series E) have been excluded from the equity to reflect such
anticipated "put" rights. Issuance costs of approximately $2,925,000
for these shares have been netted against the proceeds.
The Company adjusted the carrying values of Series A, Series B, Series
D, Series F, Series G, and Series H to fair value at December 31, 1999.
This adjustment was recognized as a charge to retained deficit (since
there was no additional paid in capital) resulting in an adjustment to
loss from continuing operations attributable to common stockholders.
In order to induce River Cities, as a holder of Series A, to approve
the merger with Faircom, the Company issued to River Cities, upon
consummation of the merger, five year warrants to purchase 80,000
shares of the Company's common stock at an exercise price of $5.00 per
share. R. Glen Mayfield, a member of the Company's Board of Directors,
serves as the general partner of River Cities Management Limited
Partnership, which is the general partner of River Cities. The warrants
issued to the holders of Series A have been assigned a value of
$160,000 and have been classified as additional paid-in capital.
In order to induce GE Capital, the holder of the Company's Series B, to
approve the addition of mandatory conversion rights to the terms of the
Series B in conjunction with the issuance of the Series F, the Company
issued to GE Capital, upon issuance of the Series F, five year warrants
to purchase 50,000 shares of the Company's common stock at an exercise
price of $5.00 per share. The warrants issued to the holder of Series B
has been assigned a fair value of $205,800 and $150,000 at December 31,
1999 and 1998, respectively and has been classified as a long-term
liability due to associated "put" rights. These "put" rights are
subject to the prior exercise of the warrants and exercise of the "put"
rights associated with warrants issued to the Series F holders. During
1999, $55,800 was charged to interest expense to account for the
increase in the warrants fair value.
In November 1998, the Company issued 400,000 shares of Series F for
$5.00 per share to existing Series F holders on a pro rata basis. The
proceeds were used to complete the purchase of KOSS (FM) (see Note 2),
finance capital expenditures and meet initial working capital
requirements of KOSS (FM).
In January 1999, the Company issued 372,406 shares of Series G for
$5.00 per share to certain executive officers of the Company and Blue
Chip Capital Fund II Limited Partnership, an existing holder of Series
C. The proceeds were used to pay down existing debt under the Credit
Agreement and fund working capital needs of the Company.
51
<PAGE> 52
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In February 1999, the Company issued 633,652 shares of Series F for
$5.00 per share to existing Series F holders. The proceeds were used to
finance certain capital improvements, and the Faircom merger and fund
working capital needs of the Company.
In addition, the holders of Series F committed an additional $5,082,000
through the purchase of an additional 1,016,000 shares of Series F at
$5.00 to fund acquisitions by the Company.
In April 1999, the Company issued 1,016,348 shares of Series F
Convertible Preferred Stock at $5.00 per share to fund its purchase of
the St. Cloud Stations.
In June 1999, the Company issued 636,363 shares of Series H Convertible
Preferred Stock at $5.50 per share to certain existing preferred
stockholders to fund a reduction in bank debt and working capital
requirements. The Series H Convertible Preferred Stock was issued with
similar terms as the Series G Convertible Preferred Stock. In addition,
holders of the Series H Convertible Preferred Stock were granted the
right to elect one individual to the Company's Board of Directors upon
and subject to certain conditions.
In August 1999, the Company issued an additional 1,545,454 of Series H
Convertible Preferred Stock at $5.50 per share to certain existing
preferred stockholders and two new investors to fund in part the
purchase of the Erie Stations as well as working capital requirements.
On December 14, 1999, the Company issued 3,545,453 shares of Series K
Convertible Preferred Stock (new series of convertible preferred stock
with terms substantially similar to the terms of the Series H
Convertible Preferred Stock) at $5.50 per share. The net proceeds of
$19,113,000 were used to reduce debt by $15,775,000, and the remaining
proceeds were used to fund a portion of the purchase price of the
Company's pending acquisitions consummated in February 2000. The
redeemable Series K convertible preferred shares were deemed to have an
embedded beneficial conversion feature valued in aggregate at
$3,545,000. The beneficial conversion feature was recognized
immediately as a charge to retained deficit (since there was no
additional paid-in capital) resulting in an adjustment to loss from
continuing operations attributable to common stockholders and an
increase in the carrying value of the preferred stock.
6. STOCK-BASED COMPENSATION PLAN
The Regent Communications, Inc. 1998 Management Stock Option Plan (the
"1998 Stock Option Plan") provides for the issuance of up to an
aggregate of 2,000,000 common shares in connection with the issuance of
incentive stock options ("ISO's") and non-qualified stock options
("NQSO's"). The Compensation Committee of the Company's Board of
Directors determines eligibility. The exercise price of the options is
to be not less than the fair market value of the underlying common
stock at the grant date, except in the case of ISO's granted to a 10%
owner (as defined), for which the option share price must be at least
110% of the fair market value of the underlying common stock at the
grant date. Under the terms of the 1998 Stock Option Plan, the options
52
<PAGE> 53
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
expire no later than ten years from the date of grant in the case of
ISO's (five years in the case of ISOs granted to a 10% owner), no later
than ten years and one day in the case of NQSOs, or earlier in either
case in the event a participant ceases to be an employee of the
Company.
Upon consummation of the Faircom merger, the Board of Directors of the
Company adopted the Regent Communications, Inc. Faircom Conversion
Stock Option Plan ("Conversion Stock Option Plan") which applies to
those individuals previously participating in the Faircom Inc. Stock
Option Plan ("Faircom Plan"). In exchange for relinquishing their
options under the Faircom Plan, five former officers and members of
Faircom's Board of Directors were given, in total, the right to acquire
274,045 shares of the Company's Series C Convertible Preferred stock at
exercise prices ranging from $0.89 to $3.73 per share and expiring from
May 11, 1999 to July 1, 2002 (the "Converted Options").
In addition, two officers of Faircom, pursuant to the terms of the
merger agreement between the Company and Faircom, were granted stock
options as of June 15, 1998 resulting in the recognition of
approximately $530,000 in compensation expense.
