<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended ___________
OR
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from April 1, 1996 to December 31, 1996
Commission file number: 0-26530
TRIATHLON BROADCASTING COMPANY
(Name of Small Business Issuer in Its Charter)
Delaware 33-0668235
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
Symphony Towers
750 B Street
Suite 1950
San Diego, California 92101
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (619) 239-4242
Securities registered under to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
DEPOSITARY SHARES,
EACH REPRESENTING A ONE-TENTH INTEREST IN A SHARE OF
9% MANDATORY CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained herein, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [x]
The registrant's gross revenues for the transition period are
$18,907,649.
The aggregate market value of the Class A Common Stock (one vote per
share) and the Depositary Shares (4/5 of one vote per share) held by
non-affiliates computed by reference to the average closing bid and asked price
on such Class A Common Stock and Depositary Shares of $77/16 and $85/8,
respectively, on May 12, 1997 was $20,464,251.
The number of shares of the registrant's Class A Common Stock, $.01 par
value, Class B Common Stock, $.01 par value, Class C Common Stock, $.01 par
value, and Class D Common Stock, $.01 par value, outstanding as of May 9, 1997
was 3,148,533, 244,890, 50,000 and 1,444,366, respectively.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Triathlon Broadcasting Company (the "Company") owns and operates radio
stations primarily in medium and small markets in the Midwestern and Western
United States. The Company generally defines medium and small markets as those
ranked below the top 70 markets in terms of population by The Arbitron Company.
On January 1, 1996, the Company owned and operated, sold advertising on behalf
of or provided programming to three FM and two AM radio stations in Wichita,
Kansas. The Company has significantly expanded its operations and it currently
owns and operates, sells advertising on behalf of or provides programming to 23
FM and 10 AM radio stations in seven markets. Upon consummation of the Pending
Acquisitions (as defined herein) and the Little Rock Disposition (as defined
herein), the Company will own and operate, sell advertising on behalf of or
provide programming to 32 radio stations and one radio network in six markets.
The following chart sets forth certain information with respect to the
Company's stations after giving effect to the Pending Acquisitions and the
Little Rock Disposition:
<TABLE>
<CAPTION>
NUMBER OF
STATIONS NUMBER OF NUMBER OF STATIONS OPERATED
CURRENTLY STATIONS TO BE FOLLOWING PENDING ACQUISITIONS AND
MARKET(1) MARKET RANK OPERATED(1) ACQUIRED LITTLE ROCK DISPOSITION
- ---------------------- ------------------- -------------- ------------------ -------------------------------------
AM FM
------------------ -----------------
<S> <C> <C> <C> <C> <C>
Omaha,
Nebraska(2)..... 72 2 2 1 3
Spokane,
Washington...... 87 8(3)(4) 0 3 5
Wichita, Kansas...... 90 7 0 3 4
Colorado Springs,
Colorado........ 95 4(3) 0 2 2
Lincoln,
Nebraska(2)..... 169 4 0 0 4
Tri-Cities,
Washington...... 200 5(5) 0 2 3
----- --- --- ---
Total............. 30 2 11 21
<FN>
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(1) Does not include three stations operating in the Little Rock, Arkansas
market, currently owned and operated by the Company and to be sold in
the Little Rock Disposition (as defined herein).
(2) The Company has entered into an agreement to acquire the rights to the
University of Nebraska Network pursuant to the Pinnacle Acquisition (as
defined herein).
(3) Includes four stations in each of the Colorado Springs, Colorado and
Spokane, Washington markets for which Citadel Broadcasting Company
sells advertising pursuant to a joint sales agreement.
(4) Includes one station that is not owned by the Company but on which it
sells advertising pursuant to a joint sales agreement.
(5) Includes one station that is not owned by the Company but on which it
provides services and sells advertising pursuant to a local marketing
agreement.
</FN>
</TABLE>
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SELECTED FINANCIAL DATA
The following sets forth certain selected financial information with
respect to the Company.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended Three Months Ended
March 31, December 31, December 31, March 31,
1996 1996 1996 1996 1997
-------- -------- -------- -------- --------
(unaudited)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues ....................................... $ 3,170 $ 16,902 $ 18,963 $ 2,061 $ 5,661
Station operating expenses ......................... 2,724 11,969 13,678 1,709 4,406
Depreciation and amortization ...................... 321 1,251 1,427 176 752
Corporate expenses ................................. 547 1,407 1,719 313 490
Deferred compensation .............................. 275 318 366 47 100
DOJ information request costs ...................... 300 300
-------- -------- -------- -------- --------
Operating income (loss) ............................ (697) 1,657 1,473 (184) (87)
Interest expense - net ............................. (350) (1,441) (1,852) (411) (570)
Other income (expense) ............................. (60) (60)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item ............ (1,047) 156 (439) (595) (657)
Extraordinary item ................................. (320) (320) (320)
-------- -------- -------- -------- --------
Net income (loss) .................................. (1,367) 156 (759) (915) (657)
Preferred stock dividend requirement ............... (314) (4,101) (4,414) (314) (1,377)
-------- -------- -------- -------- --------
Net loss applicable to common stock ................ $ (1,681) $ (3,945) $ (5,173) $ (1,229) $ (2,034)
======== ======== ======== ======== ========
Loss per common share:
Loss before extraordinary item ................ $ (0.44) $ (0.81) $ (0.97) $ (0.15) $ (0.42)
Extraordinary item ............................ (0.10) (0.10) (0.10)
-------- -------- -------- -------- --------
Net loss ...................................... $ (0.54) $ (0.81) $ (1.07) (0.25) (0.42)
Weighted average common shares outstanding ......... 3,069 4,842 4,842 4,842 4,862
======== ======== ======== ======== ========
OTHER OPERATING DATA
Broadcast Cash Flow1 ............................... $ 446 $ 4,933 $ 5,285 $ 352 $ 1,255
Cash capital expenditures .......................... 273 1,336 1,555 219 181
Net cash provided by (used in) operating ........... 1,537 264 596
activities .................................... (647) 156
Net cash used in investing activities .............. (22,078) (50,550) (65,480) (14,931) (17,644)
Net cash provided by financing activities .......... 59,570 15,515 61,980 46,466 16,623
<CAPTION>
December 31, 1996 March 31, 1996 March 31, 1997
----------------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents .......................... $ 3,083 $36,845 $ 2,658
Working capital .................................... 4,494 32,593 2,948
Intangible assets, net ............................. 65,159 19,339 76,566
Total assets ....................................... 88,394 69,381 105,718
Notes payable ...................................... 13,000 31,000
Stockholders' equity ............................... 64,382 61,062 62,674
<FN>
- --------
1 Broadcast Cash Flow is defined as net revenues less station operating
expenses. Although Broadcast Cash Flow is not a measure of performance
calculated in accordance with generally accepted accounting principles, the
Company believes that Broadcast Cash Flow is accepted by the broadcasting
industry as a generally recognized measure of performance and is used by
analysts who report publicly on the performance of broadcasting companies.
</TABLE>
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STRATEGY
Acquisitions. The Company's strategy is to expand its operations by
acquiring multiple radio stations in medium and small markets and to enhance the
financial performance of the stations it owns and operates through the
application of management techniques developed or refined by its officers and
consultants through extensive experience with large, medium and small radio
market operations. The Company believes that its extensive managerial expertise
in operating radio stations in all sizes of markets can be employed effectively
to improve operating results of its radio stations and may provide the Company a
competitive advantage in medium and small markets. Pursuant to the
Telecommunications Act of 1996 (the "Telecom Act"), the Federal Communications
Commission ("FCC") has modified its ownership rules to generally (i) eliminate
the limit on the total number of radio stations one entity may own nationally
and (ii) increase the number of radio stations one entity may own locally. See
"Federal Regulation of Radio Broadcasting." The Company intends to pursue
acquisition opportunities made possible by the Telecom Act and intends to
increase the total number of stations it owns in the Western and Midwestern
United States. The Company believes that multiple station ownership (especially
in its targeted medium to small markets) will achieve cost savings by
eliminating duplicative sales and overhead expenses, will increase revenues by
offering advertisers a broader range of advertising packages and will enhance
competitive strength against other local advertising media.
The Company believes that there are radio stations available for
acquisition at a purchase price that reflects an attractive multiple of
Broadcast Cash Flow (as defined herein) due to the limited number of well
capitalized competitors in this market size who can take advantage of these
opportunities at this time. However, the Company's ability to implement its
acquisition strategy is dependent upon the availability of financing. The
Company has received a proposal from AT&T Capital Corporation and Union Bank of
California (collectively, the "Lenders") to refinance approximately $40.0
million borrowed under its existing credit facility (the "Credit Agreement") and
to borrow up to an additional $40.0 million. The Company expects to receive a
commitment and to enter into a definitive credit agreement with the Lenders (the
"Proposed Credit Agreement") within the second quarter of 1997. In addition, the
Company anticipates receiving approximately $20.0 million upon the consummation
of the Little Rock Disposition during the fourth quarter of 1997, which amount
the Company will use to repay a portion of the amount then outstanding under the
Proposed Credit Agreement. Assuming that the Company enters into the Proposed
Credit Agreement, meets certain financial requirements and consummates the
Little Rock Disposition, the Company will have up to approximately $20.0 million
to continue its acquisition strategy after the consummation of the Pending
Acquisitions. The Company's ability to obtain additional financing is dependent
upon a number of factors, including, but not limited to, the availability of
equity financing. See "Part II. Item 6. Management's Discussion and Analysis or
Plan of Operation -- Liquidity and Capital Resources."
Operations. The Company believes that its management group and its
advisors have substantially greater experience in the management of radio
stations in all market sizes than is generally available to other companies
operating stations in medium and small markets. The Company believes that such
expertise can be applied to improve the financial performance and Broadcast Cash
Flow of medium and small market stations by enhancing revenues while controlling
costs. The Company seeks to enhance the financial performance of its stations
through the application of management techniques developed or refined by its
officers and consultants through extensive experience with large, medium and
small radio market operations. These techniques include (i) targeted programming
designed to increase audience share within specific demographic groups
considered to be particularly attractive to advertisers, (ii) sales and
marketing programs intended to increase both audience share and advertising
time, from which substantially all of the Company's revenues are derived, (iii)
effective advertising inventory control and (iv) the implementation of operating
efficiencies to reduce costs. The Company seeks to reduce expenses at the
stations by implementing cost controls, operating the stations as groups in
their respective markets and lowering overhead by combining and centralizing
administrative and financial functions of its stations.
The Company conducts extensive market research to refine and enhance
programming at each of its stations. The stations currently employ a variety of
programming formats, including "Soft" Adult Contemporary, New Age Contemporary,
Pop Alternative, Country, Classic Rock, Oldies, Album-Oriented Rock, Nostalgia,
Middle-of-the-Road, Classic Hits and Talk/News/Sports. While the Company's
performance is dependent on audience ratings (like other
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radio broadcasting companies), it is also dependent on aggressive marketing,
promotional and selling techniques to successfully sell advertising time in its
markets. Local advertising and promotional tie-ins with local events are
designed to heighten public awareness of the stations. The Company believes that
the ownership of a group of radio stations within a market enables it to offer
advertisers a broader range of creative advertising packages, as well as greater
overall coverage of the market. As a result, the Company is able to strengthen
its competitive position with respect to television and other media and improve
advertising inventory control.
RECENTLY COMPLETED ACQUISITIONS
The Company was incorporated in February 1995 and commenced operations
in September 1995 with the acquisition of four radio stations in the Wichita,
Kansas market. From January 1, 1996 through the date hereof, the Company
purchased a total of 27 radio stations, including certain stations on which the
Company already sold advertising or provided programming, and has continued one
local marketing agreement ("LMA") and one joint sales agreement ("JSA").
The Company entered the Lincoln, Nebraska market on January 24, 1996,
when it purchased the assets of radio stations KZKX-FM and KTGL-FM from
Pourtales Radio Partnership ("Pourtales") for an aggregate purchase price of
approximately $9.7 million. On January 29, 1996, the Company entered into a JSA
with, and on June 13, 1996 purchased, the assets of radio stations KIBZ-FM,
KKNB-FM and KHAT-AM, also operating in the Lincoln, Nebraska market, from Rock
Steady, Inc. for a purchase price of approximately $3.3 million. KHAT-AM was not
broadcasting at the time of purchase and the Company subsequently allowed the
station's license to expire.
In the Colorado Springs, Colorado and Spokane, Washington markets, the
Company has provided programming and sold advertising pursuant to an LMA with
Pourtales on four FM and four AM radio stations (the "Colorado and Spokane
Stations") since January 16, 1996. To take advantage of certain synergies in
these markets, the Company entered into a JSA with Citadel Broadcasting Company
with respect to these eight stations (the "Citadel JSA"). On November 22, 1996,
to complement the Company's existing radio stations, the Company acquired from
Pourtales (i) the radio stations subject to the Citadel JSA, (ii) one FM and one
AM radio station, both operating in the Tri-Cities, Washington market, (iii) one
FM radio station, operating in the Wichita, Kansas market, and (iv) the rights
and obligations under an LMA on one radio station, operating in the Tri-Cities,
Washington market. The aggregate purchase price for these stations was
approximately $22.9 million. See "Part III. Item 12. Certain Relationships and
Related Transactions--Relationship with Pourtales and Mr. Feuer."
The radio stations obtained from Pourtales and operating in the
Tri-Cities, Washington market provided synergies with radio stations KALE-AM and
KIOK-FM, also operating in the Tri-Cities, Washington market which were
purchased from Sterling Realty Organization on April 19, 1996 for a purchase
price of approximately $1.2 million. Likewise, the radio station obtained from
Pourtales and operating in the Wichita, Kansas market, provided synergies with
radio stations KRRB-FM and KQAM-AM and radio stations KWSJ-FM (formerly KXLK-FM)
and KFH-AM, each also operating in the Wichita, Kansas market, which were
purchased from Marathon Broadcasting Company and Pourtales, respectively, in
September 1995 for an aggregate purchase price of approximately $5.9 million.
On April 10, 1996, the Company entered the Omaha, Nebraska market, as a
complement to its radio stations in the Lincoln, Nebraska market, by acquiring
the assets of KTNP-FM (formerly KRRK-KM) from 93.3 Inc. for a purchase price of
approximately $2.7 million and the assets of KXKT-FM from Valley Broadcasting
Company for a purchase price of approximately $8.1 million.
On January 9, 1997 and April 25, 1997, respectively, the Company
purchased radio stations KZSN-FM and KZSN-AM, both operating in the Wichita,
Kansas market, and radio stations KSSN-FM and KMVK-FM, both operating in the
Little Rock, Arkansas market, from Southern Skies Corporation for an aggregate
purchase price of $22.6 million, 46,189 shares of the Company's Class A Common
Stock and will pay $750,000 pursuant to a non-competition agreement with one of
the principals of Southern Skies Corporation. Also on April 25, 1997, the
Company purchased radio station KOLL-FM, operating in the Little Rock, Arkansas
market, from SFX Broadcasting, Inc. ("SFX") for an
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aggregate purchase price of $4.1 million. The Company had provided services to
KOLL-FM pursuant to an LMA since March 15, 1996. See "Part III. Item 12. Certain
Relationships and Related Transactions--The Little Rock Acquisition."
CITADEL JSA
The Department of Justice, Antitrust Division ("DOJ") is investigating
the Citadel JSA in connection with the concentration of radio station ownership
within Colorado Springs, Colorado and Spokane, Washington. See "Item 8. Legal
Proceedings." The DOJ is increasingly scrutinizing the radio broadcasting
industry. In a recent case, the DOJ has, for the first time, requested the
termination of a radio station JSA that, in the opinion of the DOJ, would have
given a radio station owner, together with its proposed acquisition of other
radio stations in the area, control over more than 60% of radio advertising
revenue in the area.
The Citadel JSA currently may be deemed to provide Citadel control over
approximately 52.2% and 46.6% of the radio advertising revenue in the Spokane,
Washington market and the Colorado Springs, Colorado market, respectively. The
Citadel JSA provided approximately 12% of the Company's net revenues in the
Transition Period 1996. In the event the DOJ requires the termination or
modification of the Citadel JSA, the Company believes that it will not have a
long-term material adverse effect on the Company because the Company believes
that it can more efficiently provide the services currently performed by
Citadel, and the Citadel JSA fee structure does not reflect such efficiencies.
During the period that the Company operated Colorado and Spokane
Stations pursuant to an LMA, the Company recognized as net revenue the Citadel
JSA fee. As of November 22, 1996, when the Company purchased the Colorado and
Spokane Stations, the Company included the related stations' operating expenses
in its consolidated statement of operations as expenses and the reimbursement of
the expenses and the Citadel JSA fee as revenues. The inclusion of the
reimbursement expenses results in a permanent reduction in the Company's
Broadcast Cash Flow Margin (Broadcast Cash Flow as a percentage of net
revenues). See "Part II. Item 6. Management's Discussion and Analysis or Plan of
Operation."
PENDING ACQUISITIONS
To strengthen the Company's operations in Nebraska (where the Company
owns two FM radio stations in the Omaha, Nebraska market, and owns four FM radio
stations in the Lincoln, Nebraska market), the Company entered into an agreement
to purchase radio stations KGOR-FM and KFAB-AM, both operating in the Omaha,
Nebraska market and the exclusive Muzak franchise for the Lincoln and Omaha,
Nebraska markets, from American Radio Systems for an aggregate purchase price of
$38.0 million (the "Omaha Acquisition"). The Company has provided a deposit in
the form of a letter of credit, pursuant to which it has segregated $2.0
million, and anticipates consummating the Omaha Acquisition within the second
quarter of 1997. The FCC licenses for the radio stations subject to the Omaha
Acquisition expire on June 1, 1997. Renewal applications with respect to those
stations were filed with the FCC and such applications are pending. The Company
is negotiating with the American Radio Systems certain conditions whereby the
Omaha Acquisition would be consummated prior to the final grant by the FCC of
the license renewal.
Also in Nebraska, the Company has entered into an agreement to purchase
Pinnacle Sports Productions, LLC (the "Pinnacle Acquisition") which broadcasts
all of the men's football, basketball and baseball games and women's basketball
and volleyball games of the University of Nebraska. The purchase price of
approximately $3.3 million may be increased by $1.7 million if the University of
Nebraska renews its contract with the Company in 2001 for a minimum of an
additional three year term. The Company anticipates consummating the Pinnacle
Acquisition during the second quarter of 1997.
"Pending Acquisitions" refers collectively to the Omaha Acquisition
and the Pinnacle Acquisition.
The aggregate purchase price of the Pending Acquisitions is
approximately $40.0 million, not including $2.0 million segregated for deposits
and the $1.7 million contingent portion of the purchase price of the Pinnacle
Acquisition.
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The Company has received a proposal from the Lenders to refinance approximately
$40.0 million borrowed under the Credit Agreement and to borrow up to an
additional $40.0 million. If the Company enters into the Proposed Credit
Agreement, it intends to use the additional $40.0 million to consummate the
Pending Acquisitions. The Company anticipates that its ability to borrow funds
under the Proposed Credit Agreement will be conditioned on meeting certain
financial ratios. See "Part II. Item 6. Management's Discussion and Analysis or
Plan of Operation." There can be no assurance that the Company will be able to
enter into the Proposed Credit Agreement or that the stations will achieve the
cash flow levels required thereunder to obtain the financing necessary to fund
the Pending Acquisitions. In addition, the ability of the Company to borrow
under the Proposed Credit Agreement or obtain other financing may be restricted
by the requirement to maintain certain financial ratios under the terms of the
Certificate of Designations of the Company's 9% Mandatory Convertible Preferred
Stock (the "Preferred Stock"). If the Company does not enter into the Proposed
Credit Agreement or is unable to borrow thereunder, there can be no assurance
that it will otherwise be able to obtain the financing necessary to consummate
the Pending Acquisitions on terms comparable to the terms of the Proposed Credit
Agreement or on terms acceptable to the Company.
LITTLE ROCK DISPOSITION
On April 11, 1997, the Company entered into an agreement with Clear
Channel Radio, Inc. ("Clear Channel"), pursuant to which the Company will sell
to Clear Channel radio stations KOLL-FM, KSSN-FM and KMVK-FM, each operating in
the Little Rock, Arkansas market. The aggregate sale price is $20.0 million.
While the purchase agreement with respect to the Little Rock Disposition
contemplates that the consummation of the Little Rock Disposition could be as
late as two years from the date of the agreement, the Company anticipates that
the Little Rock Disposition will be consummated during the fourth quarter of
1997. The purchase price for the Little Rock Disposition represents a multiple
of 1996 historical Broadcast Cash Flow for these stations in excess of 20. The
Company has determined to exit the Little Rock, Arkansas market, to focus on
markets in which the Company believes that radio stations can be acquired for
multiples of Broadcast Cash Flow that are lower than in the Little Rock,
Arkansas market.
In the event that the Little Rock Disposition is not consummated within
six months of the filing (the "Filing Date") of the requisite applications with
the Justice Department in connection with the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"), and with the FCC, due to
the failure to obtain the necessary regulatory consents, Clear Channel has
agreed to guarantee the $20.0 million loan that the Company expects to obtain
under the Proposed Credit Agreement. In the event that the closing has not
occurred within 18 months of the Filing Date due to the failure to obtain such
consents, Clear Channel has agreed to make a $20.0 million loan to the Company
to be secured only by the assets, to the extent permitted by law, of the radio
stations subject to the Little Rock Disposition. The proceeds of this loan or
the proceeds of the sale will be used to repay the amounts outstanding under the
Proposed Credit Agreement. See "Part II. Item 6. Management's Discussion and
Analysis or Plan of Operation--Liquidity and Capital Resources."
THE STATIONS AND THE MARKETS
The following table summarizes certain information with respect to the
radio stations the Company will own and operate, provide programming to or sell
advertising on behalf of, after giving effect to the Pending Acquisitions and
the Little Rock Disposition:
<TABLE>
<CAPTION>
1996 NUMBER TOTAL
STATION RANK 1996 AUDIENCE STATION OF EXPIRATION
MARKET STATION TARGET AMONG TARGET SHARE FOR TARGET REVENUE STATIONS IN DATE OF FCC
STATION(1) RANK FORMAT(2) DEMOGRAPHICS DEMOGRAPHICS(2) DEMOGRAPHICS(2) RANK(2) MARKET(2) AUTHORIZATION
- -------------- ------- ---------------- -------------- --------------- ---------------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Omaha Market 72 20
KXKT-FM... Country Adults 25-54 2 9.6% 8 2/1/05
KGOR-FM(3) Oldies Adults 25-54 3 8.6% 6 6/1/97(4)
KTNP-FM... Pop Alternative Adults 18-34 3 11.0% 14 6/1/97(4)
KFAB-AM(3) Talk/News/Sports Adults 25-54 10 4.9% 2 6/1/97(4)
Spokane Market 87 18
</TABLE>
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<TABLE>
<CAPTION>
1996 NUMBER TOTAL
STATION RANK 1996 AUDIENCE STATION OF EXPIRATION
MARKET STATION TARGET AMONG TARGET SHARE FOR TARGET REVENUE STATIONS IN DATE OF FCC
STATION(1) RANK FORMAT(2) DEMOGRAPHICS DEMOGRAPHICS(2) DEMOGRAPHICS(2) RANK(2) MARKET(2) AUTHORIZATION
- -------------- ------- ---------------- -------------- --------------- ---------------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KXKT-FM... Country Adults 25-54 2 9.6% 8 2/1/05
KGOR-FM(3) Oldies Adults 25-54 3 8.6% 6 6/1/97(4)
KTNP-FM... Pop Alternative Adults 18-34 3 11.0% 14 6/1/97(4)
KFAB-AM(3) Talk/News/Sports Adults 25-54 10 4.9% 2 6/1/97(4)
KFAB-AM(3) Talk/News/Sports Adults 25-54 10 4.9% 2 6/1/97(4)
KKZX-FM(5) Classic Rock Adults 25-54 1 13.4% 3 2/1/98
KISC-FM... Adult Contemporary Adults 25-54 2 10.3% 4 2/1/98
KNFR-FM... Country Adults 25-54 4* 6.7% 5 2/1/98
KEYF-FM(5) Oldies Adults 25-54 6* 6.4% 6 2/1/98
KAQQ-AM... Middle-of-the-Road Adults 35-64 10* 3.7% 13 2/1/98
KCDA-FM(6)(7) Country Adults 25-54 11* 2.8% 12 10/1/97
KEYF-AM(5)(6) Oldies Adults 25-54 20 .3% N/A 2/1/98
KUDY-AM(5) Religion Adults 25-64 - - N/A 2/1/98
Wichita Market 90 22
KZSN-FM... Country Adults 25-54 1 0.5% 3 6/1/97(4)
KRBB-FM... Adult Contemporary Adults 25-54 2 10.1% 5 6/1/97(4)
KEYN-FM... Oldies Adults 25-54 4* 7.6% 9 6/1/97(4)
KWSJ-FM... New Age Contemporary Adults 25-54 9 4.5% 12 6/1/97(4)
KFH-AM.... Talk/News/Sports Adults 25-54 10 3.8% 16 6/1/97(4)
KQAM-AM... Talk/News/Sports Adults 25-54 13 3.0% 17 6/1/97(4)
KZSN-AM... Country Adults 25-54 18* 0.5% 19 6/1/97(4)
Colorado Springs 95 24
Market
KSPZ-FM(5) Oldies Adults 25-54 4* 6.6% 5 4/1/97(8)
KVUU-FM(5) Adult Contemporary Adults 25-54 9 5.0% 7 4/1/97(8)
KVOR-AM(5) News/Talk Adults 25-54 11 3.4% 10 4/1/97(8)
KTWK-AM(5) Nostalgia Adults 35-64 14* 1.3% N/A 4/1/97(8)
Lincoln Market 169 20
KZKX-FM... Country Adults 25-54 1* 9.7% 2 6/1/97(4)
KTGL-FM... Classic Rock Adults 25-54 2* 9.1% 3 6/1/97(4)
KIBZ-FM... Album-Oriented Rock Adults 18-34 2* 11.1% 9 6/1/97(4)
KKNB-FM... Pop Alternative Adults 18-34 4* 6.0% 11 6/1/97(4)
Tri-Cities
Market(9) 200 19
KEGX-FM... Classic Hits Adults 25-54 1* 15.8% 3 2/1/98
KIOK-FM... Country Adults 25-54 2* 14.5% 7 2/1/98
KNLT-FM(10) Oldies Adults 25-54 4* 9.0% 5 2/1/98
KTCR-AM... News/Talk/Sports Adults 35-64 4 3.5% 9 2/1/98
KALE-AM... News/Talk Adults 35-64 5* 1.7% 11 2/1/98
- ----------
<FN>
* Tied in rank with other stations in the market.
(1) Some stations are licensed to a different community located within the market they serve. This table does not include
three stations operating in the Little Rock, Arkansas market, currently owned and operated by the Company and to be sold
in the Little Rock Disposition (as defined herein)
(2) Based upon the Arbitron Companies' local market reports for the fall 1996 quarter and BIA's MasterAccess database for the
fall 1996 quarter except for revenue rankings which are based upon revenue for February 1997.
(3) To be acquired in the Omaha Acquisition.
(4) Renewal application pending.
(5) Citadel Broadcasting Company sells advertising on these stations pursuant to the Citadel JSA.
(6) Because this station is on the border of its market, it is ranked not only against the stations in its market but also
against stations in the markets across the border, thus resulting in an artificially low station rank.
(7) The Company sells advertising on these stations pursuant to a JSA.
(8) Renewal application pending. The licenses for these stations shall continue in effect by operation of law until FCC
action on such renewal application.
(9) The Tri-Cities Market consists of the cities of Richland, Kennewick and Pasco in the State of Washington. (10) The
Company provides programming to and sells advertising on this station pursuant to an LMA.
</FN>
</TABLE>
ADVERTISING
The primary source of the Company's revenues is the sale of
broadcasting time for local, regional and national advertising. Stations' sales
staffs generate most of the stations' local advertising sales, which comprise
approximately 86% of the Company's revenues (exclusive of Citadel JSA fees
received). To generate national advertising sales, the Company engages an
advertising representative for each of its stations who specializes in national
advertising sales and
- 7 -
<PAGE>
who is compensated on a commission-only basis. Most advertising contracts are
short-term and generally run only for a few weeks.
The Company believes that radio is an efficient and cost-effective
means for advertisers to reach specific demographic groups. Radio is a
precisely-targeted medium and is highly flexible due to the short lead time
between production and broadcast and the relative ease of production of
commercials. To ensure that an advertising message will be heard mainly by its
targeted customer base, an advertiser can choose to advertise on a station with
a format that appeals to a specific demographic group. In addition, radio can
more readily reach people in the workplace and in their cars than television and
other media.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract audiences in the demographic groups targeted by
advertisers (as measured by ratings service surveys quantifying the number of
listeners tuned to the station at various times of the day and week) and on the
supply of and demand for radio advertising time, as well as competing forms of
advertising. Rates are generally highest during morning and afternoon drive-time
hours.
Depending on the format of a particular station, there are
predetermined numbers of advertisements that are broadcast each hour. The
Company endeavors to determine the number of advertisements broadcast per hour
that can maximize available revenue dollars without jeopardizing listening
levels. Although the number of advertisements broadcast during a given time
period may vary, the total number of slots available for broadcast advertising
on a particular station generally does not vary significantly from year to year.
COMPETITION
The radio broadcasting industry is highly competitive. The financial
results of each of the Company's stations are dependent to a significant degree
upon its audience ratings and its share of the overall advertising revenue
within the station's geographic market. Each of the Company's stations competes
for audience share and advertising revenue directly with other FM and AM radio
stations, as well as with other media, within their respective markets. Radio
stations compete for listeners primarily on the basis of program content and by
hiring high-profile talent with appeal to a particular demographic group. The
Company competes for advertising revenues principally through effective
promotion of its stations' listener demographics and audience shares, and
through the number of listeners in a target group that can be reached for the
price charged for the air-time.
The Company's audience ratings and market share are subject to change,
and any adverse change in audience rating and market share in any particular
market could have a material and adverse effect on the Company's net revenues.
Although the Company competes with other radio stations with comparable
programming formats in most of its markets, if another station in a given market
were to convert its programming format to a format similar to one of the
Company's radio stations, if a new radio station were to adopt a competitive
format, or if an existing competitor were to strengthen its operations, the
Company's stations could suffer a reduction in ratings or advertising revenue
and could require increased promotional and other expenses. As a result of the
Telecom Act, certain radio broadcasting companies have become significantly
larger and have greater financial resources than the Company. Furthermore, the
Telecom Act will permit other radio broadcasting companies to enter the markets
in which the Company operates or may operate in the future. Although the Company
believes that each of its stations is able to compete effectively in its market,
there can be no assurance that any of the Company's stations will be able to
maintain or increase its current audience ratings and advertising revenue market
share.
The Company's stations also compete for advertising revenues with other
media, including newspapers, broadcast television, cable television, magazines,
billboard advertising, transit advertising and direct mail advertising. Factors
that affect a station's competitive position include its appeal to demographic
groups that advertisers seek to reach, its authorized power, terrain, assigned
frequency, audience characteristics, local program acceptance and the number and
characteristics of other stations in the market area. The radio broadcasting
industry is also subject to competition from new media technologies that are
being developed or introduced, such as the delivery of audio
- 8 -
<PAGE>
programming by cable television systems or the introduction of digital audio
broadcasting. See "--Federal Regulation of Radio Broadcasting--Proposed
Changes." The radio broadcasting industry historically has grown despite the
introduction of new technologies for the delivery of entertainment and
information, such as television broadcasting, cable television, audio tapes and
compact disks. There can be no assurance, however, that the development or
introduction in the future of any new media technology will not have an adverse
effect on the radio broadcasting industry.
SEASONALITY
The Company's revenues vary throughout the year. The Company's first
calendar quarter generally reflects the lowest revenues, while its fourth
calendar quarter generally reflects the highest revenues each year.
EMPLOYEES
As of April 30, 1997, the Company had approximately 280 full-time and
119 part-time employees, none of whom were represented by unions. The Company
believes that relations with employees are good. Following consummation of the
Pending Acquisitions and the Little Rock Disposition, the Company anticipates
that it will have approximately 299 full-time and 132 part-time employees.
The Company endeavors to enter into employment agreements with on-air
personalities and station general managers whose services are deemed by the
Company to be important for its continued success. In addition, the Company has
entered into a long-term employment agreement with its Chief Executive Officer.
See "Part III. Item 10.
Executive Compensation--Employment Agreement."
FEDERAL REGULATION OF RADIO BROADCASTING
Adoption of the Telecom Act in February 1996 eliminated the national
limits and liberalized the local limits on radio station ownership by a single
company. However, the DOJ has indicated that, in certain cases, ownership of the
number of radio stations permitted by the Telecom Act may result in the undue
concentration of ownership within a market or otherwise have an anti-competitive
effect. The DOJ is increasingly scrutinizing acquisitions of radio stations and
the entering into of JSAs and LMAs. In particular, the DOJ has indicated that a
prospective buyer of a radio station may not enter into an LMA in connection
with the acquisition of such station before expiration of the applicable waiting
period under the HSR Act. In a recent case, the DOJ has also, for the first
time, required the termination of a radio station JSA that, in the opinion of
the DOJ, would have given a radio station owner, together with its proposed
acquisition of other radio stations in the market, control over more than 60% of
the sales of radio advertising revenue in the market. Certain of the JSAs
entered into by the Company have been the subject of inquiries from the DOJ. See
"--Citadel JSA" and "Item 3. Legal Proceedings." There can be no assurance that
future inquiries or policy and rule-making activities of the FCC or the DOJ will
not impact the Company's operations (including existing stations or markets),
expansion strategy or its ability to realize the benefits which management had
anticipated obtaining following the adoption of the Telecom Act.
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and operating power of stations; issues,
renews, revokes and modifies station licenses; determines whether to approve
changes in ownership or control of station licenses; regulates equipment used by
stations; adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of stations;
and has the power to impose penalties for violations of its rules or the
Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of broadcast stations.
- 9 -
<PAGE>
FCC Licenses. Radio stations operate pursuant to broadcasting licenses
that are granted by the FCC for maximum terms of eight years and are subject to
renewal upon application to the FCC. During certain periods when renewal
applications are pending, petitions to deny license renewals can be filed by
interested parties, including members of the public. The FCC will grant a
renewal application if it finds that the station has served the public interest,
convenience and necessity, that there have been no serious violations by the
licensee of the Communications Act or the rules and regulations of the FCC and
that there have been no other violations by the licensee of the Communications
Act or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse.
Ownership Matters. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant such approval, the
FCC considers a number of factors pertaining to the licensee, including
compliance with various rules limiting common ownership of media properties, the
"character" of the licensee and those persons holding "attributable" interests
therein and compliance with the Communications Act's limitations on alien
ownership.
To obtain the FCC's prior consent to transfer control of or assign a
broadcast license, appropriate applications must be filed with the FCC. If the
transfer or assignment application involves a "substantial change" in ownership
or control, the application is placed on public notice for a period of
approximately 30 days, during which petitions to deny the application may be
filed by interested parties, including members of the public. If the transfer or
assignment 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. If the FCC
grants a transfer or assignment application, interested parties have
approximately 30 days from public notice of the grant to seek reconsideration or
review of that grant. The FCC normally has approximately an additional ten days
to set aside that grant on its own motion.
Pursuant to the Telecom Act, the limit on the number of radio stations
one entity may own nationally has been eliminated and the limits on the number
of radio stations one entity may own locally have been increased as follows: (i)
in a market with 45 or more commercial radio stations, an entity may own up to
eight commercial radio stations, not more than five of which are in the same
service (FM or AM), (ii) in a market with between 30 and 44 (inclusive)
commercial radio stations, an entity may own up to seven commercial radio
stations, not more than four of which are in the same service, (iii) in a market
with between 15 and 29 (inclusive) commercial radio stations, an entity may own
up to six commercial radio stations, not more than four of which are in the same
service and (iv) in a market with 14 or fewer commercial radio stations, an
entity may own up to five commercial radio stations, not more than three of
which are in the same service, except that an entity may not own more than 50%
of the stations in such market. FCC ownership rules continue to permit an entity
to own one FM and one AM station locally regardless of market size. For the
purposes of these rules, in general, a radio station being programmed pursuant
to an LMA by an entity is not counted as an owned station for purposes of
determining the programming entity's local ownership limits unless the entity
already owns a radio station in the market of the station with which the entity
has the LMA; a radio station whose advertising time is being sold pursuant to a
JSA is currently not counted as an owned station of the entity selling the
advertising time even if that entity owns a radio station in the market of the
station with which the entity has the JSA. As a result of the elimination of the
national ownership limits and the liberalization of the local ownership limits
effected by the Telecom Act, radio station acquisitions are subject to antitrust
review by the DOJ even if approved by the FCC. The DOJ has also indicated an
intention to review such acquisitions carefully. The DOJ has articulated what it
believes to be the relevant market for competitive analysis in the radio
broadcasting industry, but no court has determined its validity.
The Communications Act and FCC rules also prohibit the common
ownership, operation or control (i) of a radio broadcast station and a
television broadcast station serving the same geographic market, subject to a
presumptive waiver of such prohibition for stations located in the largest
television markets if certain conditions are satisfied (the Telecom Act directs
the FCC to extend such waiver policy to the top 50 television markets), and (ii)
of a radio broadcast station and a daily newspaper serving the same geographic
market. Under these rules, absent waivers, the Company would not be permitted to
acquire any daily newspaper or television broadcast station (other than
low-power television) in any geographic market in which it owns broadcast
properties. The FCC has pending an inquiry to determine whether
- 10 -
<PAGE>
it should liberalize its waiver policy with respect to common ownership of a
daily newspaper and one or more radio stations in the same 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 holding (or through subsidiaries controlling)
broadcast licenses, the interests of officers, directors and those who, directly
or indirectly, have the right to vote 5% or more of the corporation's stock (or
10% or more of such stock in the case of insurance companies, investment
companies and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Also, under certain circumstances, the FCC's
"cross-interest" policy may prohibit one party from acquiring an attributable
interest in one media outlet (newspaper, radio and television station) and a
substantial non-attributable economic interest in another media outlet in the
same market. The FCC has outstanding a notice of proposed rulemaking that, among
other things, seeks comment on whether the FCC should modify its attribution
rules by (i) restricting the availability of the single majority stockholder
exemption, (ii) attributing under certain circumstances certain interests such
as non-voting stock or debt, and (iii) attributing JSAs under certain
circumstances. The Company cannot predict the outcome of this proceeding or how
it will affect the Company's business.
Robert F.X. Sillerman, a significant stockholder who has non-voting
common and preferred stock interests in the Company, is Executive Chairman of
SFX, a publicly traded radio broadcasting company, which has or proposes to have
attributable interests in radio stations. Heretofore, the FCC has not considered
Mr. Sillerman's interest in the Company to be an attributable one. However, Mr.
Sillerman's non-voting stock interests in the Company are convertible into
voting stock interests under certain circumstances, including the receipt of
necessary FCC approval. The FCC is examining, through outstanding rulemaking
proceedings, whether to change the criteria for considering an interest to be
attributable. Some commenters in the rulemaking proceedings have urged that the
test of attribution should not be voting power but rather influence over the
licensee. If the FCC were to determine that Mr. Sillerman's interest in the
Company was attributable, then Mr. Sillerman might be required to reduce the
number of his attributable interests to the then-applicable permissible limits
contained in the FCC's ownership rules.
The Communications Act prohibits the issuance of a broadcast license
to, or the holding of a broadcast license by, any corporation of which more than
20% of the capital stock is owned of record or voted by non-U.S. citizens or
their representatives or a foreign government or a representative thereof or a
corporation organized under the laws of a foreign country ("Aliens"). The
Communications Act also authorizes the FCC, if the FCC determines that it would
be in the public interest, to prohibit the issuance of a broadcast license to,
or the holding of a broadcast license by, any corporation directly or indirectly
controlled by any other corporation of which more than 25% of the capital stock
is owned of record or voted by Aliens. The Company has been advised that the FCC
staff has interpreted this provision to require a finding that such a grant or
holding would be in the public interest before a broadcast license may be
granted to or held by any such corporation. The Company has also been advised
that the FCC staff has made such a finding only in limited circumstances. The
FCC has issued interpretations of existing law under which these restrictions in
modified form apply to other forms of business organizations, including
partnerships. As a result of these provisions, the licenses granted to the radio
station subsidiaries of the Company by the FCC could be revoked if, among other
restrictions imposed by the FCC, more than 25% of the Company's stock were
directly or indirectly owned or voted by Aliens. The Certificate of
Incorporation contains limitations on Alien ownership and control of the Company
that are substantially similar to those contained in the Communications Act.
Local Marketing Agreements. Over the past few years, a number of radio
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed radio stations
agree to enter into cooperative arrangements of varying sorts, subject to
compliance with the requirements of antitrust laws and with the FCC's rules and
policies. Under these types of arrangements, separately-owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately-owned radio stations serving a common service area, whereby the
- 11 -
<PAGE>
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities that program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question.
The FCC has specifically revised its cross-interest policy to make that
policy inapplicable to time brokerage arrangements. Furthermore, over the past
few years, the staff of the FCC's Mass Media Bureau has held that LMAs are not
contrary to the Communications Act, provided that the licensee of the station
which is being substantially programmed by another entity maintains complete
responsibility for and control over programming and operations of its broadcast
station and assures compliance with applicable FCC rules and policies.
The FCC's multiple ownership rules specifically permit radio station LMAs
to continue to be entered into and implemented, but provide that a licensee of a
station that brokers more than 15% of the 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 in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station in the
same market that it could not own under the local ownership rules, unless the
Company's programming constitutes 15% or less of the other local station's
programming time on a weekly basis. The FCC's rules also prohibit a broadcast
licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or
LMA arrangement where the brokered and brokering stations which it owns or
programs serve substantially the same area.
Joint Sales Agreements. Under a typical JSA, the licensee of one radio
station sells the advertising time of another licensee's radio station.
Currently, JSAs are not deemed by the FCC to be attributable. However, the FCC
has outstanding a notice of proposed rulemaking concerning, among other things,
whether JSAs should be considered attributable interests under certain
circumstances. If JSAs become attributable interests as a result of such
rulemaking, the Company would be required to terminate any JSA it might have
with a radio station with which the Company could not have an LMA.
The DOJ has indicated that it may consider that a JSA between radio
broadcasters in the same market violates the antitrust law's prohibition against
competitors agreeing on prices. The Company's JSA in the Wichita, Kansas market
(which was terminated) has been, and the Citadel JSA in the Colorado Springs,
Colorado market and the Spokane, Washington market are being, investigated by
the DOJ, but the DOJ has not indicated its regulatory decision.
See "--Citadel JSA."
Programming and Operation. The Communications Act requires broadcasters
to serve the "public interest." The FCC gradually has relaxed or eliminated many
of the more formalized procedures it had developed in the past to promote the
broadcast of certain type of programming responsive to the needs of a station's
community of license. A licensee continues to be required, however, to present
programming that is responsive to issues of the station's community, and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates renewal applications of a licensee, although such complaints
may be filed at any time and generally may be considered by the FCC at any time.
Stations also must follow various rules promulgated under the Communications Act
that regulate, among other things, political advertising, sponsorship
identifications, the advertisement of contests and lotteries, obscene and
indecent broadcasts, and technical operations, including limits on radio
frequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
- 12 -
<PAGE>
Proposed Changes. The Congress and/or the FCC have under consideration,
and in the future may consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's radio broadcast
stations, result in the loss of audience share and advertising revenues for the
Company's radio broadcast stations and affect the ability of the Company to
acquire additional radio broadcast stations or finance such acquisitions. Such
matters may include: changes to the license renewal process; spectrum use or
other fees on FCC licensees; revisions to the FCC's equal employment opportunity
rules and other matters relating to minority and female involvement in the
broadcasting industry; proposals to change rules relating to political
broadcasting; technical and frequency allocation matters; proposals to permit
expanded use of FM translator stations; proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on radio; changes in the
FCC's cross-interest, multiple ownership and attribution policies; changes to
broadcast technical requirements; delivery by telephone companies of audio and
video programming to the home through existing phone lines; proposals to limit
the tax deductibility of advertising expenses by advertisers; and proposals to
auction the right to use the radio broadcast spectrum to the highest bidder.
The FCC has authorized the use of a new technology, digital audio
broadcasting ("DAB"), to deliver audio programming by satellite and is
considering terrestrial DAB. In April 1997, the FCC awarded two licenses for
DAB. DAB will 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 presently known precisely how this technology may be used in the
future by existing radio broadcast stations either on existing or alternate
broadcasting frequencies.
The Company cannot predict what other matters might be considered in
the future by the FCC and/or Congress. The implementation of the Telecom Act or
any of these proposals or changes may have a material adverse impact on the
Company's business, competitive position or results of operations.
FORWARD-LOOKING INFORMATION
Except for the historical information contained in this Form 10-KSB,
certain items herein, including without limitation certain matters discussed
under "Item 3. Legal Proceedings" and under "Part II. Item 6. Management's
Discussion and Analysis or Plan of Operation" (the "MD&A"), are forward-looking
statements. The matters referred to in such statements could be affected by the
risks and uncertainties involved in the Company's business, including without
limitation the effect of economic and market conditions, the impact of current
or pending legislation and regulation, the ability to obtain financing, the
level and volatility of interest rates and the other risks and uncertainties
detailed in "-- Competition" and "--Federal Regulation of Radio Broadcasting"
and in the MD&A.
ITEM 2. DESCRIPTION OF PROPERTY.
The types of properties required to support each of the Company's radio
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in downtown or business
districts. Transmitter sites are generally located so as to provide maximum
market coverage.
The Company's corporate headquarters are leased and located in San
Diego, California. Principally, the Company's offices, studio and transmitter
sites are leased with lease terms that expire within one to 19 years. The
Company does not anticipate any difficulties in renewing those leases that
expire within the next five years or in leasing other space if required. The
Company owns substantially all of the equipment used in its radio broadcasting
business.
The Company believes that its properties are in good condition and
suitable for its operations, however, the Company continually looks for
opportunities to upgrade its properties.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
At the end of 1996, the Company received a subpoena from the DOJ,
seeking information related to the Company's JSAs in the Wichita, Kansas;
Spokane, Washington and Colorado Springs, Colorado markets. The Company
responded to the subpoena in or about February 1997 and has provided
supplemental information requested by the DOJ.
See "Item I. Description of Business--Citadel JSA."
In the opinion of management, there are no other material threatened or
pending legal proceedings against the Company, that if adversely decided, would
have a material effect on the financial condition or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on November 13,
1996 and incorporates by reference herein the information included in the
section entitled "Item 4. Submission of Matters to a Vote of Security Holders"
of its report on Form 10-QSB for the quarterly period ended September 30, 1996,
which was filed with the Securities and Exchange Commission (the "Commission")
on November 14, 1996.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION FOR SECURITIES
The Company's Class A Common Stock and the Depositary Shares, each
representing a one-tenth interest in a share of 9% Mandatory Convertible
Preferred Stock, $.01 par value per share (the "Depositary Shares"), are quoted
on the Nasdaq SmallCap Market under the symbols TBCOA and TBCOL, respectively.
The high and low bid prices for the Class A Common Stock and Depositary Shares
for the quarters indicated are as reported by Nasdaq and reflect interdealer
prices, without retail markup, markdown or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1) DEPOSITARY SHARES(2)
----------------------- --------------------
1996 1995 1996
-------------------- -------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31 11 3/8 10 1/4 -- -- 11 1/8 10 1/4
June 30 10 3/4 7 7/8 -- -- 11 1/4 9 5/8
September 30 9 1/8 6 3/4 13 1/4 7 11 8 3/4
December 31 10 1/8 8 12 1/8 10 3/4 11 8
- --------------------
<FN>
(1) The Class A Common Stock was first quoted on September 8, 1995.
(2) The Depositary Shares were first quoted on March 5, 1996.
</TABLE>
As of April 1, 1997, there were two holders of record of the Company's
outstanding Class A Common Stock and Depositary Shares and one holder of record
of the Company's outstanding Class B Common Stock. This information does not
include beneficial owners of the Company's Class A Common Stock or Depositary
Shares held in the name of a broker, dealer, bank, voting trustee or other
nominee. There is no public trading market for the Class B Common Stock, the
Class C Common Stock and the Class D Common Stock which are held of record by
four holders and two holders, respectively.
The Company has not paid any dividends on its common stock. The holders
of the Depositary Shares have received and are entitled to receive when, as, and
if dividends are declared on the Preferred Stock by the Board of Directors out
of funds legally available therefor, cumulative preferential dividends accruing
at the rate of 9% per annum (or $.945 per Depositary Share per annum), payable
quarterly in arrears on each March 31, June 30, September 30, and December 31.
Accumulated unpaid dividends bear interest at a rate of 10.5% per annum. Except
for payment of the dividends with respect to the Depositary Shares, the Company
intends to retain future earnings, if any, to finance the development and
expansion of its business and, therefore, does not anticipate paying any cash
dividends on its other securities in the foreseeable future. The decision
whether to pay dividends will be made by the Board of Directors in light of
conditions then existing, including the Company's results of operations,
financial condition and requirements, business conditions and other factors.
The Credit Agreement provides that during the pendency of an event of
default, the Company's ability to pay cash dividends with respect to the
Depositary Shares will be restricted. The Company anticipates that the Proposed
Credit Agreement will contain a similar provision.
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<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
In January and April 1997, the Company issued 22,464 and 23,725 shares,
respectively, of Class A Common Stock, in connection with the acquisition of
certain radio stations from Southern Skies Corporation. The shares were issued
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended. A registration statement with respect to the
22,464 shares of Class A Common Stock issued in January 1997 has been declared
effective by the Commission. The Company anticipates filing a registration
statement with respect to the 23,725 shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to leverage,
the ability to obtain financing, consummation of the Pending Acquisitions and
the Little Rock Disposition, integration of the recently completed acquisitions,
the ability of the Company to achieve certain cost savings, the management of
growth, the introduction of new technology, changes in the regulatory
environment, the popularity of radio as a broadcasting and advertising medium
and changing consumer tastes. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
GENERAL
The Company owns and operates radio stations primarily in medium and
small markets in the Midwestern and Western United States. The Company currently
owns and operates, sells advertising on behalf of or provides programming to 23
FM and 10 AM radio stations in seven markets. Upon consummation of the Pending
Acquisitions and the Little Rock Disposition, the Company will own and operate,
sell advertising on behalf of or provide programming to 32 radio stations and
one radio network in six markets.
On February 12, 1997, the Company changed its fiscal year end to
December 31, effective December 31, 1996. As used herein, "Transition Period
1996" refers to the nine month period from April 1, 1996 to December 31, 1996
and "Fiscal Year 1996" refers to the twelve month period from April 1, 1995 to
March 31, 1996.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. "Broadcast
Cash Flow" is defined as net revenues less station operating expenses. Although
Broadcast Cash Flow is not a measure of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), the Company believes
that Broadcast Cash Flow is accepted by the broadcasting industry as a generally
recognized measure of performance and is used by analysts who report publicly on
the performance of broadcasting companies. Nevertheless, this measure should not
be considered in isolation or as a substitute for operating income, net income,
net cash provided by operating activities or any other measure for determining
the Company's operating performance or liquidity that is calculated in
accordance with GAAP.
The primary source of the Company's revenues is the sale of advertising
time on its radio stations. The Company's most significant station operating
expenses are employee salaries and commissions, programming expenses and
advertising and promotional expenditures. The Company seeks to reduce expenses
at the stations by implementing cost controls, operating the stations as groups
in their respective markets and lowering overhead by combining and centralizing
administrative and financing functions of its stations.
The Company's revenues are primarily affected by the advertising rates
its radio stations charge. The Company's advertising rates are in large part
based on a station's ability to attract audiences in the demographic groups
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targeted by its advertisers, as measured principally by Arbitron (an independent
rating service) on a quarterly basis. Because audience ratings in local markets
are crucial to a station's financial success, the Company endeavors to develop
strong listener loyalty. The Company seeks to diversify the formats on its
stations, which helps to insulate it from the effects of changes in the musical
tastes of the public in any particular format. The number of advertisements that
can be broadcast without jeopardizing audience levels (and the resulting
ratings) is limited in part by the format of a particular station. The Company's
stations strive to maximize revenue by constantly managing the number of
commercials available for sale and adjusting prices based upon local market
conditions. In the broadcasting industry, radio stations often utilize trade (or
barter) agreements which exchange advertising time for goods or services (such
as travel or lodging), instead of for cash. The Company generates most of its
revenue from local advertising, which is sold primarily by a station's sales
staff. In Transition Period 1996, approximately 86% of the Company's revenues
(exclusive of Citadel JSA fees received) were from local advertising. To
generate national advertising sales, the Company engages independent advertising
sales representatives that specialize in national sales for each of its
stations.
The radio broadcasting industry is highly competitive. The financial
results of each of the Company's stations are dependent to a significant
degree upon its audience ratings and its share of the overall advertising
revenue within the station's geographic market. See "Part I. Item 1.
Description of Business--Competition."
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first calendar quarter generally
produces the lowest revenues for the year, and the fourth calendar quarter
generally produces the highest revenues for the year. The Company's operating
results in any period may be affected by the incurrence of advertising and
promotion expenses that do not necessarily produce commensurate revenues until
the impact of the advertising and promotion is realized in future periods.
RESULTS OF OPERATIONS
The Company's consolidated financial statements are not directly
comparable from period to period due to acquisition activity. The Company's
acquisitions during the period from September 13, 1995, the date the Company
commenced radio station operations, to December 31, 1996, all of which have been
accounted for using the purchase method of accounting, were as follows:
1995 Acquisitions and Operating Agreements: In September 1995, the
Company acquired KRBB-FM, KFH-AM, KWSJ-FM (formerly KXLK-FM) and KQAM-AM, each
operating in the Wichita, Kansas market (the "Initial Wichita Stations"). In
addition, the Company entered into a JSA to sell all of the advertising time on
KEYN-FM, also operating in the Wichita, Kansas market.
1996 Acquisitions and Operating Agreements: In January 1996, the
Company acquired KTGL-FM and KZKX-FM, both operating in the Lincoln, Nebraska
market (the "Initial Lincoln Stations"). In April 1996, the Company acquired
KTNP-FM (formerly KRRK-FM) and KXKT-FM, both operating in the Omaha, Nebraska
market, and KALE-AM and KIOK-FM, both operating in the Tri-Cities, Washington
market. In May 1996, the Company acquired KISC-FM, KNFR-FM and KAQQ-AM, each
operating in the Spokane, Washington market. The Company had been operating
these stations pursuant to an LMA since March 1, 1996. In addition, the Company
had assumed the rights and obligations under two JSAs related to KCDA-FM and
KNJY-FM, both also operating in the Spokane, Washington market. Further, in
November 1996, the Company acquired KVOR-AM, KSPZ-FM, KTWK-AM and KVUU-FM, each
operating in the Colorado Springs, Colorado market; KEYF-FM, KEYF-AM, KUDY-AM
and KKZX-FM, each operating in the Spokane, Washington market; KEYN-FM,
operating in the Wichita, Kansas market; and KEGX-FM and KTCR-AM, both operating
in the Tri-Cities, Washington market (the "Tri-Cities Stations"), and assumed an
LMA for radio station KNLT-FM, also operating in the Tri-Cities, Washington
market. The Company had operated the Colorado Springs and Spokane Stations
acquired in November 1996 under an LMA since January 1996. These stations are
subject to the Citadel JSA, pursuant to which Citadel sells all the advertising
time on these stations. The Company had also operated the Tri-Cities Stations
acquired from Pourtales in November 1996 under an LMA from July to November
1996. In June 1996, the Company acquired KIBZ-FM and KKNB-FM, both also
operating in the Lincoln,
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Nebraska market. The Company had sold advertising on KIBZ-FM and KKNB-FM
pursuant to a JSA since January 1996. Further, during the four months ended
December 31, 1996, the Company sold advertising on radio stations KKRD-FM,
KRZZ-FM and KNSS-AM, each operating in the Wichita, Kansas market, pursuant to a
JSA ("Wichita JSA"), which terminated on December 31, 1996.
TRANSITION PERIOD 1996 COMPARED TO FISCAL YEAR 1996
Net revenues increased to approximately $16.9 million in the Transition
Period 1996 from approximately $3.2 million for Fiscal Year 1996 primarily as a
result of acquisitions and operating agreements entered into during the
Transition Period 1996. Net revenues from the stations owned and operated by the
Company as of December 31, 1996 (excluding the Wichita JSA) were approximately
$21.4 million for calendar year 1996 which is comparable to the net revenues on
a same station basis for calendar year 1995, despite the impact of format
changes at three stations during the Transition Period 1996 which resulted in
anticipated temporary declines in revenues at the related stations. Net revenues
during the Transition Period 1996 were also impacted by disruptions in sales
efforts as a result of restructuring of sales management and turnover of sales
staff during the periods after the acquisitions of stations. The Company expects
the impact of these disruptions to continue in the short term and may experience
similar disruptions in the future.
Station operating expenses increased to approximately $12.0 million in
Transition Period 1996 from approximately $2.7 million for the Fiscal Year 1996
primarily due to the inclusion of expenses related to the acquisitions and
operating agreements entered into during the Transition Period 1996. On a same
station basis for the radio stations owned and operated by the Company as of
December 31, 1996 (excluding the Wichita JSA), operating expenses for the
calendar year 1996 declined 5% as compared to calendar year 1995. The benefits
of the Company's cost reduction programs and efficiencies of combined operations
in the markets served were not fully implemented during the period and were
offset by increased promotional expense principally related to station format
changes in three of its markets. In addition, selling costs increased due to
restructuring and turnover of sales staff.
Broadcast Cash Flow for the Transition Period 1996 was approximately
$4.9 million with a Broadcast Cash Flow Margin (Broadcast Cash Flow as a
percentage of net revenues) of 29% versus Broadcast Cash Flow of approximately
$446,000 and Broadcast Cash Flow Margin of 14% for the Fiscal Year 1996. On a
same station basis, Broadcast Cash Flow increased $863,000 to approximately $5.3
million for the calendar year 1996 from approximately $4.4 million for calendar
year 1995 principally as a result of the cost reduction programs begun during
the Transition Period 1996. During the period that the Company operated Colorado
and Spokane Stations pursuant to an LMA, the Company recognized as net revenue
the Citadel JSA fee. As of November 22, 1996, when the Company purchased the
Colorado and Spokane Stations, the Company included the related stations'
operating expenses in its consolidated statement of operations as expenses and
the reimbursement of the expenses and the Citadel JSA fee as revenues. The
inclusion of the reimbursement expenses results in a permanent reduction in
the Company's Broadcast Cash Flow Margin. See "Item 1. Description of
Business--Citadel JSA."
Depreciation and amortization expense for the Transition Period 1996
was approximately $1.3 million versus approximately $321,000 for the Fiscal Year
1996. The increase was attributable to the additional depreciation of fixed
assets and amortization of intangible assets resulting from acquisitions
consummated during the Transition Period 1996.
Corporate expenses consisting primarily of officer's salary, financial
consulting and professional fees and expenses, and corporate office expenses for
the Transition Period 1996 were approximately $1.4 million as compared to
approximately $547,000 in Fiscal Year 1996. The increase in corporate expense is
principally the result of the increased number of stations owned, operated or
served as well as operating radio stations for nine months versus six months in
the prior period. Included in corporate expense are fees paid under the Amended
and Restated SCMC Agreement (as defined herein) of approximately $291,000 and
$100,000 for the Transition Period 1996 and Fiscal Year 1996, respectively. See
"Part III. Item 12. Certain Relationships and Related Transactions--Services
Provided by TSC Pursuant to Amended and Restated Financial Consulting Agreement
with SCMC." Corporate expense for the calendar year 1996 of approximately $1.7
million is more reflective of the annual on-going cost of the corporate office.
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The Company recorded deferred compensation expense of $318,000 in the
Transition Period 1996 and approximately $275,000 in Fiscal Year 1996. This
recurring expense, not currently, and in some cases never affecting cash flow,
is related to stock, stock options and stock appreciation rights granted to
officers, directors and advisors in Fiscal Year 1996.
During the Transition Period 1996, the Company recorded a charge to
operations of $300,000 in connection with the estimated legal costs for
compliance with the DOJ information requests related to the Company's JSAs in
Wichita, Kansas, Spokane, Washington and Colorado Springs, Colorado. See "Part
I. Item 1. Description of Business--Citadel JSA" and "Part I. Item 3. Legal
Proceedings."
Operating income (net revenues less total operating expenses) for the
Transition Period 1996 was approximately $1.7 million as compared to an
operating loss of $697,000 in the Fiscal Year 1996. The improvement in operating
income results principally from the inclusion of nine months results of
operations in the Transition Period 1996 for stations acquired during the Fiscal
Year 1996 and the additional results of operations, for applicable periods, for
stations acquired or subject to operating agreements subsequent to March 31,
1996.
Net interest expense for the Transition Period 1996 was approximately
$1.4 million as compared to approximately $350,000 for the Fiscal Year 1996. The
net increase in expense was principally attributable to financing costs related
to the delays in closing on certain acquisitions.
Net income for the Transition Period 1996 was approximately $156,000
versus a net loss of approximately $1.1 million for the Fiscal Year 1996 which
includes as an extraordinary item the write-off of unamortized financing costs
of $320,000. Net loss applicable to common stock for the Transition Period 1996
was approximately $3.9 million as compared to approximately $1.7 million for the
Fiscal Year 1996. The increase in the net loss applicable to common stock was
principally due to the provision of nine months of dividends on the Depositary
Shares issued in March 1996.
FISCAL YEAR 1996 COMPARED TO PREDECESSOR OPERATIONS
The Company commenced radio broadcast operations on September 13, 1995
upon completion of the Company's initial public offering (the "Initial Public
Offering") and simultaneous acquisition of the Initial Wichita Stations. The
following discussion compares the Initial Wichita Stations and the subsequently
acquired Initial Lincoln Stations owned at March 31, 1996 on a same station
basis as if they had been owned as of January 1, 1995.
Net revenues (total revenues less agency commissions) for the year
ended March 31, 1996 were approximately $3.2 million. On a same station basis,
net revenues increased 23% to approximately $8.0 million for the year ended
March 31, 1996 from approximately $6.5 million for the year ended March 31,
1995, principally attributable to improved revenues at the Initial Lincoln
Stations due to improved ratings.
Station operating expenses for the year ended March 31, 1996 were
approximately $2.7 million. On a same station basis, operating expenses
increased 19% to approximately $6.4 million for the year ended March 31, 1996
from approximately $5.4 million for the year ended March 31, 1995, principally
attributable to increased variable selling expenses commensurate with increased
revenues.
Broadcast Cash Flow for year ended March 31, 1996 was approximately
$446,000, with a Broadcast Cash Flow Margin of 14%. On a same station basis,
Broadcast Cash Flow increased 40% to approximately $1.6 million for the year
ended March 31, 1996 from approximately $1.1 million for the year ended March
31, 1995, due to the factors described above.
Depreciation and amortization expenses for the year ended March 31,
1996 was $321,000.
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Corporate expenses (consisting primarily of officer's salary,
professional fees and expenses and office expenses for the year ended March 31,
1996) were $547,000, which includes approximately $100,000 in fees paid under
the Amended and Restated SCMC Agreement (as defined herein).
The Company recorded deferred compensation expense of $275,000 in
Fiscal Year 1996. This recurring expense, not currently affecting cash flow, is
related to stock, stock options and stock appreciation rights granted to
officers, directors and advisors. The Company will incur non-cash compensation
expense of (i) approximately $34,000 per quarter through September 2000 in
connection with the vesting of the Class B Common Stock and (ii) approximately
$55,000 per quarter through October 1997 in connection with the issuance of
options to acquire Class A Common Stock to certain of the Company's advisors.
There may be additional charges related to the cash-only stock appreciation
rights which will be based on the market value of the Class A Common Stock.
Operating loss (net revenues less total operating expenses) for the
year ended March 31, 1996 was approximately $697,000, due to the factors
described above.
Interest income for the year ended March 31, 1996 was approximately
$239,000, resulting from the Company's temporary investment of cash obtained
from the proceeds of the offering in March 1996 of Depositary Shares
representing interests in its Preferred Stock (the "Preferred Stock Offering").
Interest expense, primarily attributable to borrowings under the $9.0
million credit agreement from AT&T Finance Corporation (the "Initial Loan
Agreement") associated with the acquisition of the Initial Lincoln Stations was
$590,000.
The Company incurred an extraordinary loss of $320,000, representing
the write-off of the unamortized deferred financing costs associated with the
early repayment of the Initial Loan Agreement associated with the acquisition of
Initial Lincoln Stations, which was repaid prior to March 31, 1996.
Net loss for the year ended March 31, 1996 was approximately $1.4
million due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's principal sources of funds have been the
proceeds from the Initial Public Offering of approximately $12.9 million, the
borrowing of $9.0 million under the Initial Loan Agreement, net proceeds of
approximately $56.4 million from the Preferred Stock Offering and the borrowing
of $40.0 million under the Credit Agreement. The cost of the acquisitions
completed through the Transition Period 1996 of approximately $67.1 million,
including deposits in connection with the Pending Acquisitions, were financed
with the proceeds from the Company's Initial Public Offering, the Preferred
Stock Offering and the Credit Agreement. The Company had entered into an
agreement to consummate the Omaha Acquisition pursuant to which it will acquire
two additional radio stations for an aggregate purchase price of approximately
$40.0 million, not including deposits. In order to consummate the Omaha
Acquisition, the Company anticipates entering into the Proposed Credit Agreement
and borrowing thereunder. The Company also entered into an agreement to
consummate the Pinnacle Acquisition and intends to use cash on hand to finance
this acquisition. In addition, in April 1997, the Company entered into an
agreement for the Little Rock Disposition, for $20.0 million.
Cash flow from operating activities for the Transition Period 1996 was
approximately $1.3 million as compared to cash flow used for operating
activities for the Fiscal Year 1996 of $647,000. Cash used in investing
activities was approximately $50.6 million and approximately $22.1 million for
the Transition Period 1996 and Fiscal Year 1996, respectively. Cash used in
investing activities primarily related to the acquisitions of radio stations
completed during these periods. Cash flow from financing activities during these
periods amounted to approximately $15.5 million and $59.6 million, respectively,
principally related to the Initial Public Offering, the Preferred Stock Offering
and the Credit Agreement.
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Proposed Credit Agreement. The aggregate purchase price of the Pending
Acquisitions is approximately $40.0 million, not including approximately $2.0
million segregated to secure deposits and the $1.7 million contingent portion of
the purchase price of the Pinnacle Acquisition. The Company has received a
proposal from the Lenders and anticipates receiving a commitment letter with
respect to the Proposed Credit Agreement, which the Company intends to use to
provide the $40.0 million necessary to consummate the Pending Acquisitions. The
Company's ability to borrow funds under the Proposed Credit Agreement will be
conditioned on meeting certain financial ratios discussed below and therefore,
the maximum amounts actually available to the Company at any particular time may
be substantially less.
The Company believes that the Proposed Credit Agreement will consist
of four senior secured credit facilities. The first facility will be an 18-month
term loan in the amount of $20.0 million (the "Little Rock Facility"). The
Little Rock Facility will bear interest at LIBOR + 3.25% for so long as the
agreement with respect to the Little Rock Disposition is in force, and at rates
up to LIBOR + 5.50% if that agreement is no longer in force. The Little Rock
Facility must be paid from the proceeds of the Little Rock Disposition, which is
anticipated to be consummated during the fourth quarter of 1997 for a sale price
of $20.0 million. Clear Channel, the buyer, has agreed to guarantee the Little
Rock Facility if the FCC and HSR approvals required to consummate the Little
Rock Disposition are not obtained within six months after the filings requesting
such approvals, and has agreed to loan the Company $20.0 million to repay the
Little Rock Facility if such approvals are not obtained within 18 months after
such filings.
The second facility contemplated will be a seven-year revolver in the
maximum amount of $35.0 million (the "Initial Revolver"). The Initial Revolver
will bear interest at a rate based, at the Company's option, on LIBOR or an
alternative base rate which is substantially equivalent to the Lenders' prime
rate. The interest rate may vary from LIBOR + 1.50% (or the alternative base
rate + 0.50%) to LIBOR + 2.75% (or the alternative base rate + 1.75%), based
upon the Company's consolidated leverage ratio. The amount available under the
Initial Revolver decreases on a quarterly basis, in amounts ranging from
$350,000 per quarter in mid-1998 to approximately $1.0 million per quarter
in 2004.
The third facility will be a 7.25-year term loan in the maximum amount
of $25.0 million (the "Term Loan"). The Term Loan will bear interest at LIBOR +
3.50%. The principal of the Term Loan must be reduced by $125,000 per year (paid
on a quarterly basis) beginning June 30, 1998 until 2004, when the balance of
the Term Loan will become due.
The final facility will be a reducing revolver in the maximum amount of
$20.0 million, effective upon repayment of the Little Rock Facility (the
"Acquisition Revolver"). The payment and interest schedules for the Acquisition
Revolver are anticipated to be substantially similar to those of the Term Loan.
The Acquisition Revolver will be available to fund acquisitions by the Company
that are permitted pursuant to the terms of the Proposed Credit Agreement.
The Company believes that its ability to borrow under the Proposed
Credit Agreement will be conditioned upon having a ratio of total debt
(excluding the Little Rock Facility) to pro forma combined Broadcast Cash Flow
(excluding the Broadcast Cash Flow of the Company's Little Rock stations) of
initially 6.0, and the ratio will be reduced periodically, resulting in a ratio
of 3.0 by the year 2001. The pro forma combined historical 12 month trailing
Broadcast Cash Flow of the Company as of March 31, 1997, giving effect to the
Pending Acquisitions and the Little Rock Disposition, was approximately $10.2
million. As a result, as of March 31, 1997, the Company would have been able to
borrow the entire $80.0 million under the Proposed Credit Agreement. The Company
anticipates borrowing substantially all of $80.0 million available under the
Proposed Credit Agreement to repay the outstanding balance under the Credit
Agreement and to consummate the Pending Acquisitions.
There can be no assurance that the Company will be able to enter into
the Proposed Credit Agreement or that the stations will achieve the cash flow
levels required thereunder to obtain the financing necessary to fund the Pending
Acquisitions. In addition, the ability of the Company to borrow under the
Proposed Credit Agreement or obtain other financing may be restricted by the
requirement to maintain certain financial ratios under the terms of the
Preferred
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Stock. If the Company does not enter into the Proposed Credit Agreement or is
unable to borrow thereunder, there can be no assurance that it will otherwise be
able to obtain the financing necessary to consummate the Pending Acquisitions on
terms comparable to the terms of the Proposed Credit Agreement or on terms
acceptable to the Company.
It is anticipated that the Company will be able to meet its
obligations, including debt service and dividend requirements, during the year
ending December 31, 1997. In order to fund future debt service and dividend
payments from operating income, the Company will have to improve the operating
results of its current radio stations and those to be acquired in the Pending
Acquisitions. The Company's ability to make these improvements will be subject
to prevailing economic conditions and to legal, financial, business, regulatory,
industry and other factors, many of which are beyond the Company's control.
The Company will be required to incur additional indebtedness or raise
additional equity financing in connection with future acquisitions of radio
properties and is likely to need to incur or raise such additional financing
when the balloon payment is due in 2004 under the Proposed Credit Agreement.
There can be no assurance that the Company will be able to incur such additional
indebtedness or raise additional equity on terms acceptable to the Company.
Without such sources of funding, it is unlikely that the Company will be able to
implement its acquisition strategy.
In pursuing the Company's acquisition strategy, management is also
aware that the Company's current group of stations combined with the aggressive
thrust towards consolidation in the industry may, at a future time, present an
attractive opportunity to maximize stockholder value through a sale of the
Company's assets by the combination of the Company's business with that of a
larger broadcasting company. The Company has engaged The Sillerman Companies
("TSC") to actively explore alternatives to maximize stockholder value and will
continue to consider all available opportunities.
ITEM 7. FINANCIAL STATEMENTS.
See Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in the Company's independent accountants or
disagreements with the Company's independent accountants on accounting matters
or financial disclosures.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ----------------------- -------- ----------------------------------------
John D. Miller 52 Chairman of the Board
Norman Feuer 59 Chief Executive Officer,
President and Director
Dennis R. Ciapura 51 Director
Frank E. Barnes III 47 Director
Jeffrey W. Leiderman 50 Director
Jan E. Chason 51 Chief Financial Officer and
Treasurer
The Amended and Restated Certificate of Incorporation of the Company
authorizes the Board of Directors to fix the number of directors from time to
time, but at no less than two directors. The Board of Directors has fixed the
number of directors at five. The holders of the Depositary Shares and the Class
A Common Stock voting together as a single class, with each Depositary Share
entitled to 4/5 of a vote and each share of Class A Common Stock entitled to one
vote, are entitled to elect two of the Company's directors (the "Independent
Directors"). Messrs. Barnes and Leiderman are the Independent Directors elected
at the Company's 1996 Annual Meeting. The remaining directors are elected by the
holders of the Depositary Shares, the Class A Common Stock and the Class B
Common Stock, with the holders of the Depositary Shares having 4/5 of a vote per
share, the holders of the Class A Common Stock having one vote per share and the
holders of the Class B Common Stock having ten votes per share. Directors hold
office until the next annual meeting of stockholders following their election or
until their successors are elected and qualified. Officers are elected annually
by the Board of Directors and serve at the discretion of the Board of Directors.
In the event dividends on the Depositary Shares are in arrears and unpaid for
six quarterly dividend periods, the holders of the Depositary Shares (voting
separately as a class) will be entitled to vote for the election of two
additional directors of the Company, subject to certain limitations.
CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
JOHN D. MILLER has served as Chairman of the Board of Directors of
the Company since June 30, 1995. Mr. Miller has been the President of
Rothschild Ventures, Inc., a private investment group, since July 1995. In
addition, Mr. Miller was the President of Starplough, Inc. from February 1994
to June 1995. Mr. Miller formed Starplough, Inc. as a private investment
company focusing on investing in medium-sized companies. He was the Managing
Director of Clipper Group, a private equity investment group, from March 1993
to March 1994. From 1969 to 1994, Mr. Miller served in various capacities with
The Equitable, a full service insurance and investment company. Immediately
prior to his retirement from The Equitable in 1994, Mr. Miller served as the
President and Chief Executive Officer of Equitable Capital Management Corp.,
an investment and advisory subsidiary of The Equitable.
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NORMAN FEUER has served as President, Chief Executive Officer and a
Director of the Company since June 30, 1995. In addition, Mr. Feuer served as
acting Chief Financial Officer and Treasurer from June 1996 until November 1996.
Prior to September 13, 1995, Mr. Feuer was acting as the Chief Operating Officer
responsible for the day-to-day operations of all of the radio stations owned by
Pourtales which sold radio stations to the Company. From 1990 to 1992, Mr. Feuer
served as a consultant to numerous radio broadcasting companies. From 1985 to
1990, Mr. Feuer served as the Executive Vice President and Chief Operating
Officer of Noble Broadcasting Group, then one of the largest independently owned
radio companies in the United States. From 1983 to 1985, Mr. Feuer served as the
President of the Radio Division of Viacom, Inc. From 1970 to 1983, Mr. Feuer
served as vice president and general manager of several radio station
properties. From 1967 to 1970, Mr. Feuer served in various capacities for CBS
Radio.
FRANK E. BARNES III has served as a Director of the Company since
October 30, 1995. He has been the Executive Director of Carolina Barnes
Corporation, an investment and merchant banking firm, since August 1989.
Carolina Barnes Corporation, through its affiliate, Carolina Barnes Capital,
Inc., which is owned by Mr. Barnes, has provided corporate financial services
for companies in media, entertainment, communications, maritime transportation
and real estate since 1989. His previous experience includes senior corporate
finance positions at major Wall Street firms and he currently serves on the
boards of B&H Bulk Carriers Ltd. and Carolina Barnes Capital, Inc.
DENNIS R. CIAPURA has served as a Director of the Company since October
30, 1995. He is the President of Performance Broadcasting, which has provided
consulting services since October 1995 to SFX in the area of capital planning
and control, acquisition due diligence and technology management. From January
1995 to October 1995, Mr. Ciapura was Senior Vice President of SFX. From August
1986 to December 1995, he was an Executive Vice President for Noble Broadcasting
Group.
JEFFREY W. LEIDERMAN has served as a Director of the Company since
October 30, 1995. He has been the President of Leiderman Associates, which
provides insurance and financial consulting services, since 1970. Between 1982
and 1987, he served as the Chairman of the Board of two public companies,
American Medical Technology, Inc. and American Pipeline & Exploration Co. He was
a board member of Minami International Corp., a Japanese trading and
manufacturing company from 1987 to 1991.
BUSINESS EXPERIENCE OF OFFICERS WHO ARE NOT DIRECTORS
JAN E. CHASON has served as Chief Financial Officer of the Company
since November 13, 1996. Since June 1996, Mr. Chason has been serving as a
consultant to Sillerman Communications Management Corporation ("SCMC") and
TSC. Mr. Chason is also the principal in JEC Consulting Associates, which was
organized in October 1994 and specializes in providing financial consulting and
advisory services to companies. From 1982 until September 30, 1994, Mr. Chason
was a Partner in the accounting firm of Ernst & Young LLP.
KRAIG G. FOX, 28, has served as the Secretary of the Company since
June 24, 1996. Since December 1993, Mr. Fox has been Manager-Business and
Legal Affairs for TSC. Mr. Fox has been Secretary of The Marquee Group, Inc.
("Marquee"), a publicly-traded company engaged in various aspects of
sports-related media, since July 1995 and had served as Secretary to
Multi-Market Radio, Inc., a publicly-traded company engaged in the ownership
and operation of radio stations ("MMR"), from April 1995 until November 1996,
when Multi-Market Radio, Inc. was acquired by SFX. Mr. Fox earned a J.D.
degree from Hofstra University in 1993.
PRINCIPAL EXECUTIVE OFFICERS OF THE SILLERMAN COMPANIES
Information is set forth below with respect to Messrs. Sillerman and
Tytel, who make significant contributions to the business of the Company through
their positions with TSC, which provides consulting and advisory services to the
Company, and with SCMC. TSC provides services to the Company on behalf of SCMC
which has retained final responsibility for the performance of its agreement
with the Company. Messrs. Sillerman and Tytel, under the direction of the Chief
Executive Officer and the Board of Directors of the Company, have assisted, and
will continue to assist, the Company in planning and negotiating acquisitions of
radio stations as well as obtaining financing and maintaining
- 24 -
<PAGE>
the Company's ongoing relationships with financial institutions. See "Item 12.
Certain Relationships and Related Transactions--Services Provided by TSC
Pursuant to Amended and Restated Financial Consulting Agreement with SCMC" and
"--Additional Arrangements with SCMC, SFX and Radio Investors."
Robert F. X. Sillerman, 49, has been the Executive Chairman of the
Board of SFX since July 1, 1995, and from 1992 through June 30, 1995, he served
as Chairman of the Board of Directors and Chief Executive Officer of SFX. Mr.
Sillerman has been Chairman of the Board and Chief Executive Officer of SCMC, a
private investment company which makes investments in and provides financial
consulting services to companies engaged in the media business and of TSC, a
private company that makes investments in and provides financial advisory
services to media-related companies, since their formation more than five years
ago. In addition, Mr. Sillerman has been Chief Executive Officer of Radio
Investors, Inc. ("Radio Investors") since February 1995 and, through privately
held entities, controls the general partner of Sillerman Communication Partners,
L.P. Mr. Sillerman is also the Chairman of the Board and a founding stockholder
of Marquee, a publicly-traded company organized in 1995 which is engaged in
various aspects of sports-related media. For the last twenty years, Mr.
Sillerman has been a senior executive of and principal investor in numerous
entities operating in the broadcasting business. In 1993, Mr. Sillerman became
the Chancellor of the Southampton campus of Long Island University.
Howard J. Tytel, 50, has been a Director and the Executive Vice
President and Secretary of SFX since 1992 and Executive Vice President and
General Counsel of SCMC and TSC since their formation more than five years ago.
In addition, Mr. Tytel has been Executive Vice President and General Counsel of
Radio Investors since February 1995 and is a Director and a founder of Marquee.
Mr. Tytel was a Director of Country Music Television from 1988 to 1991. From
March 1995 until March 1997, Mr. Tytel was a Director of Interactive Flight
Technologies, Inc., a publicly-traded company providing computer-based in-flight
entertainment. For the last twenty years, Mr. Tytel has been associated with Mr.
Sillerman in various capacities with entities operating in the broadcasting
business. Since 1993, Mr. Tytel has been Of Counsel to the law firm of Baker &
McKenzie, which currently represents the Company, SFX, and other entities with
which Messrs. Sillerman and Tytel are affiliated on various matters.
SECTION 16(A) BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities (collectively, the "Covered
Shareholders"), to file with the Commission initial reports of ownership and
reports of changes of ownership of certain equity securities of the Company.
Covered Shareholders are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) forms they file. Section 16(b) of the
Exchange Act requires the Covered Shareholders to return to the Company any
profit resulting from the purchase and sale of the Company's securities
consummated within a period of less than six months.