53
<PAGE> 54
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company applies the provisions of APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"), in accounting for the 1998 Stock
Option Plan. Under APB 25, no compensation expense is recognized for
options granted to employees at exercise prices that are equal to or
greater than the fair market value of the underlying common stock at
the grant date. 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 123. Such pro forma information is as follows for the year ended
December 31:
<TABLE>
<CAPTION>
Net loss: 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
As reported $(6,770,737) $(4,460,004) $(4,695,847)
Pro forma compensation expense, net of tax benefit (543,817) (599,736) (169,841)
----------- ----------- -----------
Pro forma $(7,314,544) $(5,059,740) $(4,865,688)
=========== =========== ===========
Basic and diluted net loss per common share:
As reported $ (121.65) $ (47.55) $ (19.57)
Pro forma $ (123.92) $ (50.05) $ (20.27)
</TABLE>
54
<PAGE> 55
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The weighted-average fair value per share for options granted under the
1998 Stock Option Plan was $2.88 for ISOs in both 1999 and 1998, and
$2.69 and $2.00 for NQSOs in 1999 and 1998, respectively. The
weighted-average fair value for options granted under the Conversion
Stock Option Plan was approximately $230,000, and such amount was
recognized at the time of conversion since the Converted Options are
fully vested. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------------------- -------
Converted
ISOs NQSOs ISOs NQSOs Options NQSOs
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Dividends None None None None None None
Volatility 35% 35% 35.0% 35.0% 35.0% 46.5%
Risk-free interest rate 5.56% 5.58% 5.55% 5.43% 5.38% 6.28%
Expected term 10 years 5 years 10 years 5 years 2 years 5 years
</TABLE>
55
<PAGE> 56
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Presented below is a summary of the status of outstanding Company stock
options issued to employees:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Company options converted
on June 15, 1998 274,045 $2.73
Granted 1,321,488 $5.00
Exercised -- --
Forfeited/expired -- --
--------- -----
Company options held by
employees at December 31, 1998 1,595,533 $4.61
Granted 317,678 $5.05
Exercised (62,713) $2.73
Forfeited/expired (10,000) $2.73
--------- -----
Company options held by
employees at December 31, 1999 1,840,498 $4.76
</TABLE>
The following table summarizes the status of Company options
outstanding and exercisable at December 31, 1999, under the 1998 Stock
Option Plan and the Conversion Stock Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE SHARES(1) LIFE (YEARS) PRICE SHARES PRICE
----------------- --------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
$5.50 30,000 4.8 $ 5.50 -- $ 5.50
$5.00 1,599,166 8.3 $ 5.00 371,162 $ 5.00
$0.88 - $3.73 211,332 2.5 211,332 $ 2.86
--------- --------
1,840,498 582,494
========= =======
</TABLE>
Of the options outstanding at December 31, 1999, it is anticipated that
no more than 1,252,980 will be treated as NQSOs and at least 587,518
will be treated as ISOs.
(1) As of December 31, 1999, the stock options granted under the 1998
Stock Option Plan entitle the holders to purchase 1,629,166 shares of
the Company's common stock. Stock options granted under the Conversion
Stock Option Plan entitle the holders to purchase 211,332 shares of the
Company's Series C Convertible Preferred Stock.
7. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 calls for the dual presentation of basic
and diluted earnings per share ("EPS"). Basic EPS is based upon the
weighted average common shares outstanding during the period. Diluted
EPS reflects the potential dilution that would occur if common stock
equivalents were exercised. Basic EPS and diluted EPS are the same for
all periods presented, since the effect of the Company's common stock
equivalents would be anti-dilutive. All Series of the Company's
convertible preferred stocks (convertible into 16,442,347 shares at
December 31, 1999), the Company's options outstanding at December 31,
1999 to purchase 1,840,498 shares of common stock and 910,000
outstanding warrants to purchase the Company's common stock were not
included in the computation of diluted EPS because they are
anti-dilutive. Basic and diluted EPS for all periods presented have
been calculated using the 240,000 common shares that were outstanding
subsequent to the merger with Faircom (see Note 1).
56
<PAGE> 57
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES
The Company's provision for income taxes consists of the following for
the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current federal $ -- $ -- $ --
Current state -- -- 71,542
------- ------- -------
Total $ -- $ -- $71,542
------- ------- -------
</TABLE>
The components of the Company's deferred tax assets and liabilities are
as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 9,765,000 $ 4,528,000
Miscellaneous accruals and credits -- 79,000
Accounts receivable reserve 92,000 107,000
----------- -----------
Total deferred tax assets 9,857,000 4,714,000
Deferred tax liabilities:
Property and equipment (248,000) (296,000)
Intangible assets (325,000) (170,000)
----------- -----------
Total deferred tax liabilities $ 573,000 $ (466,000)
=========== ===========
Valuation allowance (9,284,000) (4,248,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
57
<PAGE> 58
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has cumulative federal and state tax loss carryforwards of
approximately $24,412,000 at December 31, 1999. These loss
carryforwards will expire in years 2000 through 2019. The utilization
of the aforementioned operating losses for federal income tax purposes
is limited pursuant to the annual utilization limitations provided
under the provisions of Internal Revenue Code Section 382.
The difference between the Company's effective tax rate on income
before taxes on income and the federal statutory tax rate arise from
the following:
<TABLE>
<CAPTION>
1999 1998 1997
=----- ------ ------
<S> <C> <C> <C>
Federal tax expense at statutory rate 34.0 % 34.0 % 34.0 %
Loss from debt extinguishment - non-deductible -- -- (34.6)
Amortization of intangibles and other non-deductible expenses (9.0) (12.0) (1.0)
Benefit of net operating losses -- -- --
Establishment of valuation allowance (31.0) (28.0) 1.1
State tax, net of federal tax benefit 6.0 6.0 (1.0)
====== ====== ======
Effective tax rate 0% 0% (1.5)%
====== ====== ======
</TABLE>
9. SAVINGS PLANS
The Company sponsors defined contribution plans covering substantially
all employees. Both the employee and the Company can make voluntary
contributions to the plan. The Company did not make contributions to
the defined contribution plan during the years ended December 31, 1999
and 1998.
10. NOTES PAYABLE
Notes payable consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Promissory note $ -- $6,000,000
Promissory note -- 1,500,000
---------- ----------
$ -- $7,500,000
========== ==========
</TABLE>
58
<PAGE> 59
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In connection with the acquisition of radio station KCBQ (AM), the
Company issued to the seller a promissory note for $6,000,000, which
was collateralized by the assets of the station. The terms of the
promissory note obligated the Company to pay the lesser of $6,000,000
or the net proceeds from a commercially reasonable sale of the KCBQ
(AM) assets (with any such net sale proceeds in excess of $6,000,000 to
be split between the Company and the holder of the note in accordance
with the terms of the asset purchase agreement) on the earlier of June
4, 2002 or upon the sale of the KCBQ (AM) assets to an unrelated third
party. The note did not bear interest prior to the maturity date, as
defined. Interest on the unpaid principal of the note after maturity
was at the rate of 10.0% per annum. In August 1999, the Company sold
KCBQ (AM) for $6,000,000 and paid the promissory note in full. Because
the Company intended to sell this property during 1999, the unpaid
principal balance of $6,000,000 was classified as a current liability
at December 31, 1998 in the accompanying Consolidated Balance Sheet.