Based solely on a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the Transition Period 1996, all filing
requirements applicable to its Covered Shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The table below sets forth all reportable compensation awarded to,
earned by or paid to the Chief Executive Officer (the "Named Executive Officer")
for services rendered in all capacities to the Company and its subsidiaries. No
other individual officer received annual compensation in excess of $100,000 for
Transition Period 1996. The Company pays SFX $5,500 per month as compensation
for services provided to the Company by TSC for the functions of Chief Financial
Officer, Secretary, Treasurer, accounting and investor relations. See "Item 12.
Certain Relationships and Related Transactions--Additional Arrangements with
SCMC, SFX and Radio Investors."
- 25 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------- ---------------------------------------
AWARDS
---------------------------------------
OTHER ANNUAL RESTRICTED STOCK SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) AWARD(S) ($) OPTIONS/SARS(#)
(A) (B) (C) (D) (E) (3) (F) (G)
- --------------------------- ----- ----------- ----------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Norman Feuer Transition 113,400 50,000(1) (2)
Chief Executive Officer Period
1996
Fiscal 81,250(3) 70,000(4) 60,000(6) 15,000(5)
Year
1996
- ------------------
(1) On April 30, 1997, the Board of Directors approved a bonus for Mr. Feuer in the amount of $50,000 in
recognition of the Company's performance during Transition Period 1996 and pursuant to the bonus clauses in Mr.
Feuer's employment agreement. The bonus was offset against loans granted to Mr. Feuer during Transition Period
1996. See "--Employment Agreement."
(2) The aggregate amount of perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of
the salary and bonus for the Named Executive Officer in Transition Period 1996 and Fiscal Year 1996.
(3) Mr. Feuer began receiving a salary when the Company completed its Initial Public Offering on September 13,
1995. Accordingly, this amount reflects only six and one half months of salary for Fiscal Year 1996. Mr.
Feuer's salary includes compensation for consulting services rendered to Pourtales and the Company was
reimbursed by Pourtales pursuant to the Shared Expense Agreement (as defined herein). See "Item 12. Certain
Relationships and Related Transactions--Relationship with Pourtales and Mr. Feuer."
(4) On April 30, 1996, the Board of Directors approved a bonus for Mr. Feuer in the amount of $70,000 in
recognition of the Company's performance in 1996 and pursuant to the bonus clauses in Mr. Feuer's employment
agreement. A portion of this bonus was used to offset loans granted to Mr. Feuer during Fiscal Year 1996. See
"--Employment Agreement."
(5) On February 8, 1996, Mr. Feuer received an award of 60,000 shares of Series B Convertible Preferred Stock
(the "Compensation Stock"), which converts into an equal number of shares of Class A Common Stock upon
the occurrence of certain events. The Compensation Stock is non-voting and vests in equal installments over
five years beginning on February 8, 1997. One half of the Compensation Stock automatically converts into
shares of Class A Common Stock if the market price per share of Class A Common Stock equals or exceeds
$14.00 for 20 consecutive trading days, and the balance of the Compensation Stock automatically converts into
Class A Common Stock if the market price equals or exceeds $15.00 for 20 consecutive trading days.
Assuming the Compensation Stock converted into 60,000 shares of Class A Common Stock, based on the
closing sales price on December 31, 1996, this award would have had a value of $495,000.
(6) These options were granted on October 30, 1995 and vest in two equal annual installments on October 30, 1996
and October 30, 1997. In addition to the options, on October 30, 1995, Mr. Feuer received the right to a cash
bonus in the amount of $90,000, representing the difference between $5.50 (the price of the Class A Common
Stock at the Initial Public Offering) and $11.50 (the closing price of the Class A Common Stock on October 30,
1995) multiplied by 15,000. The bonus vests in two equal installments on October 30, 1996 and October 30, 1997
and will be paid upon exercise of Mr. Feuer's options. Mr. Feuer has not exercised any options.
</TABLE>
- 26 -
<PAGE>
The following table provides information with respect to stock options
held by the Named Executive Officer as of December 31, 1996. The Named Executive
Officer was not granted any options during Transition Period 1996 nor did the
Named Executive Officer exercise any options during Transition Period 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)(1)
------------------ -------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
----------------- ------------------ -------------------
<S> <C> <C>
Norman Feuer 7,500/7,500 0/0
<FN>
- ------------------
(1) The options were not in-the-money since the exercise price of $11.50
per share exceeded the closing sales price of the Class A Common Stock
on December 31, 1996. However, on that date the exercise of vested
options would have entitled the Named Executive Officer to a bonus
payment of $45,000. See footnote (6) to the Summary Compensation Table
above.
</TABLE>
EMPLOYMENT AGREEMENT
Mr. Feuer has entered into an employment agreement with the Company
(the "Employment Agreement"), pursuant to which he has agreed to serve as the
Company's President and Chief Executive Officer for an initial term of five
years, beginning on September 13, 1995. Mr. Feuer receives an annual base salary
of $150,000, with annual increases based on increases in the consumer price
index and pursuant to the Board of Directors' recommendation. Mr. Feuer also
receives an annual bonus of $25,000 if there are no defaults during the year
under any of the Company's financing agreements with its lenders, and, if there
are any defaults thereunder which are waived or cured with no material cost to
the Company, Mr. Feuer will receive one-half of such bonus and shall receive the
remaining one-half at the sole discretion of the Company's Board. Mr. Feuer will
also receive an annual bonus of $25,000 upon the Company's achievement of
performance goals to be mutually agreed upon, and an additional bonus at the
discretion of the Board (the "Discretionary Bonus"). If such Discretionary Bonus
is less than $50,000 in any year, the Company will loan Mr. Feuer an amount
equal to $50,000 less such Discretionary Bonus. If Mr. Feuer remains employed by
the Company for the full term of his five year employment agreement, such loan
amounts will be forgiven. The Company loaned Mr. Feuer $25,000 on October 12,
1995, and an additional $25,000 on January 10, 1996. These two loans were offset
against the bonus in the amount of $70,000 which was approved by the Board on
April 30, 1996 in recognition of the Company's performance in Fiscal year 1996
and pursuant to the bonus clauses described above. In addition, the Company
loaned Mr. Feuer $25,000 in each of May, August and October, 1996, and in April
1997 evidenced by promissory notes which bears interest at an annual rate of 8%.
The loans granted in May and August 1996 were offset against the bonus in the
amount of $50,000 which was approved by the Board on April 30, 1997. On that
date the Board also granted Mr. Feuer an additional loan in the amount of
$50,000 (the "Additional Loan"). The loans granted in October 1996 and January
1997 have been restated to provide, and the Additional Loan provides, that these
loans do not bear interest and mature at September 13, 1998 or, if extended, at
the end of the extension period. The loans further provide that in the event of
a change of control or upon termination of Mr. Feuer's employment agreement
prior to September 13, 1998, unless extended, these loans will be forgiven.
- 27 -
<PAGE>
The Employment Agreement provides that if Mr. Feuer's employment is
terminated without "Cause" or in the event of a "Constructive Termination
Without Cause," Mr. Feuer will be entitled to a payment equal to 12 months of
his base salary and bonuses (excluding the Discretionary Bonus) for the year,
prorated through the date of termination. In the event that Mr. Feuer becomes
disabled, the Company is obligated to pay his full base salary and bonuses
(excluding the Discretionary Bonus) for the first six months of such disability
and 75% of his base salary for the remainder of the term of the employment
agreement. The Employment Agreement defines "Cause" as conviction of a felony
involving moral turpitude which would render Mr. Feuer unable to perform his
duties under the Employment Agreement or conduct that constitutes willful gross
neglect or willful gross misconduct. "Constructive Termination Without Cause" is
defined in the Employment Agreement as a reduction of Mr. Feuer's base salary or
the failure of the Company to pay Mr. Feuer's bonuses, the failure to reelect
Mr. Feuer to, or the removal of Mr. Feuer from, his position as an officer and
director, a diminution of his duties and responsibilities, or the failure of the
Company to obtain a written assumption of its obligations under the Employment
Agreement by any successor to all or substantially all of the Company's assets
within 15 days after a merger or similar transaction.
In the event Mr. Feuer voluntarily terminates his employment for
reasons other than death or disability or a "Constructive Termination Without
Cause," Mr. Feuer will be required to surrender to the Company certain of his
shares of Class B Common Stock. If the voluntary termination occurs prior to two
and one-half years from the date of employment, Mr. Feuer must surrender all of
his shares of Class B Common Stock. If the termination occurs after two and
one-half years but prior to three and one-half years, after three and one-half
years but prior to four and one-half years, or after four and one-half years but
prior to five years, he must surrender 50%, 25% and 20%, respectively, of his
shares of Class B Common Stock.
DIRECTORS' COMPENSATION
Each Independent Director receives $1,000 for each meeting of the Board
of Directors he attends. In addition, each Independent Director receives $750
for any committee meeting he attends not held in conjunction with a meeting of
the Board of Directors. During the Transition Period 1996, each of Messrs.
Miller, Leiderman and Barnes also received a one-time cash payment of $15,000.
No other compensation is paid to Directors for attending Board of Directors'
meetings or committee meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table gives information concerning the beneficial
ownership of the Company's voting capital stock as of May 2, 1997 by (i) each
person known to the Company to own beneficially more than 5% of any class of
Common Stock or Depositary Shares of the Company, (ii) the Named Executive
Officer and director and (iii) all directors and executive officers of the
Company as a group.
- 28 -
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class D Depositary
Common Stock Common Stock (2) Common Stock (2) Shares (3)
------------------------ -------------------- --------------------- -------------------
Percentage
of Total
Name and Address of Number of Percent of Number of Percent Number of Percent Number Percent Voting
Beneficial Owner (1) Shares Class Shares of Class Shares of Class of Shares of Class Power
- ------------------------ ----------- ----------- ---------- -------- ---------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Miller 25,000 * -- -- -- -- -- -- *
Norman Feuer 7,500(4) * 244,890(6) 100% -- -- -- -- 23.9%
Frank E. Barnes III -- -- -- -- -- -- -- -- --
Dennis R. Ciapura 2,500(5) * -- -- -- -- -- -- *
Jeffrey W. Leiderman 1,000 * -- -- -- -- -- -- *
Radio Investors -- -- --(6) -- 1,321,921(7) 91.5% -- -- --(8)
Radio Analysis Associates -- -- -- -- 244,890 17.0% -- -- --(8)
Robert F.X. Sillerman -- -- -- -- 1,321,921(9) 91.5% -- -- --(10)
C. Terry Robinson -- -- -- -- 122,445(11) 8.5% -- -- --(12)
Dean Witter Discover
& Co.(13) 322,487 10.2% -- -- -- -- -- -- 3.1%
Wynnefield Partners Small
Cap Value, L.P.(14) 295,500 9.4% -- -- -- -- -- -- 2.9%
Morgan Stanley Group,
Inc.(15) 305,237 9.7% -- -- -- -- -- -- 3.0%
Wellington Trust Company,
N.A.(16) 306,658 9.7% -- -- -- -- 368,000 6.3% 5.9%
Wellington Management
Company(17) 636,645 20.2% -- -- -- -- 764,000 13.1% 12.2%
All Directors and Executiv
Officers as a Group
(6 persons) 36,000(18) * 244,890 100% -- -- -- -- 24.2%(19)
<FN>
- --------------------------
* Less than 1%
(1) Except as otherwise noted, the address of each of the persons named is c/o the Triathlon Broadcasting Company,
Symphony Towers, 750 B Street, Suite 1920, San Diego, California 92101. The information as to beneficial ownership
is based on statements furnished to the Company by the beneficial owners. As used in this table, "beneficial
ownership" means the sole or shared power to vote, or to direct the disposition of, a security. For purposes of this
table, a person is deemed as of April 30, 1997 to have "beneficial ownership" of any security that such person has
the right to acquire within 60 days of April 30, 1997. Unless noted otherwise, stockholders possess sole voting and
dispositive power with respect to shares listed on this table. This table does not include the Class C Common Stock
of the Company, which is non-voting and which is convertible into Class A Common Stock upon transfer. There were
50,000 shares of Class C Common Stock outstanding on April 30, 1997. This table also does not include 565,000 shares
of Series B Convertible Preferred Stock issued on February 8, 1996 which vests in equal parts over a five year
period beginning on February 8, 1997. The Series B Convertible Preferred Stock is non-voting and convertible into
565,000 shares of Class A Common Stock in the event the market price of the Class A Common Stock exceeds certain
levels. See "Item 12. Certain Relationships and Related Transactions--Issuances of Securities."
(2) Each share of Class B Common Stock has ten votes and each share of Class B Common Stock and Class D Common Stock
(non-voting) automatically converts into one share of Class A Common Stock upon the sale of such stock to a
non-affiliate of the Company. In addition, each share of Class D Common Stock is convertible into one share of Class
B Common Stock or Class A Common Stock at the option of the holder (subject to FCC approval) and in the event the
Company is in default for borrowed money from an institutional lender and such default has not been cured or waived
by such lender. Except as disclosed herein, the Company is not aware of the existence of any arrangements that would
result in a change of control of the Company.
(3) Each Depositary Share has 4/5 of a vote. Assuming the conversion or redemption of all Depositary Shares into shares
of Class A Common Stock (at the rate of .833 shares of Class A Common Stock per Depositary Share) and the conversion
of the shares of Class D Common Stock into Class B Common Stock, Messrs. Feuer and Sillerman would beneficially own
68% of the voting power of the Company.
(4) Consists of options to purchase 7,500 shares of Class A Common Stock granted pursuant to the Company's 1995 Stock
Option Plan, which are exercisable within 60 days.
(5) Consists of options to purchase 2,500 shares of Class A Common Stock granted pursuant to the Company's 1995 Stock
Option Plan, which are exercisable within 60 days.
- 29 -
<PAGE>
(6) Mr. Feuer and Radio Investors, which is substantially owned and controlled by Mr. Sillerman and his affiliates, have
entered into an agreement pursuant to which Mr. Feuer has assigned his economic interest in 100,000 shares and has
pledged such shares to Radio Investors to secure Mr. Feuer's obligations to deliver 40.835% of the consideration
received from the sale of all or a portion of the 244,890 shares owned by Mr. Feuer. In the event Radio Investors
exercises its right of first refusal to purchase all 244,890 shares owned by Mr. Feuer (which may require prior FCC
approval), it will hold approximately 24% of the voting power without giving effect to the conversion of the Class D
Common Stock. In addition, varying percentages of Mr. Feuer's shares are subject to surrender to the Company in the
event he voluntarily terminates his employment prior to the expiration of the term of his employment agreement. See
"Item 10. Executive Compensation--Employment Agreement" and "Item 12. Certain Relationships and Related
Transactions--Agreement between Mr. Feuer and Radio Investors."
(7) Includes 122,445 shares beneficially owned by Radio Investors by virtue of its 50% ownership of Radio Analysis
Associates ("Radio Analysis"). See "Item 12. Certain Relationships and Related Transactions--Issuances of
Securities."
(8) In the event that all of the shares of Class D Common Stock are converted into Class B Common Stock, Radio Investors
would hold of record approximately 48.5% and Radio Analysis would hold of record approximately 9.9% of the total
voting power of the Company. In the event that all of the shares of Class D Common Stock are converted into Class A
Common Stock, the shares of Class D Common Stock held of record by Radio Investors and Radio Analysis would
represent approximately 10.2% and 2.1%, respectively, of the total voting power of the Company.
(9) Consists of 1,199,476 shares owned by Radio Investors, which is controlled by Mr. Sillerman, and 50% of the 244,890
shares owned by Radio Analysis, of which 50% is owned by Radio Investors.
(10) If the shares of Class D Common Stock are converted into shares of Class B Common Stock, Mr. Sillerman would
beneficially hold 53.5% of the total voting power of the Company.
(11) Consists of 50% of the 244,890 shares owned by Radio Analysis, of which Mr. Robinson owns 50%.
(12) If the shares of Class D Common Stock are converted into shares of Class B Common Stock, Mr. Robinson would
beneficially hold 5.0% of the total voting power of the Company.
(13) The address of Dean Witter Discover & Co. ("Discover") is Two World Trade Center, New York, New York, 10048. Based
on information contained in a Schedule 13G filed with the Commission on behalf of Discover, Dean Witter
Intercapital, Inc. ("DWI") and Dean Witter Reynolds, Inc. ("Reynolds"). DWI is the investment advisor for the
following mutual funds: Dean Witter Convertible Securities Trust and Dean Witter Income Builders Fund, which are
deemed to have beneficial ownership of 6.4% and 3.8% of the Class A Common Stock, respectively. DWI, Reynolds and
Discover disclaim beneficial ownership of the such shares of Class A Common Stock.
(14) The address of Wynnefield Partners Small Cap Value, L.P. ("Wynnefield Partnership") is One Penn Plaza, Suite 4720,
New York, New York, 10119. Based on information contained in Amendment No. 2 to Schedule 13D/A filed with the
Commission on May 2, 1997. Wynnefield Partnership owns 265,500 shares of Class A Common Stock and Wynnefield Small
Cap Value Offshore Fund, Ltd. ("Wynnefield Offshore") owns 30,000 shares of Class A Common Stock which represent
approximately 8.4% and 1.0% of the Class A Common Stock, respectively and 2.6% and 0.3% of the total voting power of
the Company, respectively. Both Wynnefield Partnership and Wynnefield Offshore have sole voting and dispositive
power over their respective shares.
(15) The address of Morgan Stanley Group, Inc. ("Morgan") is 1585 Broadway, New York, New York, 10036. Based on
information contained in Schedule 13G filed with the Commission on February 25, 1997, Morgan shared voting and
dispositive power with respect to 305,237 shares of Class A Common Stock.
(16) The address of Wellington Trust Company, N.A. ("Wellington Trust") is 75 State Street, Boston, Massachusetts, 02109.
Based on information contained in Schedule 13G filed with the Commission on February 21, 1997, Wellington Trust, in
its capacity as investment advisor, may be deemed to own 306,658 shares of Class A Common Stock and 368,000
Depositary Shares, which are held of record by clients of Wellington Trust. Wellington Trust has shared power to
vote with respect to 164,992 shares of Class A Common Stock and 198,000 Depositary Shares and shared power to
dispose of 306,658 shares of Class A Common Stock and 368,000 Depositary Shares. If the Depositary Shares are
converted into Class A Common Stock, Wellington Trust would beneficially hold 6.0% of the total voting power of the
Company.
(17) The address of Wellington Management Company ("Wellington Management") is 75 State Street, Boston, Massachusetts
02109. Based on information contained in Schedule 13G filed with the Commission on February 14, 1997. Wellington
Management, in its capacity as investment advisor, may be deemed to own 636,645 shares of Class A Common Stock and
764,000 Depositary Shares, which are held of record by clients of Wellington Management. Wellington Management has
shared power to vote with respect to 282,485 shares of Class A Common Stock and 339,000 Depositary Shares and shared
power to dispose of 636,645
- 30 -
<PAGE>
shares of Class A Common Stock and 764,000 Depositary Shares. If the Depositary Shares are converted into Class A Common
Stock, Wellington Management Company would beneficially hold 12.4% of the total voting power of the Company.
(18) Includes options to purchase 10,000 shares of Class A Common Stock granted pursuant to the Company's 1995 Stock Option
Plan which are exercisable within 60 days.
(19) In the event that all of the shares of Class D Common Stock are converted into Class B Common Stock, all Directors
and Executive Officers as a group would hold of record approximately 10.1% of the total voting power of the Company.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIP WITH POURTALES AND MR. FEUER
C. Terry Robinson, the beneficial owner of 122,445 shares of Class D
Common Stock by virtue of his 50% interest in Radio Analysis, is the principal
owner of Pourtales. Simultaneously with the Initial Public Offering, the Company
acquired from Pourtales, radio stations KXLK-FM, KFH-AM and KQAM-AM, each
operating in the Wichita, Kansas market. The purchase price for these three
stations was approximately $2.5 million. On January 24, 1996, the Company also
acquired from Pourtales, radio stations KZKX-FM and KTGL-FM, both operating in
the Lincoln, Nebraska market, for an aggregate purchase price of $9.7 million.
Mr. Robinson also expected to provide marketing and consulting services to the
Company through Radio Analysis. See "--Relationship With Radio Analysis." In
addition, prior to the Initial Public Offering, Mr. Feuer, the owner of 100% of
the shares of Class B Common Stock and, as a result thereof, the holder of 26%
of the combined voting power of the Company upon completion of the Preferred
Stock Offering, acted as the Chief Operating Officer of Pourtales and was
responsible for the day-to-day operations of all the radio stations currently
owned by Pourtales. On November 22, 1996, the Company acquired from Pourtales
(i) the radio stations subject to the Citadel JSA, (ii) one FM and one AM radio
station, each operating in the Tri-Cities, Washington market, and (iii) one FM
radio station, operating in the Wichita, Kansas market, and (iv) the rights and
obligations under an LMA on one radio station, operating in the Tri-Cities,
Washington market. Until November 22, 1996, Mr. Feuer, in addition to serving as
President, Chief Executive Officer and a director of the Company, provided radio
programming consulting services to Pourtales for its stations in the Colorado
Springs, Colorado, Spokane, Washington and Tri-Cities, Washington markets,
including the two stations in the Tri-Cities, Washington market, to which the
Company provided programming pursuant to an LMA. From September 13, 1995 until
Pourtales sold certain stations operating in the Mobile, Alabama market, to a
third party and until the Company entered into the Pourtales LMA, Mr. Feuer also
provided radio programming consulting services to Pourtales and the radio
stations it owned in the Mobile, Alabama market.
On September 13, 1995, the Company entered into an agreement with
Pourtales (the "Shared Expense Agreement") to share certain expenses with
Pourtales until the consummation of the Pourtales Acquisition which took place
in November 1996 (the "Shared Expense Period"). Pursuant to the Shared Expense
Agreement, during the Shared Expense Period, Pourtales paid the Company $11,000
per month as consideration for Pourtales' use of the Company's corporate
headquarters and the services and facilities related thereto, and for Mr.
Feuer's radio programming consulting services provided to Pourtales. The Company
paid Pourtales $3,000 per month, during the Shared Expense Period, as
consideration for the use of certain services of Pourtales' chief financial
officer. The Company obtained the lease to its corporate headquarters on
September 13, 1995 by assignment from Force II Communications, a corporation
wholly-owned by Mr. Feuer.
THE LITTLE ROCK ACQUISITION
On April 25, 1997, the Company acquired radio station KOLL-FM from SFX,
a company controlled by Robert F.X. Sillerman, for an aggregate purchase price
of $4.1 million based upon an independent valuation regarding the acquisition.
Prior to the acquisition, the Company provided programming and sold advertising
on this station pursuant to an LMA with SFX. SCMC provided advisory services to
MMR, the owner of KOLL-FM until it was acquired by SFX in November 1996, as well
as to the Company with respect to the acquisition of KOLL-FM. The Little Rock
Disposition includes radio station KOLL-FM.
- 31 -
<PAGE>
SERVICES PROVIDED BY TSC PURSUANT TO AMENDED AND RESTATED FINANCIAL CONSULTING
AGREEMENT WITH SCMC
On April 3, 1997, the Company and SCMC (which has provided services
to the Company since its inception as described below) agreed that, while SCMC
would remain liable to the Company for the performance of the services
contained in the Amended and Restated SCMC Agreement, TSC will perform the
services on behalf of SCMC. Both SCMC and TSC are controlled by Mr. Sillerman,
and Messrs. Sillerman and Tytel are officers and directors of SCMC and TSC.
See "Part II. Item 7. Financial Statements. Note 10. Related Party
Transactions."
The Company entered into the Financial Consulting Agreement (the "SCMC
Agreement") with SCMC effective as of June 30, 1995, pursuant to which the
Company provided certain financial and advisory services. Pursuant to the SCMC
Agreement, the Company paid to SCMC an aggregate of $70,000 in advisory fees,
$163,034 in connection with the acquisition of the Initial Wichita Stations,
$265,375 in connection with the acquisition of the Initial Lincoln Stations,
$135,000 in connection with entering into the Initial Credit Agreement and
$918,855 in connection with the Preferred Stock Offering.
On February 1, 1996, the Company entered into the Amended and Restated
Financial Consulting Agreement (the "Amended and Restated SCMC Agreement") with
SCMC, pursuant to which SCMC agreed to serve until June 1, 2005 as the Company's
financial consultant and to provide customary financial and advisory services.
Mr. Sillerman is a principal stockholder, Executive Chairman of the Board and
Chief Executive Officer of SFX and is required to devote substantially all of
his business time to matters relating to SFX. Mr. Tytel is a Director and
Executive Officer of SFX. Each of Messrs. Sillerman and Tytel may have a
fiduciary duty to offer SFX opportunities involving radio stations.
Under the Amended and Restated SCMC Agreement, SCMC has agreed to
perform, or assist the Company in performing, among other things: (i) the
placement of financing; (ii) the generation of financial reports and other data
for the Company that are required for presentation to the lenders of the Company
under the Company's senior credit agreements and the Company's investors as
required under the securities laws; (iii) assistance with the preparation of the
Company's regular books and records for audit by the Company's independent
public accountants; (iv) the maintenance of relationships and connections with
financial institutions participating in the financing of the Company; (v)
preparation and delivery to the Company of quarterly reports and analyses of
regional and national advertising activity in small and medium radio markets;
(vi) the design and implementation of accounting systems appropriate and
necessary for the operation of the Company; (vii) the purchase, installation and
implementation of hardware and software appropriate to the accounting system to
be utilized by the Company; (viii) the implementation of cash management systems
to facilitate the collection of revenues for the Company and to maximize the
investment income available from cash balances; (ix) the establishment of
regularized procedures for the payment of trade payables and the accumulation of
cash balances available for interest and other debt service payments as they
come due; and (x) the engagement of bookkeeping, accounting and other personnel
necessary for the implementation of the Company's accounting systems.
Pursuant to the terms of the Amended and Restated SCMC Agreement: (i)
any radio broadcast opportunities outside of the top 70 markets in the United
States and located west of the Mississippi River, other than Arkansas (the
"Applicable Markets"), that come to the attention of SCMC, Mr. Sillerman or Mr.
Tytel, will be brought first to the Company for its consideration prior to being
presented to any other clients of SCMC and (ii) in cases in which SCMC, Mr.
Sillerman or Mr. Tytel is rendering advice in a restructuring or similar
circumstance to a radio company owning and operating stations outside of the top
70 markets and within the Applicable Markets, SCMC will present to the Company,
subject to any fiduciary or confidentiality obligations to any of their clients,
any opportunity for such a radio station acquisition by the Company, on terms at
least as favorable to the Company as to any other potential buyer. To the extent
Mr. Sillerman determines in good faith, with the concurrence of the Class A
Directors, that the Company does not have the capacity to acquire a specific
station outside the top 70 markets and within the Applicable Markets, then SCMC
or any affiliate may acquire or invest in such station.
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<PAGE>
The Amended and Restated SCMC Agreement requires the Company to pay to
SCMC (whose right to receive such payments was assigned to SFX pursuant to the
SCMC Termination Agreement) as compensation for its services under the Amended
and Restated SCMC Agreement, the following annual advisory fees: (i) from
February 1, 1996 until March 10, 1996, $240,000 per year; (ii) from March 10,
1996 until the date when the Company used the net proceeds of the Preferred
Stock Offering, $300,000 per year; and (iii) from the date the Company has used
the net proceeds of the Preferred Stock Offering until June 1, 2005, $500,000
per year. SCMC and the Company have agreed in the Amended and Restated SCMC
Agreement that the compensation for SCMC shall be increased by an amount to be
mutually agreed upon by SCMC and the Company if (i) the time and effort spent by
SCMC exceeds the level that was originally contemplated by the parties when they
entered into the Amended and Restated SCMC Agreement or (ii) the Company
acquires additional broadcast properties. On February 21, 1996, the Company
and SCMC agreed to reduce the maximum annual advisory fees from $500,000 per
year to $400,000 per year and subsequently, effective on January 1, 1997 such
amount was increased to $500,000.
The Company has agreed to consider engaging SCMC from time to time with
respect to any future investment banking services the Company may require. In
the event that SCMC provides such services to the Company, the fees payable to
SCMC shall not exceed (i) 1 1/2% of the total acquisition price as to any
transaction in which SCMC provides merger and acquisition advice, (ii) 1 1/2% of
the principal amount of any senior credit facility obtained by the Company,
(iii) 4% of the proceeds to the Company from the issuance of any subordinated
debt, and (iv) 7% of the proceeds to the Company from the sale of equity
securities, provided that the total investment banking fees will not exceed 10%
of the proceeds of any such sale of equity securities. These fees may be reduced
to lower levels by mutual agreement between the Company and SCMC.
In addition, the Company has agreed to advance $500,000 per year to
SCMC (whose right to receive such payments was assigned to SFX pursuant to the
SCMC Termination Agreement) in connection with services to be provided by SCMC,
provided, however, that if the agreement between SCMC and Triathlon is
terminated or an unaffiliated person acquires a majority of the capital stock of
the Company, the advanced fees must be repaid at such time. In January 1997, the
Company made a payment of $750,000, representing advance fees for 1996 and for
1997. SCMC (or SFX) is anticipated to earn $570,000 in connection with the
Omaha Acquisition, $49,500 in connection with the Pinnacle Acquisition, $600,000
in connection with the Proposed Credit Agreement and $300,000 in connection with
the Little Rock Disposition, which amounts will be offset against the $750,000
payment made in January 1997. Pursuant to the Amended and Restated SCMC
Agreement, the Company paid to SCMC or SFX, as the case may be, an aggregate of
$1,092,255 in connection with acquisitions up to and including April 30, 1997.
SCMC has agreed to defer the payment of fees if such payment would
cause a default under the Credit Agreement unless a waiver is obtained from the
Lender. In addition, SCMC has agreed to defer two-thirds of its advisory fees
during any period for which the Company is in arrears with respect to payment of
dividends on the Preferred Stock.
The Company is also required under the Amended and Restated SCMC
Agreement to reimburse SCMC for all reasonable out-of-pocket disbursements
incurred by SCMC in connection with the performance of services under the
agreement. The Company has agreed to indemnify SCMC and its directors, officers,
employees, affiliates and agents, and any person controlling such persons, with
respect to any and all losses, claims, damages or liabilities, joint or several,
to which any such indemnified party may be subject, and any and all expenses
incurred in connection with any such claim, action or proceedings, insofar as
such losses, claims, damages, liabilities, actions, proceedings or expenses
arise out of or are based upon any matters that are the subject of the Amended
and Restated SCMC Agreement, except with respect to such indemnified amounts
that arise out of reckless or willful misconduct of such indemnified person.
On April 15, 1996, in consideration for securities of SFX and the
forgiveness of an outstanding loan, SCMC entered into an agreement with SFX (the
"SCMC Termination Agreement") pursuant to which SCMC assigned its right to
receive fees payable pursuant to the Amended and Restated SCMC Agreement (and a
similar agreement with MMR) to SFX, except for fees related to certain
transactions pending on April 15, 1996. Pursuant to the SCMC Termination
Agreement, SCMC has agreed to continue to provide the services described herein
until the expiration of the Amended
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<PAGE>
and Restated SCMC Agreement and not to perform any consulting or investment
banking services for any person or entity, other than the Company, in the radio
broadcasting industry or in any business which uses technology for the audio
transmission of information or entertainment.
ADDITIONAL ARRANGEMENTS WITH SCMC, SFX AND RADIO INVESTORS
The Company pays SFX $5,500 per month as compensation for services
provided to the Company by TSC for the functions of Chief Financial Officer and
Treasurer, accounting, Secretary and investor relations. In addition, Kraig G.
Fox, the Company's Secretary, is an employee of SFX and does not receive any
compensation directly from the Company. SFX compensates Mr. Chason, the Chief
Financial Officer of the Company and Mr. Fox for services rendered by them on
behalf of the Company. SCMC provided these services to the Company prior to
April 15, 1996., the date the SCMC Termination Agreement was entered into.
SCMC, on behalf of the Company, funded a letter of credit in the
amount of $200,000 in connection with the deposit required for the acquisition
of radio stations KIBZ-FM and KKNB-FM, both operating in the Lincoln, Nebraska
market, from Rock Steady, Inc. The Company subsequently repaid SCMC $200,000 and
SCMC assigned its right under the letter of credit to the Company.
SCMC, on behalf of Radio Investors, funded on behalf of the Company,
the letters of credit in connection with the deposits required for the purchase
of KRBB-FM, operating in the Wichita, Kansas market, and KIBZ-FM and KKNB-FM,
each operating in the Lincoln, Nebraska market, in an aggregate amount of
$765,000. Of this amount, $2,449 was contributed to the capital of the Company
in payment of Mr. Feuer's subscription of 244,890 shares of Class B Common
Stock. The balance was treated as an advance to the Company. In June 1995, Radio
Investors received a promissory note in the principal amount of $515,000 from
the Company, which accrued interest at the rate of 6% per annum from March 31,
1996, and $247,551 was contributed to the capital of the Company in payment of
1,444,366 shares of Class D Common Stock issued to Radio Investors and 25,000
shares of Class A Common Stock issued to Mr. Miller. In addition, SCMC advanced
to, or paid on behalf of, the Company certain expenses in an aggregate amount of
approximately $200,000, including $50,000 to fund initial payments in respect of
the non-accountable expense allowance of the underwriters of the Initial Public
Offering, and $55,000 to AT&T Commercial Finance Corporation as commitment fees
for the Credit Agreement, and other expenses related to the Initial Public
Offering. The promissory note with accrued interest and the $200,000 advanced on
behalf of the Company were repaid out of the proceeds of the Company's Initial
Public Offering. During May 1995, SCMC funded on behalf of the Company a
promotional campaign conducted by KRBB-FM in the aggregate amount of $30,000,
which was repaid out of the proceeds of the Company's Initial Public Offering.
Furthermore, in August 1995, SCMC funded on behalf of the Company $98,500 in
additional purchase price and an additional deposit of $55,500 in connection
with extensions of the closing date of the acquisition of KRBB-FM, which was
repaid to SCMC out of the proceeds of the Company's Initial Public Offering.
AGREEMENT BETWEEN MR. FEUER AND RADIO INVESTORS
Mr. Feuer and Radio Investors, which is controlled by Mr. Sillerman,
have entered into an agreement, pursuant to which Mr. Feuer has assigned to
Radio Investors 40.835% (the "Agreed Percentage") of all proceeds paid or
payable to Mr. Feuer in connection with any sale or other disposition of, or
dividend or other distribution payable on or with respect to, Mr. Feuer's shares
of Class B Common Stock. In addition, Mr. Feuer has also granted to Radio
Investors a right of first refusal with respect to any sale or other disposition
to a third party of all 244,890 shares of Class B Common Stock held by Mr.
Feuer. This right enables Radio Investors to acquire shares of Class B Common
Stock at the proposed sale price. In the event that Radio Investors does not
exercise the right of first refusal and Mr. Feuer consummates the sale to a
third party (in which case such third party will receive shares of Class A
Common Stock), Mr. Feuer is required to pay to Radio Investors an amount equal
to the greater of the sales price and the fair market value multiplied by the
Agreed Percentage. To secure his payment obligations, Mr. Feuer has also entered
into a pledge agreement with Radio Investors pursuant to which he has pledged
100,000 shares of his 244,890 shares of Class B Common Stock to Radio Investors.
The conveyance of shares of Class B Common Stock to Radio Investors may require
the prior approval of the FCC. See "Item 11. Security Ownership of Certain
Beneficial Owners and Management."
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<PAGE>
RELATIONSHIP WITH RADIO ANALYSIS
Radio Analysis, a company owned 50% by Mr. Robinson and 50% by Radio
Investors, was formed to provide marketing and consulting services to radio
broadcasting companies and to the Company. The Company has been advised by Radio
Analysis that any services provided to the Company will be provided at its
actual cost. Radio Analysis has performed nonsubstantial statistical services
to the Company but has not been billed to date. In connection with the
formation of Radio Analysis, Radio Investors (which is controlled by Mr.
Sillerman) contributed 244,890 shares of Class D Common Stock to Radio
Analysis as a capital contribution. Upon the fulfillment of certain
conditions, including FCC approval, if necessary, the Class D Common Stock is
convertible into shares of Class B Common Stock. If the shares of Class D
Common Stock are converted into shares of Class B Common Stock, Radio Analysis
will hold approximately 9.9% of the combined voting power of the Company. See
"Item 11. Security Ownership of Certain Beneficial Owners and Management."
ISSUANCES OF SECURITIES
In February 1995, Mr. Feuer acquired 400 shares of common stock of
Triathlon Broadcasting Company, Inc., a New York corporation ("Triathlon New
York"), for a cash purchase price of $2,449 in connection with the formation of
Triathlon New York, and Radio Investors and Mr. Miller subscribed for, and in
June 1995 received, 500 and 10 shares of common stock, respectively, of
Triathlon New York for purchase prices of $247,301 and $250, respectively.
In June 1995, Mr. Feuer, Radio Investors and Mr. Miller, the
stockholders of Triathlon New York, contributed their shares of Triathlon New
York to the Company and, following a recapitalization of the Company's Common
Stock, in return, Mr. Feuer received 244,890 shares of Class B Common Stock,
Radio Investors received 1,444,366 shares of Class D Common Stock and Mr. Miller
received 25,000 shares of Class A Common Stock. In connection with the formation
of Radio Analysis, Radio Investors contributed 244,890 of its shares of Class D
Common Stock to Radio Analysis as its capital contribution. Mr. Feuer is
required to surrender varying percentages of his shares of Class B Common Stock
to the Company in the event he voluntarily terminates his employment with the
Company during the term of his employment agreement. See "Item 10.--Executive
Compensation--Employment Agreement."
In connection with the Company's discussions relating to obtaining a
bridge loan of up to $2.0 million (the "Proposed Bridge Loan") in July 1995,
pursuant to subscription agreements effective as of May 1, 1995, the Company
sold an aggregate of 367,344 shares of Class C Common Stock to six accredited
investors (the "Class C Stockholders") for an aggregate purchase price of $3,673
(or $.01 per share). The Class C Stockholders were introduced to the Company by
Americorp Securities, Inc., one of the underwriters of the Company's Initial
Public Offering. The Company sold the Class C Common Stock, for no additional
consideration, in lieu of paying a commitment fee for the Proposed Bridge Loan,
which the Company later determined not to utilize.
On October 30, 1995, the Company granted to Mr. Feuer, options to
purchase 15,000 shares of Class A Common Stock that are exercisable at $11.50
per share. In addition, the Company granted to each of Radio Investors, Radio
Analysis, TSC and SCMC, options to purchase 20,000 shares of Class A Common
Stock which are exercisable at $5.50 per share.
On October 30, 1995, the Company granted cash-only stock appreciation
rights with respect to 1,000 shares of Class A Common Stock to each of Messrs.
Leiderman and Barnes and 5,000 shares of Class A Common Stock to Mr. Miller. The
cash-only stock appreciation rights with respect to each share of Class A Common
Stock entitle the holder thereof to receive the difference between $5.50 and the
closing price of the Class A Common Stock on October 30, 2000, and will be paid
on October 30, 2000.
On January 31, 1996, the Company granted cash-only stock appreciation
rights with respect to 2,000 shares of Class A Common Stock to each of Messrs.
Leiderman and Barnes. The cash-only stock appreciation rights with respect to
each share of Class A Common Stock entitle the holder thereof to receive an
amount equal to the sum of
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<PAGE>
(i) one-half of the difference between $.01 and the price of the Class A Common
Stock on January 31, 2001 if prior to such date the price of the Class A Common
Stock was equal to or greater than $14.00 for 20 consecutive trading days and
(ii) one-half of the difference between $.01 and the price of the Class A Common
Stock on January 31, 2001 if prior to such date the price of the Class A Common
Stock was equal to or greater than $15.00 for 20 consecutive trading days.
These cash-only stock appreciation rights will be paid on January 31, 2001.
On February 8, 1996, the Company issued an aggregate of 565,000 shares
of Series B Convertible Preferred Stock to Radio Investors, Radio Analysis and
Messrs. Feuer, Miller and Ciapura in the amount of 440,000, 60,000, 60,000,
3,000 and 2,000 shares, respectively. The Series B Convertible Preferred Stock
is non-voting and vests over a five year period beginning one year from the date
of issuance.