In connection with the acquisition of an option to acquire radio
station WSSP (FM), the Company issued a five-year term promissory note
for $1,500,000 to a third party. The terms of the promissory note
obligated the Company to pay the lesser of $1,500,000 or the net
proceeds from a commercially reasonable sale of the option or the
station's assets (with any such net sale proceeds in excess of
$1,500,000 to be retained by the Company). The note was collateralized
by a security interest in the proceeds of a $1,500,000 note payable to
the Company by the owner of WSSP (FM) and matured on the earlier of
December 3, 2002 or upon the sale of the WSSP (FM) assets to an
unrelated third party. The note did not bear interest prior to the
maturity date, as defined. Interest on the unpaid principal of the note
after maturity was at the rate of 10.0% per annum. In March 1999, the
Company sold WSSP (FM) for $1,600,000 and repaid the promissory note.
Because the Company intended to sell this property during 1999, the
unpaid principal balance of $1,500,000 was classified as a current
liability at December 31, 1998 in the accompanying Consolidated Balance
Sheet.
11. OTHER FINANCIAL INFORMATION
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Equipment $ 14,653,009 $ 11,626,277
Furniture and fixtures 736,762 1,659,136
Building and improvements 2,526,969 1,442,799
Land 1,716,309 761,342
------------ ------------
19,633,049 15,489,554
Less accumulated depreciation (7,259,775) (6,185,579)
------------ ------------
Net property and equipment $ 12,373,274 $ 9,303,975
============ ============
</TABLE>
Depreciation expense was $1,392,370 and $777,118 for the years ended
December 31, 1999 and 1998.
59
<PAGE> 60
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Intangible assets consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
FCC broadcast licenses $ 55,679,824 $ 40,768,013
Goodwill 7,220,103 6,545,097
------------ ------------
62,899,927 47,313,110
Less accumulated amortization (4,030,640) (2,289,170)
------------ ------------
Net intangible assets $ 58,869,287 $ 45,023,940
------------ ------------
</TABLE>
Amortization expense was $1,976,046 and $1,504,379 for the years ended
December 31, 1999 and 1998.
Accrued liabilities consist of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Balance Sheet:
Accrued compensation $ 602,504 $ 154,812
Accrued offering costs 590,444 --
Accrued professional fees 277,817 602,785
Accrued acquisition costs -- 1,531,985
Accrued other 408,370 483,030
---------- ----------
$1,879,135 $2,772,612
========== ==========
</TABLE>
Supplemental cash flow information for the year ended December 31,:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Cash paid for interest $4,272,429 $ 2,974,000 $1,076,073
Income taxes paid, net of refunds -- -- 71,542
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such
matters are subject to many uncertainties, and outcomes are not
predictable with assurance. In the opinion of the Company's management,
the eventual resolution of such matters for amounts above those
reflected in the consolidated financial statements would not likely
have a materially adverse effect on the financial condition of the
Company.
The Company leases certain facilities and equipment used in its
operations. Total rental expenses were approximately $594,000, $502,000
and $56,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999, the total minimum annual rental commitments under
noncancelable leases are as follows:
2000 $ 1,357,684
2001 813,660
2002 452,888
2003 393,646
2004 247,888
Thereafter 1,573,507
-------------------
Total $ 4,839,273
-------------------
13. RELATED PARTY TRANSACTIONS
The Company obtains all of its property and casualty insurance and
director and officer liability insurance coverages through a firm 90%
owned by the Company's Chief Executive Officer and members of his
immediate family. In 1999, the Company paid approximately $369,000 in
insurance premiums. In January 2000, the members sold their interest in
the insurance firm to an unrelated third party.
60
<PAGE> 61
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. OTHER SUBSEQUENT EVENTS
a. INITIAL PUBLIC OFFERING OF COMMON STOCK
On January 28, 2000, the Company consummated an initial public
offering of 16,000,000 shares of its common stock at a public
offering price of $8.50 per share. On February 7, 2000, the
underwriters' purchased an additional 2,400,000 shares of the
Company's common stock upon exercise of their over-allotment
option. The Company received total proceeds from completion of the
offering, net of underwriting discounts, commissions and estimated
expenses related to the offering, of $143,836,000. Of these
proceeds, the Company used $67,325,000 to fund the acquisitions of
stations in Utica-Rome, New York and Watertown, New York on
January 28, 2000 and in El Paso, Texas on January 31, 2000;
$26,761,000 to pay in full amounts borrowed under its prior bank
credit facility on January 28, 2000 and fees related to the new
bank credit facility; $7,296,000 to pay or reserve for payment of
accumulated, unpaid dividends on all series of convertible stock
converted into common stock on January 28, 2000; $5,857,000 to
redeem all outstanding shares of its Series B convertible
preferred stock on January 28, 2000, including accumulated unpaid
dividends; and $1,513,000 to repurchase shares of the Company's
common stock from an affiliate of one of the underwriters in order
to comply with NASD rules. The Company intends to use the balance
of the proceeds for working capital needs and future acquisitions.
61
<PAGE> 62
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. CONVERSION AND REDEMPTION OF PREFERRED STOCK
In connection with the initial public offering of common stock,
the Company redeemed 1,000,000 shares of its Series B convertible
preferred stock, which constituted all outstanding shares of that
series, for a redemption price of $5,857,000, being the original
price paid for those shares of $5.00 per share plus accumulated,
unpaid dividends on those shares. In addition, the Company
converted 15,775,699 shares of convertible preferred stock,
constituting all outstanding shares of the Company's other series
of convertible preferred stock, into common stock on a
one-for-one basis. The Company has paid or set aside for payment
of accumulated, unpaid dividends on those shares in the total
amount of $7,296,000.
c. CONSUMMATED AND PENDING TRANSACTIONS AND DIVESTITURES:
On January 28, 2000, the Company purchased the FCC licenses and
related assets used in the operations of radio stations WOFDZ
(FM), WLZW (FM), WFRG (FM), WIBX (AM) and WRUN (AM) licensed in
Utica/Rome, New York and WCIZ (FM), WFRY (FM), WTNY (AM), and
WUZZ (AM) licensed in Watertown, New York (the "Forever
Stations") for approximately $43,825,000 in cash and 100,000
shares of the Company's Common Stock.
On January 31, 2000, the Company purchased the FCC licenses and
related assets used in the operations of radio stations KLAQ
(FM), KSII (FM) and KROD (AM) licensed to El Paso, Texas (the "El
Paso Stations") for approximately $23,500,000 in cash.
On March 13, 2000, the Company entered into a definitive
agreement with Clear Channel Communications, Inc. to exchange the
Company's eleven stations serving the Mansfield, Ohio (2 FM/1
AM), Victorville, California (3 FM/2 AM) and Palmdale, California
(2 FM/1 AM) markets plus $67 million in cash for Clear Channel's
nine stations serving the Grand Rapids, Michigan (3 FM) and
Albany, New York (4 FM/2 AM) markets. The Company has made an
escrow deposit in the amount of $5,000,000 and have agreed to pay
liquidated damages in the amount of $28,000,000 if the Company
fails to perform their obligations under the agreement. The
Company anticipates closing this transaction during the second
half of 2000 following customary regulatory approvals.
On March 29, 2000, the Company entered into an agreement of
merger with KZAP, Inc. by which the Company will acquire control
of radio station KZAP (FM) located in Chico, California in
consideration for 233,333 shares of the Company's Common Stock.
The Company anticipates the closing will occur during the second
quarter 2000 following receipt of FCC approval. The Company is
currently providing programming and selling air time for KZAP
(FM) under a time brokerage agreement pending consummation of the
acquisition.
62
<PAGE> 63
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
d. ASSETS HELD FOR SALE:
On March 29, 2000, the Company entered into an Asset Purchase
Agreement with Yavapai Broadcasting Corporation to sell
substantially all the assets used in the operations of radio
stations KZGL (FM), KVNA (AM) and KVNA (FM), in Flagstaff,
Arizona (the "Flagstaff Stations") for a cash purchase price of
$2,000,000. The Company anticipates closing the disposition
during the second quarter of 2000 following the receipt of FCC
approval. Earlier in March 2000, in accordance with its terms,
the Company terminated a March 1999 agreement by which the
Company agreed to sell the Flagstaff Stations to another party
for a cash purchase price of approximately $2,425,000 and
withdrew the pending FCC application. Action on that FCC
application had been delayed since May 1999 due to the filing of
an objection made by the owner of a competing station in the
Flagstaff market based on the alleged ownership concentration
that the proposed buyer would have had following the sale.
The assets classified as assets held for sale as of December 31,
1999 were recorded at the lower of their carrying value or
estimated fair market value less anticipated disposition costs.
As such, the Company recorded a loss of approximately $600,000
classified as a write-down of carrying value of assets held for
sale in the accompanying Statement of Operations.
63
<PAGE> 64
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
All adjustments necessary for a fair statement of income for each
period have been included:
<TABLE>
<CAPTION>
1ST 2ND(*) 3RD 4TH TOTAL
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1999
Net broadcasting revenues $ 4,519,990 $ 6,315,303 $ 6,630,377 $ 6,388,139 $ 23,853,809
Operating income (loss) (655,205) 515,369 151,140 (623,702) (612,398)
Loss before extraordinary items (1,434,535) (256,610) (790,222) (3,818,154) (6,299,521)
Extraordinary item -- -- -- (471,216) (471,216)
Net loss (1,434,535) (256,610) (790,222) (4,289,370) (6,770,737)
Preferred stock dividend and
accretion requirements (1,000,060) (1,521,808) (1,415,844) (18,488,968) (22,426,680)
----------- ----------- ----------- ------------ ------------
Loss applicable to common shares (2,434,595) (1,778,418) (2,206,066) (22,778,338) (29,197,417)
Basic and diluted earnings per share:
Before extraordinary item $ (10.14) $ (7.41) $ (9.19) $ (92.95) $ (119.69)
Extraordinary item -- -- -- (1.96) (1.96)
----------- ----------- ----------- ------------ ------------
$ (10.14) $ (7.41) $ (9.19) $ (94.91) $ (121.65)
1998
Net broadcasting revenues $ 1,465,077 $ 2,598,126 $ 5,421,098 $ 5,287,222 $ 14,771,523
Operating income (loss) (38,010) (132,542) 112,963 (375,732) (433,321)
Loss before extraordinary items (541,628) (706,758) (843,842) (1,197,696) (3,289,924)
Extraordinary item -- (1,170,080) -- -- (1,170,080)
Net loss (541,628) (1,876,838) (843,842) (1,197,696) (4,460,004)
Preferred stock dividend and
accretion requirements -- (4,814,846) (854,231) (1,283,705) (6,952,782)
----------- ----------- ----------- ------------ ------------
Loss applicable to common shares (541,628) (6,691,684) (1,698,073) (2,481,401) (11,412,786)
Basic and diluted earnings per share:
Before extraordinary item (2.25) (23.00) (7.08) (10.34) (42.67)
Extraordinary item -- (4.88) -- -- (4.88)
----------- ----------- ----------- ------------ ------------
$ (2.25) $ (27.88) $ (7.08) $ (10.34) $ (47.55)
</TABLE>
(*) Approximately $149,000 was reclassed from depreciation expense to
write-down of carrying value of assets held for sale in the second
quarter of 1999.
64
<PAGE> 65
REGENT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 prescribes the accounting treatment for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. The
Company may employ financial instruments to manage its exposure to
fluctuations in interest rates (see Note 4(c)). The Company does not hold
or issue such financial instruments for trading purposes. The Company will
adopt SFAS 133, as amended, in the year 2001, and does not expect that the
impact of adoption will have a material impact on the Company's results of
operations and statement of financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements," and is effective the first quarter of 2000. In SAB 101, the
SEC staff expresses its views regarding the appropriate recognition of
revenue with regard to a variety of circumstances, some of which are of
particular relevance to the Company. The Company is currently evaluating
SAB 101 to determine its impact on the financial statements.
65
<PAGE> 66
<TABLE>
<CAPTION>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER THE END
OF PERIOD EXPENSES ACCOUNTS(*) DEDUCTIONS (**) OF PERIOD
--------- -------- ----------- --------------- ---------
Allowance for doubtful accounts:
Years ended December 31,
<S> <C> <C> <C> <C> <C> <C>
1999 $ 268,000 389,615 -- 426,615 $ 231,000
1998 $ 32,000 174,051 173,960 112,011 $ 268,000
1997 $ 20,000 46,308 -- 34,308 $ 32,000
Deferred tax asset valuation allowance:
Years ended December 31,
1999 $4,248,000 5,036,000 $9,284,000
1998 $2,483,000 1,765,000 $4,248,000
1997 $2,532,000 (49,000) $2,483,000
</TABLE>
* Recorded in conjunction with acquisitions consummated on June 15, 1998.
** Represents accounts written off to the reserve.
66
<PAGE> 67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 is hereby incorporated by
reference from our definitive Proxy Statement, and specifically from the
portions thereof captioned "Election of Directors" and "Executive Officers," to
be filed in April 2000 in connection with the 2000 Annual Meeting of
Stockholders presently scheduled to be held on May 18, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is hereby incorporated by
reference from our definitive Proxy Statement, and specifically from the portion
thereof captioned "Executive Compensation," to be filed in April 2000 in
connection with the 2000 Annual Meeting of Stockholders presently scheduled to
be held on May 18, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is hereby incorporated by
reference from our definitive Proxy Statement, and specifically from the portion
thereof captioned "Security Ownership of Certain
67
<PAGE> 68
Beneficial Owners and Management," to be filed in April 2000 in connection with
the 2000 Annual Meeting of Stockholders presently scheduled to be held on May
18, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is hereby incorporated by
reference from our definitive Proxy Statement, and specifically from the portion
thereof captioned "Certain Relationships and Related Transactions," to be filed
in April 2000 in connection with the 2000 Annual Meeting of Stockholders
presently scheduled to be held on May 18, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements of Regent
Communications, Inc. and subsidiaries filed as part of this Annual Report on
Form 10-K are set forth under Item 8.