GENERAL
The Company believes that transactions between the Company and its
officers, directors and principal stockholders or affiliates thereof have been
on terms no less favorable to the Company than could be obtained from
independent third parties. However, except for obtaining a fairness opinion with
respect to the acquisition of KOLL-FM, the Company has not sought outside advice
with respect to such transactions and, in certain instances, has not considered
retaining any other provider of similar services. Since the Initial Public
Offering, all transactions between the Company and its officers, directors and
principal stockholders or affiliates thereof have been approved by the Company's
Independent Directors.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
++3.1 Amended and Restated Certificate of Incorporation of Triathlon
Broadcasting Company
3.2 Certificate of Amendment to The Amended and Restated Certificate of
Incorporation of Triathlon Broadcasting Company
+3.3 By-laws of the Company
++4.1 IPO Underwriters' Warrant
+4.2 Specimen Stock Certificate for Class A Common Stock
++4.3 Certificate of Designations of the Series B Convertible Preferred
Stock
++4.4 Form of Certificate of Designations of the % Mandatory Convertible
Preferred Stock
++4.5 Form of Deposit Agreement relating to the % Mandatory Convertible
Preferred Stock
++4.6 Form of Stock Certificate for % Mandatory Convertible Preferred Stock
++4.7 Form of Depositary Receipt Evidencing Depositary Shares
4.8
+10.1 Purchase and Sale Agreement dated March 23, 1995 by and between the
Triathlon Broadcasting Company and Pourtales Radio Partnership
+10.2 Asset Purchase Agreement dated February 9, 1995 by and between
Wichita Acquisition Corp. and Marathon Broadcasting Corporation
+10.3 Amendment to Purchase and Sale Agreement dated June 30, 1995 by and
between Triathlon Broadcasting Company and Pourtales Radio
Partnership
+10.4 Advertising Brokerage Agreement for Radio Station KEYN-FM by and
between Triathlon Broadcasting Company and Pourtales Radio
Partnership
+10.5 Purchase and Sale Agreement among Triathlon Broadcasting Company,
Pourtales Radio Partnership, Pourtales Holdings, Inc. and KVUU/KSSS,
Inc.
++10.6 Subscription Agreements dated June 30, 1995, effective as of May 1,
1995
+10.7 Office Lease by and between Knightsbridge Associates and Force II
Communications
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<PAGE>
++10.8 First Amendment to Office Lease by and between Knightsbridge
Associates and Force II Communications
++10.9 Assignment of Office Lease among Knightsbridge Associates, Force II
Communications and the Triathlon Broadcasting Company
++10.10 Shared Expense Agreement dated September 13, 1995 by and between
Triathlon Broadcasting Company and Pourtales Radio Partnership
+10.11 Financial Consulting Agreement dated June 30, 1995 by and between
Triathlon Broadcasting Company and SCMC
+10.12 Triathlon Broadcasting Company 1995 Stock Option Plan
+10.13 Employment Agreement by and between Triathlon Broadcasting Company
and Norman Feuer
+10.14 Promissory Note dated June 15, 1995, issued to Radio Investors,
Inc.
+10.15 Agreement by and between Norman Feuer and Radio Investors, Inc.
+10.16 Pledge Agreement by and between Norman Feuer and Radio Investors,
Inc.
+10.17 Form of Consulting Agreement among Triathlon Broadcasting Company
and the IPO Underwriters
+10.18 Amendment to Purchase and Sale Agreement dated August 4, 1995 by
and between the Triathlon Broadcasting Company and Pourtales Radio
Partnership
+10.19 Amendment to Asset Purchase Agreement dated May 3, 1995 by and
between Wichita Acquisition Corp. and Marathon Broadcasting
Corporation
+10.20 Amendment and Extension Agreement dated August 15, 1995 by and
between Wichita Acquisition Corp. and Marathon Broadcasting
Corporation
+10.21 Amendment to Purchase and Sale Agreement dated March 23, 1995 by
and between Triathlon Broadcasting Company and Pourtales Radio
Partnership
+10.22 Second Amendment and Extension Agreement dated August 28, 1995 by
and between Wichita Acquisition Corp. and Marathon Broadcasting
Corporation
++10.23 Amended and Restated Purchase and Sale Agreement dated January 16,
1996 among Triathlon Broadcasting Company, Pourtales Radio
Partnership, Pourtales Holdings, Inc., Springs Radio, Inc., and
KVUU/KSSS, Inc.
++10.24 Local Market Agreement dated as of January 15, 1996 among Pourtales
Radio Partnership, Springs Radio, Inc., KVUU/KSSS, Inc. and
Triathlon Broadcasting Company
++10.25 Letter agreement dated January 12, 1996 among Citadel Broadcasting
Company and Triathlon Broadcasting Company, Pourtales Radio
Partnership, Pourtales Holdings, Inc., Spring Radio, Inc. and
KVUU/KSSS, Inc.
++10.26 Joint Sales Agreement dated as of December 15, 1995 among Pourtales
Radio Partnership, Pourtales Holdings, Inc., Springs Radio, Inc.,
KVUU/KSSS, Inc. and Citadel Broadcasting Company
++10.27 Programming Affiliation Agreement dated as of April 14, 1993 by and
between KOTY-FM, Inc. and KUJ Limited Partnership
++10.28 Asset Purchase Agreement dated as of December 8, 1995 among Valley
Broadcasting, Inc., Meridien Wireless, Inc. and Triathlon
Broadcasting Company
++10.29 Asset Purchase Agreement dated as of December 8, 1995 by and
between 93.3, Inc. and Triathlon Broadcasting Company
++10.30 Asset Purchase Agreement dated as of September 5, 1995 by and
between Rock Steady, Inc. and Lincoln Radio Acquisition Corp.
++10.31 Joint Selling Agreement dated as of January 29, 1996 by and between
Rock Steady, Inc. and Lincoln Radio Acquisition Corp.
++10.32 Asset Purchase Agreement dated as of February 8, 1996 by and
between Sterling Realty Organization Co. and Triathlon Broadcasting
Company
++10.33 Asset Purchase Agreement dated as of February 21, 1996 by and
between Silverado Broadcasting Company and Triathlon Broadcasting
Company
++10.34 Sales Representation Agreement dated June 9, 1993 by and between
Silverado Broadcasting Company and Lance International, Inc.
++10.35 Sales Representation Agreement dated as of October 1, 1993 by and
between Silverado Broadcasting Company and Rook Broadcasting of
Idaho, Inc.
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<PAGE>
++10.36 Asset Purchase Agreement dated as of February 8, 1996 among
Southern Skies Corporation, Arkansas Skies Corporation, Triathlon
Broadcasting of Little Rock, Inc. and Triathlon Broadcasting
Company
++10.37 Letter agreement with respect to KOLL-FM dated January 17, 1996 by
and between Triathlon Broadcasting Company and Multi-Market Radio,
Inc.
++10.38 Amended and Restated Financial Consulting Agreement dated as of
February 1, 1996 by and between Triathlon Broadcasting Company and
Sillerman Communications Management Corporation
++10.39 Loan Agreement dated as of January 23, 1996 among AT&T Commercial
Finance Corporation and Triathlon Broadcasting of Wichita, Inc.,
Wichita Acquisition Corp. and Triathlon Broadcasting of Lincoln,
Inc.
++10.40 Letter from AT&T dated February 6, 1996
++10.41 First Amendment to Loan Agreement dated as of February 22, 1996
among AT&T Commercial Finance Corporation and Triathlon
Broadcasting of Wichita, Inc., Wichita Acquisition Corp. and
Triathlon Broadcasting of Lincoln, Inc.
++10.42 Security Agreement dated as of January 23, 1996 between Triathlon
Broadcasting Company and AT&T Commercial Finance Corporation
++10.43 Guaranty dated as of January 23, 1996 by Triathlon Broadcasting
Company to and with AT&T Commercial Finance Corporation relating to
$3.5 million term loan
++10.44 Guaranty dated as of January 23, 1996 by Triathlon Broadcasting
Company to and with AT&T Commercial Finance Corporation relating to
$5.5 million term loan
++10.45 Pledge Agreement dated January 23, 1996 from Triathlon Broadcasting
Company to AT&T Commercial Finance Corporation
++10.46 Stock Purchase Warrant dated as of September 15, 1993 between Rook
Broadcasting of Idaho, Inc. and Silverado Broadcasting Company
++10.47 Put and Call Agreement effective as of September 15, 1993 between
Silverado Broadcasting Company and Rook Broadcasting of Idaho, Inc.
++10.48 Time Brokerage Agreement dated as of February 21, 1996 by and
between Triathlon Broadcasting Company and Silverado Broadcasting
Company
++10.49 Letter Agreement between Triathlon Broadcasting Company and
Sillerman Communications Management Corporation dated February 21,
1996 amending the Amended and Restated Financial Consulting
Agreement
++10.50 Form of Cash-only Stock Appreciation Rights Agreement dated October
30, 1995 by and between Triathlon Broadcasting Company and Jeffrey
Leiderman
++10.51 Form of Cash-only Stock Appreciation Rights Agreement dated October
30, 1995 by and between Triathlon Broadcasting Company and Frank E.
Barnes III
++10.52 Form of stock option agreement issued pursuant to the 1995 Stock
Option Plan to each of Norman Feuer, John D. Miller, Dennis R.
Ciapura, Radio Investors, Inc., Radio Analysis Associates and
Sillerman Communications Management Corporation
++10.53 Form of Cash-only Stock Appreciation Rights Agreements dated
January 31, 1996 by and between Triathlon Broadcasting Company and
Jeffrey Leiderman
++10.54 Form of Cash-only Stock Appreciation Rights Agreements dated
January 31, 1996 by and between Triathlon Broadcasting Company and
Frank E. Barnes III
++10.55 Assignment dated February 21, 1996 from Silverado Broadcasting
Company to Triathlon Broadcasting Company
*10.56 Amendment dated November 26, 1996 to the Asset Purchase Agreement
dated as of February 8, 1996 by and between Triathlon Broadcasting
of Little Rock, Inc., Triathlon Broadcasting Company, Southern
Skies Corporation and Arkansas Skies Corporation
**10.57 Asset Purchase Agreement dated as of October 17, 1996 between
Triathlon Broadcasting of Omaha, Inc. and American Radio Systems
Corporation
**10.58 Asset Purchase Agreement dated as of July 15, 1996 between
Triathlon Broadcasting of Little Rock, Inc. and Southern Starr of
Arkansas, Inc.
*10.59 Loan Agreement dated November 19, 1996 among AT&T Commercial
Finance Corporation and Triathlon Broadcasting of Wichita, Inc.,
Triathlon Broadcasting of Lincoln, Inc., Triathlon
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<PAGE>
Broadcasting of Omaha, Inc., Triathlon Broadcasting of Spokane, Inc.,
Triathlon Broadcasting of Tri- Cities, Inc., Triathlon Broadcasting
of Colorado Springs, Inc. and Triathlon Broadcasting of Little
Rock, Inc.
+10.60 Letter agreement dated May 21, 1996 between Sillerman
Communications Management Corporation and Triathlon Broadcasting
Company
10.61 Letter agreement dated April 3, 1997 between Sillerman
Communications Management Corporation and Triathlon Broadcasting
Company
10.62 Asset Purchase Agreement dated as of April 11, 1997 among Triathlon
Broadcasting of Little Rock, Inc., Clear Channel Radio, Inc. and
Clear Channel Radio Licenses, Inc.
10.63 Purchase and Sale Agreement dated as of April 23, 1997 by and
between Paul R. Aaron, Triathlon Sports Programming and TSPN, Inc.
10.64 Purchase and Sale Agreement dated as of April 23, 1997 by and
between Dale M. Jensen and Triathlon Sports Programming, Inc.
21 List of subsidiaries of the Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
- ---------------
+ Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 (File No. 33-94316), as amended, originally filed with
the Securities and Exchange Commission on July 6, 1995.
++ Incorporated by reference to the Registrant's Registration statement
on Form SB-2 (File No. 333-1186), as amended, originally filed with
the Securities and Exchange Commission on February 9, 1996.
* Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on December 9, 1996.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the nine months ending on September 30, 1996 filed with the
Securities and Exchange Commission on November 14, 1996.
+ Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ending on March 31, 1996 filed with the Securities
and Exchange Commission on June 24, 1996.
(b) The following reports on Form 8-K were filed during the fiscal
quarter ended December 31, 1996.
Form 8-K filed with the Securities and Exchange Commission on December
9, 1996 reporting certain acquisitions under Items 2 and 5 and
containing the audited financial statements for the radio stations
acquired from Pourtales Radio Partnership on November 22, 1996 for the
years ended December 31, 1995 and 1994.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRIATHLON BROADCASTING COMPANY
Dated: May 12, 1997
By: /s/ NORMAN FEUER
------------------------------------
Norman Feuer
President and Chief Executive Officer
By: /s/ JAN E. CHASON
------------------------------------
Jan E. Chason
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- -------------------------------------------------------- -----------------
<S> <C> <C>
/s/ John D. Miller Chairman of the Board of Directors May 12, 1997
- ------------------------------
John D. Miller
/s/ Norman Feuer President, Chief Executive Officer and May 12, 1997
- ------------------------------ Director (Principal Executive Officer)
Norman Feuer
/s/ Jan E. Chason Chief Financial Officer and Treasurer May 12, 1997
- ------------------------------ (Principal Financial and Accounting Officer)
Jan E. Chason
/s/ Frank E. Barnes III Director May 12, 1997
- ------------------------------
Frank E. Barnes III
/s/ Dennis R. Ciapura Director May 12, 1997
- ------------------------------
Dennis R. Ciapura
/s/ Jeffrey Leiderman Director May 12, 1997
- ------------------------------
Jeffrey Leiderman
</TABLE>
- 40 -
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1996 and December 31, 1996.................. F-3
Consolidated Statements of Operations for the year ended March 31, 1996, the nine
months and the year ended December 31, 1996........................................ F-4
Consolidated Statements of Cash Flows for the year ended March 31, 1996, the nine
months and the year ended December 31, 1996........................................ F-5
Consolidated Statement of Stockholders' Equity for the year ended March 31, 1996
and the nine months ended December 31, 1996........................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
TRIATHLON BROADCASTING COMPANY
We have audited the accompanying consolidated balance sheets of Triathlon
Broadcasting Company and Subsidiaries (the "Company") as of March 31, 1996
and December 31, 1996, and the consolidated statements of operations and cash
flows for the year ended March 31, 1996, the nine months ended December 31,
1996 and the year ended December 31, 1996 and the statement of stockholders'
equity for the year ended March 31, 1996 and the nine months ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the consolidated financial position of Triathlon
Broadcasting Company and Subsidiaries as of March 31, 1996 and December 31,
1996, and the consolidated results of its operations and its cash flows for
the year ended March 31, 1996, the nine months ended December 31, 1996 and
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
April 4, 1997, except
for Note 13, as to which
the date is April 25, 1997
F-2
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $36,845,225 $ 3,082,521
Accounts receivable, net allowance for doubtful accounts of
$196,500 and $405,400 1,393,747 4,522,957
Notes receivable from officer 50,000 75,000
Other current assets 88,062 289,772
----------- -----------
Total current assets 38,377,034 7,970,250
Property and equipment, net of accumulated depreciation and
amortization 2,809,119 7,534,248
Intangible assets, net of accumulated amortization 19,338,832 65,159,423
Other assets, principally deposits for station acquisitions 8,856,393 7,730,192
----------- -----------
$69,381,378 $88,394,113
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,199,967 $ 2,962,969
Due to affiliates 4,270,105 335,452
Dividends payable 314,000 --
Notes payable--current portion -- 179,400
----------- -----------
Total current liabilities 5,784,072 3,477,821
Notes payable -- 12,820,600
Deferred compensation 33,750 84,575
Deferred taxes 2,501,550 7,629,550
Stockholders' Equity:
Preferred stock, par value $.01; 4,000,000 shares
authorized;
Series B Convertible Preferred Stock; 600,000 shares
designated; 565,000 shares issued and outstanding 5,650 5,650
9% Cumulative Mandatory Convertible Preferred Stock;
520,000 and 583,400 shares issued and outstanding 5,200 5,834
Class A Common Stock, par value $.01; 30,000,000 shares
authorized; 2,785,000 and 3,102,344 shares issued and
outstanding 27,850 31,023
Class B Convertible Common Stock, par value $.01; 1,689,256
shares authorized; 244,890 shares issued and outstanding 2,449 2,449
Class C Convertible Common Stock, par value $.01; 367,344
shares authorized; 367,344 and 50,000 shares issued and
outstanding 3,673 500
Class D Convertible Common Stock, par value $.01; 1,444,366
shares authorized, issued and outstanding 14,444 14,444
Paid-in capital 63,319,130 66,215,109
Deferred compensation (949,000) (682,000)
Accumulated deficit (1,367,390) (1,211,442)
----------- -----------
Total stockholders' equity 61,062,006 64,381,567
----------- -----------
$69,381,378 $88,394,113
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
-------------- ----------------- -----------------
<S> <C> <C> <C>
Broadcast revenues $ 3,502,191 $18,907,649 $21,199,549
Less: agency commissions (332,920) (2,005,908) (2,236,448)
----------- ----------- -----------
Net revenues 3,169,271 16,901,741 18,963,101
Operating Expenses:
Station operating expenses 2,723,975 11,969,248 13,678,117
Depreciation and amortization 321,104 1,250,913 1,426,759
Corporate expenses 546,510 1,406,885 1,719,283
Deferred compensation 274,750 317,825 365,992
DOJ information request costs (Note 9) -- 300,000 300,000
----------- ----------- -----------
Total operating expenses 3,866,339 15,244,871 17,490,151
----------- ----------- -----------
Income (loss) from operations (697,068) 1,656,870 1,472,950
Interest expense (590,062) (2,004,361) (2,581,423)
Interest income 239,089 563,214 729,403
Other income (expense) 651 (59,775) (59,766)
----------- ----------- -----------
Income (loss) before extraordinary item (1,047,390) 155,948 (438,836)
Extraordinary item 320,000 -- 320,000
----------- ----------- -----------
Net income (loss) (1,367,390) 155,948 (758,836)
Preferred stock dividend requirement 314,000 4,100,523 4,414,523
----------- ----------- -----------
Net loss applicable to common stock $(1,681,390) $(3,944,575) $(5,173,359)
=========== =========== ===========
Loss per common share:
Loss before extraordinary item $ (0.44) $ (0.81) $ (0.97)
Extraordinary item (0.10) -- (0.10)
----------- ----------- -----------
Net loss per common share $ (0.54) $ (0.81) $ (1.07)
=========== =========== ===========
Weighted average common shares outstanding 3,069,144 4,841,600 4,841,600
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
-------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (1,367,390) $ 155,948 $ (758,836)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 321,104 1,250,913 1,426,759
Deferred compensation 274,750 317,825 365,992
Loss on early extinguishment of debt 320,000 -- 320,000
Imputed interest expense 416,667 1,288,889 1,705,556
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable (869,140) (3,128,273) (3,367,449)
Notes receivable from officer (50,000) (25,000) (50,000)
Other current assets (54,692) (191,381) 9,378
Accounts payable and accrued expenses 361,423 1,603,686 1,885,213
------------ ------------ ------------
Net cash (used in) provided by operating activities (647,278) 1,272,607 1,536,613
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisitions of radio stations (17,291,843) (43,153,325) (53,764,236)
Deposits and other costs of pending transactions (4,571,790) (2,126,000) (6,156,600)
Due to affiliates 59,463 (3,934,653) (4,004,605)
Capital expenditures (273,440) (1,336,271) (1,554,614)
------------ ------------ ------------
Net cash used in investing activities (22,077,610) (50,550,249) (65,480,055)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Deferred financing costs (2,926,633) (67,675) (2,994,308)
Borrowings 9,000,000 13,000,000 22,000,000
Debt repayment (9,000,000) -- (9,000,000)
Net proceeds from sale of preferred stock 49,391,476 6,997,136 56,388,612
Net proceeds from sale of common stock 13,105,030 -- --
Proceeds from sale of warrants 240 -- --
Preferred stock dividends paid -- (4,414,523) (4,414,523)
------------ ------------ ------------
Net cash provided by financing activities 59,570,113 15,514,938 61,979,781
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 36,845,225 (33,762,704) (1,963,661)
Cash and cash equivalents at beginning of period -- 36,845,225 5,046,182
------------ ------------ ------------
Cash and cash equivalents at end of period $ 36,845,225 $ 3,082,521 $ 3,082,521
============ ============ ============
NON-CASH OPERATING AND FINANCING
ACTIVITIES:
Restricted cash transferred by SCMC in exchange
for issuance of common stock and liability $ 765,000
============
SUPPLEMENTAL ITEMS:
Interest paid $ 423,396 $ 110,297 $ 371,210
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1996 AND THE
NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SERIES B MANDATORY CLASS B CLASS C
CONVERTIBLE CONVERTIBLE CLASS A CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED COMMON COMMON COMMON
STOCK STOCK STOCK STOCK STOCK
----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $ -- $ -- $ -- $2,449 $ --
Issuance of 367,344 shares
of Class C Convertible
Common Stock -- -- -- -- 3,673
Issuance of 1,444,366
shares of Class D
Convertible Common Stock -- -- -- -- --
Issuance of 25,000 shares
of Class A Common Stock -- -- 250 -- --
Issuance of 2,760,000
shares of Class A
Common Stock upon the
Initial Public Offering -- -- 27,600 -- --
Issuance of warrants to the
underwriters of the
Initial Public Offering -- -- -- -- --
Issuance of 565,000 shares
of Series B Convertible
Preferred Stock 5,650 -- -- -- --
Issuance of 520,000 shares
of Mandatory Convertible
Preferred Stock ($0.06 per
share) -- 5,200 -- -- --
Grant of stock and options
to certain officers,
directors and advisors -- -- -- -- --
Deferred compensation -- -- -- -- --
Dividends on Mandatory
Convertible Preferred
Stock -- -- -- -- --
Net loss -- -- -- -- --
------ ------ ------- ------ -------
Balances at March 31, 1996 5,650 5,200 27,850 2,449 3,673
Issuance of 63,400 shares
of Mandatory Convertible
Preferred Stock -- 634 -- -- --
Conversion of 317,344
shares of Class C
Convertible Common Stock
into Class A Common Stock -- -- 3,173 -- (3,173)
Deferred compensation -- -- -- -- --
Dividends on Mandatory
Convertible Preferred
Stock ($0.71 per share) -- -- -- -- --
Net income -- -- -- -- --
------ ------ ------- ------ -------
Balances at December 31,
1996 $5,650 $5,834 $31,023 $2,449 $ 500
====== ====== ======= ====== =======
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CLASS D
CONVERTIBLE TOTAL
COMMON PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION DEFICIT EQUITY
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $ -- $ -- $ -- $ -- $ 2,449
Issuance of 367,344 shares
of Class C Convertible
Common Stock -- -- -- -- 3,673
Issuance of 1,444,366
shares of Class D
Convertible Common Stock 14,444 233,107 -- -- 247,551
Issuance of 25,000 shares
of Class A Common Stock -- -- -- -- 250
Issuance of 2,760,000
shares of Class A
Common Stock upon the
Initial Public Offering -- 12,823,507 -- -- 12,851,107
Issuance of warrants to the
underwriters of the
Initial Public Offering -- 240 -- -- 240
Issuance of 565,000 shares
of Series B Convertible
Preferred Stock -- -- -- -- 5,650
Issuance of 520,000 shares
of Mandatory Convertible
Preferred Stock ($0.06 per
share) -- 49,386,276 -- 49,391,476
Grant of stock and options
to certain officers,
directors and advisors -- 1,190,000 (1,190,000) -- --
Deferred compensation -- -- 241,000 -- 241,000
Dividends on Mandatory
Convertible Preferred
Stock -- (314,000) -- -- (314,000)
Net loss -- -- -- (1,367,390) (1,367,390)
------- ----------- ----------- ----------- -----------
Balances at March 31, 1996 14,444 63,319,130 (949,000) (1,367,390) 61,062,006
Issuance of 63,400 shares
of Mandatory Convertible
Preferred Stock -- 6,996,502 -- -- 6,997,136
Conversion of 317,344
shares of Class C
Convertible Common Stock
into Class A Common Stock -- -- -- -- --
Deferred compensation -- -- 267,000 -- 267,000
Dividends on Mandatory
Convertible Preferred
Stock ($0.71 per share) -- (4,100,523) -- -- (4,100,523)
Net income -- -- -- 155,948 155,948
------- ----------- ----------- ----------- -----------
Balances at December 31,
1996 $14,444 $66,215,109 $ (682,000) $(1,211,442) $64,381,567
======= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Triathlon Broadcasting Company (the "Company") was incorporated in
Delaware on June 29, 1995, and on that date the stockholders of Triathlon
Broadcasting Company, Inc., a New York corporation ("Triathlon New York"),
contributed all of their shares of Triathlon New York's Common Stock to the
Company in exchange for all of the Company's Common Stock. The exchange of
common stock was accounted for as a business combination among companies
under common control. The Company was organized for the purpose of owning and
operating radio stations primarily in medium and small-sized markets in the
Midwest and Western United States. The Company commenced radio station
ownership and operations on September 13, 1995.
The accompanying consolidated financial statements include the accounts
and transactions of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated.
As of April 4, 1997, the Company owns and operates, sells advertising
pursuant to Joint Sales Agreements ("JSAs") or provided programming pursuant
to Local Marketing Agreements ("LMAs") on 21 FM and 10 AM radio stations in
seven markets: Wichita, Kansas; Lincoln, Nebraska; Omaha, Nebraska; Little
Rock, Arkansas; Colorado Springs, Colorado; Tri-Cities, Washington and
Spokane, Washington.
On February 12, 1997, the Company changed its year-end from March 31 to
December 31. The accompanying consolidated financial statements present the
financial position of the Company at year-ends March 31, 1996 and December
31, 1996 and the results of its operations for the fiscal year ended March
31, 1996, the transition nine-month period ended December 31, 1996 and the
calendar year ended December 31, 1996.
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the first calendar quarter generally produces
the lowest revenues for the year and the fourth calendar quarter generally
produces the highest revenues for the year. The Company's operating results
in any period may be affected by the incurrence of advertising and promotion
expenses that do not necessarily produce commensurate revenues until the
impact of the advertising and promotion is realized in future periods.
2. INITIAL PUBLIC OFFERING AND INITIAL WICHITA ACQUISITIONS
In September 1995, the Company completed its initial public offering (the
"Initial Public Offering") of 2,760,000 shares of Class A Common Stock, at a
price of $5.50 per share. The Company used the net proceeds from the Initial
Public Offering of approximately $12,900,000, including exercise of the
underwriter's over-allotment option, to acquire substantially all of the
assets of radio station KRBB-FM from Marathon Broadcasting Corporation
("Marathon") for $3,428,500, and radio stations, KFH-AM, KWSJ-FM (formerly
KXLK-FM) and KQAM-AM ("Pourtales Wichita Stations") from Pourtales Radio
Partnership ("Pourtales") for approximately $2,500,000 (collectively, the
"Initial Wichita Acquisitions"). In addition, the Company entered into a JSA
with Pourtales pursuant to which the Company sold all of the advertising time
on KEYN-FM, operating in the Wichita, Kansas market. On November 22, 1996,
the Company acquired KEYN-FM as part of the Pourtales Acquisition (see
below).
Sillerman Communications Management Corporation ("SCMC") on behalf of
Radio Investors, Inc. ("Radio Investors"), an affiliate of SCMC, posted
letters of credit on behalf of the Company in the amount of $165,000 and
$600,000 for the Marathon and Pourtales Wichita Stations, respectively, in
lieu of nonrefundable cash deposits. Radio Investors holds 1,199,476 shares
of the Company's Class D Common Stock. At the direction of Radio Investors,
SCMC transferred and assigned to the Company the letters of credit described
above and the related cash collateral. The assignment of the cash deposits
have been recorded as payment for 400 shares of Triathlon New York's Common
Stock issued to Norman Feuer, the Company's President and Chief Executive
Officer, valued at $2,449, and the remainder of $762,551 was
F-7
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. INITIAL PUBLIC OFFERING AND INITIAL WICHITA ACQUISITIONS (CONTINUED)
recorded as a liability to Radio Investors. Radio Investors and John D.
Miller, the Company's Chairman of the Board, purchased 500 and 10 shares,
respectively, of Triathlon New York's Common Stock. On June 15, 1995, the
liability to Radio Investors was converted into a $515,000 promissory note
payable to Radio Investors due upon the closing of the Initial Public
Offering with interest accruing at 6% per annum commencing on April 1, 1995,
and the 500 and 10 shares, respectively, of Triathlon New York's Common Stock
issued to Radio Investors and Mr. Miller, valued at $247,551 and the
promissory note and accrued interest were repaid with proceeds from the
Initial Public Offering.
During 1995, SCMC funded on behalf of the Company additional deposits and
payments in connection with the acquisition of KRBB-FM. All amounts were
repaid to SCMC with proceeds from the Initial Public Offering.
3. PREFERRED STOCK OFFERING
In March and April 1996, the Company completed an offering of 5,834,000
Depository Shares each representing a one-tenth interest in a share of 9%
Mandatory Convertible Preferred Stock (the "Preferred Stock") at a price of
$10.50 per share (the "Preferred Stock Offering"). The Company used the net
proceeds from the Preferred Stock Offering of approximately $56,400,000 to
repay the outstanding borrowings and accrued interest under a $9,000,000
credit agreement with AT&T Commercial Finance Corporation ("AT&T") and
finance a portion of the other acquisitions as described in Note 4.
4. OTHER ACQUISITIONS AND OPERATING AGREEMENTS
LINCOLN ACQUISITIONS
On January 24, 1996, the Company acquired in a stock acquisition, KTGL-FM
and KZKX-FM from Pourtales each operating in the Lincoln, Nebraska market for
an aggregate purchase price of $9,650,000. This acquisition was financed
principally from the net proceeds of a $9,000,000 credit agreement with AT&T.
The Company repaid the loan and accrued interest prior to March 31, 1996
utilizing proceeds from the Preferred Stock Offering, recognizing an
extraordinary loss of $320,000 resulting from the write-off of fees
associated with the financing.
On June 13, 1996 the Company acquired the assets of KIBZ-FM and KKNB-FM
from Rock Steady, Inc., each operating in the Lincoln, Nebraska market, for
an aggregate purchase price of approximately $3,275,000. SCMC, on behalf of
the Company, provided a deposit in the form of a letter of credit in the
amount of $200,000 in favor of the owner of Rock Steady. The Company
subsequently paid SCMC $200,000 and SCMC assigned its rights related to the
letter of credit to the Company. From January 29, 1996, the Company sold
advertising on KIBZ-FM and KKNB-FM pursuant to a JSA which was terminated
with the acquisition of the stations by the Company.
OMAHA ACQUISITIONS
On April 10, 1996, the Company acquired the assets of KTNP-FM (formerly
KRRK-FM) from 93.3 Inc., operating in the Omaha, Nebraska market, for a
purchase price of $2,700,000 and the assets of KXKT-FM from Valley
Broadcasting Company, also operating in the Omaha, Nebraska market, for a
purchase price of $8,100,000.
TRI-CITIES ACQUISITION
On April 19, 1996, the Company acquired the assets of KALE-AM and KIOK-FM
from Sterling Realty Organization, each operating in the Tri-Cities,
Washington market, for an aggregate purchase price of $1,200,000.
F-8
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. OTHER ACQUISITIONS AND OPERATING AGREEMENTS (CONTINUED)
SPOKANE ACQUISITIONS
On May 15, 1996, the Company acquired the assets of KISC-FM, KNFR-FM and
KAQQ-AM each operating in the Spokane, Washington market from Silverado
Broadcasting Company, Inc. ("Silverado"), for an aggregate purchase price of
approximately $8,750,000. The Company had been providing programming and
selling advertising on these stations since March 1, 1996, pursuant to an
LMA. In addition, the Company received the right to purchase a controlling
interest in KCDA-FM at a nominal price. The current licensee, however, has
retained the right to redeem the Company's purchase rights by paying to the
Company an amount equal to 75% of the fair market value of the station.
On March 1, 1996, the Company assumed the rights and obligations of
Silverado under two JSAs related to KCDA-FM and KNJY-FM, each operating in
the Spokane, Washington market. The JSA relating to KCDA-FM expires on
October 1, 1998. The JSA relating to KNJY-FM was terminated on December 29,
1996. Pursuant to these JSAs, the Company pays to the station owners a fee
determined pursuant to formulas based on net collected revenues as defined.
POURTALES ACQUISITION
On November 22, 1996, the Company acquired from Pourtales KVOR-AM,
KSPZ-FM, KTWK-AM and KVUU-FM, each operating in the Colorado Springs,
Colorado market; KEYF-FM, KEYF-AM, KUDY-AM and KKZX-FM, each operating in the
Spokane, Washington market; KEYN-FM operating in the Wichita, Kansas market
and KEGX-FM and KTCR-AM, each operating in the Tri-Cities, Washington market,
and assumed an LMA for radio station KNLT-FM, also operating in the
Tri-Cities, Washington market (the "Tri-Cities LMA") for an aggregate
purchase price of $22,850,000 (the "Pourtales Acquisition").
The Company has an agreement with Citadel Broadcasting Corporation
("Citadel") under which Citadel sells advertising on behalf of the Colorado
Springs and Spokane stations acquired from Pourtales under a JSA. Under the
Citadel JSA, Citadel, which currently owns other stations in the Colorado
Springs and Spokane markets (the "Citadel Stations"), is entitled to retain a
monthly fee (the "JSA Fee") based on the combined revenues from the sale of
advertising time on the Citadel Stations and the Colorado Springs and Spokane
stations (the "Aggregate Revenues") and the combined operating expenses of
such stations (the "Aggregate Operating Expenses") less a monthly payment to
the Company of 45% of the difference between the Aggregate Revenues and
Aggregate Operating Expenses each month, up to and including June 1997. After
June 1997, the Company is entitled to receive 40% of such difference. The
Citadel JSA will terminate on December 31, 2000 unless extended for up to two
additional consecutive five-year terms by either party. In addition, Citadel
reimburses the Company for its stations' operating expenses. Between January
15, 1996 and November 21, 1996 ("LMA Period"), the Company operated the
Colorado Springs and Spokane Stations under an LMA with Pourtales. The
Pourtales LMA terminated on the consummation of the sale of these stations to
the Company.
There was no LMA fee paid by the Company to Pourtales during the LMA
Period, however the Company recorded imputed interest of $1,705,000 during
the LMA Period based on the fair value of stations as determined by their
purchase price.
In connection with the Pourtales Acquisition, the Company assumed
Pourtales' rights and obligations under the Tri-Cities LMA. Pursuant to the
Tri-Cities LMA, the Company pays the owner of the stations $21,400 per month,
which includes $7,400 of certain station operating expenses, subject to
adjustment for actual costs. At the end of each 12 month period the actual
expenses will be computed and the Company will pay any shortfall to such
owner or will receive a refund from such owner for any overpayment of such
expenses. The Tri-Cities LMA expires on April 13, 2003.
F-9
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. OTHER ACQUISITIONS AND OPERATING AGREEMENTS (CONTINUED)
WICHITA JSA
During the four months ended December 31, 1996, the Company sold
advertising on radio stations KKRD-FM, KRZZ-FM and KNSS-AM operating in the
Wichita, Kansas market pursuant to a JSA with SFX Broadcasting, Inc.,
("SFX"), an affiliate, for a monthly fee of $75,000, plus actual operating
expenses of the stations. The Wichita JSA was terminated as of December 31,
1996.
The Company's acquisitions were recorded using the purchase method of
accounting. The operating results of the acquired stations are included in
the accompanying statement of operations from the date of acquisition or from
the date the LMA or JSA began, as appropriate. The following unaudited
supplemental pro forma information is presented as if the Company had
completed all of the acquisitions and related financings consummated as of
December 31, 1996, as if they had occurred on April 1, 1995, April 1, 1996
and January 1, 1996, respectively and had not entered into the Wichita JSA:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1996(1) DECEMBER 31, 1996(1)
-------------- -------------------- --------------------
<S> <C> <C> <C>
Net revenue $21,841,000 $19,079,000 $23,186,000
Operating income 412,000 1,156,000 582,000
Net loss applicable to common stock (6,343,000) (3,910,000) (6,173,000)
Net loss per common share (1.31) (.81) (1.27)
Common shares outstanding 4,841,600 4,841,600 4,841,600
</TABLE>
- ------------
(1) Includes a charge of $300,000, or $0.06 per share for DOJ information
request costs.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short term, highly liquid investments
which are readily convertible into cash and have an original maturity of
three months or less when purchased. The Company's cash and cash equivalents
as of March 31, 1996 and December 31, 1996 include $33,270,940 and
$1,377,572, respectively, in certificates of deposit and at December 31, 1996
$1,346,325 in a money market fund. The carrying amounts of cash and cash
equivalents reported in the balance sheet approximate their fair values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at their fair value estimated at the
date of acquisition or cost if purchased subsequently. Depreciation is
provided on the straight-line method over the estimated useful life of the
assets ranging from: 40 years for buildings and related improvements, 15
years for towers, 7 years for technical equipment, and 5 to 7 years for
furniture, other equipment and vehicles. Property and equipment consists of
the following at March 31, 1996 and December 31, 1996:
F-10
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---- ----
<S> <C> <C>
Land $ 90,000 $ 271,893
Building and improvements, including assets
under a capital lease of $159,800 at March 31,
1996 and $148,684 at December 31, 1996 384,553 1,313,139
Towers and technical equipment 2,099,482 4,929,156
Furniture and other equipment, including assets
under capital leases of $146,955 at December
31, 1996 338,161 930,859
Vehicles 26,435 102,815
Construction in progress -- 564,295
---------- ----------
2,938,631 8,112,157
Less accumulated depreciation and amortization (129,512) (577,909)
---------- ----------
$2,809,119 $7,534,248
========== ==========
</TABLE>
INTANGIBLE ASSETS
Intangible assets include the portion of the purchase price allocable to
FCC licenses and goodwill which is amortized on a straight-line basis over 40
years; certain professional fees and other expenses incurred in connection
with the Company's formation which are amortized on a straight-line basis
over 5 years; and costs related to financings which are amortized over the
term of the related debt.
It is the Company's policy to account for intangible assets at the lower
of amortized cost or fair market value. As part of an ongoing review of the
valuation and amortization of intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest they may be impaired. If this review indicates that the intangibles
will not be recoverable as determined by a nondiscounted cash flow analysis
over the remaining amortization period, the carrying value of the Company's
intangibles will be reduced to its estimated fair value.
REVENUE RECOGNITION
The Company's primary source of revenues is the sale of airtime to
advertisers. Revenues from the sale of airtime are recorded when the
advertisements are broadcast.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income based on the fair value of goods
or services received when advertisements are broadcast; goods and services
received are accounted for when used. Barter revenue and expense for the year
ended March 31, 1996 was $156,257 and $170,425, respectively, the nine months
ended December 31, 1996 was $785,605 and $782,982, respectively, and the year
ended December 31, 1996 was $886,778 and $890,134, respectively.
ADVERTISING COSTS
The Company expenses advertising costs related to its radio station
operations as they are incurred. Advertising expense amounted to $47,142 for
the year ended March 31, 1996, $332,371, for the nine months ended December
31, 1996 and $372,935 for the year ended December 31, 1996.
F-11
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," ("FAS 123")
which establishes financial accounting and reporting standards for stock
based employee compensation plans including, stock purchase plans, stock
options, restricted stock and stock appreciation rights. As permitted by FAS
123, the Company has elected to continue accounting for stock based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations.
LOSS PER COMMON SHARE
Loss per common share is based upon the net loss applicable to common
shares which is net of preferred dividends and upon the weighted average of
common shares outstanding during the period. The conversion of securities
convertible into common stock and the exercise of stock options were not
assumed in the calculation of loss per common share because the effect would
be antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of certificate of deposits
and trade receivables. The Company's revenue is principally derived from
local broadcast advertisers who are impacted by the local economies.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer
receivables. Credit losses are provided for in the financial statements in
the form of an allowance for doubtful accounts.
RECLASSIFICATIONS
Certain amounts as of and for the year ended March 31, 1996 have been
reclassified to conform with the current period presentation.
6. INTANGIBLE ASSETS
Intangible assets consist of the following at March 31, 1996 and December
31, 1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---- ----
<S> <C> <C>
FCC licenses $14,037,968 $57,216,577
Organization costs 478,644 478,644
Deferred financing costs 2,512,262 826,948
Goodwill 2,501,550 7,629,550
----------- -----------
19,530,424 66,151,719
Less accumulated amortization (191,592) (992,296)
----------- -----------
Net intangible assets $19,338,832 $65,159,423
=========== ===========
</TABLE>
F-12
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. LONG TERM DEBT
In November 1996, the Company's subsidiaries obtained a $40 million credit
facility from AT&T ("Credit Agreement"). Funding available under the Credit
Agreement is limited to an amount, which equals 5.5 times historical 12-month
trailing broadcast cash flow. The calculation of broadcast cash flow is made
on a pro forma basis which includes the trailing 12 month broadcast cash flow
(net revenues less station operating expenses, exclusive of depreciation,
amortization and corporate expenses and deferred compensation) of the
stations currently owned and/or operated by the Company and stations to be
acquired.
The Company's subsidiaries borrowed $13,000,000 under the Credit Agreement
on November 22, 1996 in connection with the Pourtales Acquisition. Loans
under the Credit Agreement bear interest at a floating rate equal to 4.25%
plus the 30-day Commercial Paper rate ("Base Rate"), subject to adjustment
(9.7% as of December 31, 1996). Principal is payable in monthly installments
of increasing amounts commencing July 1, 1997, and continuing until March 1,
2002, when all remaining outstanding principal is due.