2. FINANCIAL STATEMENT SCHEDULES.
The financial statement schedule filed as part of this Annual
Report on Form 10-K is set forth under Item 8.
3. EXHIBITS.
A list of the exhibits filed or incorporated by reference as
part of this Annual Report on Form 10-K is set forth in the Index to Exhibits
which immediately precedes such exhibits and is incorporated herein by this
reference.
(b) REPORTS ON FORM 8-K.
We filed no reports on Form 8-K during the fourth quarter of
the fiscal year ended December 31, 1999.
68
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Regent Communications, Inc. has duly caused this amended
report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGENT COMMUNICATIONS, INC.
Date: April 4, 2000 By: /s/ Anthony A. Vasconcellos
------------------------------------
Anthony A. Vasconcellos, Vice President and
Chief Financial Officer
S-1
<PAGE> 70
EXHIBIT INDEX
The following exhibits are filed, or incorporated by reference where
indicated, as part of Part IV of this amended Annual Report on Form 10-K:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(a)* Asset Purchase Agreement dated as of January 5, 1999 by and
among WJON Broadcasting Company, Regent Broadcasting of St.
Cloud, Inc., Regent Licensee of St. Cloud, Inc. and Regent
Communications, Inc. (excluding exhibits not deemed material
or filed separately in executed form) (previously filed as
Exhibit 2(a) to the Registrant's Form 10-K for the year ended
December 31, 1998 and incorporated herein by this reference)
2(b)* Asset Purchase Agreement dated as of March 4, 1999 by and
among Mag Mile Media, L.L.C., Regent Broadcasting of Kingman,
Inc. and Regent Licensee of Kingman, Inc. (excluding exhibits
not deemed material or filed separately in executed form)
(previously filed as Exhibit 2(b) to the Registrant's Form
10-K for the year ended December 31, 1998 and incorporated
herein by this reference)
2(c)* Asset Purchase Agreement dated as of May 18, 1999 by and among
Media One Group-Erie, Ltd., Cisco LLC, James T. Embrescia,
Thomas J. Embrescia, Regent Broadcasting of Erie, Inc. and
Regent Licensee of Erie, Inc. (excluding exhibits not deemed
material or filed separately in executed form) (previously
filed as Exhibit 2(a) to the Registrant's Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by this
reference)
2(d)* Asset Purchase Agreement dated as of July 29, 1999 by and
among Forever of NY, Inc., Forever of NY, LLC, Forever
Broadcasting, LLC, and Regent Broadcasting of Utica/Rome,
Inc., Regent Licensee of Utica/Rome, Inc., Regent Broadcasting
of Watertown, Inc., Regent Licensee of Watertown, Inc. and
Regent Communications, Inc. (excluding exhibits not deemed
material or filed separately in executed form) (previously
E-1
<PAGE> 71
filed as Exhibit 2(b) to the Registrant's Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by this
reference)
2(e)* Asset Purchase Agreement dated as of September 13, 1999 by and
among New Wave Broadcasting, L.P., Regent Broadcasting of El
Paso, Inc. and Regent Licensee of El Paso, Inc. (excluding
exhibits not deemed material or filed separately in executed
form) (previously filed as Exhibit 2(b) to the Registrant's
Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by this reference)
2(f)* Agreement of Merger dated as of December 5, 1997 by and among
Faircom, Inc., Regent Merger Corp., Regent Communications,
Inc., Blue Chip Capital Fund II Limited Partnership and Miami
Valley Venture Fund L.P. (excluding exhibits not deemed
material or filed separately in executed form) (previously
filed as Exhibit 2(a) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference)
2(g)# Asset Exchange Agreement dated as of March 12, 2000 by and
among Clear Channel Broadcasting, Inc., Clear Channel
Broadcasting Licenses, Inc., Capstar Radio Operating Company,
Capstar TX Limited Partnership, Regent Broadcasting of
Victorville, Inc., Regent Licensee of Victorville, Inc.,
Regent Broadcasting of Palmdale, Inc., Regent Licensee of
Palmdale, Inc., Regent Broadcasting of Mansfield, Inc. and
Regent Licensee of Mansfield, Inc.
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2(h)# Agreement of Merger dated March 29, 2000 by and among Regent
Communications, Inc., Regent Broadcasting, Inc., KZAP, Inc.
and Rob Cheal
2(i)# Asset Purchase Agreement dated March 29, 2000 by and between
Yavapai Broadcasting Corporation, Regent Broadcasting of
Flagstaff, Inc. and Regent Licensee of Flagstaff, Inc.
3(a)* Amended and Restated Certificate of Incorporation of Regent
Communications, Inc., as amended by a Certificate of
Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Special Rights and the
Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series G Preferred Stock of
Regent Communications, Inc., filed January 21, 1999
(previously filed as Exhibit 3(a) to Amendment No. 1 to the
Registrant's Form S-1 Registration Statement No. 333-91703
filed December 29, 1999 and incorporated herein by this
reference)
3(b)* Certificate of Decrease of Shares Designated as Series G
Convertible Preferred Stock of Regent Communications, Inc.,
filed with the Delaware Secretary of State on June 21, 1999
amending the Amended and Restated Certificate of Incorporation
of Regent Communications, Inc., as amended (previously filed
as Exhibit 3(c) to the Registrant's Form 10-Q Fourth Quarter
Ended June 30, 1999 and incorporated herein by this reference)
3(c)* Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
and the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series H Preferred Stock
of Regent Communications, Inc., filed with the Delaware
Secretary of State on June 21, 1999 amending the Amended and
Restated Certificate of Incorporation of Regent
Communications, Inc., as amended (previously filed as
Exhibit 3(d) to the Registrant's Form 10-Q for the Quarter
Ended June 30, 1999 and incorporated herein by this
reference)
3(d)* Certificate of Decrease of Shares Designated as Series G
Convertible Preferred Stock of Regent Communications, Inc.,
filed with the Delaware Secretary of State on August 23, 1999
amending the Amended and Restated Certificate of Incorporation
of Regent Communications, Inc., as amended (previously filed
as Exhibit 3(e) to the Registrant's Form 10-Q for the Quarter
Ended on September 30, 1999 and incorporated herein by this
reference)
3(e)* Certificate of Increase of Shares Designated as Series H
Convertible Preferred Stock of Regent Communications, Inc.,
filed with the Delaware Secretary of State on August 23, 1999
amending the Amended and Restated Certificate of Incorporation
of Regent Communications, Inc., as amended (previously filed
as Exhibit 3(f) to the Registrant's Form 10-Q for the Quarter
Ended on September 30, 1999 and incorporated herein by this
reference)
3(f)* Certificate of Designation, Number, Powers Preferences and
Relative, Participating, Optional, and Other Special Rights
and the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series K Preferred Stock
of Regent Communications, Inc., filed with the Delaware
Secretary of State on December 13, 1999 amending the Amended
and Restated Certificate of Incorporation of Regent
Communications, Inc., as amended (previously filed as
Exhibit 3(g) to Amendment No. 1 to the Registrants Form S-1
Registration Statement No. 333-91703 filed December 29, 1994
and incorporated herein by this reference)
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<PAGE> 73
3(g)* Amended and Restated By-Laws of Regent Communications, Inc.