The aggregate contractual maturities of long term debt for the years
ending December 31, are as follows: 1997 -- $179,400; 1998 -- $557,700; 1999
- -- $717,600; 2000 -- $807,300; 2001 -- $897,000; and thereafter --
$9,841,000.
The obligations of the Company's subsidiaries under the Credit Agreement
are secured by a first priority security interest in all existing and
after-acquired property of the Company's subsidiaries, with the exception of
FCC licenses and authorizations to the extent it is unlawful to grant a
security interest in such licenses and authorizations, and all issued and
outstanding capital stock of the Company's subsidiaries. All outstanding
indebtedness under the Credit Agreement is guaranteed by the Company. The
Credit Agreement also contains financial leverage and coverage ratios, and
restrictions on capital expenditures and other payments.
Pursuant to the terms of the Credit Agreement, the Company's subsidiaries
paid on February 14, 1997, a fee of $45,000 related to the unused portion of
the facility commitment. During the first quarter of 1997 the Company
borrowed an additional $18,000,000 under the Credit Agreement to finance a
portion of the Southern Skies Acquisition (Note 13).
8. STOCKHOLDERS' EQUITY
On July 6, 1996, the Company completed a recapitalization whereby all of
its outstanding common stock was exchanged for 25,000 shares of Class A
Common Stock, 244,890 shares of Class B Common Stock, and 1,444,366 shares of
Class D Common Stock. In addition, 367,344 shares of Class C Common Stock
were sold to certain investors for $3,673 in lieu of paying a commitment fee
on a proposed bridge loan that the Company later determined not to utilize.
The Company recorded compensation expense in the accounting period in
which the Initial Public Offering closed in an amount of $70,000 in
connection with the issuance of 25,000 shares of Class A Common Stock to Mr.
Miller. The Company will also incur noncash compensation expense of
approximately $34,000 per quarter for the five years following the closing of
the Initial Public Offering in connection with the issuance of 244,890 shares
of Class B Common Stock to Mr. Feuer pursuant to his employment agreement.
During the year ended March 31, 1996, the nine months ended December 31, 1996
and the year ended December 31, 1996, the Company expensed approximately
$79,000, $102,000 and $136,000, respectively, in connection with the shares
issued to Mr. Feuer.
F-13
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
The Company's authorized capital stock included 4,000,000 shares of $.01
par value Preferred Stock of which 600,000 shares had been designated as
Series A Convertible Preferred Stock and 600,000 shares is designated as
Series B Convertible Preferred Stock. In October 1996, the shareholders
approved the redesignation of the Series A Convertible Preferred Stock to
blank check Preferred Stock (the "Blank Check Preferred"). The Series B
Convertible Preferred Stock have no voting rights. The Company may issue the
Series B Convertible Preferred Stock pursuant to compensation plans to the
Company's officers, directors and advisors.
On February 8, 1996, the Board issued (i) 282,500 shares of Series B
Convertible Preferred Stock convertible into Class A Common Stock in the
event the market price of the Class A Common Stock is greater than or equal
to $14.00 per share for 20 consecutive trading days to certain officers,
directors and advisors and (ii) 282,500 shares of Series B Convertible
Preferred Stock convertible into Class A Common Stock in the event the market
price of the Class A Common Stock is greater than or equal to $15.00 per
share for 20 consecutive trading days to certain officers, directors and
advisors. The Series B Convertible Preferred Stock vests in equal
installments over a five year period beginning one year from the date of
issuance. During the period in which the Series B Convertible Preferred Stock
becomes convertible, the Company will incur substantial non-cash charges to
earnings based on the fair value of the stock amortized over the remaining
vesting period, if any.
The Company's Board can determine when, and on what terms, each share of
Blank Check Preferred would be issued. Accordingly, the Board may, at its
discretion, upon issuance of the shares of Blank Check Preferred, or any
portion thereof, designate rights, limitations, powers and preferences
without further authorization by stockholders.
MANDATORY CONVERTIBLE PREFERRED STOCK
The Mandatory Convertible Preferred Stock ranks senior to each other class
or series of capital stock. Holders are entitled to receive dividends
accruing at the rate of 9% per annum. On the June 30, 2000 mandatory
conversion date, the Mandatory Convertible Preferred Stock then outstanding
will convert automatically into shares of Class A Common Stock. The mandatory
conversion rate is determined by the market price of the Company's Class A
Common Stock at the time and shall not be greater than 1.15 or less than
.833. Upon a change in control, as defined, the holders are entitled to a
special conversion right in which the maximum conversion rate is 1.5. The
Preferred Stock is not redeemable by the Company prior to June 30, 1999. Each
share of the Preferred Stock is entitled to eight votes. The liquidation
preference is equal to the greater of $10.50 per share or the current market
price of the Company's Class A Common Stock on such date.
COMMON STOCK
The holders of Mandatory Convertible Preferred Stock and Class A Common
Stock voting together as a class are entitled to elect two of the Company's
directors, with each share of Mandatory Convertible Preferred Stock being
entitled to eight votes and each share of Class A Common Stock being entitled
to one vote. With respect to the election of the other three directors and
other matters submitted for a vote, the holders of Mandatory Convertible
Preferred Stock, Class A Common Stock and Class B Common Stock shall vote as
a single class, with each Mandatory Convertible Preferred Stock being
entitled to eight votes and each share of Class A Common Stock and Class B
Common Stock being entitled to one vote per share and ten votes per share,
respectively.
F-14
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. STOCKHOLDERS' EQUITY (CONTINUED)
If one or more of Messrs. Feuer, Sillerman or Tytel or Radio Investors
(each a "Principal Stockholder") or any of their affiliates engage in or
agree to participate in a "going private" transaction, any share of Class B
Common Stock held by such person or entity engaging in or agreeing to
participate in such transaction shall be entitled to only one vote per share.
For purposes of this provision, Mr. Feuer is not deemed to be an "affiliate"
of Messrs. Sillerman or Tytel or Radio Investors. Such provision is designed
to decrease the voting power of any principal stockholder of the Company
engaging in or participating in a going private transaction.
Except as required by law, the holders of the Class C Common Stock and the
Class D Common Stock have no voting rights. Under Delaware law, the
affirmative vote of the holders of a majority of the outstanding shares of
any class of Common Stock is required to approve, among other things, a
change in the designations, preferences or limitations of the shares of such
class of Common Stock.
Each share of Class B Common Stock, Class C Common Stock, and Class D
Common Stock automatically converts into one share of Class A Common Stock
upon its sale or transfer, subject to FCC approval. In addition, each share
of Class D Common Stock is also convertible into one share of Class B Common
Stock, subject to certain conditions including FCC approval. Except as
required by law, holders of Class C and D Common Stock and Series A and B
Convertible Preferred Stock have no voting rights.
Holders of shares of Common Stock are entitled to receive dividends as may
be declared by the Board of Directors. Payment of dividends is limited by the
terms of the Mandatory Convertible Preferred Stock.
At December 31, 1996, the Company had reserved (i) approximately 11.9
million shares of Class A Common Stock for issuances under the Company's
Stock Option Plans (see Note 11), conversion of the outstanding shares of
Class B Common Stock, Class C Common Stock, Class D Common Stock, the
Preferred Stock and the Series B Convertible Preferred Stock, and issuance
upon exercise of the warrants granted to the underwriters in the Company's
Initial Public Offering, and (ii) approximately 1.4 million shares of Class B
Common Stock reserved for issuance upon the conversion of the outstanding
shares of Class D Common Stock.
UNDERWRITER WARRANTS
In connection with the Initial Public Offering, the Company issued 240,000
warrants to the underwriters each convertible into one share of the Company's
Class A Common Stock. Each warrant is exercisable for a share of Class A
Common Stock during the three-year period commencing September 7, 1997 at an
exercise price equal to $7.43.
9. COMMITMENTS AND CONTINGENCIES
COMPENSATION AND OTHER AGREEMENTS
The Company and Mr. Feuer entered into an employment agreement commencing
September 13, 1995, which provides that Mr. Feuer will serve as the Company's
President and Chief Executive Officer for a five-year term; and provides for
an annual base compensation of $150,000, with annual increases tied to the
Consumer Price Index. Mr. Feuer will also receive a minimum annual bonus and
additional amounts based upon achievement of mutually agreed-upon performance
goals and discretionary amounts. During 1995 and 1996, the Company made loans
to Mr. Feuer which have been partially offset by bonuses earned.
The Company has a financial consulting agreement with The Sillerman
Companies ("TSC"), by assignment from SCMC, pursuant to which TSC provides
financial and advisory services. The TSC
F-15
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreement, as amended in November 1996, provides for annual advisory fees of
$500,000 per year. The Company also pays $5,500 per month as compensation for
services provided by TSC for Corporate Secretary, Chief Financial Officer and
Treasurer and investor relations functions. Payments for services under these
arrangements aggregated approximately $95,000, $339,000, and $414,000 for the
year ended March 31, 1996, the nine months ended December 31, 1996 and year
ended December 31, 1996, respectively. Further, TSC may provide additional
investment banking and advisory services for specifically designated projects
for fees to be mutually agreed upon subject to approval by the members of the
Board of Directors elected by the Class A Common Stockholders. Payments under
this arrangement in connection with radio stations acquired and the placement
of financing and issuance of equity were approximately $1,334,000,
$1,088,000, and $2,259,000 for the year ended March 31, 1996, the nine months
and year ended December 31, 1996, respectively. In connection with this
agreement, the Company makes advance payments of $500,000 annually for these
investment advisory services which will be repaid only out of fees earned
under the TSC agreement or upon a change of control, as defined. In January
1997, the Company made a payment of $750,000, representing an advance on the
1997 investment advisory fees and $250,000 for the six month period ended
December 31, 1996. Fees earned by TSC in connection with the Omaha
Acquisition (see Note 13) were $570,000 and are to be offset against the
advance payment.
TSC and the Company have agreed that two-thirds of the fees will be
deferred during any period for which the Company is in arrears with respect
to payment of dividends on the Preferred Stock. TSC is entitled to be
reimbursed for all reasonable out-of-pocket disbursements incurred by TSC in
connection with the performance of services. The Company will also indemnify
TSC and its directors, officers, employees, affiliates and agents, and any
person controlling such persons, with respect to any and all loses, claims,
damages or liabilities, joint or several, to which any such indemnified party
may be subject, and any and all expenses incurred in connection with any such
claim, action or proceedings, insofar as such losses, claims, damages,
liabilities, actions, proceedings or expense arise out of or are based upon
any matters that are the subject of this agreement, except with respect to
such indemnified amounts that arise out of reckless or willful misconduct of
such indemnified person.
On September 13, 1995, the Company entered into an agreement with
Pourtales (the "Shared Expense Agreement") to share certain expenses with
Pourtales until the consummation of the Pourtales Acquisition (the "Shared
Expense Period"). Pursuant to the Shared Expense Agreement, during the Shared
Expense Period, Pourtales paid the Company $11,000 per month as consideration
for Pourtales' use of the Company's corporate headquarters and the services
and facilities related thereto, and for Mr. Feuer's radio programming
consulting services provided to Pourtales. The Company paid Pourtales $3,000
per month, during the Shared Expense Period, as consideration for the use of
certain services of Pourtales' chief financial officer. The Company obtained
the lease to its corporate headquarters on September 13, 1995 by assignment
from Force II Communications, a corporation wholly-owned by Mr. Feuer.
LEASE OBLIGATIONS
The Company has entered into various operating and capital leases for the
rental of office space, property and equipment. Future minimum rental
payments under leases with terms greater than one year as of December 31,
1996 are as follows:
F-16
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ---------
<S> <C> <C>
1997 $ 549,428 $ 72,205
1998 508,039 65,705
1999 365,752 65,705
2000 276,211 65,705
2001 187,607 52,587
Thereafter 1,012,837 87,360
---------- ---------
Total minimum lease payments $2,899,874 409,767
==========
Less imputed interest (120,849)
---------
Present value of minimum lease payments $ 288,418
=========
</TABLE>
Rent expense for the year ended March 31, 1996, nine months ended December
31, 1996 and year ended December 31, 1996 was approximately $90,000, $366,000
and $416,000, respectively. The present value of minimum capital lease
payments is included in accounts payable and accrued expenses in the
accompanying balance sheet.
DOJ INFORMATION REQUEST
Following the passage of the Telecommunications Act of 1996, the
Department of Justice (the "DOJ") indicated its intention to investigate
certain existing industry practices that had not been previously subject to
anti-trust review. The Company has received information requests regarding
the Wichita JSA and the Citadel JSAs. These information requests also cover
another JSA which the Company has in Spokane, Washington. Following receipt
of the information request, the Company terminated the Wichita JSA, while the
DOJ inquiry continues, the Company does not believe the investigation will
have any material impact on the Company. Following consultation with legal
counsel, the Company does not believe that any reasonable likely outcome of
the investigation of the Spokane, Washington and Colorado Springs, Colorado
JSAs will result in a material negative impact on the Company. During 1996,
the Company provided $300,000 in connection with the estimated legal costs
related to compliance with the DOJ information requests.
10. RELATED PARTY TRANSACTIONS
Liabilities to affiliates at March 31, 1996 include $1,750,000 payable to
Pourtales for purchase price deposit amounts due pursuant to the Pourtales
Acquisition and $2,520,105 payable to SCMC for fees related to acquisitions
and financings. Liabilities to affiliates at December 31, 1996 include
$270,495 payable to SCMC and SFX related to the TSC Agreement and $64,957
payable to SFX related to the KOLL-FM LMA (see Note 13).
11. STOCK OPTIONS AND OTHER COMPENSATION PLANS
STOCK OPTION PLANS
The Company's stockholders have approved the Triathlon Broadcasting
Company 1995 and 1996 Stock Option Plans (the "Plans"). The Plans provide for
a grant of nonqualified and incentive stock options to purchase up to 600,000
shares of Class A Common Stock to eligible employees and advisors. Options
with respect to 120,000 shares of Class A Common Stock were granted on
October 30, 1995 comprised of (i) options to purchase 20,000 shares of Class
A Common Stock granted to certain officers
F-17
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. STOCK OPTIONS AND OTHER COMPENSATION PLANS (CONTINUED)
and directors are exercisable at $11.50 per share, have a ten year term and
vest in equal installments on October 30, 1996 and October 30, 1997, (ii)
options to purchase 80,000 shares of Class A Common Stock granted to Radio
Investors and other affiliates of SCMC are exercisable at $5.50 per share,
have a ten year term and vest in equal installments on October 30, 1996 and
October 30, 1997, and (iii) options to purchase an aggregate of 20,000 shares
of Class A Common Stock with varying terms have been issued to several
station level employees.
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock based compensation because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
valuation models that were not developed for this purpose.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted
for its employee stock based compensation under the fair value method of FAS
123. The fair value for options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the year ended March 31, 1996, the nine months ended December
31, 1996 and the year ended December 31, 1996: risk-free interest rate of
5.12%; no dividend yield; volatility factor of the expected market price of
the Company's common stock of 0.482; no forfeiture rate and a
weighted-average expected life of the option of 7 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
-------------- ----------------- -----------------
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders........................... $(1,991,000) $(4,939,000) $(6,498,000)
Pro forma loss per common share......... $ (0.65) $ (1.02) $ (1.34)
</TABLE>
A summary of the Company's stock option activity, and related information
for the year ended March 31, 1996 and the nine months ended December 31, 1996
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---- ----
<S> <C> <C>
Options outstanding at beginning of
year.................................... -- 120,000
Option price............................. -- $5.50-$11.50
Options granted.......................... 120,000 --
Option price............................. $5.50-$11.50 --
Options expired or canceled.............. -- --
Options outstanding at end of year ...... 120,000 120,000
Option price............................. $5.50-$11.50 $5.50-$11.50
Options exercisable at end of year ...... 25,000 70,000
</TABLE>
At December 31, 1996, options outstanding had a weighted average exercise
price of $7.50 and an expiration date of October 30, 2005.
OTHER COMPENSATION PLANS
On October 30, 1995, certain officers and directors received the right to
a cash bonus in the amount of $120,000, representing the difference between
$5.50, the price of the Class A Common Stock at the
F-18
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. STOCK OPTIONS AND OTHER COMPENSATION PLANS (CONTINUED)
Initial Public Offering, and $11.50, the closing price of the Class A Common
Stock on October 30, 1995, multiplied by 20,000. The bonus vests in two equal
installments on October 30, 1996 and October 30, 1997 and will be paid upon
the exercise of the options. In addition to the option grants under the 1995
Stock Option Plan, on October 30, 1995 the Company's Board of Directors
granted "cash-only stock appreciation rights" with respect to 7,000 shares of
Class A Common Stock to other directors. The amount due for the cash-only
stock appreciation rights will be calculated by multiplying the number of
shares by the difference between $5.50 and the price of the Class A Common
Stock on October 30, 2000. The rights vest over the two year period ending
October 30, 1997 and will be paid on October 30, 2000.
On January 31, 1996, the Company granted "cash-only stock appreciation
rights" with respect to 4,000 shares of Class A Common Stock to directors of
the Company. The value of these cash-only stock appreciation rights will be
calculated by adding the sum of (i) one-half of the number of shares times
the difference between $.01 and the price of the Class A Common Stock on
January 31, 2001 if prior to such date the price of the Class A Common Stock
was equal to or greater than $14.00 for 20 consecutive trading days and (ii)
one-half of the number of shares times the difference between $.01 and the
price of the Class A Common Stock on January 31, 2001 if prior to such date
the price of the Class A Common Stock was equal to or greater than $15.00 for
20 consecutive trading days. The cash-only stock appreciation rights will be
paid on January 31, 2001.
During the year ended March 31, 1996, the nine months ended December 31,
1996 and the year ended December 31, 1996, non-cash compensation charges
relating to the issuance of options, Series B Convertible Preferred Stock and
cash-only rights aggregated $274,750, $317,825 and $365,992, respectively.
12. INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial statements
or tax returns.
The Pourtales Acquisition resulted in the recognition of deferred tax
liabilities of approximately $5,128,000 under the purchase method of
accounting. This amount was based upon the excess of the financial statement
basis over the tax basis in net assets, principally intangible assets. In
connection with the Pourtales Acquisition, the Company succeeded to
approximately $3,593,000 of net operating loss ("NOL") carryforwards, the
utilization of which are subject to various limitations. As of December 31,
1996, the Company has approximately $3,813,000 remaining of NOL carryforwards
attributable to all of its acquired subsidiaries. As a result of restrictions
on future utilization, the Company's valuation allowance includes a full
reserve for these carryforwards. The Company's NOL carryforward expire at
various dates during the five year period beginning in 2006.
For the year ended March 31, 1996, the Company generated an NOL
carryforward of approximately $591,000. Accordingly, no provision for income
taxes was recorded for the year ended March 31, 1996. After the utilization
of available NOL carryforwards, the Company had no taxable income for the
nine months ended December 31, 1996 and the year ended December 31, 1996.
Accordingly, no provision for income taxes was recorded.
F-19
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
12. INCOME TAXES (CONTINUED)
The principal components of the Company's deferred tax assets and
liabilities at March 31, 1996 and December 31, 1996 are the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred compensation........... $ 106,600 $ 126,500
Net operating loss ............. 445,800 1,487,400
Interest expense................ 168,700 --
Allowance for doubtful accounts 93,100 174,600
Fixed assets ................... 76,600 76,600
---------- -----------
890,800 1,865,100
Valuation allowance............. (707,600) (1,498,900)
---------- -----------
Net deferred tax asset........... 183,200 366,200
Deferred tax liability:
Intangible assets .............. 2,684,750 7,995,750
---------- -----------
Net deferred tax liability ..... $2,501,550 $ 7,629,550
========== ===========
</TABLE>
The reconciliation of income tax attributable to operations before the
extraordinary item computed at the U.S. federal statutory tax rates to income
tax expense is:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
-------------- ----------------- -----------------
<S> <C> <C> <C>
Provision (benefit) at statutory rate of 35% $(464,900) $ 72,050 $(248,100)
Valuation allowance adjustments .............. 462,400 (183,000) 135,400
Other......................................... 2,500 110,950 112,700
--------- --------- ---------
Total ........................................ $ -- $ -- $ --
========= ========= =========
</TABLE>
13. PENDING ACQUISITIONS AND DISPOSITIONS
SOUTHERN SKIES ACQUISITION
On January 9, 1997 and April 25, 1997, the Company purchased radio
stations KZSN-FM and KZSN-AM, both operating in the Wichita, Kansas market,
and radio stations KSSN-FM and KMVK-FM, both operating in the Little Rock,
Arkansas market, respectively, from Southern Skies Corporation ("Southern
Skies") for $22,617,000 in cash, 46,189 shares of the Company's Class A
Common Stock, and entered into a $750,000 five-year non-competition agreement
with one of Southern Skies' principals. At December 31, 1996, the Company had
provided deposits of $1,225,000 in the form of letters of credit, and on
January 9, 1997 made a $6,000,000 loan to Southern Skies which was applied
against the balance of the purchase price due on April 25, 1997. The loan
accrued interest at 9% per annum. The acquisition was financed through
additional borrowings available under the Company's Credit Agreement.
KOLL-FM ACQUISITION
Also on April 25, 1997, the Company purchased radio station KOLL-FM,
operating in the Little Rock, Arkansas market from SFX for $4,100,000, based
on an independent valuation. The Company had
F-20
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
13. PENDING ACQUISITIONS AND DISPOSITIONS (CONTINUED)
previously paid a $3,500,000 deposit to Multi-Market Radio, Inc., an
affiliate, which was subsequently acquired by SFX. Pursuant to an LMA, the
Company had provided programming and sold advertising on KOLL-FM since March
15, 1996.
OMAHA ACQUISITION
On October 17, 1996, the Company entered into an agreement to acquire
radio stations KGOR-FM and KFAB-AM, both serving the Omaha, Nebraska market
from American Radio Systems Corporation for $38,000,000. In addition to the
two stations, the Company will acquire the exclusive Muzak franchise for the
Omaha and Lincoln, Nebraska markets. The Company has provided a deposit in
the form of a letter of credit in the amount of $2,000,000.
PINNACLE ACQUISITION
On March 20, 1997, the Company signed a letter of intent to purchase
Pinnacle Sports Productions, L.L.C. ("Pinnacle") for $3,300,000, and an
additional contingent payment which will not exceed $1,700,000.
Pinnacle currently has the exclusive rights to all of the men's football,
basketball and baseball games and women's basketball and volleyball games of
the University of Nebraska. Upon completion of this transaction Pinnacle will
continue to produce all of the games and sell the advertising for the
University of Nebraska Network.
Financing for the aforementioned pending acquisitions is expected to be
provided from an amendment to the Company's Credit Agreement. Should the
Company be unable to finance the transactions the Company would forfeit
deposits and letters of credit provided in connection with the acquisitions.
Each of the station acquisitions is subject to a number of conditions,
certain of which are beyond the Company's control, including the approval of
the Federal Communications Commission. Additionally, the Federal Trade
Commission and the DOJ ("Antitrust Agencies") have indicated their intention
to review matters related to the concentration of ownership within markets
even when the ownership in question is permitted under the provisions of the
Telecommunication Act of 1996 (the "Recent Legislation"). While the Company
believes that each of its pending radio stations acquisitions does not
represent or result in an impermissible concentration of ownership, there can
be no assurance that the Antitrust Agencies will not take a contrary position
which could delay or prevent the consummation of any or all of the pending
radio station acquisitions or require the Company to restructure its
ownership in the relevant market or markets.
LITTLE ROCK DISPOSITION
In April 1997, the Company entered into a contract with Clear Channel
Radio, Inc. ("Clear Channel") pursuant to which Clear Channel will purchase
KSSN-FM, KMVK-FM and KOLL-FM, operating in the Little Rock, Arkansas market
for approximately $20 million. The Company anticipates that there will be no
gain or loss recognized in connection with the Little Rock Disposition.
F-21
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRIATHLON BROADCASTING COMPANY
(Pursuant to Section 242 of the General Corporations Law
of the State of Delaware)
Triathlon Broadcasting Company (the "Corporation") , a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, acting in accordance
with Section 242(b) of the DGCL, unanimously adopted a resolution setting forth
a proposed amendment to the Amended and Restated Certificate of Incorporation
of the Corporation (the "Certificate") to repeal Article 4.5 and directed that
the amendment be submitted to the stockholders of the Corporation for their
review, adoption and approval at the Corporation's 1996 annual meeting. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors deems it to be in the best
interest of the Corporation that Article 4.5 of the Certificate be
repealed in its entirety.
SECOND: That thereafter, at the 1996 annual meeting of the stockholders of
the Corporation called in accordance with Section 222 of the DGCL, a majority
of the outstanding stock of the Corporation entitled to vote thereon approved a
proposal to repeal Article 4.5 in its entirety, as required by Section 242(b)
of the DGCL.
THIRD: That the amendment to the Certificate has been duly adopted in
accordance with Section 242 of the DGCL.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Norman Feuer, its Chief Executive Officer, this 14th day of February
1997.
By: /s/ Norman Feuer
-------------------------------
Norman Feuer,
Chief Executive Officer
<PAGE>
SILLERMAN COMMUNICATIONS MANAGEMENT CORPORATION
150 EAST 58TH STREET, 19TH FLOOR
NEW YORK, NEW YORK 10155
212-407-9110
April 3, 1997
Triathlon Broadcasting Company
150 East 58th Street. 19th Floor
New York, New York 10155
Attn Mr. Norman Feuer
Gentlemen:
This letter when countersigned by you shall confirm our mutual
understanding with respect to the implementation of the existing financial
consulting and advisory agreement (the "Agreement") between Sillerman
Communications Management Corporation ("SCMC") and Triathlon Broadcasting
Company ("Triathlon").
Based upon actions taken by the Board of Directors and Independent
Directors of Triathlon, you have agreed to advance annually, to SCMC, $500,000,
which amount is to be applied against fees to be earned by SCMC with respect to
special investment banking and merger and acquisition assignments. Under the
Agreement, such assignments are subject to approval by the Independent
Directors of Triathlon as well as Triathlon's Board of Directors. The Agreement
provides maximum levels for these fees but we acknowledge that such fees may be
established at lower levels by a mutual agreement between us. In the event that
upon the termination of the Agreement, fees have not been earned sufficient in
amount to retire all advances made, such advances will be repaid together with
simple interest at the rate of 8% per annum. The initial advance, under this
Agreement, has, in effect, been pro rated for 1996 at the mutually agreed to
amount of $250,000.
As you are aware, with certain limited exceptions, the fees to be
earned under this Agreement have been assigned to SFX Broadcasting, Inc.
Similarly, our obligation to perform the services has been assigned, by us, to
The Sillerman Companies ("TSC"). This assignment and substitution has been done
for our administrative convenience and does not relieve SCMC from any
obligation to insure the adequacy of the services.
If this letter accurately reflects the understanding between SCMC and
Triathlon, please so acknowledge by signing the duplicate copy of this letter
which has been enclosed for that
<PAGE>
Triathlon Broadcasting Company
April 3, 1997
Page 2
purpose. To the extend necessary to establish the rights of either party, this
letter, after it has been countersigned, shall be considered a written
amendment to our Agreement,
Very truly yours,
SILLERMAN COMMUNICATIONS
MANAGEMENT CORPORATION
/s/ Howard J. Tytel
Howard J. Tytel
Executive Vice President and
General Counsel
Acknowledged and agreed to:
TRIATHLON BROADCASTING COMPANY
By: /s/ Kraig G. Fox
--------------------------
Kraig G. Fox
As Secretary Pursuant to the Verbal
Direction of Norman Feuer
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of April 11,
1997 among Triathlon Broadcasting of Little Rock, Inc., a Delaware corporation
("Seller"), Clear Channel Radio, Inc., a Nevada corporation ("CCR") and Clear
Channel Radio Licenses, Inc., a Nevada corporation ("CCRL")
(CCR and CCRL, collectively, "Buyer").
Recitals
--------
A. Upon the Triathlon Closings (defined below), Seller will own and
operate the following radio broadcast stations (each a "Station" and
collectively the "Stations") pursuant to certain licenses, authorizations and
approvals (the "FCC Authorizations") issued by the Federal Communications
Commission (the "FCC"): KSSN-FM, Little Rock, Arkansas ("KSSN"); KMVK-FM,
Benton, Arkansas ("KMVK"); and, KOLL-FM, Maumelle, Arkansas ("KOLL").
B. Seller is acquiring KOLL from Southern Starr of Arkansas, Inc., an
Arkansas corporation ("Southern Starr") pursuant to an Asset Purchase Agreement
(the "KOLL APA") dated July 15, 1996 between Southern Starr and Seller. Prior
to such acquisition, Seller is providing the programming for, and is entitled
to receive the revenues from the sale of advertising on, KOLL pursuant to a
Local Marketing Agreement dated March 15, 1996 (the "KOLL LMA") between
Southern Starr and Seller.
C. Seller is acquiring KMVK from Arkansas Skies Corporation, an Arkansas
corporation ("Arkansas Skies") and KSSN from Southern Skies Corporation, an
Arkansas corporation ("Southern Skies") pursuant to an Asset Purchase Agreement
(the "KMVK/KSSN APA") dated February 8, 1996 and amended November 26, 1996
among Arkansas Skies, Southern Skies, Seller and Triathlon Broadcasting
Company, a Delaware corporation ("Triathlon").
D. As used herein, (i) "Selling Companies" means Southern Starr, Arkansas
Skies and Southern Skies, collectively, (ii) "Selling Company APAs" means the
KOLL APA and the KMVK/KSSN APA, collectively, and (iii) "Triathlon Closing"
means the consummation of the acquisition by Seller of one or more of the
Stations pursuant to one of the Selling Company APAs, and "Triathlon Closings"
means such closings, collectively.
E. Subject to the terms and conditions set forth herein, (i) Seller
desires to assign to CCRL, and CCRL desires to acquire from Seller, the FCC
Authorizations and (ii) Seller desires to convey to CCR, and CCR desires to
acquire from Seller, the other tangible and intangible assets and properties
used or held for use in the operation of the Stations.
<PAGE>
Agreement
---------
NOW, THEREFORE, taking the foregoing into account, and in consideration
of the mutual covenants and agreements set forth herein, the parties, intending
to be legally bound, hereby agree as follows:
ARTICLE 1: SALE AND PURCHASE
1.1 Station Assets. Subject to and in reliance upon the representations,
warranties and agreements herein set forth, and subject to the terms and
conditions herein contained, Seller shall grant, convey, sell, assign, transfer
and deliver to Buyer on the Closing Date (as hereinafter defined) all interests
of Seller at Closing in all properties, assets, privileges, rights, interests
and claims, real and personal, tangible and intangible, of every type and
description, wherever located, including its business and goodwill (except for
Excluded Assets as defined in Section 1.2) used or held for use in the business
and operations of the Stations (collectively, the "Station Assets"). Without
limiting the foregoing, the Station Assets shall include the following:
(a) Licenses and Authorizations. All of the FCC Authorizations issued
with respect to the Stations, including without limitation all rights in and to
the call letters "KSSN-FM," "KMVK-FM," and "KOLL-FM" and any variations
thereof, and all of those FCC Authorizations listed and described on Schedule
1.1(a) attached hereto, and all applications therefor, together with any
renewals or extensions thereof and additions thereto.
(b) Tangible Personal Property. All interests in all equipment,
electrical devices, antennas, cables, vehicles, furniture, fixtures, towers,
office materials and supplies, hardware, tools, spare parts, and other tangible
personal property of every kind and description, used or held for use in
connection with the business and operations of the Stations, including without
limitation those listed and described on Schedule 1.1(b) attached hereto, and
any additions and improvements thereto between the date of this Agreement and
the Closing Date (collectively, the "Tangible Personal Property").
(c) Real Property. All interests in all land, leaseholds, licenses,
rights-of-way and other interests of every kind and description in and to all
of the real property and buildings thereon, used or held for use in the
business and operations of the Stations, including without limitation those
listed and described on Schedule 1.1(c) attached hereto, and any additions and
improvements thereto between the date of this Agreement and the Closing Date
(collectively, the "Real Property").
(d) Time Sales Agreements. All orders and agreements entered into in
the ordinary course of business for the sale of advertising time on the
Stations for cash that are cancelable without penalty that exist, with respect
to each Station, on either (i) any Effective Date (defined below) for such
Station or (ii) if an Effective Date does not occur for such Station, then the
Closing Date.
-2-
<PAGE>
(e) Contracts. Those contracts and agreements used in connection with
the business and operations of the Stations that are listed and described on
Schedule 1.1(e) attached hereto.
(f) Intangible Property. All interests in all trademarks, trade
names, service marks, franchises, patents, jingles, slogans, logotypes and
other intangible rights, used or held for use in connection with the business
and operations of the Stations, including without limitation all right, title
and interest in and to the marks "KSSN-FM," "KMVK-FM," and "KOLL-FM" and any
and all variations thereof, and all of those listed and described on Schedule
1.1(f) attached hereto, and those acquired between the date hereof and the
Closing Date (collectively, the "Intangible Property").
(g) Programming and Copyrights. All interests in all programs and
programming materials and elements of whatever form or nature used or held for
use in the business and operations of the Stations, whether recorded on tape or
any other substance or intended for live performance, and whether completed or
in production, and all related common-law and statutory copyrights used or held
for use in the business and operations of the Stations, together with all such
programs, materials, elements and copyrights acquired in the business and
operations of the Stations between the date hereof and the Closing Date.
(h) Files and Records. All FCC logs and other records that relate to
the operation of the Stations, and all files and other records relating to the
business and operations of the Stations (other than duplicate copies of such
files ("Duplicate Records")), including without limitation all schematics,
blueprints, engineering data, customer lists, reports, specifications,
projections, statistics, promotional graphics, original art work, mats, plates,
negatives and other advertising, marketing or related materials, and all other
technical and financial information concerning the Stations and the Station
Assets.
(i) Claims. Any and all claims and rights against third parties if
and to the extent that they relate to the Station Assets, including, without
limitation, all rights under manufacturers' and vendors' warranties.
(j) Prepaid Items. All deposits, reserves and prepaid expenses
relating to the Stations and prepaid taxes relating to the Stations or the
Station Assets.
(k) Goodwill. All goodwill in, and going concern value of, the
Stations.
1.2 Excluded Assets. There shall be excluded from the Station Assets and
retained by Seller, to the extent in existence on the Closing Date, the
following (collectively, the "Excluded Assets"):
(i) all cash, cash equivalents and publicly traded securities of
Seller;
(ii) all insurance policies of Seller;
-3-
<PAGE>
(iii) all pension, profit sharing and all other employee benefit
plans of Seller;
(iv) all accounts receivable, and any notes or written obligations
reflecting accounts receivable of Seller relating to each Station as of either
(i) any Effective Date (defined below) for such Station or (ii) if an Effective
Date does not occur for such Station, then the Closing Date; and
(v) any Duplicate Records.
1.3 Liabilities.
(a) The Station Assets shall be sold and conveyed to Buyer free and
clear of all mortgages, liens, deeds of trust, security interests, pledges,
restrictions, prior assignments, charges, claims, defects in title and
encumbrances of any kind or type whatsoever (collectively, "Liens") except: (i)
liens for real estate taxes not yet due and payable for which Buyer receives a
Purchase Price adjustment under Section 1.5; and (ii) the post-Closing
obligations of Seller which CCR will assume under leases and contracts assigned
to CCR that are listed on Schedules 1.1(c) and 1.1(e) ("Permitted
Encumbrances").
(b) Except as otherwise specifically provided herein, Buyer shall not
assume or be liable for, and does not undertake to attempt to, assume or
discharge: (i) any liability or obligation of Seller arising out of or relating
to any contract, lease agreement, or instrument; (ii) any liability or
obligation of Seller arising out of or relating to any employee benefit plan
otherwise relating to employment (all employment obligations shall be brought
current by Seller as of the Closing Date, including the payment of all accrued
benefits and severance pay and all bonuses, whether or not such benefits or
bonuses are due as of the Closing Date); (iii) any liability or obligation of
Seller arising out of or relating to any litigation, proceeding or claim
(whether or not such litigation, proceeding or claim is pending, threatened or
asserted before, on or after the Closing Date); (iv) any other liabilities,
obligations, debts or commitments of Seller whatsoever, whether accrued now or
hereafter, whether fixed or contingent, whether known or unknown; or (v) any
claims asserted against the Stations or any of the Station Assets relating to
any event (whether act or omission) prior to the Closing Date, including
without limitation, the payment of all taxes.
(c) Seller retains and shall hereafter pay, satisfy, discharge,
perform and fulfill all obligations and liabilities not expressly assumed by
Buyer hereunder as they become due, without any charge or cost to Buyer, and
Seller agrees to indemnify and hold Buyer and its successors and assigns
harmless from and against any and all such liabilities in accordance with the
terms of Article 9 below.
1.4 Purchase Price.
-4-
<PAGE>
(a) Purchase Price. The purchase price to be paid for the Station
Assets will be an amount equal to the sum of (i) Twenty Million Dollars
($20,000,000) plus or minus (ii) the Closing Date Adjustments pursuant to
Section 1.5 hereof (the "Purchase Price").
(b) Method of Payment. Upon Closing, the Purchase Price shall be paid
by Buyer in immediately available funds pursuant to written instructions of the
Seller to be delivered by Seller to Buyer at least three (3) business days
prior to Closing.
(c) Allocation of Purchase Price. Buyer and Seller will allocate the
Purchase Price in accordance with the respective fair market values of the
Station Assets and the goodwill being purchased and sold in accordance with the
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"). The allocation shall be determined by mutual agreement of the
parties. Buyer and Seller each further agrees to file its federal income tax
returns and its other tax returns reflecting such allocation.
1.5 Adjustments.
(a) Except as provided in LMA or JSA (defined below), the operation
of the Stations and the income and normal operating expenses attributable
thereto through the date preceding the Closing Date (the "Adjustment Date")
shall be for the account of Seller and thereafter for the account of Buyer,
and, if any income or expense is properly allocable or credited, then it shall
be allocated, charged or prorated accordingly. Except as provided in any LMA or
JSA (defined below), expenses for goods or services received both before and
after the Adjustment Date, power and utilities charges, frequency discounts,
prepaid time sales agreements, and rents and similar prepaid and deferred items
shall be prorated between Seller and Buyer as of the Adjustment Date in
accordance with generally accepted accounting principles. All special
assessments and similar charges or liens imposed against the Real Property and
Tangible Personal Property in respect of any period of time through the
Adjustment Date, whether payable in installments or otherwise, shall be the
responsibility of Seller, and amounts payable with respect to such special
assessments, charges or liens in respect of any period of time after the
Adjustment Date shall be the responsibility of Buyer, and such charges shall be
adjusted as required hereunder. To the extent that any of the foregoing
prorations and adjustments cannot be determined as of the Closing Date, Buyer
and Seller shall conduct a final accounting and make any further payments, as
required on a date mutually agreed upon, within ninety (90) days after the
Closing.
(b) With respect to trade, barter or similar agreements for the sale
of time for goods or services ("Barter Agreements") assumed by Buyer pursuant
to Section 1.1(e), if any, if there exists on the date (or dates) or assumption
an aggregate negative barter balance (i.e., the amount by which the value of
air time (based upon the Stations' then prevailing rates) to be provided
exceeds the fair market value of goods or services to be received therefor) for
all Stations of $15,000 or more, then the amount by which such negative balance
exceeds $15,000 will be treated as prepaid time sales and adjusted for as a
proration in Buyer's favor. If, however, there exists on such date (or dates)
an aggregate positive barter balance (i.e., the amount by which the value of
airtime (based upon the Stations' then prevailing rates) to be
-5-
<PAGE>
provided is less than the fair market value of goods or services to be received
therefor) with respect to Barter Agreements assumed by Buyer, there shall be no
proration in Seller's favor.
1.6 Closing. The consummation of the sale and purchase of the Station
Assets provided for in this Agreement (the "Closing") shall take place at a
date and time designated by Buyer within five (5) days of the date of the FCC
Consent (as defined in Section 4.4) pursuant to the FCC's initial order,
subject to the satisfaction or waiver of the last of the conditions required to
be satisfied or waived pursuant to Articles 6 or 7 below (other than those
requiring a delivery of a certificate or other document, or the taking of other
action, at the Closing), but in no event later than two years after the date of
this Agreement (the "Final Closing Date"); provided, however, that, if a
petition to deny or other objection is filed against the Application (as
defined in Section 4.4) or before Closing a petition for reconsideration or
application for review is filed with respect to the FCC Consent (defined in
Section 4.4), then, at Buyer's option, the Closing shall occur within five days
after the date of the FCC Consent (as defined in Section 4.4.) pursuant to the
FCC's Final (as defined in Section 4.4) order, subject to the satisfaction or
waiver of the last of the conditions required to be satisfied or waived
pursuant to Articles 6 or 7 below (other than those requiring a delivery of a
certificate or other document, or the taking of other action, at the Closing),
but in no event later than the Final Closing Date. Alternatively, the Closing
may take place at such other place, time or date as the parties may mutually
agree upon in writing. The date on which the Closing is to occur is referred to
herein as the "Closing Date."