(previously filed as Exhibit 3(b) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
3(h)* Amendments to By-Laws of Regent Communications, Inc. adopted
December 13, 1999 (previously filed as Exhibit 3(h) to
Amendment No. 1 to the Registrant's Form S-1 Registration
Statement No. 333-91703 filed December 29, 1999 and
incorporated herein by this reference)
4(a)* Credit Agreement dated as of January 27, 2000 among Regent
Broadcasting, Inc., Regent Communications, Inc., Fleet
National Bank, as administrative agent, Fleet National Bank,
as issuing lender, General Electric Capital Corporation, as
syndication agent, Dresdner Bank AG, New York and Grand Cayman
Branches, as document agent, and the several lenders party
thereto (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit
4(a) to the Registrant's Form 8-K filed February 10, 2000 and
incorporated herein by this reference)
4(b)* Omnibus Amendment No. 1 and Amendment No. 1 to Credit
Agreement dated as of February 4, 2000 among Regent
Broadcasting, Inc., Regent Communications, Inc., Fleet
National Bank, as administrative agent, Fleet National Bank,
as issuing lender, General Electric Capital Corporation, as
syndication agent, Dresdner Bank AG, New York and Grand Cayman
Branches, as document agent, and the several lenders party
thereto (previously filed as Exhibit 4(e) to the Registrant's
Form 8-K filed February 10, 2000 and incorporated herein by
this reference)
4(c)* Revolving Credit Note dated as of February 7, 2000 made by
Regent Broadcasting, Inc. in favor of Fleet National Bank in
the original principal amount of $25 million (previously filed
as Exhibit 4(f) to the Registrant's Form 8-K filed February
10, 2000 and incorporated herein by this reference) (See
Note 1 below)
4(d)* Subsidiary Guaranty Agreement dated as of January 27, 2000
among Regent Broadcasting, Inc., Regent Communications, Inc.
and each of their subsidiaries and Fleet National Bank, as
collateral agent (previously filed as Exhibit 4(c) to the
Registrant's Form 8-K filed February 10, 2000 and incorporated
herein by this reference)
4(e)* Pledge Agreement dated as of January 27, 2000 among Regent
Broadcasting, Inc., Regent Communications, Inc. and each of
their subsidiaries and Fleet National Bank, as collateral
agent (previously filed as Exhibit 4(d) to the Registrant's
Form 8-K filed February 10, 2000 and incorporated herein by
this reference)
4(f)* Security Agreement dated as of January 27, 2000 among Regent
Broadcasting, Inc., Regent Communications, Inc. and each of
their subsidiaries and Fleet National Bank, as collateral
agent (previously filed as Exhibit 4(b) to the Registrant's
Form 8-K filed February 10, 2000 and incorporated herein by
this reference)
10(a)# Escrow Agreement dated as of March 12, 2000 by and among
Regent Broadcasting of Victorville, Inc., Regent Licensee of
Victorville, Inc., Regent Broadcasting of Palmdale, Inc.,
Regent Licensee of Palmdale, Inc., Regent Broadcasting of
Mansfield, Inc., Regent Licensee of Mansfield, Inc., Clear
Channel Broadcasting, Inc., Clear Channel Broadcasting
Licenses, Inc., Capstar Radio Operating Company, Capstar TX
Limited Partnership and Bank of America
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<PAGE> 74
10(b)# Letter agreement dated March 12, 2000 from Clear Channel
Communications, Inc. addressed to Regent Broadcasting of
Victorville, Inc., Regent Licensee of Victorville, Inc.,
Regent Broadcasting of Palmdale, Inc., Regent Licensee of
Palmdale, Inc., Regent Broadcasting of Mansfield, Inc., Regent
Licensee of Mansfield, Inc.
10(c)# Liquidated Damages Agreement made as of March 12, 2000 by
Regent Broadcasting of Victorville, Inc., Regent Licensee of
Victorville, Inc., Regent Broadcasting of Palmdale, Inc.,
Regent Licensee of Palmdale, Inc., Regent Broadcasting of
Mansfield, Inc., Regent Licensee of Mansfield, Inc. for the
benefit of Clear Channel Broadcasting, Inc., Clear Channel
Broadcasting Licenses, Inc., Capstar Radio Operating Company
and Capstar TX Limited Partnership
10(d)* Regent Communications, Inc. Faircom Conversion Stock Option
Plan (previously filed as Exhibit 10(f) to the Registrant's
S-4 filed on February 17, 1998 and incorporated herein by this
reference)
10(e)* Regent Communications, Inc. 1998 Management Stock Option Plan
(previously filed as Exhibit 10(g) to the Registrant's S-4
filed on February 17, 1998 and incorporated herein by this
reference)
10(f)* Employment Agreement between Regent Communications, Inc. and
Terry S. Jacobs (previously filed as Exhibit 10(h) to the
Registrant's S-4 filed on February 17, 1998 and incorporated
herein by this reference)
10(g)* Employment Agreement between Regent Communications, Inc. and
William L. Stakelin (previously filed as Exhibit 10(i) to the
Registrant's S-4 filed on February 17, 1998 and incorporated
herein by this reference)
10(h)* Employment Agreement between Regent Communications, Inc. and
Joel M. Fairman (previously filed as Exhibit 10(j) to the
Registrant's S-4 filed on February 17, 1998 and incorporated
herein by this reference)
10(i)* Lease Agreement dated January 17, 1994 between CPX--
RiverCenter Development Corporation and Regent Communications,
Inc. (previously filed as Exhibit 10(z) to the Registrant's
S-4 filed on February 17, 1998 and incorporated herein by this
reference)
10(j)* Stock Purchase Agreement dated June 15, 1998 among Regent
Communications, Inc., Waller-Sutton Media Partners, L.P., WPG
Corporate Development Associates V, L.C.C., WPG Corporate
Development Associates (Overseas) V, L.P., General Electric
Capital Corporation, River Cites Capital Fund Limited
Partnership and William H. Ingram (excluding exhibits not
deemed material or filed separately in executed form)
(previously
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<PAGE> 75
filed as Exhibit 4(d) to the Registrant's Form 8-K filed June
30, 1998 and incorporated herein by this reference)
10(k)* Registration Rights Agreement dated June 15, 1998 among Regent