1.7 Noncompete. On the Closing Date, Seller shall enter into, and Seller
shall cause Triathlon (on behalf of it and all of its Affiliates (defined
below)) (collectively, the "Covenators") to enter into, a two year
Non-Competition Agreement in the form and substance reasonably satisfactory to
Buyer (the "Noncompetition Agreement"), for no additional consideration. In
connection with the allocation under Section 1.4(c), a portion of the Purchase
Price shall be allocated as consideration for the Noncompetition Agreement.
1.8 LMA/JSA. With respect to each Station, if permitted by FCC rules and
if requested by Buyer at any time prior to Closing, Seller shall execute,
deliver and perform either of the following agreements (as designated by
Buyer): (i) a Local Programming and Marketing Agreement (an "LMA") providing
that Buyer will provide the programming for, and be entitled to receive the
revenues from the sale of advertising on, such Station, and containing
customary terms reasonably satisfactory to Buyer and Seller or (ii) an
Agreement for the Sale of Commercial Time (a "JSA") providing that Buyer shall
be entitled to all of the time available for commercial spot announcements on
the Station for resale to advertisers, and Buyer shall be entitled to receive
the revenues from the sale of advertising on the Station, and containing
customary terms reasonably satisfactory to Buyer and Seller. With respect to
each Station, if Buyer and Seller enter into an LMA or JSA, and if requested by
Buyer (and if permitted by FCC rules) Seller shall convert any JSA to an LMA or
convert any LMA to a JSA, as the case may be. As used herein, the term
"Effective Date" means the date the term of any LMA and JSA commences. The
Effective Date shall not occur (i) with respect to KSSN, prior to the Triathlon
Closing with respect thereto (ii) with respect to KMVK, prior to the Triathlon
Closing with respect thereto, and (iii) with respect to each Station, prior to
-6-
<PAGE>
satisfaction of the Closing condition described in Section 6.4 and 7.4 of this
Agreement. Buyer's rights to elect to effect an LMA or a JSA (or neither) and
to convert hereunder may be exercised from time to time separately with respect
to each Station.
ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
2.1 Corporate Status. Seller is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware. Seller
is duly qualified to do business and is in good standing in such states in
which the failure to so qualify would have a material adverse effect on the
business of the Stations. Seller has the requisite power to carry on the
business of the Stations as it is now being conducted and to own and operate
the Stations, and Seller has the requisite power to enter into and complete the
transactions contemplated by this Agreement. Seller has not used any name in
the operation of its business other than its name as first set forth above and
the Stations' call letters. Triathlon owns all of the issued and outstanding
shares of stock of Seller.
2.2 Authority. All corporate actions necessary to be taken by or on the
part of Seller in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement has been duly
and validly authorized, executed, and delivered by Seller and constitutes the
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms.
2.3 No Conflict. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or violate the certificate of incorporation or bylaws of
Seller; (b) conflict with or violate or result in any breach of or any default
under, result in any termination or modification of, or cause any acceleration
of any obligation under, any Contract (defined below) to which Seller is a
party or by which it is bound, or by which the Stations or any of the Station
Assets may be affected, or result in the creation of any Lien upon any of the
Station Assets; or (c) violate any judgment, decree, order, statute, law, rule
or regulation applicable to Seller, the Stations or any of the Station Assets.
2.4 Commitments. Neither Seller nor any of the Selling Companies is a
party to or bound by any written, oral or implied contract, agreement, lease or
instrument or other commitment (each a "Contract"), including but not limited
to any indenture, mortgage, guaranty, surety arrangement, or any contract or
agreement for the purchase or sale of merchandise, programming or advertising
time on the Stations or for the rendition of services, except for agreements
for the sale of time on the Stations described in Section 1.1(d), the Real
Property leases and the Contracts listed on Schedules 1.1(c) and 1.1(e), and
except for: (a) any written contract terminable without penalty or involving a
commitment of less than $1,000 individually or $10,000 in the aggregate for the
purchase or sale of goods, supplies, equipment, capital assets, products or
services; and (b) any written contracts involving less than $1,000 individually
or $10,000 in the aggregate (when combined with all those described
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in clause (a) above) entered into in the ordinary and usual course of business
from the date hereof until the Closing Date. Seller has delivered to Buyer true
and complete copies of all Real Property leases and Contracts listed Schedules
1.1(c) and 1.1(e).
2.5 No Breach. Seller is not in violation or breach of any of the terms,
conditions or provisions of any Contract, court order, judgment, arbitration
award, or decree relating to or affecting the Stations or the Station Assets to
which Seller is a party or by which it is bound.
2.6 Financial Statements. Attached as Schedule 2.6 hereto are copies of
(i) the audited balance sheets of Southern Skies and Arkansas Skies for the
years ended December 31, 1994 and December 31, 1995 and the audited statements
of income of such Selling Companies for each of the years then ended, (ii) the
unaudited monthly statements of revenues and expenses of Southern Skies and
Arkansas Skies for each month from January, 1996 through February, 1997, and
(iii) the unaudited monthly statements of revenues and expenses of Seller for
KOLL for each month from the date of the KOLL LMA (being March, 1996) through
January, 1997 (collectively, the "Financial Statements"). The Financial
Statements are complete and correct, have been prepared in accordance with
books and records regularly maintained, present fairly the financial position
of the Stations as of those dates and the results of its operations for the
periods indicated in accordance with generally accepted accounting principles,
and properly and fairly disclose and allocate all transactions with any
Affiliates. Buyer may conduct an audit of Seller's books and records at any
time. The Financial Statements include all financial statements provided to
Seller by any of the Selling Companies.
2.7 Liabilities. Neither Seller nor the Selling Companies have any
liabilities or obligations relating to the Stations of any kind or nature,
whether known or unknown, due or not yet due, liquidated or unliquidated,
fixed, contingent or otherwise, except as and to the extent reflected in the
Financial Statements.
2.8 Taxes. Seller and the Selling Companies have filed all applicable
federal, state, local and foreign tax returns required to be filed, in
accordance with provisions of law pertaining thereto, and has paid all taxes,
interest, penalties and assessments (including without limitation income,
withholding, excise, unemployment, Social Security, occupation, transfer,
franchise, property, sales and use taxes, import duties or charges, and all
penalties and interest in respect thereof) required to have been paid with
respect to or involving the Stations or the Station Assets. Neither Seller nor
the Selling Companies have been advised that any of its returns, federal,
state, local or foreign, have been or are being audited.
2.9 Licenses. The Selling Companies are, and, with respect to each
Station, upon each Triathlon Closing, Seller will be, the holder(s) of the FCC
Authorizations listed and described on Schedule 1.1(a). Such FCC Authorizations
constitute all of the licenses and authorizations required under the
Communications Act of 1934, as amended (the "Communications Act"), or the
rules, regulations and policies of the FCC for, and used in the operation of,
the Stations. The FCC Authorizations are in full force and effect and have not
been revoked, suspended, canceled, rescinded or terminated and have not
expired. There is not pending or threatened any action by or before the FCC to
revoke, suspend, cancel, rescind
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or modify any of the FCC Authorizations (other than proceedings to amend FCC
rules of general applicability), and there is not now issued or outstanding or
pending or threatened, by or before the FCC, any order to show cause, notice of
violation, notice of apparent liability, or notice of forfeiture or complaint
against the Selling Companies, Seller or any Station. Each Station is operating
in compliance with the FCC Authorizations, the Communications Act, and the
rules, regulations and policies of the FCC.
2.10 Additional FCC Matters.
(a) All reports and filings required to be filed with the FCC by the
Selling Companies or Seller with respect to the Stations (including without
limitation all required equal employment opportunity reports) have been timely
filed. All such reports and filings are accurate and complete. Public files for
the Stations are maintained as required by FCC rules. With respect to FCC
licenses, permits and authorizations, the Selling Companies are operating, and
Seller will operate, only those facilities for which an appropriate FCC
Authorization has been obtained and is in effect, and the Selling Companies are
meeting, and Seller will meet, the conditions of each such FCC Authorization.
(b) Seller is aware of no facts indicating that any of the Selling
Companies or Seller is not in compliance with all requirements of the FCC, the
Communications Act, or any other applicable federal, state and local statutes,
regulations and ordinances. Seller is aware of no facts and Seller has received
no notice or communication, formal or informal, indicating that the FCC is
considering revoking, suspending, canceling, rescinding or terminating any FCC
Authorization.
(c) The operation of the Stations does not cause or result in
exposure of workers or the general public to levels of radio frequency
radiation in excess of the "Radio Frequency Protection Guides" recommended in
"American National Standard Safety Levels with Respect to Human Exposure to
Radio Frequency Electromagnetic Fields 300 KHz to 100 gHz" (ANSI C95.1-1982),
issued by the American National Standards Institute, and renewal of the FCC
Authorizations would not constitute a "major action" within the meaning of
Section 1.1301, et seq., of the FCC's rules.
2.11 Approvals and Consents. Except as described in Schedule 2.11 hereto,
the execution, delivery and performance by the Seller of this Agreement and the
consummation by it of the transactions contemplated hereby will not require any
consent, permit, license or approval of, or filing with or notice to, any
person, entity or governmental or regulatory authority under any provision of
law applicable to Seller or any Contract or Real Property lease, except as
contemplated by Sections 4.4 (FCC Authorization) and 4.8 (Hart-Scott-Rodino).
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2.12 Station Assets. The Station Assets constitute all of the assets
necessary to conduct the present operations of the Stations. Schedule 1.1(b)
contains a description of all items of Tangible Personal Property having an
original cost in excess of $1,000. The Selling Companies have, and, with
respect to each Station, upon each Triathlon Closing, Seller will have, good,
valid and marketable title to all of the Station Assets, free and clear of all
Liens (other than Permitted Encumbrances). All items of Tangible Personal
Property, including equipment and electrical devices, are in good operating
condition and repair, are free from all material defect and damage, are
functioning in the manner and for the purposes for which it was intended, have
been maintained in accordance with industry standards, and do not require any
repairs other than normal routine maintenance.
2.13 Real Property.
(a) Schedule 1.1(c) contains descriptions of all real property owned
or leased and used or held for use in connection with the business and
operations of the Stations and leases or licenses or other rights to possession
of any real property so used or held.
(b) The Selling Companies have, and, with respect to each Station,
upon each Triathlon Closing, Seller will have, fee simple title to the Real
Property so described by metes and bounds on Schedule 1.1(c) as being so owned
(the "Owned Property"). As to the Owned Property, the Selling Companies have,
and, with respect to each Station, upon each Triathlon Closing, Seller will
have, good, valid and marketable fee simple title to such premises and all
buildings, towers, antennae, free of any Liens (other than Permitted
Encumbrances). The Owned Property includes sufficient access to the Stations'
facilities without need to obtain any other access rights. The Real Property
and all of the buildings, towers, antennae, fixtures and improvements, and all
heating and air conditioning equipment, plumbing, electrical and other
mechanical facilities, and the roof, walls and other structural components of
the Real Property which are part of, or located in, such buildings, towers,
antennae or improvements, are in good operating condition and repair
(reasonable wear and tear excepted), comply in all material respects with
applicable zoning laws and the building, health, fire and environmental
protection codes of all applicable governmental jurisdictions, have no
structural defects, and do not require any repairs other than normal routine
maintenance to maintain them in good condition and repair. Seller has delivered
to Buyer copies of all title insurance policies in its possession that are
applicable to the Real Property.
(c) The Selling Companies lease, and, with respect to each Station,
upon each Triathlon Closing, the Seller will lease, as a tenant, the premises
described on Schedule 1.1(c) as being so leased. The leases listed in Schedule
1.1(c) hereto constitute all the Real Property leases to which any of the
Selling Companies or Seller is a party (either as lessor or lessee) and which
are required or useful in the conduct of the business of the Stations. Seller
has delivered to Buyer true and complete copies of such leases. All buildings,
structures, improvements, fixtures, and appurtenances are in good maintenance,
operating condition, and repair; are adequate and suitable for the purposes for
which they are presently being used; and conform to all applicable laws,
ordinances, and regulations.
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(d) With respect to the leases of Real Property listed in Schedule
1.1(c) hereto, the Selling Companies have, and, with respect to each Station,
upon each Triathlon Closing, Seller will have, good title to its interest in
such Real Property, free and clear of all Liens (other than Permitted
Encumbrances). With respect to each such lease, (i) each such lease is in full
force and effect, and is valid, binding and enforceable in accordance with its
terms, (ii) all accrued and currently payable rents and other payments required
thereunder have been paid, (iii) each such lease was entered into in the
ordinary course of business and has provided for peaceable possession since the
beginning of the original term thereof, (iv) each party thereto has complied
with all respective covenants and provisions of thereof, (v) no party is in
default in any respect thereunder, (vi) no party has asserted any defense, set
off or counterclaim thereunder, (vii) no waiver, indulgence, or postponement of
any obligations thereunder has been granted by any party, (viii) no notice of
default or termination has been given or received, no event of default has
occurred, and no condition exists and no event has occurred that, with the
giving of notice, the lapse of time, or the happening of any further event
would become a default or permit early termination thereunder, (ix) no party
has violated any term or condition thereunder, and (x) the validity or
enforceability thereof will in no way be affected by the sale of the Station
Assets as contemplated herein. Each such lease provides sufficient access to
the Stations' facilities without need to obtain any other access rights. Except
as set forth in Schedule 2.11 hereto, no third-party consent or approval is
required for the assignment of any such lease to Buyer, or for the consummation
of the transactions contemplated herein.
2.14 Environmental Matters.
(a) As used herein, (i) the term "Environmental Laws" shall mean any
and all state, federal, and local statutes, regulations and ordinances relating
to the protection of human health and the environment, and (ii) the term
"Hazardous Material" shall mean any hazardous or toxic substance, material, or
waste, including, but not limited to those substances, materials, pollutants,
contaminants and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 C.F.R. ss.172.101) or by the
United States Environmental Protection Agency as hazardous substances (40
C.F.R. Part 302 and amendments thereto), petroleum products (as defined in
Title I to the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6991-6991(i)) and their derivatives, and such other substances, materials,
pollutants, contaminants and wastes as become regulated or subject to cleanup
authority under any Environmental Laws.
(b) Seller represents and warrants that:
(i) all activities of the Stations or of the Selling
Companies and Seller with respect to the Stations and the Real Property have
been and are being conducted in compliance with all federal, state and local
statutes, ordinances, rules, regulations and orders, as well as all
requirements of common law concerning those activities, repairs or construction
of any improvements, manufacturing processing and/or handling of any materials,
and discharges to the air, soil, surface water or groundwater;
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(ii) Seller has no knowledge of the release or presence of any
Hazardous Material on, in, from or onto the Real Property;
(iii) neither Seller nor the Selling Companies has generated,
manufactured, refined, transported, stored, handled, disposed of or released
any Hazardous Material on the Real Property, nor has Seller or the Selling
Companies or the Stations permitted the foregoing;
(iv) the Stations have obtained all approvals and caused all
notifications to be made as required by Environmental Laws;
(v) Seller has delivered to Buyer a true and complete list of
all of the Stations' registrations with, licenses from, or permits issued by
governmental agencies or authorities pursuant to environmental, health and
safety laws, and all such registrations, licenses or permits are in full force
and effect;
(vi) Seller has not received any notice of any violation of
any Environmental Laws;
(vii) no action has been commenced or threatened regarding the
Stations' compliance with any Environmental Laws;
(viii) no tanks used for the storage of any Hazardous Material
above or below ground are present or were at any time present on or about the
Real Property;
(ix) no action has been commenced or threatened regarding the
presence of any Hazardous Material on or about the Real Property;
(x) no Hazardous Materials are present in any medium in the
operations of the Stations (or of Seller with respect to the Stations) and/or
at the Real Property in such a manner as may require investigation or
remediation under any applicable law;
(xi) no polychlorinated biphenyls or substances containing
polychlorinated biphenyls are present on the Real Property; and
(xii) no friable asbestos is present in the operations of the
Stations and/or on the Real Property.
(c) Seller has not and will not release or waive the liability of
any previous owner, lessee, or operator of the Real Property or any party who
may be potentially responsible for the presence or removal of Hazardous
Material on or about the Real Property. Seller has no indemnification
obligation regarding Hazardous Material to any party.
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(d) In addition to the terms of Article 9, Seller further agrees to
defend (with counsel approved by Buyer), fully indemnify, and hold entirely
free and harmless Buyer from and against all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without limitation,
sums paid in settlement of claims, attorneys' fees, consultant fees, and expert
fees) that are imposed on, paid by, or asserted against Buyer, its successors
or assigns, by reason or on account of, or in connection with, or arising out
of (a) the presence or suspected presence of Hazardous Material in the soil,
groundwater, or soil vapor on or about the Real Property, or (b) the migration
of any Hazardous Material from or onto the Real Property, or (c) the violation
of any Environmental Law, and, with respect to (a), (b) and (c), that existed
as of or prior to the date of Closing. This indemnification of Buyer by Seller
includes without limitation, costs incurred in connection with any of the
following:
(i) any investigative or remedial action involving the
presence of Hazardous Material on or about the Real Property or releases of
Hazardous Material from the Real Property;
(ii) any allegations made by any governmental authority or
any private citizen or entity or group of citizens or entities as to the
violation of any Environmental Laws involving the Real Property or the
operations conducted thereon; and/or
(iii) any injury or harm of any type to any person or entity
or damage to any property arising out of, in connection with, or in any way
relating to (A) the generation, manufacture, refinement, transportation,
treatment, storage, recycling, disposal or release, or other handling of
Hazardous Material on or about the Real Property or pursuant to the operations
conducted thereon, and/or (B) the violation of any Environmental Laws, and/or
(C) the contamination of the Real Property.
(e) Buyer shall have the right to conduct a review of the Real
Property and take soil and water samples (including groundwater samples) from
the Real Property, and to test and analyze those samples to determine the
extent of any contamination of the soils and water (including groundwater) on
or about the Real Property. If, based on the results of those inspections
and/or tests, Buyer determines that the condition of the Real Property is
unsatisfactory or if Buyer believes that its ownership of the Real Property
would expose Buyer to undue risks of government intervention or third-party
liability, Buyer may, without any liability owing to Seller, cancel the
purchase of the Real Property and terminate this Agreement.
2.15 Compliance with Law. The Stations, the Station Assets and Seller and
the Selling Companies with respect to the Stations and the Station Assets are,
in all material respects, in compliance with all requirements of law, federal,
state and local, and all requirements of all governmental bodies or agencies
having jurisdiction over any of them, the operation of the Stations, the use of
its properties and assets (including the Station Assets), and the Real
Property. Without limiting the foregoing, Seller and the Selling Companies have
paid all monies and obtained all licenses, permits, certificates and
authorizations needed or required for the operation of the Stations and the use
of the Real Property. Seller and the Selling
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Companies have properly filed all reports and other documents required to be
filed with any federal, state, local or foreign government or subdivision or
agency thereof. Seller has not received any notice, not heretofore complied
with, from any federal, state or municipal authority or any insurance or
inspection body that any of its properties, facilities, equipment or business
procedures or practices fails to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public authority or
body.
2.16 Insurance. The Selling Companies maintain insurance policies
relating to the Stations bearing the policy numbers, for the terms, with the
companies, in the amounts, providing the general coverage set forth on Schedule
2.16 hereto. All of such policies are in full force and effect and the Selling
Companies are not in default of any material provision thereof. The Selling
Companies have not received notice from any issuer of any such policies of its
intention to cancel, terminate or refuse to renew any policy issued by it. With
respect to each Station, upon each Triathlon Closing, Seller will maintain in
full force and effect, and without default, not less than such insurance
coverage with respect to the Stations.
2.17 Employment Matters.
(a) There are no collective bargaining agreements, or written or
oral agreements relating to the terms and conditions of employment or
termination of employment, covering any employees, consultants or agents of the
Stations, except as listed and described in Schedule 2.17 hereto. Except as
listed and described in Schedule 2.17, none of the employees of the Stations
have written employment contracts. The Stations are not engaged in any unfair
labor practice or other unlawful employment practice, and there are no unfair
labor practice charges or other employee related complaints, grievances or
arbitrations, against Seller pending before the National Labor Relations Board,
the Equal Employment Opportunity Commission, the Occupational Safety and Health
Administration, the Department of Labor, any arbitration tribunal or any other
federal, state, local or other governmental authority by or concerning the
Stations' employees. There is no strike, picketing, slowdown or work stoppage
by or concerning such employees pending against or involving the Stations. No
representation question is pending or threatened respecting any of the
Stations' employees. Seller has delivered to Buyer copies of all letters,
memoranda of understanding, past practices, assurances or other agreements
modifying such collective bargaining agreements and other similar employee
agreements.
(b) All handbooks, policies and procedures relating to all aspects
of employment, including but not limited to compensation, benefits, equal
employment opportunity and safety are listed and described in Schedule 2.17
attached hereto.
(c) The Stations, and Seller and the Selling Companies with respect
to the Stations, have complied with in the past and are now in compliance with
all labor and employment laws, including without limitation federal, state,
local and other applicable laws, rules, regulations, ordinances, order and
decrees concerning collective bargaining, unfair labor practices, payments of
employment taxes, occupational safety and health, worker's compensation, the
payment of wages and overtime, and equal employment opportunity. The
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Stations and Seller and the Selling Companies with respect to the Stations, are
not liable for any arrears or wages, benefits, taxes, damages or penalties for
failing to comply with any law, rule, regulation, ordinance, order or decree
relating in any way to labor or employment.
(d) Buyer shall have no obligation or liability due to or because of
any past service liability, vested benefits, retirement plan insolvencies or
other retirement plan or past employment obligation (except as provided herein)
under local, state or federal law (including the Employee Retirement Income
Security Act of 1974, as amended), resulting from the purchase of the Stations
or from former employees of Seller or the Selling Companies becoming employees
of Buyer.
(e) Seller has provided to Buyer the names of all present employees
of the Stations and the positions, total annual compensation and accrued
vacation and sick time of each.
2.18 Litigation. There are no suits, arbitrations, administrative charges
or other legal proceedings, claims or governmental investigations pending
against, or threatened against, the Stations or Seller or the Selling Companies
relating to or affecting the Stations nor, to the best of the knowledge of
Seller, is there any basis for any such suit, arbitration, administrative
charge or other legal proceeding, claim or governmental investigation. Neither
Seller nor the Selling Companies has been operating under or subject to, or in
default with respect to, any judgment, order, writ, injunction or decree of any
court or federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, foreign or domestic.
2.19 Intangible Property. The Selling Companies have, and, with respect
to each Station, upon each Triathlon Closing, Seller will have, all right,
title and interest in and to all Intangible Property necessary to the conduct
of the Stations as presently operated. Schedule 1.1(f) contains a description
of all material Intangible Property. Neither Seller nor any of the Selling
Companies has received notice of any claim that any Intangible Property or the
use thereof conflicts with, or infringes upon, any rights of any third party
(and there is no basis for any such claim of conflict). The Stations have the
sole and exclusive right to use the Intangible Property. No service provided by
the Stations or any programming or other material used, broadcast or
disseminated by the Stations infringes upon any copyright, patent or trademark
of any other party.
2.20 Bulk Sales. Neither the sale and transfer of the Station Assets
pursuant to this Agreement, nor Buyer's possession and use thereof from and
after Closing because of such sale and transfer, will be subject to any law
pertaining to bulk sales or transfers or imposing liability upon Buyer for
appraisal or liability owing to Seller.
2.21 Brokers. There is no broker or finder or other person entitled to a
commission or brokerage fee or payment in connection with this Agreement or the
transactions contemplated hereby as a result of any agreement of, or action
taken by, Seller.
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2.22 Absence of Material Change.
(a) Since the date of the most recent audited Financial Statements
for KMVK and KSSN and since the date of the KOLL LMA for KOLL:
(i) there has not been and there is not threatened any
material adverse change in the financial condition, business, prospects or
affairs of Seller or the Selling Companies relating to the Stations or any
material physical damage or loss to any of the Station Assets (whether or not
such damage or loss is covered by insurance);
(ii) Seller and the Selling Companies have not taken any
action with respect to the Stations outside of the ordinary and usual course of
business, except as related to the transactions contemplated hereby;
(iii) Seller and the Selling Companies have with respect to the
Stations or the Station Assets have not borrowed any money or become
contingently liable for any obligation or liability of others;
(iv) Seller and the Selling Companies have with respect to the
Stations paid all of its liabilities and obligations as they became due;
(v) Seller and the Selling Companies with respect to the
Stations have not incurred any liability or obligation of any nature to any
party, except for obligations arising from the purchase of goods or the
rendition of services in the ordinary course of business;
(vi) neither Seller nor the Selling Companies has waived any
right of substantial value;
(vii) Seller and the Selling Companies have maintained their
books, accounts and records in the usual, customary and ordinary manner; and
(viii) Seller and the Selling Companies with respect to the
Stations has preserved their business organization intact, kept available the
services of their employees, and preserved their relationships with its
customers, suppliers and others with whom they deal.
2.23 FAA Compliance. The Stations and the Station Assets are in material
compliance with all rules and regulations of the Federal Aviation
Administration applicable to the Stations.
2.24 Affiliates. No Affiliate of Seller (or the Selling Companies) has an
interest in any of the Station Assets or any property used in the operation of
the Stations. Neither Seller (or the Selling Companies) nor any Affiliate of
Seller (or the Selling Companies), has any financial interest in any supplier,
advertiser or customer of the Stations or in any other business with which the
Stations do business or compete. For purposes of this Agreement, an "Affiliate"
of an entity means any person (or any relative of any person) or entity that
owns or
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controls, is owned or controlled by, or under common control with, Seller (or
the Selling Companies).
2.25 Selling Company APAs. The Selling Company APAs, as filed with the
FCC (with respect to the amendment to the KMVK/KSSN APA, as provided by Seller
to Buyer), are in full force and effect and have not been amended or modified.
No breach or default has occurred under the Selling Company APAs and no event
has occurred or condition exists that with notice or time or both would result
in a breach or default thereunder.
2.26 Disclosure. No provision of this Agreement relating to Seller, the
Stations or the Station Assets or any other document, Schedule, Exhibit or
other information furnished by Seller to Buyer in connection with the
execution, delivery and performance of this Agreement, or the consummation of
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated in order to make the statement, in light of the
circumstances in which it is made, not misleading. Seller will disclose to
Buyer any fact known to Seller which Seller knows or believes would affect
Buyer's decision to proceed with the execution of this Agreement. Except for
facts affecting the radio industry generally, there is no adverse fact now
known to Seller relating to the Stations or the Station Assets which has not
been disclosed to Buyer.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller:
3.1 Status. Each Buyer is a Nevada corporation which is duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Buyer has the requisite power to enter into and complete the transactions
contemplated by this Agreement.
3.2 No Conflicts. Neither the execution, delivery and performance by
Buyer of this Agreement nor the consummation by Buyer of the transactions
contemplated hereby will: (a) conflict with or violate the certificate of
incorporation or bylaws of Buyer; or (b) violate any judgment, decree, order,
statute, rule or regulation applicable to Buyer.
3.3 Corporate Action. All corporate actions necessary to be taken by or
on the part of Buyer in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement has been duly
and validly authorized, executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with and subject to its terms.
3.4 Brokers. There is no broker or finder or other person entitled to a
commission or brokerage fee or payment in connection with this Agreement or the
transactions contemplated hereby as a result of any agreement of or action
taken by Buyer.
3.5 Qualification. To the best of Buyer's knowledge, upon grant by the
FCC of a waiver of the FCC's One-to-a-Market Rule (47 C.F.R. ss. 73.3555(c))
(the "Market Rule
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Waiver"), Buyer will be qualified under the Communications Act and the existing
rules, regulations and policies of the FCC to hold the FCC Authorizations.
ARTICLE 4: COVENANTS OF SELLER
Seller covenants and agrees (and, with respect to Section 4.4, Buyer
covenants and agrees) that from the date hereof until the completion of the
Closing:
4.1 Operation of the Business.
(a) Seller shall continue to carry on the business of the Stations
and keep its books and accounts, records and files in the usual and ordinary
manner in which the business has been conducted in the past. Seller shall
collect the Stations' accounts receivable only in the ordinary course of
business consistent with past practice. Seller shall operate the Stations in
accordance with the terms of the FCC Authorizations and in compliance in all
material respects with all applicable laws, rules and regulations and all
applicable FCC rules and regulations. Seller shall maintain the FCC
Authorizations in full force and effect and shall timely file and prosecute any
necessary applications for renewal of the FCC Authorizations.
(b) Seller shall provide Buyer with copies of the regular monthly
internal operating statements relating to (i) KOLL for February, 1997 and each
month thereafter before Closing and (ii) the other Stations for each month
after the Triathlon Closings until Closing, in each case by the 20th day of
each calendar month for the preceding calendar month, which shall present
fairly the financial position of the Stations and the results of operations for
the period indicated in accordance with generally accepted accounting
principles. Such monthly statements shall show: (i) the actual results for such
month and the budget for such month by line item, and (ii) account for items of
non-recurring income and expense separately and (iii) account for and
separately state all intercompany allocations of expenses relating to the
Stations, all of which shall be presented fairly and in accordance with
generally accepted accounting principles. Seller shall also provide Buyer with
copies of all operating statements and other financial statements and reports
provided to Seller by any of the Selling Companies during such period.
(c) Seller shall make all reasonable efforts to preserve the business
organization of the Stations intact, retain substantially as at present the
Stations' employees, consultants and agents, and preserve the goodwill of the
Stations' suppliers, advertisers, customers and others having business
relations with it.
(d) Nothing contained in this Agreement shall give Buyer any right to
control the programming, operations or any other matter relating to the
Stations prior to the Closing Date, and Seller shall have complete control of
the programming, operations and all other matters relating to the Stations, up
to the Closing Date.
(e) Seller shall keep all Tangible Personal Property and Real
Property in good operating condition (ordinary wear and tear excepted) and
repair and maintain adequate
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and usual supplies of inventory, office supplies, spare parts and other
materials as have been customarily maintained in the past. Seller shall
preserve intact the Station Assets and maintain in effect its current casualty
and liability insurance on the Station Assets.
(f) Seller shall not, by any act or omission, cause any of the
representations and warranties set forth in Article 2 to become untrue or
incorrect, and shall cause the conditions to Closing set forth in Article 7
below to be satisfied, and ensure that the transactions contemplated hereby
shall be consummated as set forth herein.
(g) Prior to the Closing Date, Seller shall not permit the Selling
Companies to, and Seller shall not, without the prior written consent of Buyer:
(i) sell, lease, transfer, or agree to sell, lease or
transfer, any Station Assets except for non-material sales or leases, in the
ordinary course of business of items which are being replaced by assets of
comparable or superior kind, condition and value and except for the
consummation of the Triathlon Closings;
(ii) except as may be required by applicable law, grant any
raises to employees of the Stations, pay any substantial bonuses or enter into
any contract of employment with any employee or employees of the Stations,
except in the ordinary course of business;
(iii) renew, renegotiate, modify, amend or terminate any
existing time sales contracts with respect to the Stations except in the
ordinary course of business;
(iv) enter into, renew or amend any other Contract with respect
to the Stations except in the ordinary course of business;
(v) apply to the FCC for any construction permit that would
restrict the present operations of the Stations, or make any change in any of
the buildings, leasehold improvements or fixtures of the Stations, except in
the ordinary course of business; or
(vi) enter into any barter or trade contracts that are prepaid,
or any contract with an Affiliate of Seller.
4.2 Access to Facilities, Files and Records. At the request of Buyer,
Seller shall from time to time give or cause to be given to the officers,
employees, accountants, counsel, agents, consultants and representatives of
Buyer: (a) full access during normal business hours to all facilities,
properties, accounts, books, deeds, title papers, insurance policies, licenses,
agreements, contracts, commitments, records and files of every character,
equipment, machinery, fixtures, furniture, vehicles, notes and accounts payable
and receivable of Seller with respect to the Stations; and (b) all such other
information concerning the affairs of the Stations as Buyer may reasonably
request. All such information, when provided by Seller, shall be deemed to have
been represented and warranted by Seller to be correct, complete and fully
responsive to Buyer's request therefor. Any investigation or examination by
Buyer shall
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not in any way diminish or obviate any representations or warranties of Seller
made in this Agreement or in connection herewith. Seller shall cause its
accountants and any agent of Seller in possession of Seller's books and records
to cooperate with Buyer's requests for information pursuant to this Agreement.
4.3 Representations and Warranties. Seller shall give detailed written
notice to Buyer promptly upon learning of the occurrence of any event that
would cause or constitute a breach, or that would have caused a breach had such
event occurred or been known to Seller prior to the date hereof, of any of
Seller's representations or warranties contained in this Agreement.
4.4 Application for FCC Consent. Seller and CCRL shall file an
application with the FCC ("Application") requesting the FCC's written consent
to the assignment of the FCC Authorizations to CCRL and for the consummation of
the transactions contemplated by this Agreement. The Application shall be filed
with the FCC the first business day after consummation of the Triathlon
Closings. The Application shall include a request for the Market Rule Waiver
prepared by CCRL. Seller and Buyer shall use commercially reasonable efforts to
prosecute the Application to a favorable conclusion. Each party shall promptly
provide the other with a copy of any pleading, order or other document served
on it relating to the Application. Seller and CCRL shall furnish all
information required by the FCC and shall be represented at all meetings or
hearings scheduled to consider such Application. The FCC's written consent to
the Application, including a grant of the Market Rule Waiver, is referred to
herein as the "FCC Consent." In the event that Closing occurs hereunder prior
to a Final FCC Consent, then the parties' obligations under this Section 4.4
shall survive the Closing. For purposes of this Agreement, the term "Final"
shall mean that action shall have been taken by the FCC (including action duly
taken by the FCC's staff, pursuant to delegated authority) which shall not have
been reversed, stayed, enjoined, set aside, annulled or suspended; with respect
to which no timely request for stay, petition for rehearing, appeal or
certiorari or sua sponte action of the FCC with comparable effect shall be
pending; and as to which the time for filing any such request, petition,
appeal, certiorari or for the taking of any such sua sponte action by the FCC
shall have expired or otherwise terminated. If the Closing occurs prior to a
Final FCC Consent, and prior to becoming Final the FCC Consent is reversed or
otherwise set aside, and there is a Final order of the FCC (or court of
competent jurisdiction) requiring the re-assignment of the FCC Authorizations
to Seller, then the purchase and sale of the Station Assets shall be rescinded.
In such event, Buyer shall reconvey to Seller the Station Assets, and Seller
shall repay to Buyer the Purchase Price and reassume the contracts and leases
assigned and assumed at Closing. Any such rescission shall be consummated on a
mutually agreeable date within thirty days of such Final order (or, if earlier,
within the time required by such order). In connection therewith, Buyer and
Seller shall each execute such documents (including execution by Buyer of
instruments of conveyance of the Station Assets to Seller and execution by
Seller of instruments of assumption of the contracts and leases assigned and
assumed at Closing) and make such payments (including repayment by Seller to
Buyer of the Purchase Price) as are necessary to give effect to such
rescission.
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4.5 Consents. Seller shall use its reasonable best efforts (which shall
not require the payment of money) to obtain all of the consents noted on
Schedule 2.11 hereto. If Seller does not obtain a consent required to assign a
contract or lease hereunder, Buyer shall not be required to assume such
contract or lease. Marked with an asterisk on Schedule 2.11 are those consents
the receipt of which is a condition precedent to Buyer's obligation to close
under this Agreement (the "Required Consents"). Seller shall obtain the
Required Consents prior to Closing.
4.6 Notice of Proceedings. Seller will promptly notify Buyer in writing
upon: (a) becoming aware of any order or decree or any complaint praying for an
order or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder; or (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of this Agreement or such transactions, or (ii) to
nullify or render ineffective this Agreement or such transactions if
consummated.
4.7 Consummation of Agreement. Subject to the provisions of Section 10.1
of this Agreement: (a) Seller shall fulfill and perform all conditions and
obligations on its part to be fulfilled and performed under this Agreement, and
cause the transactions contemplated by this Agreement to be fully carried out;
and (b) Seller shall not take any action that would make the consummation of
this Agreement contrary to the Communications Act or the rules, regulations or
policies of the FCC. Seller shall comply with the terms of the Selling Company
APAs, shall maintain the Selling Company APAs in full force and effect, and
shall not terminate, amend, modify, or waive any of Seller's rights or the
Selling Companies' obligations under, the Selling Company APAs, without the
prior written consent of Buyer. Seller shall consummate the Triathlon Closings
no later than May 9, 1997.
4.8 Hart-Scott-Rodino. As soon as possible (but in no event later than
ten calendar days after the date of this Agreement), if necessary, Seller shall
prepare and file all documents with the Federal Trade Commission and the United
States Department of Justice as are required to comply with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino
Act"), request early termination of the waiting period, and shall thereafter
furnish promptly all materials thereafter requested by any of the regulatory
agencies having jurisdiction over such filings.
4.9 Confidentiality. Any and all information, disclosures, knowledge or
facts regarding Buyer or its business or properties to which Seller is exposed
as a result of the negotiation, preparation or performance of this Agreement
shall be confidential and shall not be divulged, disclosed or communicated to
any other person, firm, corporation or entity, except for Seller's employees,
attorneys, accountants, investment bankers, investors and lenders, and their
respective attorneys, on a need-to-know basis for the purpose of consummating
the transactions contemplated by this Agreement.
4.10 Estoppel Certificates; Title Insurance; Liens. Seller, at Seller's
expense, will obtain and deliver to Buyer (i) written estoppel certificates
(the "Estoppel Certificates") duly
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executed by the lessors under the leases of Real Property described on Schedule
1.1(c), in form and substance satisfactory to Buyer, (ii) any affidavits,
certificates and other documents required by Buyer's title company to issue the
Title Commitments (defined below) and (iii) all UCC, judgment and state and
federal tax lien search reports (showing searches in the name of Seller and the
call letters of each Station) necessary to assure that no Liens are filed or
recorded against the Station Assets in the public records of Arkansas or any
other jurisdiction where the Station Assets are located (the "Lien Search
Reports"). The Estoppel Certificate shall be dated the Closing Date. The Lien
Search Reports shall be delivered within thirty days of the date of this
Agreement and shall be updated as of the Closing.
ARTICLE 5: COVENANTS OF BUYER
Buyer covenants and agrees that from the date hereof until the completion
of the Closing:
5.1 Representations and Warranties. Buyer shall give detailed written
notice to Seller promptly upon learning of the occurrence of any event that
would cause or constitute a breach or would have caused a breach had such event
occurred or been known to Buyer prior to the date hereof, of any of the
representations and warranties of Buyer contained in this Agreement.
5.2 Intentionally Omitted.
5.3 Consummation of Agreement. Subject to the provisions of Section 10.1
of this Agreement, Buyer shall use all reasonable efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and
performed under this Agreement, and to cause the transactions contemplated by
this Agreement to be fully carried out.
5.4 Notice of Proceedings. Buyer will promptly notify Seller in writing
upon: (a) becoming aware of any order or decree or any complaint praying for an
order or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder; (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of this Agreement or such transactions, or (ii) to
nullify or render ineffective this Agreement or such transactions if
consummated; or (c) becoming aware of any default under any loan agreement or
of any event that is likely to cause Buyer to enter into any bankruptcy
proceeding.
5.5 Hart-Scott-Rodino. As soon as possible (but in no event later than
seven calendar days after the date of this Agreement), if necessary, Buyer
shall prepare and file all documents with the Federal Trade Commission and the
United States Department of Justice as are required to comply with the
Hart-Scott-Rodino Act, request early termination of the waiting period thereof,
and shall thereafter furnish promptly all materials thereafter requested by any
of the regulatory agencies having jurisdiction over such filings.
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5.6 Confidentiality. Any and all information, disclosures, knowledge or
facts regarding Seller, the Stations and their operation and properties derived
from or resulting from Buyer's acts or conduct (including without limitation
acts or conduct of Buyer's officers, employees, accountants, counsel, agents,
consultants or representatives, or any of them) under the provisions of Section
4.2 hereof shall be confidential and shall not be divulged, disclosed or
communicated to any other person, firm, corporation or entity, except for
Buyer's attorneys, accountants, investment bankers, investors and lenders, and
their respective attorneys for the purpose of consummating the transactions
contemplated by this Agreement.
ARTICLE 6: CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or on the
Closing Date:
6.1 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of Buyer contained in
this Agreement shall have been true and correct as of the date when made and
shall be deemed to be made again on and as of the Closing Date and shall then
be true and correct, except to the extent changes are permitted or contemplated
pursuant to this Agreement.