Communications, Inc., PNC Bank, N.A., Trustee, Waller-Sutton
Media Partners, L.P., WPG Corporate Development Associates V,
L.C.C., WPG Corporate Development Associates (Overseas) V,
L.P., BMO Financial, Inc., General Electric Capital
Corporation, River Cites Capital Fund Limited Partnership,
Terry S. Jacobs, William L. Stakelin, William H. Ingram, Blue
Chip Capital Fund II Limited Partnership, Miami Valley Venture
Fund L.P. and Thomas Gammon (excluding exhibits not deemed
material or filed separately in executed form) (previously
filed as Exhibit 4(e) to the Registrant's Form 8-K filed June
30, 1998 and incorporated herein by this reference)
10(l)* Warrant for the Purchase of 650,000 Shares of Common Stock
issued by Regent Communications, Inc. to Waller-Sutton Media
Partners, L.P. dated June 15, 1998 (See Note 2 below)
(previously filed as Exhibit 4(f) to the Registrant's Form 8-K
filed June 30, 1998 and incorporated herein by this
reference)
10(m)* Warrant for the Purchase of 50,000 Shares of Common Stock
issued by Regent Communications, Inc. to General Electric
Capital Corporation dated June 15, 1998 (previously filed as
Exhibit 4(g) to the Registrant's Form 8-K filed June 30, 1998
and incorporated herein by this reference)
10(n)* Agreement to Issue Warrant dated as of June 15, 1998 between
Regent Communications, Inc. and General Electric Capital
Corporation (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit 4(h)
to the Registrant's Form 8-K filed June 30, 1998 and
incorporated herein by this reference)
10(o)* Warrant for the Purchase of 80,000 Shares of Common Stock
issued by Regent Communications, Inc. to River Cities Capital
Fund Limited Partnership dated June 15, 1998 (previously filed
as Exhibit 4(k) to the Form 10-Q for the Quarter Ended June
30, 1998, as amended, and incorporated herein by this
reference)
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<PAGE> 76
10(p)* Credit Agreement dated as of November 14, 1997 among Regent
Communications, Inc., the lenders listed therein, as Lenders,
General Electric Capital Corporation, as Documentation Agent
and Bank of Montreal, Chicago Branch, as Agent (excluding
exhibits not deemed material or filed separately in executed
form) (previously filed as Exhibit 4(j) to the Registrant's
Form S-4 Registration Statement No. 333-46435 effective May 7,
1998 and incorporated herein by this reference)
10(q)* 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 3 below) (previously
filed as Exhibit 4(k) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference)
10(r)* Agreement to Issue Warrant dated as of March 25, 1998 between
Regent Communications, Inc. and River Cities Capital Fund
Limited Partnership (previously filed as Exhibit 4(1) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference)
10(s)* First Amendment to Credit Agreement dated as of February 16,
1998 among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch as Agent (previously filed as Exhibit
4(w) to the Registrant's Form 8-K/A (date of report June 15,
1998) filed September 3, 1998 and incorporated herein by this
reference)
10(t)* Second Amendment and Limited Waiver to Credit Agreement dated
as of June 10, 1998 among Regent Communications, Inc., the
financial institutions listed therein, as lenders, General
Electric Capital corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(x) to the Registrant's Form 8-K/A (date of report
June 15, 1998) filed September 3, 1998 and incorporated herein
by this reference)
10(u)* Third Amendment to Credit Agreement dated as of August 14,
1998 among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(y) to the Registrant's Form 10-Q for the Quarter
Ended September 30, 1998, as amended, and incorporated herein
by this reference)
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<PAGE> 77
10(v)* Stock Purchase Agreement dated January 11, 1999 between Regent
Communications, Inc. and Blue Chip Capital II Limited
Partnership relating to the purchase of 315,887 shares of
Regent Communications, Inc. Series G Convertible Preferred
Stock (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit 4u
to Amendment No. 1 to the Registrant's Form S-1 10K for the
year ended December 31, 1998 and incorporated herein by this
reference)
10(w)* Stock Purchase Agreement dated January 11, 1999 between Regent
Communications, Inc. and Terry S. Jacobs relating to the
purchase of 50,000 shares of Regent Communications, Inc.
Series G Convertible Preferred Stock (See Note 4) (excluding
exhibits not deemed material or filed separately in executed
form) (previously filed as Exhibit 4(v) to the Registrant's
Form S-1 10-K for the year ended December 31, 1998 and
incorporated herein by this reference)
10(x)* Fourth Amendment, Limited Consent and Limited Waiver to Credit
Agreement, First Amendment to Subsidiary Guaranty and First
Amendment to Pledge and Security Agreement, dated as of
October 16, 1998 among Regent Communications, Inc., the
financial institutions listed therein, as lenders, General
Electric Capital Corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(w) to the Registrant's Form 10-K for the year ended
December 31, 1998 and incorporated herein by this reference)
10(y)* Fifth Amendment to Credit Agreement, dated as of November 23,
1998, among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(x) to the Registrant's Form 10-K for the year ended
December 31, 1998 and incorporated herein by this reference)
10(z)* Sixth Amendment and Limited Consent to Credit Agreement, dated
as of February 24, 1999, among Regent Communications, Inc.,
the financial institutions listed therein, as lenders, General
Electric Capital Corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(y) to the Registrant's Form 10-K for the year ended
December 31, 1998 and incorporated herein by this reference)
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<PAGE> 78
10(aa)* Stock Purchase Agreement dated June 21, 1999 between Regent
Communications, Inc. and Waller-Sutton Media Partners, L.P.
relating to the purchase of 90,909 shares of Regent
Communications, Inc. Series H convertible preferred stock (See
Note 5 below) (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit
4(aa) to the Registrant's Form 10-Q for the quarter ended June
30,1999 and incorporated herein by this reference)
10(bb)* Stock Purchase Agreement dated June 21, 1999, among Regent
Communications, Inc., WPG Corporate Development Associates V,
L.L.C. and WPG Corporate Development Associates V (Overseas),
L.P. relating to the purchase of 1,180,909 and 182,727 shares,
respectively, of Regent Communications, Inc. Series H
convertible preferred stock (excluding exhibits not deemed
material or filed separately in executed form)(previously
filed as Exhibit 4(bb) to the Registrant's Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by this
reference)
10(cc)* Seventh Amendment to Credit Agreement, dated as of June 30,
1999, among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch, as Agent(previously filed as Exhibit
4(cc) to the Registrant's Form 10-Q for the quarter ended June
30, 1999 and incorporated herein by this reference)
10(dd)* Eighth Amendment, Limited Consent and Limited Waiver to Credit
Agreement, dated as of November 11, 1999, among Regent
Communications, Inc., the financial institutions listed
therein, as lenders, General Electric Capital Corporation, as
Documentation Agent, and Bank of Montreal, Chicago Branch, as
Agent (previously filed as Exhibit 4(dd) to the Registrant's
Form 10-Q for the quarter ended on September 30, 1999 and
incorporated herein by this reference)
10(ee)* Stock Purchase Agreement dated as of August 31, 1999 among
Regent Communications, Inc., The Roman Arch Fund L.P. and The
Roman Arch Fund II L.P. relating to the purchase of 109,091
and 72,727 shares, respectively, of Regent Communications,
Inc. Series H convertible preferred stock(excluding exhibits
not deemed material or filed separately in executed form)
(previously filed as Exhibit 4(ee) to the Registrant's Form
10-Q for the quarter ended on September 30, 1999 and
incorporated herein by this reference)
10(ff)* First Amendment to Registration Rights Agreement dated as of
August 31, 1999 among Regent Communications, Inc., PNC Bank,
N.A., as trustee, Waller-Sutton Media Partners, L.P., WPG
Corporate
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<PAGE> 79
Development Associates V, L.L.C., WPG Corporate Development
Associates (Overseas) V, L.P., BMO Financial, Inc., General
Electric Capital Corporation, River Cities Capital Fund
Limited Partnership, Terry S. Jacobs, William L. Stakelin,
William H. Ingram, Blue Chip Capital Fund II Limited
Partnership, Miami Valley Venture Fund L.P. and Thomas P.
Gammon (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit
4(gg) to the Registrant's Form 10-Q for the quarter ended on
September 30, 1999 and incorporated herein by this reference)
10(gg)* Second Amendment to Registration Rights Agreement dated as of
December 13, 1999, among Regent Communications, Inc., Terry S.
Jacobs, William L. Stakelin, Blue Chip Capital Fund II Limited
Partnership, Blue Chip Capital Fund III Limited Partnership,
Miami Valley Venture Fund, L.P., PNC Bank, N.A., as trustee,
PNC Bank, N.A., Custodian, Waller-Sutton Media Partners, L.P.,
River Cities Capital Fund Limited Partnership, Mesirow Capital
Partners VII, WPG Corporate Development Associates V, L.L.C.,
WPG Corporate Development Associates V (Overseas) L.P.,
General Electric Capital Corporation, William H. Ingram, The
Roman Arch Fund L.P., The Roman Arch Fund II L.P. and The
Prudential Insurance Company of America (previously filed as
Exhibit 4(hh) to Amendment No. 1 to the Registrant's Form S-1
Registration Statement No. 333-91703 filed December 29, 1999
and incorporated herein by this reference)
10(hh)* Third Amended and Restated Stockholders' Agreement dated as of
December 13, 1999, among Regent Communications, Inc., Terry S.
Jacobs, William L. Stakelin, Blue Chip Capital Fund II Limited
Partnership, Blue Chip Capital Fund III Limited Partnership,
Miami Valley Venture Fund, L.P., PNC Bank, N.A., as trustee,
PNC Bank, N.A., Custodian, Waller-Sutton Media Partners, L.P.,
River Cities Capital Fund Limited Partnership, Mesirow Capital
Partners VII, WPG Corporate Development Associates V, L.L.C.,
WPG Corporate Development Associates V (Overseas) L.P.,
General Electric Capital Corporation, William H. Ingram, Joel
M. Fairman, The Roman Arch Fund L.P., The Roman Arch Fund II
L.P. and the Prudential Insurance Company of America
(previously filed as Exhibit 4(gg) to Amendment No. 1 to the
Registrant's Form S-1 Registration Statement No. 333-91703
filed December 29, 1999 and incorporated herein by this
reference)
10(ii)* Stock Purchase Agreement dated as of November 24, 1999,
between Regent Communications, Inc. and Blue Chip Capital Fund
III Limited Partnership (see Note 6 below) (previously filed
as Exhibit (jj) to Amendment No. 1 to the Registrant's Form
S-1 Registration Statement filed December 29, 1999 and
incorporated herein by this reference)
21# Subsidiaries of Registrant
27# Financial Data Schedule
- -----------------
* Incorporated by reference.
# This exhibit was previously filed as an exhibit to the Registrant's Form 10-K
for the year ended December 31, 1999 as initially filed and is incorporated by
this reference into this amended report.
NOTES:
1. Seven substantially identical notes were made by Regent
Broadcasting, Inc. as follows:
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<PAGE> 80
<TABLE>
<CAPTION>
Original
Holder Principal Amount
------ ----------------
<S> <C>
General Electric Capital Corporation $22,000,000
Dresdner Bank AG, New York and Cayman
Islands Branches $22,000,000
Mercantile Bank National Association $16,000,000
U.S. Bank National Association $10,000,000
Summit Bank $10,000,000
Michigan National Bank $10,000,000
The CIT Group Equipment Financing, Inc. $10,000,000
2. Six substantially identical warrants for the purchase of shares of Registrant's common stock
were issued as follows:
Shares
------
Waller-Sutton Media Partners, L.P. 650,000
WPG Corporate Development Associates V, L.L.C. 112,580
WPG Corporate Development Associates (Overseas) V, L.P. 17,420
General Electric Capital Corporation 50,000
River Cities Capital Fund Limited Partnership 20,000
William H. Ingram 10,000
3. Two substantially identical notes were issued to Bank of Montreal, Chicago Branch, in the
principal amounts of $15,000,000 and $20,000,000.
4. Two substantially identical stock purchase agreements were
entered into for the purchase of Series G convertible
preferred stock as follows:
Joel M. Fairman 3,319 shares
William L. Stakelin 3,200 shares
5. Two substantially identical stock purchase agreements were
entered into for the purchase of Series H convertible
preferred stock as follows:
Blue Chip Capital Fund II Limited Partnership 363,636 shares
PNC Bank, N.A., as trustee 181,818 shares
6. Four substantially identical stock purchase agreements were
entered into for the purchase of Series K convertible
preferred stock as follows:
WPG Corporate Development Associates V, L.L.C. and
WPG Corporate Development Associates V (Overseas), L.P. 181,818 shares
PNC Bank, N.A., Custodian 181,818 shares
Mesirow Capital Partners VII1 1,818,181 shares
The Prudential Insurance Company of America 1,000,000 shares
</TABLE>
E-11