(b) Buyer shall have performed and complied with each and every
covenant and agreement required by this Agreement to be performed or complied
with by it prior to or on the Closing Date.
(c) Buyer shall have furnished Seller with a certificate, dated the
Closing Date and duly executed by a Vice President of Buyer authorized on
behalf of Buyer to give such a certificate, to the effect that the conditions
set forth in Sections 6.1(a) and (b) have been satisfied.
6.2 Proceedings.
(a) Neither Seller nor Buyer shall be subject to any restraining
order or injunction restraining or prohibiting the consummation of the
transactions contemplated hereby.
(b) In the event such a restraining order or injunction is in effect,
this Agreement may not be abandoned by Seller pursuant to this Section 6.2
prior to the Final Closing Date, but the Closing shall be delayed during such
period. This Agreement may be abandoned after the Final Closing Date if such
restraining order or injunction remains in effect.
6.3 FCC Authorization. The assignment of the FCC Authorizations to Buyer
shall have been initially approved.
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6.4 Hart-Scott-Rodino. If applicable, the waiting period under the
Hart-Scott-Rodino Act shall have expired or been terminated.
6.5 Deliveries. Buyer shall have complied with each and every one of its
obligations set forth in Section 8.2.
ARTICLE 7: CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at its option, subject
to the fulfillment of the following conditions prior to or on the Closing Date:
7.1 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of Seller contained in
this Agreement shall have been true and correct as of the date when made and
shall be deemed to be made again on and as of the Closing Date and shall then
be true and correct except to the extent changes are permitted or contemplated
pursuant to this Agreement.
(b) Seller shall have performed and complied with each and every
covenant and agreement required by this Agreement to be performed or complied
with by it prior to or on the Closing Date.
(c) Seller shall have furnished Buyer with a certificate, dated the
Closing Date and duly executed by the President or Vice President of Seller
authorized on behalf of Seller to give such a certificate, to the effect that
the conditions set forth in Sections 7.1(a) and (b) have been satisfied.
7.2 Proceedings.
(a) Neither Seller nor Buyer shall be subject to any restraining
order or injunction restraining or prohibiting the consummation of the
transactions contemplated hereby.
(b) In the event such a restraining order or injunction is in effect,
this Agreement may not be abandoned by Buyer pursuant to this Section 7.2 prior
to the Final Closing Date, but the Closing shall be delayed during such period.
This Agreement may be abandoned after such date if such restraining order or
injunction remains in effect.
7.3 FCC Authorization. The assignment of the FCC Authorizations to Buyer
shall have been initially approved by the FCC and the Market Rule Waiver shall
have been granted (and if a petition to deny or other objection is filed
against the Application or before Closing a petition for reconsideration or
application for review is filed with respect to the FCC Consent, at Buyer's
option, such FCC Consent shall have become Final), without any conditions
materially adverse to Buyer.
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7.4 Hart-Scott-Rodino. If applicable, the waiting period under the
Hart-Scott-Rodino Act shall have expired or been terminated.
7.5 Deliveries. Seller shall have complied with each and every one of its
obligations set forth in Section 8.1.
7.6 Required Consents. Seller shall have obtained all of the Required
Consents.
7.7 No Material Change. Seller's business shall not have been materially
and adversely affected as of the Closing Date. No change shall be considered
"materially adverse" if it arises out of or is related to the terms hereof or
the transactions contemplated hereby.
7.8 Title Commitments. Buyer shall have received, at Buyer's expense
(except as provided by section 4.10), commitments from Buyer's title company to
issue to Buyer at standard rates ALTA extended coverage owner's and leasehold
title insurance policies with respect to the owned and leased Real Property
with no exceptions other than Permitted Encumbrances (the "Title Commitments").
ARTICLE 8: ITEMS TO BE DELIVERED AT THE CLOSING
8.1 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
duly executed by Seller or such other signatory as may be required by the
nature of the document:
(a) bills of sale, certificates of title, endorsements, assignments,
general warranty deeds and other good and sufficient instruments of sale,
conveyance, transfer and assignment, in form and substance satisfactory to
Buyer, sufficient to sell, convey, transfer and assign the FCC Authorizations
to CCRL and the other Station Assets to CCR free and clear of any Liens (other
than Permitted Encumbrances) and to quiet Buyer's title thereto;
(b) the consent of the FCC referred to in Sections 4.4 and 5.2 and
evidence of compliance by Seller with its obligations, and the Required
Consents under Section 4.5 and any other Consents obtained by Seller;
(c) certified copies of resolutions, duly adopted by the board of
directors or shareholders of Seller, which shall be in full force and effect at
the time of the Closing, authorizing the execution, delivery and performance by
Seller of this Agreement, and the consummation of the transactions contemplated
hereby;
(d) the certificate referred to in Section 7.1(c);
(e) an opinion of Seller's counsel in the form and substance
satisfactory to Buyer;
(f) the Estoppel Certificates and the Lien Search Reports; and
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(g) the Noncompetition Agreement duly executed by the Covenantors.
8.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller:
(a) the Purchase Price, which shall be paid in the manner specified
in Section 1.4;
(b) an instrument or instruments of assumption of the Contracts and
Real Property leases to be assumed by CCR pursuant to this Agreement;
(c) certified copies of resolutions, duly adopted by the Boards of
Directors of each Buyer, which shall be in full force and effect at the time of
the Closing, authorizing the execution, delivery and performance by each Buyer
of this Agreement and the consummation of the transactions contemplated hereby;
and
(d) the certificate referred to in Section 6.1(c).
ARTICLE 9: SURVIVAL; INDEMNIFICATION
9.1 Survival. All representations, warranties, covenants and agreements
contained in this Agreement, or in any certificate, agreement, or other
document or instrument, delivered pursuant hereto, shall survive (and not be
affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive.
9.2 Basic Provision.
(a) From and after Closing, subject to Section 9.7, Seller (an
"Indemnifying Party") hereby agrees to indemnify and hold harmless Buyer, the
directors, officers and employees of Buyer and all persons which directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with Buyer, and their respective successors and
assigns (collectively, the "Buyer Indemnitees") from, against and in respect
of, and to reimburse the Buyer Indemnitees for, the amount of any and all
Deficiencies (as defined in Section 9.3(a)).
(b) From and after Closing, subject to Section 9.7, Buyer (an
"Indemnifying Party") hereby agrees to indemnify and hold harmless Seller, the
directors, officers and employees of Seller and all persons which directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with Seller, and their respective successors and
assigns (collectively, the "Seller Indemnitees") from, against and in respect
of, and to reimburse the Seller Indemnitees for, the amount of any and all
Deficiencies (as defined in Section 9.3(b)).
9.3 Definition of "Deficiencies".
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(a) As used in this Article 9, the term "Deficiencies" when asserted
by Buyer Indemnitees or arising out of a third party claim against Buyer
Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Buyer Indemnitees and arising out of, based upon or resulting
from:
(i) any misrepresentation, breach of warranty, or any
non-fulfillment of any representation, warranty, covenant, obligation or
agreement on the part of Seller contained in or made pursuant to this
Agreement;
(ii) any error contained in any statement, report, certificate
or other document or instrument delivered by Seller pursuant to this Agreement;
(iii) any failure by Seller to pay or perform any obligation or
liability relating to the Stations that is not expressly assumed by Buyer
pursuant to the provisions of this Agreement;
(iv) any litigation, proceeding or claim by any third party
relating to the business or operations of the Stations prior to the Closing
Date no matter when brought or made;
(v) any severance pay or other payment required to be paid with
respect to any employee of the Stations; and
(vi) any and all acts, suits, proceedings, demands, assessments
and judgments, and all fees, costs and expenses of any kind, related or
incident to any of the foregoing (including, without limitation, any and all
Legal Expenses (as defined in Section 9.6 below)).
(b) As used in this Article 9, the term "Deficiencies" when asserted
by Seller Indemnitees or arising out of a third party claim against Seller
Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Seller Indemnitees and arising out of, based upon or resulting
from:
(i) any misrepresentation, breach of warranty, or any
non-fulfillment of any representation, warranty, covenant, obligation or
agreement on the part of Buyer contained in or made pursuant to this Agreement;
(ii) any error contained in any statement, report, certificate
or other document or instrument delivered by Buyer pursuant to this Agreement;
(iii) any failure by Buyer to pay or perform any obligation or
liability relating to the Stations that is expressly assumed by Buyer pursuant
to the provisions of this Agreement;
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(iv) any litigation, proceeding or claim by any third party to
the extent relating to the business or operations of the Stations after the
Closing Date; and
(v) any and all acts, suits, proceedings, demands, assessments
and judgments, and all fees, costs and expenses of any kind, related or
incident to any of the foregoing (including, without limitation, any and all
Legal Expenses (as defined in Section 9.6 below)).
9.4 Procedures.
(a) In the event that any claim shall be asserted by any third party
against the Buyer Indemnitees or Seller Indemnitees (Buyer Indemnitees or
Seller Indemnitees, as the case may be, hereinafter, the "Indemnitees"), which,
if sustained, would result in a Deficiency, then the Indemnitees, as promptly
as practicable after learning of such claim, shall notify the Indemnifying
Party of such claim, and shall extend to the Indemnifying Party a reasonable
opportunity to defend against such claim, at the Indemnifying Party's sole
expense and through legal counsel acceptable to the Indemnitees, provided that
the Indemnifying Party proceeds in good faith, expeditiously and diligently.
The Indemnitees shall, at their option and expense, have the right to
participate in any defense undertaken by the Indemnifying Party with legal
counsel of their own selection. No settlement or compromise of any claim which
may result in a Deficiency may be made by the Indemnifying Party without the
prior written consent of the Indemnitees unless: (A) prior to such settlement
or compromise the Indemnifying Party acknowledges in writing its obligation to
pay in full the amount of the settlement or compromise and all associated
expenses; and (B) the Indemnitees are furnished with a full release.
(b) In the event that the Indemnitees assert the existence of any
Deficiency against the Indemnifying Party, they shall give written notice to
the Indemnifying Party of the nature and amount of the Deficiency asserted. If
the Indemnifying Party within a period of thirty (30) days after the giving of
the Indemnitees' notice, shall not give written notice to the Indemnitees
announcing its intent to contest such assertion of the Indemnitees (such notice
by the Indemnifying Party being hereinafter referred to as the "Contest
Notice"), such assertion of the Indemnitees shall be deemed accepted and the
amount of the Deficiency shall be deemed established. In the event, however,
that a Contest Notice is given to the Indemnitees within said 30-day period,
then the contested assertion of a Deficiency shall be settled by arbitration to
be held in San Antonio, Texas in accordance with the Commercial Rules of the
American Arbitration Association then existing. The determination of the
arbitrator shall be delivered in writing to the Indemnifying Party and the
Indemnitees and shall be final, binding and conclusive upon all of the parties
hereto, and the amount of the Deficiency, if any, determined to exist, shall be
deemed established.
(c) The Indemnitees and the Indemnifying Party may agree in writing,
at any time, as to the existence and amount of a Deficiency, and, upon the
execution of such agreement such Deficiency shall be deemed established.
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9.5 Payment of Deficiencies. The Indemnifying Party hereby agrees to pay
the amount of established Deficiencies within 15 days after the establishment
thereof. The amount of established Deficiencies shall be paid in cash. At the
option of the Indemnitees, the Indemnitees may offset any Deficiency or any
portion thereof that has not been paid by the Indemnifying Party to the
Indemnitees against any obligation the Indemnitees, or any of them, may have to
the Indemnifying Party.
9.6 Legal Expenses. As used in this Article 9, the term "Legal Expenses"
shall mean any and all fees (whether of attorneys, accountants or other
professionals), costs and expenses of any kind reasonably incurred by any
person identified herein and its counsel in investigating, preparing for,
defending against, or providing evidence, producing documents or taking other
action with respect to any threatened or asserted claim.
9.7 Limitations.
(a) The indemnification obligations of Seller under Section 9.2(a)
shall not be effective until the aggregate amount of all Deficiencies (as
defined in Section 9.3(a)) exceeds $30,000, upon which all Deficiencies (as
defined in Section 9.3(a)) shall be subject to indemnification thereunder.
(b) The indemnification obligations of Buyer under Section 9.2(b)
shall not be effective until the aggregate amount of all Deficiencies (as
defined in Section 9.3(b)) exceeds $30,000, upon which all Deficiencies (as
defined in Section 9.3(a)) shall be subject to indemnification thereunder.
ARTICLE 10: MISCELLANEOUS
10.1 Termination. This Agreement may be terminated at any time prior to
Closing: (a) by the mutual consent of Seller and Buyer; (b) by any party hereto
if the FCC has denied the approvals contemplated by this Agreement in an order
which has become Final; (c) by Buyer under the provisions of Section 2.14
(regarding Environmental Matters); (d) by Buyer as provided in Section 10.8
(Broadcast Transmission Interruption); (e) by Buyer as provided in Section 10.9
(Risk of Loss); (f) by Buyer or Seller if the Closing has not taken place by
the Final Closing Date; (g) by Buyer, if on the Closing Date Seller has failed
to satisfy the conditions set forth in Section 7.1, 7.5, 7.6, 7.7 or 7.8; (h)
by Buyer if Seller has failed to cure a material breach of any of its
representations, warranties or covenants under this Agreement within fifteen
(15) calendar days after it receives notice from Buyer of such breach; (i) by
Seller, if on the Closing Date Buyer has failed to satisfy the conditions set
forth in Section 6.1 or 6.5; or (j) by Seller if Buyer has failed to cure a
material breach of any of its representations, warranties or covenants under
this Agreement within fifteen (15) calendar days after it receives notice from
Seller of such breach. A termination pursuant to this Section 10.1 shall not
relieve any party of any liability it would otherwise have for a breach of this
Agreement.
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10.2 Specific Performance. In the event of a breach or threatened breach
by Seller of any representation, warranty, covenant or agreement under this
Agreement, at Buyer's election, in addition to any other remedy available to
it, Buyer shall be entitled to an injunction restraining any such breach or
threatened breach and, subject to obtaining any requisite approval of the FCC,
to enforcement of this Agreement by a decree of specific performance requiring
Seller to fulfill its obligations under this Agreement, in each case without
the necessity of showing economic loss or other actual damage and without any
bond or other security being required.
10.3 Expenses. Each party hereto shall bear all of its expenses incurred
in connection with the transactions contemplated by this Agreement, including
without limitation, accounting and legal fees incurred in connection herewith;
provided, however, that: (i) Seller and Buyer shall each pay one-half of the
FCC filing fees required to be paid in connection with the Application referred
to in Sections 4.4 and 5.2 hereof; (ii) Seller shall be exclusively responsible
for, and Buyer shall not have any liability or responsibility for any sales or
transfer taxes (including without limitation any real estate transfer taxes),
arising from the transfer of the Station Assets to Buyer; and (iii) Seller and
Buyer shall each pay one-half of any Hart-Scott-Rodino filing fees, if
applicable.
10.4 Bulk Sales Laws. Seller agrees to indemnify and hold Buyer harmless,
in the manner and to the extent provided in Article 9 above, from all claims
made by creditors with respect to non-compliance with any bulk sales law.
10.5 Remedies Cumulative. The remedies provided in this Agreement shall
be cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against the other party
hereto.
10.6 Further Assurances. From time to time prior to, on and after the
Closing Date, each party hereto will execute all such instruments and take all
such actions as any other party shall reasonably request, without payment of
further consideration, in connection with carrying out and effectuating the
intent and purpose hereof and all transactions contemplated by this Agreement,
including without limitation the execution and delivery of any and all
confirmatory and other instruments in addition to those to be delivered on the
Closing Date, and any and all actions which may reasonably be necessary to
complete the transactions contemplated hereby. The parties shall cooperate
fully with each other and with their respective counsel and accountants in
connection with any steps required to be taken as part of their respective
obligations under this Agreement.
10.7 Public Announcements.
(a) Prior to the Closing Date, no party shall, without the approval
of the other party hereto, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except (i) to
announce it has been entered into, and (ii) as and to the extent that such
party shall be so obligated by law, in which case such
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party shall give advance notice to the other party and the parties shall use
their best efforts to cause a mutually agreeable release or announcement to be
issued.
(b) Notwithstanding the foregoing, the parties acknowledge that the
rules and regulations of the FCC require that public notice of the transactions
contemplated by this Agreement be made after the Application (referred to in
Sections 4.4 and 5.2) has been filed with the FCC. The form and substance of
such public notice, to the extent not dictated by the Communications Act or the
rules and regulations of the FCC, shall be mutually agreed upon by Seller and
Buyer.
10.8 Broadcast Transmission Interruption. If before the Closing the
regular broadcast transmission of any Station in the normal and usual manner is
interrupted for a period of two consecutive hours or more, Seller shall give
the prompt written notice thereof to Buyer. Buyer shall then have the right, by
giving written notice to Seller, to postpone (and if necessary re-postpone) the
Closing to a date that is fifteen (15) days after the end of any such
interruption. If regular broadcast transmission in the normal and usual manner
is interrupted for a continuous period of eighteen (18) hours or more at any
time prior to Closing Date, then (a) Seller immediately shall give written
notice thereof to Buyer and (b) Buyer shall have the right, by giving written
notice to Seller, to (i) terminate this Agreement, or (ii) postpone the Closing
as provided above.
10.9 Risk of Loss. The risk of loss, damage or destruction to any of the
Station Assets shall be borne by Seller at all times up to 12:01 a.m. local
time on the Closing Date, and it shall be the responsibility of Seller to
repair or cause to be repaired and to restore the property to its condition
prior to any such loss, damage, or destruction. In the event of any such loss,
damage, or destruction, the proceeds of any claim for any loss, payable under
any insurance policy with respect thereto, shall be used to repair, replace, or
restore any such property to its former condition, subject to the conditions
stated below. In the event of any loss or damage to any of the Station Assets,
Seller shall notify Buyer thereof in writing immediately. Such notice shall
specify with particularity the loss or damage incurred, the cause thereof (if
known or reasonably ascertainable), and the insurance coverage. In the event
that the property is not completely repaired, replaced or restored on or before
the scheduled Closing Date, Buyer at its option: (a) may elect to postpone
Closing until such time as the property has been completely repaired, replaced
or restored (and, if necessary, Seller shall join Buyer in requesting from the
FCC any extensions of time in which to consummate the Closing that may be
required in order to complete such repairs); or (b) may elect to consummate the
Closing and accept the property in its then condition, in which event Seller
shall pay to Buyer all proceeds of insurance and assign to Buyer the right to
any unpaid proceeds; or (c) terminate this Agreement.
10.10 Arbitration. In case any disagreement shall arise on or before the
Closing Date between the parties hereto in relation to this Agreement, whether
as to the construction or operation hereof or the respective rights and
liabilities hereunder, such disagreement shall be decided by arbitration.
Arbitration shall be initiated by either party giving written notice to
arbitrate to the other party, stating the question to be arbitrated and the
name of the arbitrator
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selected by that party. Within five (5) days of the date of said notice to
arbitrate certificate, the other party shall select and give written notice of
its arbitrator to the initiating party. The two arbitrators so selected shall
select a third arbitrator and give written notice within five (5) days after
the third arbitrator is chosen. The arbitration shall be conducted solely by
the third arbitrator, who shall hear evidence and make an award within twenty
(20) days after the notice of selection of the third arbitrator is given to the
parties, which award, when signed by the third arbitrator, shall be final. If
either party shall refuse or neglect to appoint an arbitrator within five (5)
days after the other shall have appointed an arbitrator and given written
notice to arbitrate to the other, requiring such party to appoint an
arbitrator, then the arbitrator so appointed by the first party shall have
power to proceed to arbitrate and determine the matters of disagreement as if
he were an arbitrator appointed by both the parties hereto for that purpose,
and his award in writing signed by him shall be final; provided that such award
shall be made within fifteen (15) days after such refusal or neglect of the
other party to appoint an arbitrator. The party against which such award is
made shall pay all costs and expenses of the arbitration. The Closing Date
shall be automatically postponed during any such arbitration, but not beyond
the Final Closing Date. Nothing herein shall prevent Buyer from obtaining an
injunction, decree of specific performance or other equitable relief from any
court.
ARTICLE 11: GENERAL PROVISIONS
11.1 Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective representatives, successors and assigns.
Seller may not assign any of its rights or delegate any of its duties hereunder
without the prior written consent of Buyer, and any such attempted assignment
or delegation without such consent shall be void. Buyer may assign its rights
and obligations hereunder, in whole or in part, without Seller's consent.
11.2 Amendments; Waivers. The terms, covenants, representations,
warranties and conditions of this Agreement may be changed, amended, modified,
waived, or terminated only by a written instrument executed by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right of such party at a later date to enforce the same. No waiver by any party
of any condition or the breach of any provision, term, covenant, representation
or warranty contained in this Agreement, whether by conduct or otherwise, in
any one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other
provision, term, covenant, representation or warranty of this Agreement.
11.3 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing (which shall
include notice by telex or facsimile transmission) and shall be deemed to have
been duly made and received when personally served, or when delivered by
Federal Express or a similar overnight courier service, expenses prepaid, or,
if sent by telex, graphic scanning or other facsimile communications equipment,
delivered by such equipment, addressed as set forth below:
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(a) if to Seller, then to: Triathlon Broadcasting of Little Rock, Inc.
750 B Street, Suite 1920
San Diego, California 92101
Attention: Norman Feuer
Telecopier No.: (619) 239-4270
(b) if to Buyer, then to: Clear Channel Radio, Inc.
200 Concord Plaza
San Antonio, Texas 78216
Attention: Mark P. Mays
Telecopier No.: (210) 822-2299
with a copy (which shall not
constitute notice) to: Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
Attention: Richard J. Bodorff, Esq.
Telecopier No.: (202) 429-7209
Any party may alter the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section providing for the giving of notice.
11.4 Captions. The captions of Articles and Sections of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
11.5 Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to principles of conflicts of laws.
11.6 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof, and supersedes all prior agreements, understandings, inducements
or conditions, express or implied, oral or written, relating to the subject
matter hereof; including without limitation the letter of intent dated February
7, 1997 between CCR and Triathlon Broadcasting. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof. This Agreement has been prepared by
all of the parties hereto, and no inference of ambiguity against the drafter of
a document therefore applies against any party hereto.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This
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Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE PAGE TO KSSN/KMVK/KOLL ASSET PURCHASE AGREEMENT
---------------------------------------------------------
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BUYER: CLEAR CHANNEL RADIO, INC.
CLEAR CHANNEL RADIO LICENSES, INC.
By:
---------------------------
Name:
Title:
SELLER: TRIATHLON BROADCASTING OF
LITTLE ROCK, INC.
By:
---------------------------
Name:
Title:
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EXHIBITS & SCHEDULES
Licenses and Authorizations.....................................SCHEDULE 1.1(a)
Tangible Personal Property......................................SCHEDULE 1.1(b)
Real Property...................................................SCHEDULE 1.1(c)
Contracts.......................................................SCHEDULE 1.1(e)
Intangible Property.............................................SCHEDULE 1.1(f)
Financial Statements...............................................SCHEDULE 2.6
Consents..........................................................SCHEDULE 2.11
Insurance Policies................................................SCHEDULE 2.16
Employment Matters................................................SCHEDULE 2.17
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PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered
into as of the 23rd day of April, 1997 by and between PAUL R. AARON, an
individual residing at 1425 Skyline Road, Elkhorn, Nebraska 68022 (the
"Seller"), TRIATHLON SPORTS PROGRAMMING, INC., a Delaware corporation having
its principal place of business at 750 B Street, Suite 1920, San Diego,
California 92101 ("Triathlon Sports"), and TSPN, INC., a Delaware corporation
having its principal place of business at 750 B Street, Suite 1920, San Diego,
California ("TSPN"; and together with Triathlon Sports, the "Buyers").
WHEREAS, the Seller and Dale M. Jensen are the sole members (together,
the "Members", and individually, a "Member") of Pinnacle Sports Productions,
L.L.C. ("Pinnacle"), a Nebraska limited liability company organized under
Sections 21-2601 to 21-2645 of the Nebraska statutes (the "Limited Liability
Company Act"); and
WHEREAS, the Seller desires to sell and the Buyers desire to purchase
all of the Seller's membership interest in Pinnacle (the "Membership
Interest");
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and upon the terms and
subject to the conditions hereinafter set forth, the parties hereby agree as
follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE
-----------------
1.1 Purchase and Sale of Membership Interest. On the Closing Date (as
defined in Section 3.1), the Seller shall sell to the Buyers, and the Buyers
shall purchase from the Seller, the Seller's Membership Interest in Pinnacle in
accordance with the terms of this Agreement and in the respective percentages
set forth on Schedule I hereto. At the Closing (as defined in Section 3.1), the
Seller shall deliver to the Buyers such certificates or other documents
evidencing his Membership Interest in Pinnacle duly endorsed for transfer.
ARTICLE 2
CONSIDERATION
-------------
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
acquisition of the Seller's Membership Interest shall be Three Hundred Thirteen
Thousand Three Hundred Thirty-Nine and 26/100ths Dollars ($313,339.26), plus
ten percent (10%) of Pinnacle's cash, pre-paid expenses and accounts receivable
as of the Closing Date, less ten percent (10%) of Pinnacle's trade payables
(including all amounts due to Havelock Bank under Pinnacle's $2,000,000.00 Note
dated April 29, 1996, but excluding the $1,675,000.00 Letter of Credit Note to
Havelock Bank, both of which are described in the Disclosure Schedule) as of
the Closing Date (the "Fixed Purchase Price"), plus the Contingent Payment, if
the Buyers are required to pay the same pursuant to the provisions of Section
2.2 below (the Fixed Purchase Price and the Contingent Payment being
hereinafter collectively
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<PAGE>
referred to as the "Total Purchase Price"). The Fixed Purchase Price shall be
paid as follows:
(a) The sum of One Hundred Thirty Thousand Dollars ($130,000.00), plus
ten percent (10%) of Pinnacle's cash, pre-paid expenses and accounts receivable
as of the Closing Date, less ten percent (10%) of Pinnacle's trade payables
(including all amounts due to Havelock Bank under Pinnacle's $2,000,000.00 Note
dated April 29, 1996, but excluding the $1,675,000.00 Letter of Credit Note to
Havelock Bank, both of which are described in the Disclosure Schedule) as of
the Closing Date, all of which shall be paid at Closing;
(b) The principal sum of Eighty-Eight Thousand Nine Hundred
Ninety-Nine and 64/100ths Dollars ($88,999.64), together with interest on the
unpaid balance of the Fixed Purchase Price at the rate of six percent (6%) per
annum from the Closing Date to the first anniversary of the Closing Date shall
be paid on the first anniversary of the Closing Date; and
(c) The sum of Ninety Four Thousand Three Hundred Thirty-Nine and
62/100ths Dollars ($94,339.62), together with interest on the unpaid principal
balance of the Fixed Purchase Price at the rate of six percent (6%) per annum
from the first anniversary of the Closing Date to the second anniversary of the
Closing Date shall be paid on the second anniversary of the Closing Date. The
obligation of the Buyers to make the installments to the Seller under
subsections (b) and (c) shall be evidenced by the Promissory Note and Guaranty
(the "Promissory Note and Guaranty") of the Buyers and Triathlon Broadcasting
Company ("Triathlon"), the Buyers' parent corporation, in the form of Exhibit A
hereto and shall be secured by the Membership Interest which is being acquired
by the Buyers pursuant to a pledge agreement (the "Pledge Agreement") in the
form of Exhibit B hereto.
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<PAGE>
2.2 Contingent Payment. In addition to the three (3) installment
payments of the Fixed Purchase Price set forth in Section 2.1, in the event
Pinnacle executes an extension of the current radio broadcast rights agreement
dated May 23, 1996 (the "Rights Agreement") between Pinnacle and the University
of Nebraska (the "University") which grants to Pinnacle the radio broadcast
rights to the University's men's varsity football and basketball games, or a
new rights agreement similar to the existing Rights Agreement, prior to or
following the expiration of Pinnacle's current Rights Agreement with the
University, the Seller shall receive as part of the Total Purchase Price the
sum of Twenty Seven Thousand Seven Hundred Seventy-Seven and 78/100ths Dollars
($27,777.78) for each year that the rights granted to Pinnacle under the Rights
Agreement is renewed, up to a maximum of Eighty Seven Thousand Three Hundred
Thirty-Three and 33/100ths Dollars ($87,333.33) (the "Contingent Payment"). The
Contingent Payment shall be paid to the Seller upon the signing of an extension
to the existing Rights Agreement or the new rights agreement with the
University in accordance with the terms and provisions of this Agreement and
the Promissory Note and Guaranty. For the purposes of this Section 2.2,
references to "Pinnacle" shall be deemed to include the Buyers, Triathlon, The
Sillerman Companies, Inc., or any subsidiary or affiliate or radio station
owned or controlled by any of the foregoing, whether singly or in combination.
2.3 Payment. Payment by the Buyers of all sums due to the Seller under
Article 2 of this Agreement shall be made by wire transfer of immediately
available funds to a bank or banks designated in writing by the Seller. Any
wire transfer fees charged or assessed to the Buyer by the Buyer's bank for
originating any wire transfers shall be at the expense of the Buyer.
4
<PAGE>
2.4 Escrow Account. The Buyers shall deposit cash or an irrevocable
stand-by letter of credit in the sum of Fifteen Thousand Dollars ($15,000.00)
into an escrow account (the "Escrow Account") with Havelock Bank of Lincoln,
Nebraska (the "Escrow Agent"), to be held in escrow in accordance with the
terms of an escrow agreement (the "Escrow Agreement") between the parties
substantially in the form of Exhibit C hereto. The Seller acknowledges that he
has already received a non-refundable deposit in the sum of Five Thousand
Dollars ($5,000.00) which is being held in escrow and which will be applied to
the Purchase Price in accordance with the terms of the Extension and
Modification Agreement between Triathlon, the Seller and Dale M. Jensen.
ARTICLE 3
CLOSING
-------
3.1 Closing. Except as otherwise mutually agreed upon by the Seller
and the Buyers, the consummation of the Buyers' acquisition of the Membership
Interest (the "Closing") shall occur on or prior to May 1, 1997 (the "Closing
Date"). If, through no fault of the Seller, the Buyer fails to close the
acquisition of the Membership Interest on or before May 1, 1997, the Fixed
Purchase Price shall be increased by the amount of One Hundred Dollars
($100.00) per day for each and every day after May 1, 1997 through May 15,
1997. If, through no fault of the Seller, the Buyer fails to close the
acquisition of the Membership Interest on or before May 15, 1997, this
Agreement shall be null and void and the Buyer shall forfeit all amounts
deposited into escrow by the Buyer.
The Closing shall be held at the offices of the Seller's counsel
or at such other place
5
<PAGE>
as the Buyers and the Seller shall mutually agree.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
--------------------------------------------
The Buyers hereby make the following representations and warranties to
the Seller, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
notice to the Seller and shall survive the Closing.
4.1 Organization and Standing. Each of the Buyers is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is duly qualified to transact business as a foreign
corporation in the State of Nebraska. Each of the Buyers hereby acknowledges
that it is aware of all of the laws, rules and regulations applicable to
Nebraska Limited Liability Companies, and that the Membership Interest to be
purchased by the Buyers from the Seller pursuant to this Agreement has not been
registered under any federal or state securities laws, rules or regulations.
Each of the Buyers further hereby acknowledges and agrees that it has received
and reviewed copies of all contracts described in Section 1 of the Seller's
Disclosure Schedule (the "Reviewed Contracts"), and that each of the Buyers
accepts the terms of the Reviewed Contracts as presented to it. Each of the
Buyers further acknowledges and agrees that it will maintain in full force and
effect, through Pinnacle, the Rights Agreement currently existing between
Pinnacle and the University, and covenants and agrees that it will not allow
Pinnacle to cease to exist as a Nebraska limited liability company as long as
the Buyers owe any money to Seller under the terms and
6
<PAGE>
provisions of this Agreement, the Promissory Note and Guaranty and the Pledge
Agreement.
4.2 Authorization and Binding Obligation. Each of the Buyers has all
necessary power and authority to enter into and perform this Agreement and the
transactions contemplated hereby, and to own the Membership Interest and to
carry on the business of Pinnacle as it is now being conducted, and each
Buyer's execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on its part. This Agreement has been duly executed and
delivered by each of the Buyers, and this Agreement constitutes, and the other
agreements to be executed in connection herewith will constitute, the valid and
binding obligation of each of the Buyers, enforceable in accordance with their
terms, except as limited by laws affecting the enforcement of creditors' rights
or equitable principles generally.
4.3 Litigation and Compliance with Law. There is no litigation,
administrative, arbitration or other proceeding, or petition, complaint or to
the best of the Buyers' knowledge investigation before any court or
governmental body, pending against the Buyers or any of their principals that
would adversely affect the Buyers' ability to perform their obligations
pursuant to this Agreement or the agreements to be executed in connection
herewith. To the best of the Buyers' knowledge, there is no violation of any
law, regulation or ordinance or any other requirement of any governmental body
or court which would have a material adverse effect on the Buyers or their
ability to perform its obligations pursuant to this Agreement or the agreements
to be executed in connection herewith.
7
<PAGE>
4.4 Accuracy of Information. No written statement made by the Buyers
herein and no information provided by the Buyers herein or in the documents,
instruments or other written communications made or delivered directly by the
Buyers to the Seller in connection with the negotiations covering the purchase
and sale of the Membership Interest contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein or herein not misleading, and there is no fact known to the Buyers
which relates to any information contained in any such written document,
instrument or communications which the Buyers have not disclosed to the Seller
in writing which could materially affect adversely Pinnacle. To the extent that
a representation or other information is made to the Buyers' knowledge or is
otherwise qualified by its terms, this representation shall not be interpreted
to expand such limitations or qualifications.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller hereby makes the following representations and warranties
to the Buyers, each of which is true and correct on the date hereof, shall
remain true and correct to and including the Closing Date, shall be unaffected
by any notice to the Buyers other than in the Disclosure Schedule (as defined
herein) and shall survive the Closing. Such representations and warranties are
subject to, and qualified by, any fact or facts disclosed in the separate
Disclosure Schedule which is annexed hereto (the "Disclosure Schedule").
8
<PAGE>
5.1 Organization and Standing of Pinnacle. Pinnacle is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Nebraska and has the power and authority to own, lease
and operate its assets and to carry on its business as now being conducted and
as proposed to be conducted by Pinnacle between the date hereof and the Closing
Date.
5.2 Authorization and Binding Obligation. The Seller has the power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Seller, and this Agreement constitutes, and the other agreements to be executed
in connection herewith will constitute, the valid and binding obligation of the
Seller, enforceable in accordance with their terms, except as limited by laws
affecting the enforcement of creditor's rights or equitable principles
generally.
5.3 Membership Interests in Pinnacle. The Seller and Dale M. Jensen
("Jensen") are the sole Members of Pinnacle. Except for this Agreement and the
Purchase and Sale Agreement between Triathlon Sports and Jensen, there is
outstanding no security, option, right, call, subscription, agreement,
commitment or understanding of any nature whatsoever, fixed or contingent, that
directly or indirectly (i) calls for the issuance, sale, pledge or other
disposition of any membership interest in Pinnacle, including the Membership
Interest, or any securities convertible into, or other rights to acquire, any
such membership interest; or (ii) obligates any of Pinnacle or the Seller to
grant, offer or enter into any of the foregoing; or (iii) relates to the voting
or control of the Membership Interest.
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5.4 Title to Membership Interest. The sale and delivery of the
Membership Interest to the Buyers pursuant to this Agreement shall vest in the
Buyers legal and valid title to the Membership Interest, free and clear of all
security interests, mortgages, pledges, conditional sales agreements, or other
liens or encumbrances (collectively, "Encumbrances"), other than Encumbrances
created by the Buyers.
5.5 Absence of Conflicting Agreements or Required Consents. Except as
set forth in Section 4.1 of this Agreement and in the Disclosure Schedule, the
execution, delivery and performance of this Agreement by the Seller: (a) does
not require the consent of any third party; (b) will not violate any applicable
law, judgment, order, injunction, decree, rule, regulation or ruling of any
governmental authority to which the Seller is a party or by which the Seller or
Pinnacle, is bound; (c) will not, either alone or with the giving of notice or
the passage of time, or both, conflict with, constitute grounds for termination
of or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, agreement, instrument, license or
permit to which the Seller or Pinnacle, is now subject; and (d) will not result
in the creation of any lien, charge or Encumbrance on Pinnacle or the
Membership Interest.
5.6 Government Authorizations. The Reviewed Contracts or the
Disclosure Schedule contain a true and complete list of all material licenses,
permits or other authorizations from governmental and regulatory authorities
which are required for the lawful conduct of the business and operations of
Pinnacle in the manner and to the full extent they are presently conducted.
Pinnacle is the authorized legal holder of the licenses, permits and
authorizations described in the
10
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Reviewed Contracts or on Disclosure Schedule, none of which is subject to any
restrictions or condition which would limit in any respect the full operation
of Pinnacle as now operated except as set forth therein. Except as set forth in
the Disclosure Schedule, there are no applications, complaints or proceedings
pending or, to the best of the Seller's knowledge, threatened as of the date
hereof relating to the business or operations of Pinnacle.
5.7 Affiliates. Pinnacle does not own any equity ownership interest,
directly or indirectly, in any person, corporation or other entity.
5.8 Taxes. Except as described on the Disclosure Schedule, Pinnacle
has filed all federal, state, local and foreign income, franchise, sales, use,
property, excise, payroll and other tax returns required by law and has paid in
full all taxes, estimated taxes, interest, assessments, and penalties due and
payable. All returns and forms which have been filed have been true and correct
in all material respects and no tax or other payment in a material amount other
than as shown on such returns and forms are required to be paid and have been
paid by Pinnacle. There are no present disputes as to taxes of any nature
payable by Pinnacle.
5.9 Personal Property. The Reviewed Contracts or the Disclosure
Schedule contain a list of all material tangible personal property and assets
owned or held by Pinnacle and used primarily or exclusively in the conduct of
Pinnacle's business and operations (the "Personal Property"). Except as
disclosed in the Disclosure Schedule or in the Reviewed Contracts, and except
as may be subject to lease agreements of Pinnacle specifically identified in
the Disclosure Schedule or in the
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Reviewed Contracts, Pinnacle owns and has, and will on the Closing Date have,
good and marketable title to all such property (and to all other tangible and
intangible personal property and assets including cash and receivables to be
transferred to the Buyers hereunder), and none of such property is, or at the
Closing will be, subject to any Encumbrance other than as set forth in the
Disclosure Schedule. All of the items of tangible personal property and assets
included in the Disclosure Schedule are in all respects in good operating
condition (ordinary wear and tear excepted) and are available for immediate use
in the conduct of the business and operations of Pinnacle. The technical
equipment constituting a part of the tangible personal property has been
properly maintained by Pinnacle and is in good operating condition. The
properties listed in the Disclosure Schedule include all such properties used
and necessary to conduct in all material respects the business and operations
of Pinnacle as now conducted.
5.10 Real Property. The Reviewed Contracts or the Disclosure Schedule
contain a complete and accurate list of all real property owned and/or leased
by Pinnacle and used by Pinnacle in its business and operations, together with
all agreements, leases and contracts of Pinnacle relating thereto
(collectively, the "Real Estate Contracts"). The Real Estate Contracts
comprising a part of the Reviewed Contracts or listed in the Disclosure
Schedule constitute valid and binding obligations of Pinnacle and, to the best
of the Seller's knowledge, of all other persons purported to be parties thereto
and are in full force and effect as of the date hereof and will on the Closing
Date constitute valid and binding obligations of Pinnacle and, to the best of
the Seller's knowledge, of all other persons purported to be parties thereto
and shall be in full force and effect. Except as set forth in the Disclosure
Schedule, Pinnacle is not in default under any of the Real Estate Contracts,
nor has
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Pinnacle received or given written notice of any default thereunder from or to
any of the other parties thereto.
5.11 Contracts. The Reviewed Contracts or the Disclosure Schedule list
all written and oral contracts (the "Contracts") as of the date of this
Agreement for which Pinnacle shall continue to be liable as of the Closing
Date, except contracts entered into in the ordinary course of business (i) of
less than three (3) months duration and which impose monetary obligations of no
more than Five Thousand Dollars ($5,000) in the aggregate, or (ii) which are
currently scheduled to expire prior to the Closing Date and for which Pinnacle
will no longer be liable. Those contracts described on the Disclosure Schedule
in Sections A, C, D and E.4 are critical to the consummation of the
transactions contemplated hereby and are identified as "Material Contracts".
5.12 Status of Contracts. Except as noted in the Disclosure Schedule,
the Seller has delivered to the Buyers true and complete copies of all written
Material Contracts, including any and all amendments and other modifications to
such Material Contracts. All Material Contracts were validly and duly executed
by Pinnacle. To the best of the Seller's knowledge, Pinnacle has complied in
all material respects with all Material Contracts and is not in default beyond
any applicable grace periods under any of the Material Contracts, and no other
contracting party is in default under any of the Material Contracts.
5.13 Environmental Matters. Pinnacle has not unlawfully disposed of
any hazardous waste or hazardous substance including Polychlorinated Byphenyls
("PCBs") in a manner which has
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caused, or could cause, the Buyers to incur a material liability under
applicable law in connection therewith. To the best of the Seller's knowledge,
Pinnacle has complied in all material respects with all federal, state and
local environmental laws, rules and regulations applicable to Pinnacle's
business and operations. No hazardous waste has been disposed of by Pinnacle,
and to the best of the Seller's knowledge no hazardous waste has been disposed
of by any other person on the real estate owned and/or leased by Pinnacle. As
used herein, the term "hazardous waste" shall mean as defined in the Resource
Conservation and Recovery Act (RCRA) as amended and in the equivalent state
statute under applicable state law.
5.14 Copyrights, Trademarks and Similar Rights. The Disclosure
Schedule lists, in all material respects, all copyrights, trademarks, trade
names, licenses, patents, permits and other similar intangible property rights
and interests applied for, issued to or owned by Pinnacle or under which
Pinnacle is a licensee or franchisee and which are used exclusively or
primarily in the conduct of the business and operations of Pinnacle. Except as
set forth in the Disclosure Schedule, all of such rights and interests are
issued to or owned by Pinnacle, or if licensed or franchised to Pinnacle, to
the best of the Seller's knowledge, are valid and in good standing and
uncontested. The Seller has delivered or made available to the Buyers copies of
all material documents, if any, establishing such rights, licenses or other
authority. Pinnacle has not received any written notice with respect to, nor
has it any knowledge of, any infringements or unlawful use of such property.
The properties listed in the Disclosure Schedule include all such properties
necessary to conduct in all material respects the business and operations of
Pinnacle as now conducted.
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5.15 Personnel Information. The Disclosure Schedule contains a true
and complete list of all persons employed by Pinnacle, and the Reviewed
Contracts or the Disclosure Schedule describe the material compensation
arrangements and employee benefit plans and other terms of any and all
agreements affecting such persons.
5.15.1 Pinnacle is not a party to any contract with any labor
organization, nor has any Pinnacle agreed to recognize any union or other
collective bargaining unit, nor has any union or other collective bargaining
unit been certified as representing any of Pinnacle's employees. The Seller has
no knowledge of any organizational effort currently being made or threatened by
or on behalf of any labor union with respect to employees of Pinnacle.
5.15.2 Except as disclosed in the Disclosure Schedule, Pinnacle
has complied in all material respects with all laws relating to the employment
of labor, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and those laws relating to wages,
hours, collective bargaining, unemployment insurance, workers' compensation,
equal employment opportunity, sexual harassment and payment and withholding of
taxes. More specifically, Pinnacle has substantially complied with and is not
in default in any material respect under any laws, rules and regulations
relating to employment of labor, including those relating to wages, hours,
equal employment opportunities, sexual harassment, employment of protected
minorities (including women and persons over 40 years of age), collective
bargaining and the withholding and payment of taxes and contributions and has
withheld all amounts required or agreed to be withheld from wages and salaries
of its employees, and is not liable for any arrearage of wages
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or for any tax or penalty or failure to comply with the foregoing. There are no
claims or complaints pending or, to the knowledge of the Seller, threatened
against any Pinnacle before any court or governmental agency and involving any
alleged unlawful employment practices, whether or not relating to the laws
described above. Pinnacle has not consented to any decree involving any claim
of unfair labor practice nor been held in any judicial proceeding to have
committed any unfair labor practice, and there are no material controversies
pending or threatened between Pinnacle and any of its employees.
5.16 Financial Statements. The Seller has delivered to the Buyers
complete copies of the reviewed balance sheet of Pinnacle as of December 31,
1996 and the reviewed statements of income of Pinnacle for the fiscal year
ended December 31, 1996, including the notes thereto (the "Reviewed
Statements"). A copy of the internally prepared and unaudited balance sheet and
statements of income of Pinnacle for the two (2) month period ending February
28, 1997 (the "Interim Statements"; and together with the Reviewed Statements,
the "Financial Statements"), shall be contained in the Disclosure Schedule.
Except as noted therein, the Reviewed Statements fairly present the
consolidated financial position of Pinnacle and its results of operations as of
those dates in conformity with generally accepted accounting principles
consistently applied for such period. Pinnacle has not acquired, either
directly or indirectly, any other corporation, business or assets with respect
to which there is not available financial information.
5.17 Liabilities. Except as described in the Reviewed Contracts or as
set forth in the Disclosure Schedule and the Financial Statements, Pinnacle has
no debts, obligations or liabilities
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of any kind or nature, either direct or indirect, absolute or contingent,
matured or unmatured.
5.18 Absence of Certain Changes or Events. Except as described in the
Reviewed Contracts or as set forth in the Disclosure Schedule or except as
otherwise contemplated by this Agreement, since February 28, 1997, there has
not been (a) any damage, destruction or casualty loss to the physical
properties of Pinnacle (whether covered by insurance or not); (b) any material
change in the business, operations or financial condition of Pinnacle; (c) any
entry into any transaction, commitment or agreement (including without
limitation any borrowing or capital expenditure) material to Pinnacle's course
of business; (d) any setting aside or payment of any distribution in cash or
property with respect to the Seller's Membership Interest; (e) any increase in
the rate or terms of compensation payable or to become payable by Pinnacle to
its Members, officers or employees or any increase in the rate or terms of any
bonus, pension, insurance or other employee benefit plan, payment or
arrangement made to, for or with any such Member, officers or key employees;
(f) any change in or acceleration of sales, or reduction of aggregate
administrative, marketing, advertising and promotional expenses or research
expenditures other than in the ordinary course of business; (g) any sale,
transfer or other disposition of any asset of Pinnacle to any party, including
the Seller, except for payment of third-party obligations incurred in the
ordinary course of business in accordance with Pinnacle's regular payment
practices; (h) any termination or waiver of any rights of value to the business
of Pinnacle; or (i) any failure by Pinnacle to pay its accounts payable or
other obligations in the ordinary course of business consistent with past
practices.
5.19 Title to Properties. Except as described in the Reviewed
Contracts or as set forth on
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the Disclosure Schedule, Pinnacle has good and marketable title to all of the
assets and properties which it purports to own and which are reflected on the
Financial Statements, free and clear of all Encumbrances, except for (a) liens
for current taxes not yet due and payable or for taxes the validity of which is
being contested in good faith by appropriate proceedings, and (b) Encumbrances
which individually or in the aggregate do not materially and adversely affect
the business, operations or financial condition of Pinnacle.
5.20 Litigation. Except as set forth in the Disclosure Schedule, (a)
Pinnacle is not subject to a judgment, award, order, writ, injunction,
arbitration decision or decree materially adversely affecting the conduct of
Pinnacle's business or operations, and there is no litigation, arbitration,
administration or other proceeding or, to the best of the Seller's knowledge,
investigation pending or any basis for any person to assert a claim or, to the
best of the Seller's knowledge, threatened against Pinnacle in any federal,
state or local court, or before any administrative agency or arbitrator, or
before any other tribunal duly authorized to resolve disputes, which would
reasonably be expected to have any material adverse effect upon the business,
property, assets or condition (financial or otherwise) of Pinnacle or which
seeks to enjoin or prohibit, or otherwise questions the validity of, any action
taken or to be taken pursuant to or in connection with this Agreement; and (b)
in particular, but without limiting the generality of the foregoing, there are
no applications, complaints or proceedings pending or, to the best of the
Seller's knowledge, threatened before any governmental organization with
respect to or adverse to the business or operations of Pinnacle.
5.21 Compliance With Laws. Except as set forth in the Disclosure
Schedule, (a) Pinnacle
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has not received any notice asserting any non-compliance by it in connection
with the business or operation of Pinnacle with any applicable statute, rule or
regulation, whether federal, state or local; (b) Pinnacle is not in default
with respect to any judgment, order, injunction or decree of any court,
administrative agency or other governmental authority or any other tribunal
duly authorized to resolve disputes in any respect material to the transactions
contemplated hereby; and (c) Pinnacle is in compliance with all material laws,
regulations and governmental orders applicable to the conduct of the business
and operations of Pinnacle, the failure to comply with which would have a
material adverse effect on the business, operations or financial condition of
Pinnacle, and its present use of its assets does not violate any of such laws,
regulations or orders, violation of which would have a material adverse effect
on Pinnacle's operations.
5.22 Insurance. All insurance policies with respect to the properties,
assets, operations and business of Pinnacle (the "Insurance Policies") are in
full force and effect. Except as set forth in the Disclosure Schedule, there
are no pending claims against the Insurance Policies by Pinnacle as to which
the insurers have denied liability and with respect to which there is a
reasonable likelihood of a settlement or determination adverse to Pinnacle. To
the best of the Seller's knowledge, there are no circumstances existing which
would enable the insurers to avoid liability under the Insurance Policies, nor
are there any other parties having an interest under the Insurance Policies.
Except as set forth in the Disclosure Schedule, (i) there exist no material
claims under the Insurance Policies that have not been properly filed by
Pinnacle; (ii) no insurance company has refused to renew any material insurance
policy of Pinnacle during the past eighteen (18) months; and (iii) there have
been no material rate or premium increases or written notice of prospective
changes therein on general
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liability, property or directors and officers liability Insurance Policies
during the past eighteen (18) months. The Reviewed Contracts or the Disclosure
Schedule contain a list that includes all Insurance Policies.
5.23 Accuracy of Information. No written statement made by the Seller
herein and no information provided by the Seller herein or in the documents,
instruments or other written communications made or delivered directly by the
Seller to the Buyers in connection with the negotiations covering the purchase
and sale of the Membership Interest contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein or herein not misleading and there is no fact known to the Seller which
relates to any information contained in any such written document, instrument
or communications which the Seller has not disclosed to the Buyers in writing
which materially affects adversely Pinnacle. To the extent that a
representation or other information is made to the Seller's knowledge or is
otherwise qualified by its terms, this representation shall not be interpreted
to expand such limitations or qualifications.
5.24 Accounts Receivable. All accounts receivable reflected on the
Interim Statements represent sales actually made or services actually rendered
in the ordinary course of business on or prior to February 28, 1997; all
accounts receivable of Pinnacle as of the Closing Date will represent sales
actually made or services actually rendered in the ordinary course of business
consistent with past practices prior to the Closing Date.
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ARTICLE 6
COVENANTS OF THE BUYERS
-----------------------
6.1 Closing. On the Closing Date, the Buyers shall purchase the
Membership Interest from the Seller as provided in Article 1 hereof and shall
deliver or cause to be delivered to the Seller the Purchase Price as provided
in Article 2 hereof.
6.2 Notification. The Buyers shall notify the Seller of any
litigation, arbitration or administrative proceeding pending or, to its
knowledge, threatened against the Buyers which challenges the transactions
contemplated hereby.
6.3 No Inconsistent Action. The Buyers shall not take any other action
which is materially inconsistent with its obligations under this Agreement.
6.4 Required Consents. On the Closing Date, the Buyers shall deliver
any and all necessary third party consents to the execution, delivery and
performance of this Agreement by the Buyers.
6.5 Maintenance of Legal Existence. From and after the Closing Date,
the Buyers shall maintain Pinnacle in good standing under the laws of the State
of Nebraska, and shall maintain the Buyers' corporate existence in good
standing as foreign corporations duly qualified to transact business under the
laws of the State of Nebraska, until all payments due and owing from the Buyers
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to the Seller pursuant to this Agreement, the Promissory Note and Guaranty and
the Pledge Agreement have been paid in full.
6.6 No Assignment, Transfer or Sale. From and after the Closing Date,
the Buyers shall not, without the Seller's prior written consent, sell,
transfer, assign or otherwise encumber all or any portion of the Membership
Interest sold by the Seller to the Buyers pursuant to this Agreement, until all
amounts due and owing from the Buyers to the Seller hereunder and under the
terms and provisions of the Promissory Note and Guaranty or the Pledge
Agreement have been paid in full.
6.7 Maintenance of Rights Agreement. From and after the Closing Date,
the Buyers shall maintain, and cause Pinnacle to maintain, in full force and
effect, and perform and discharge and cause Pinnacle to perform and discharge,
on a timely basis, all duties and obligations imposed upon Pinnacle pursuant to
and in accordance with the terms and provisions of the Rights Agreement between
Pinnacle and the University, as identified on the Disclosure Schedule.
6.8 Bankruptcy. From and after the Closing Date, the Buyers shall not
file any voluntary petition in bankruptcy, nor allow Pinnacle to file any
voluntary petition in bankruptcy.
6.9 Release of Seller as Guarantor. On or before the Closing Date, the
Buyers shall deliver to the Seller a written release from Havelock Bank of
Lincoln, Nebraska ("Havelock"), pursuant to which the Seller, as guarantor,
shall have been forever released and discharged from all guarantees executed by
the Seller pursuant to which the Seller has guaranteed any of the debts,
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liabilities, duties or obligations of Pinnacle to Havelock, including, but not
limited to, Pinnacle's debts and Letters of Credit Notes with Havelock.
6.10 Event of Default/Acceleration of Obligations. In the event that
the Buyers default on any of the terms or provisions of Sections 6.5 through
6.9, the Buyers shall be deemed to be in default under the terms and provisions
of the Promissory Note and Guaranty and this Agreement, and the Seller shall
have the immediate right to declare all amounts due and owing to the Seller
under the terms and provisions of the Promissory Note and Guaranty, plus any
amounts due and owing as a Contingent Payment, payable in full. Regardless of
anything else set forth herein, the provisions set forth in Sections 6.5
through 6.10 shall survive the Closing and remain in full force and effect
until payment of all amounts due to the Seller under the Promissory Note and
Guaranty or the Pledge Agreement.
ARTICLE 7
COVENANTS OF THE SELLER
-----------------------
7.1 Pre-Closing Covenants. The Seller covenants and agrees that
between the date hereof and the Closing Date, except as expressly permitted by
this Agreement or with the prior written consent of the Buyers, he and Pinnacle
shall act in accordance with the following:
7.1.1 Pinnacle shall conduct its business and operations in the
ordinary and prudent course of business and with the intent of preserving the
ongoing operations and assets of Pinnacle,
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including, but not limited to, using its reasonable best efforts to retain the
services of its employees and keeping in good standing all licenses, permits
and authorizations.
7.1.2 Pinnacle shall use reasonable efforts to preserve its
operations intact and to preserve the business of its customers, suppliers,
affiliates and others having business relations with Pinnacle and continue to
conduct the financial operations of Pinnacle, including its credit and
collection policies, in the ordinary course of business with substantially the
same effort, and to substantially the same extent and in the same manner, as in
the prior conduct of the business and operations of Pinnacle.
7.1.3 Pinnacle shall not other than in the ordinary course of
business or in accordance with a pre-existing plan or arrangement described in
the Reviewed Contracts or listed in the Disclosure Schedule (i) sell or dispose
of or commit to sell or dispose of any of its assets; (ii) grant or agree to
grant any general increases in the rates of salaries or compensation payable to
employees of Pinnacle; (iii) grant or agree to grant any specific bonus or
increase to any executive or management employee of Pinnacle; or (iv) provide
for any new pension, retirement or other employment benefits for employees of
Pinnacle or any increases in any existing benefits
7.1.4 On the Closing Date, the Seller shall provide the Buyers
with written notice of any change in any of the information contained in the
representations and warranties made in Article 5 hereof or any Exhibits or the
Disclosure Schedule herein or attached hereto.
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7.2 Notification. The Seller shall notify the Buyers of any material
litigation, arbitration or administrative proceeding pending or, to his
knowledge, threatened against the Seller which challenges the transactions
contemplated hereby.
7.3 No Inconsistent Action. The Seller shall take no action which is
materially inconsistent with his obligations under this Agreement.
7.4 Closing Covenant. On the Closing Date, the Seller shall sell and
deliver the Membership Interest to the Buyers as provided in Article 1 of this
Agreement.
ARTICLE 8
JOINT COVENANTS
---------------
The Buyers and the Seller covenant and agree that between the date
hereof and the Closing Date, they shall act in accordance with the following:
8.1 Conditions. Except as otherwise provided in this Agreement, if any
event should occur, either within or without the control of any party hereto,
which would prevent fulfillment of the conditions upon the obligations of any
party hereto to consummate the transactions contemplated by this Agreement, the
parties hereto shall use their reasonable best efforts to cure the event as
expeditiously as possible; provided, however, that the Buyers' failure to pay
the portion of the Fixed Purchase Price due on the Closing Date, or to execute
and deliver the Promissory Note and Guaranty
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and the Pledge Agreement on the Closing Date, shall not give rise to a delay in
the Closing to cure such failure.
8.2 Confidentiality. The Buyers and the Seller shall each keep
confidential all information obtained by it or them with respect to the other
in connection with this Agreement and the negotiations preceding this
Agreement, and will use such information solely in connection with the
transactions contemplated by this Agreement, and if the transactions
contemplated hereby are not consummated for any reason, each shall return to
the other, without retaining a copy thereof, any schedules, documents or other
written information obtained from the other in connection with this Agreement
and the transactions contemplated hereby. Notwithstanding the foregoing, no
party shall be required to keep confidential or return any information which
(i) is known or available through other lawful sources, not bound by a
confidentiality agreement with the disclosing party, (ii) is or becomes
publicly known through no fault of the receiving party or its agents, (iii) is
required to be disclosed pursuant to an order or request of a judicial or
governmental authority or because of the rules and regulations of the SEC
(provided the other parties are given reasonable prior notice), or (iv) is
developed by the receiving party independently of the disclosure by the
disclosing party.
8.3 Cooperation. The Buyers and the Seller shall cooperate fully with
each other in taking any actions, including actions to obtain the required
consent of any governmental instrumentality or any third party necessary or
helpful to accomplish the transactions contemplated by this Agreement;
provided, however, that no party shall be required to take any action which
would have a material adverse effect upon it or any affiliated entity.
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ARTICLE 9
CONDITIONS OF CLOSING BY THE BUYERS
-----------------------------------
The obligations of the Buyers hereunder are, at their option, subject
to satisfaction, at or prior to the Closing Date, of each of the following
conditions:
9.1 Representations, Warranties and Covenants.
9.1.1 All representations and warranties of the Seller made in
this Agreement shall be true and complete in all material respects as of the
date hereof and on and as of the Closing Date as if made on and as of that
date.
9.1.2 All of the terms, covenants and conditions to be complied
with and performed by the Seller on or prior to Closing Date shall have been
complied with or performed in all material respects.
9.1.3 The Buyers shall have received a certificate, dated as of
the Closing Date, executed by the Seller, to the effect that his
representations and warranties contained in this Agreement are true and
complete in all material respects on and as of the Closing Date as if made on
and as of that date, and that he has complied with or performed all terms,
covenants and conditions to be complied with or performed by him in all
material respects on or prior to the Closing Date.
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9.2 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered against,
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
9.3 Legal Opinion. The Seller shall have delivered to the Buyers a
written opinion of his counsel, dated as of the Closing Date, substantially in
the form attached hereto as Exhibit D.
9.4 Delivery of Certificates. On the Closing Date, the Buyers shall
have received such certificates or documents as shall be required to assign to
the Buyers the Seller's Membership Interest.
9.5 Acquisition of Other Membership Interests. On the Closing Date,
Triathlon Sports shall have consummated its acquisition of Jensen's membership
interest in Pinnacle (the "Jensen Acquisition") on the terms and conditions set
forth in the Purchase and Sale Agreement between Triathlon Sports and Jensen
which is being entered into simultaneously with this Agreement.
9.6 Employment Agreement. On the Closing Date, Pinnacle and the Seller
shall have entered into an employment agreement (the "Employment Agreement") on
terms mutually acceptable to both parties. The Employment Agreement shall be
for a term ending July 31, 2001, and shall provide, among other things, for the
payment to the Seller of a bonus in the amount of Two
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Hundred Eighty-Eight Thousand Eight Hundred Eighty-Eight and 89/100ths Dollars
($288,888,89) for each year that the Rights Agreement referred to in Section
2.2 of this Agreement is extended or renewed, or a new rights agreement between
Pinnacle and the University is entered into, up to a maximum of Eight Hundred
Sixty-Six Thousand Six Hundred Sixty-Six and 67/100ths Dollars ($866,666.67),
which bonus shall be paid to the Seller regardless of whether or not the Seller
is employed by the Buyers or Pinnacle at the time that the Contingent Payment
becomes due under Section 2.2 of this Agreement.
9.7 Closing Documents. On the Closing Date, the Seller shall have
delivered or caused to be delivered to the Buyers each of the documents
required to be delivered by the Seller pursuant to Article 12.
ARTICLE 10
CONDITIONS OF CLOSING BY THE SELLER
-----------------------------------
The obligations of the Seller hereunder are, at his option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
10.1 Representations, Warranties and Covenants.
10.1.1 All representations and warranties of the Buyers shall be
true and complete in all material respects as of the date hereof and on and as
of the Closing Date as if made on and as
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of that date.
10.1.2 All the terms, covenants and conditions to be complied
with and performed by the Buyers on or prior to the Closing Date shall have
been complied with or performed in all material respects.
10.1.3 The Seller shall have received a certificate, dated as of
the Closing Date, executed by a duly qualified officer of each of the Buyers,
to the effect that the representations and warranties of each of the Buyers
contained in this Agreement are true and complete in all material respects on
and as of the Closing Date as if made on and as of that date, and that each of
the Buyers has complied with or performed all terms, covenants and conditions
to be complied with or performed by it in all material respects on or prior to
the Closing Date.
10.2 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no other, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
10.3 Legal Opinion. The Buyers shall have delivered to the Seller an
opinion of their corporate counsel, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit E.
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10.4 Payment of Purchase Price. The Buyers shall have delivered or
caused to be delivered to the Seller the Purchase Price in accordance with the
terms of Article 2 hereof.
10.5 Closing Documents. On the Closing Date, the Buyers shall have
delivered or caused to be delivered to the Seller each of the documents
required to be delivered by the Buyers pursuant to Article 12.
ARTICLE 11
FEES AND EXPENSES
-----------------
11.1 Expenses. Each party hereto shall be solely responsible for all
costs and expenses incurred by it in connection with the negotiation,
preparation and performance of and compliance with the terms of this Agreement;
provided, however, that any legal or accounting fees incurred by the Seller in
connection with the preparation and closing of this Agreement shall be paid by
Pinnacle and be considered a trade payable of Pinnacle as of the Closing Date.
ARTICLE 12
DOCUMENTS TO BE DELIVERED AT CLOSING
------------------------------------
12.1 The Seller's Documents. At the Closing, the Seller shall deliver
or cause to be delivered to the Buyers the following:
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12.1.1 A certificate, dated the Closing Date, by the Seller in
the form described in Section 9.1.3 above;
12.1.2 Governmental certificates showing that Pinnacle is duly
organized as a limited liability company and is in good standing in the State
of Nebraska, dated not more than forty-five (45) calendar days before the
Closing Date;
12.1.3 Copies of the Articles of Organization and Operating
Agreement of Pinnacle, with all amendments thereto, certified by the Managing
Member as of the Closing Date;
12.1.3 The opinion letter, dated the Closing Date, referenced in
Section 10.3 above;
12.1.4 Certificates or other required documentation evidencing
assignment of the Seller's Membership Interest to the Buyers;
12.1.5 The Employment Agreement; and
12.1.6 Such additional information and material as the Buyers
shall have requested in a timely manner in writing and which is reasonably
necessary for the Closing.
12.2 The Buyers' Documents. At the Closing, the Buyers shall deliver
or cause to be delivered to the Seller the following:
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12.2.1 The Purchase Price in accordance with Section 2.1 hereof.
12.2.2 A certificate, dated the Closing Date, by each of the
Buyers in the form described in Section 9.1.3 above.
12.2.3 The opinion of the Buyers' corporate counsel, dated the
Closing Date, referenced in Section 9.4;
12.2.4 Governmental certificates showing that each of the Buyers
and Triathlon is duly incorporated and in good standing in the State of
Delaware, and that each of the Buyers is duly qualified to transact business in
the State of Nebraska, in each case dated not more than forty-five (45)
calendar days before the Closing Date;
12.2.5 Certified resolutions of the Board of Directors of the
Buyers and Triathlon approving the execution and delivery of this Agreement and
each of the other documents and agreements referred to herein and authorizing
the consummation of the transactions contemplated hereby and thereby;
12.2.6 Copies of the Articles of Incorporation and Bylaws of the
Buyers, and all amendments thereto, certified by the Buyers' corporate
secretary as of the Closing Date;
12.2.7 The Promissory Note and Guaranty, the Pledge Agreement and
the
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Employment Agreement; and
12.2.8 Such additional information and material as the Seller
shall have requested in a timely manner in writing and which is reasonably
necessary for the Closing.
ARTICLE 13
INDEMNIFICATION
13.1 The Seller's Indemnities. The Seller hereby agree to indemnify,
defend and hold the Buyers harmless with respect to any and all demands,
claims, actions, suits, proceedings, assessments, judgments, costs, losses,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) asserted against, resulting from, imposed upon or incurred by
the Buyers directly or indirectly relating to or arising out of the inaccuracy
of any representation or warranty, or the breach of any covenant or agreement,
contained herein or in any instrument or certificate delivered pursuant hereto.
13.2 The Buyers' Indemnities. The Buyers hereby agree to indemnify,
defend and hold the Seller harmless with respect to any and all demands,
claims, actions, suits, proceedings, assessments, judgments, costs, losses,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) asserted against, resulting from, imposed upon or incurred by
the Seller directly or indirectly relating to or arising out of the inaccuracy
of any representation or warranty, or the breach of any covenant or agreement,
contained herein or in any instrument or certificate delivered pursuant
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hereto, or arising from and after the Closing under Pinnacle's lease for its
offices located in Elkhorn, Nebraska.
13.3 Rights. The Buyers and the Seller agree that the rights of
indemnification provided in this Article 13 are exclusive of and in addition to
any and all other such rights of the Buyers and the Seller hereunder.
13.4 Survival of Representations and Warranties. Except for the
provisions set forth in Sections 6.5 through 6.10 of this Agreement, which
shall survive the Closing until the Seller is paid in full for all amounts due
and owing under this Agreement, the Promissory Note and Guaranty and the Pledge
Agreement, all other representations and warranties contained herein shall
survive the Closing for the period from the Closing Date through and including
December 31, 1997 (the "Claims Period"). Any claim for indemnification
hereunder which arises during the Claims Period must be asserted by the party
seeking indemnification within forty-five (45) days after such claim arose, or
within forty-five (45) days after the date on which the party seeking
indemnification, through reasonable diligence, should have discovered such
claim, whichever occurs last, and upon the expiration of such forty-five (45)
day period such claim shall lapse and be of no further effect.
13.5 Limitation on Indemnity. Notwithstanding anything to the contrary
contained in this Agreement, and subject to the proviso set forth in this
Section 13.5, neither the Buyers nor the Seller shall have any liability or
obligation to the other for breach of any representation, warranty, covenant or
agreement of such other party made in this Agreement except to the extent that
the aggregate of
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all claims by such other party for such breaches exceed Twenty Thousand Dollars
($20,000) (the "Threshold Amount") in the aggregate, in which event the party
so liable shall then be liable for all claims for any such breaches, including
the sums constituting the Threshold Amount.
13.6 Procedures.
13.6.1 Promptly after the receipt by any party (the "Indemnified
Party") of notice of (A) any claim or (B) the commencement of any action or
proceeding which may entitle such party to indemnification under this Section,
such party shall give the other party (the "Indemnifying Party") written notice
of such claim or the commencement of such action or proceeding and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting from such claim. The failure to give the Indemnifying
Party timely notice under this clause shall not preclude the Indemnified Party
from seeking indemnification from the Indemnifying Party unless such failure
has materially prejudiced the Indemnifying Party's ability to defend the claim
or litigation, except as set forth in Section 13.4 of this Agreement.
13.6.2 If Indemnifying Party assumes the defense of any such
claim or litigation resulting therefrom with counsel reasonably acceptable to
Indemnified Party, the obligations of the Indemnifying Party as to such claim
shall be limited to taking all steps necessary in the defense or settlement of
such claim or litigation resulting therefrom and to holding the Indemnified
Party harmless from and against any losses, damages and liabilities caused by
or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or
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<PAGE>
litigation resulting therefrom; however, the Indemnified Party may participate,
at its or his expense, in the defense of such claim or litigation provided that
the Indemnifying Party shall direct and control the defense of such claim or
litigation. The Indemnified Party shall cooperate and make available all books
and records reasonably necessary and useful in connection with the defense. The
Indemnifying Party shall not, in the defense of such claim or any litigation
resulting therefrom, consent to entry of any judgment, except with the written
consent of the Indemnified Party, or enter into any settlement, except with the
written consent of the Indemnified Party, which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim or
litigation.
13.6.3 If the Indemnifying Party shall not assume the defense of
any such claim or litigation resulting therefrom, the Indemnified Party may,
but shall have no obligation to, defend against such claim or litigation in
such manner as it may deem appropriate, and the Indemnified Party may
compromise or settle such claim or litigation without the Indemnifying Party's
consent. The Indemnifying Party shall promptly reimburse the Indemnified Party
for the amount of all expenses, legal or otherwise, incurred by the Indemnified
Party in connection with the defense against or settlement of such claim or
litigation if, and only if, the Indemnifying Party has failed to assume the
defense of such claim or litigation pursuant to Section 13.6.2. If no
settlement of the claim or litigation is made, the Indemnifying Party shall
promptly reimburse the Indemnified Party for the amount of any judgment
rendered with respect to such claim or in such litigation and of all expenses,
legal or otherwise, incurred by the Indemnified Party in the defense against
such claim or litigation if, and only if, the Indemnifying Party has failed to
assume the defense of such claim or
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litigation pursuant to Section 13.6.2.
ARTICLE 14
TERMINATION RIGHTS
------------------
14.1 Termination. This Agreement may be terminated by either the
Buyers or the Seller if the party seeking to terminate is not in material
default or breach of this Agreement, upon written notice to the other upon the
occurrence of any of the following:
(a) if, on or prior to the Closing Date, a party defaults in any
material respect in the observance or in the due and timely performance of any
of its or their covenants or agreements herein contained and such material
default shall not be cured within ten (10) calendar days of the date of written
notice of default served by the party claiming such material default; or
(b) if there shall be in effect any judgment, final decree or
order that would prevent or make unlawful the Closing of this Agreement; or
(c) by the Buyers only, if Triathlon Sports has not consummated
the Jensen Acquisition due to a default by Jensen; or
(d) as provided in Section 15.2 or any other Section of this
Agreement which specifically provides for termination.
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14.2 Liability. The termination of this Agreement under Section 14.1
shall not relieve any party of any liability for breach of this Agreement prior
to the date of termination.
ARTICLE 15
OTHER PROVISIONS
----------------
15.1 Liquidated Damages. If the parties hereto shall fail to
consummate this Agreement due to the Buyers' breach of any material
representation, warranty, covenant or condition hereunder, and the Seller is
not at that time in breach of any material representation, warranty, covenant
or condition hereunder, then the Seller would suffer direct and substantial
damages, which damages cannot be determined within reasonable certainty.
Therefore, because of the expense and delay which would be incurred in such
event by Seller, the Buyers shall pay to the Seller the amount of Twenty
Thousand Dollars ($20,000.00), which amount shall constitute liquidated
damages. Five Thousand Dollars ($5,000.00) of such amount has already been
delivered to the Seller, and an additional Fifteen Thousand Dollars
($15,000.00) shall be delivered to the Seller by the Escrow Agent from the
Escrow Account. It is understood and agreed that such liquidated damage amount
represents the Buyers' and the Seller's reasonable estimate of actual damages
and does not constitute a penalty. Recovery of liquidated damages of Twenty
Thousand Dollars ($20,000.00) shall be the sole and exclusive remedy of the
Seller against the Buyers for failing to consummate this Agreement on the
Closing Date and shall be applicable regardless of the actual amount of damages
sustained.
15.2 Risk of Loss. The risk of loss or damage to the assets of
Pinnacle prior to the Closing
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Date shall be upon the Seller. The Seller agrees that Pinnacle shall repair,
replace and restore any such damaged or lost asset to its prior condition, as
soon as possible and in no event later than the Closing Date. Except as
provided below, if Pinnacle fails to restore or replace any such asset having a
value exceeding Ten Thousand Dollars ($10,000.00) and such loss is not insured
by Pinnacle for its full replacement value, the Buyers may elect either to
terminate this Agreement pursuant to Article 14 hereof or to consummate the
Closing on the Closing Date. If Pinnacle fails to restore or replace such asset
and the Buyers do not elect to terminate this Agreement, the Seller shall cause
Pinnacle to assign to the Buyers at Closing its rights under any insurance
policy or pay over to the Buyers all proceeds of insurance covering such
asset's damage, destruction or loss. If the restoration and replacement of any
damaged or destroyed property has not been completed at the time the Closing
would otherwise be held, then unless the Seller and the Buyers otherwise agree,
the Closing Date shall be delayed and shall take place within fifteen (15)
calendar days after the Seller gives written notice to the Buyers of completion
of the restoration or replacement of such asset.
15.3 Specific Performance. In the event of a material breach by the
Seller of his representations and obligations hereunder, not cured within ten
(10) calendar days after written notice to that effect from the Buyers, the
Buyers shall have the right to bring an action to enforce the terms of this
Agreement by decree of specific performance, it being agreed that the
Membership Interest to be transferred hereunder is unique and not readily
available in the open market, and the Seller thereby further agrees to waive
any and all defenses against any such action for specific performance based on
the grounds that there is an adequate remedy for money damages available.
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15.4 Further Assurances. After the Closing, the Seller shall from time
to time, at the request of and without further cost or expense to the Buyers,
execute and deliver such other instruments of conveyance and transfer and take
such other actions as may reasonably be requested in order to more effectively
consummate the transactions contemplated hereby to vest in the Buyers good and
marketable title to the Membership Interest being transferred hereunder.
15.5 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party.
15.6 Entire Agreement. This Agreement, the Disclosure Schedule and the
Exhibits hereto embody the entire agreement and understanding of the parties
hereto and supersede any and all prior agreements, arrangements and
understandings relating to the matters provided for herein. In the event of a
conflict between the terms of this Agreement and any other agreement executed
in connection herewith, the terms of this Agreement shall prevail. No
amendment, waiver of compliance with any provision or condition hereof or
consent pursuant to this Agreement shall be effective unless evidenced by an
instrument in writing signed by the party against whom enforcement of any
waiver, amendment, change, extension or discharge is sought.
15.7 Headings. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
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15.8 Governing Law. The construction and performance of this Agreement
shall be governed by the laws of the State of Nebraska without giving effect to
the choice of law provisions thereof. The parties hereto hereby acknowledge and
agree that the sole and only forum for litigating any issues which may arise
between the parties under this Agreement shall be the District Court of
Lancaster County, Nebraska.
15.9 Notices. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and shall
be deemed to have been duly delivered and received on the date of personal
delivery or on the date of receipt, if mailed by registered or certified mail,
postage prepaid and return receipt requested, or on the date of a stamped
receipt, if sent by an overnight delivery service, or on the date of written
confirmation of delivery by facsimile or telecopy transmission, and shall be
addressed to the following addresses, or to such other address as any party may
request, in the case of the Seller, by notifying the Buyers, and in the case of
the Buyers, by notifying the Seller:
To the Seller: Paul R. Aaron
1425 Skyline Road
Elkhorn, Nebraska 68022
Telecopy No.
With a Copy to: W. Michael Morrow, Esq.
Morrow, Poppe, Otte, Watermeier & Phillips, P.C.
201 North 8th Street, Suite 300
Lincoln, Nebraska 68508
Telecopy No. (402) 474-5020
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To the Buyers: Triathlon Sports Programming, Inc.
TSPN, Inc.
Symphony Towers
750 B Street, Suite 1920
San Diego, California 92101
Att: Mr. Norman Feuer
President
Telecopy No. (619) 239-4270
With a Copy to: Richard A. Liese, Esq.
The Sillerman Companies
150 East 58th Street
19th Floor
New York, New York 10155
Telecopy No. (212) 486-4830
15.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
TRIATHLON SPORTS PROGRAMMING, INC.
By:
--------------------------------
Norman Feuer
President
TSPN, INC.
By:
--------------------------------
Norman Feuer
President
-----------------------------------
Paul R. Aaron
44
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered
into as of the 23rd day of April, 1997 by and between DALE M. JENSEN, an
individual residing at 2417 Ridge Road, Lincoln, Nebraska 68512 (the "Seller"),
and TRIATHLON SPORTS PROGRAMMING, INC., a Delaware corporation having its
principal place of business at 750 B Street, Suite 1920, San Diego, California
92101 (the "Buyer").
WHEREAS, the Seller and Paul R. Aaron are the sole members (together,
the "Members", and individually, a "Member") of Pinnacle Sports Productions,
L.L.C. ("Pinnacle"), a Nebraska limited liability company organized under
Sections 21-2601 to 21-2645 of the Nebraska statutes (the "Limited Liability
Company Act"); and
WHEREAS, the Seller desires to sell and the Buyer desires to purchase
all of the Seller's membership interest in Pinnacle (the "Membership
Interest");
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and upon the terms and
subject to the conditions hereinafter set forth, the parties hereby agree as
follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE
-----------------
1.1 Purchase and Sale of Membership Interest. On the Closing Date (as
defined in Section 3.1), the Seller shall sell to the Buyer, and the Buyer
shall purchase from the Seller, the Seller's Membership Interest in Pinnacle in
accordance with the terms of this Agreement. At the Closing (as defined in
Section 3.1), the Seller shall deliver to the Buyer such certificates or other
documents evidencing his Membership Interest in Pinnacle duly endorsed for
transfer.
ARTICLE 2
CONSIDERATION
-------------
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
acquisition of the Seller's Membership Interest shall be Two Million Eight
Hundred Twenty Thousand Fifty-Three and 40/100ths Dollars ($2,820,053.40), plus
ninety percent (90%) of Pinnacle's cash, pre-paid expenses and accounts
receivable as of the Closing Date, less ninety percent (90%) of Pinnacle's
trade payables (including all amounts due to Havelock Bank under Pinnacle's
$2,000,000.00 Note dated April 29, 1996, but excluding the $1,675,000.00 Letter
of Credit Note to Havelock Bank, both of which are described in the Disclosure
Schedule) as of the Closing Date (the "Fixed Purchase Price"), plus the
Contingent Payment, if the Buyer is required to pay the same pursuant to the
provisions of Section 2.2 below (the Fixed Purchase Price and the Contingent
Payment being hereinafter collectively referred to as the "Total Purchase
Price"). The Fixed Purchase Price shall
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<PAGE>
be paid as follows:
(a) The sum of One Million One Hundred Seventy Thousand Dollars
($1,170,000.00), plus ninety percent (90%) of Pinnacle's cash, pre-paid
expenses and accounts receivable as of the Closing Date, less ninety percent
(90%) of Pinnacle's trade payables (including all amounts due to Havelock Bank
under Pinnacle's $2,000,000.00 Note dated April 29, 1996, but excluding the
$1,675,000.00 Letter of Credit Note to Havelock Bank, both of which are
described in the Disclosure Schedule) as of the Closing Date, all of which
shall be paid at Closing;
(b) The principal sum of Eight Hundred Thousand Nine Hundred
Ninety-Six and 80/100ths Dollars ($800,996.80), together with interest on the
unpaid balance of the Fixed Purchase Price at the rate of six percent (6%) per
annum from the Closing Date to the first anniversary of the Closing Date shall
be paid on the first anniversary of the Closing Date; and
(c) The principal sum of Eight Hundred Forty-Nine Thousand Fifty-Six
and 80/100ths Dollars ($849,056.80), together with interest on the unpaid
principal balance of the Fixed Purchase Price at the rate of six percent (6%)
per annum from the first anniversary of the Closing Date to the second
anniversary of the Closing Date, shall be paid on the second anniversary of the
Closing Date. The obligation of the Buyer to make the installments to the
Seller under subsections (b) and (c) shall be evidenced by the Promissory Note
and Guaranty (the "Promissory Note and Guaranty") of the Buyer and Triathlon
Broadcasting Company ("Triathlon"), the Buyer's parent corporation, in the form
of Exhibit A hereto and shall be secured by the Membership Interest which is
being acquired by the Buyer pursuant to a pledge agreement (the "Pledge
Agreement") in the form of Exhibit B hereto.
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<PAGE>
2.2 Contingent Payment. In addition to the three (3) installment
payments of the Fixed Purchase Price set forth in Section 2.1, in the event
Pinnacle executes an extension of the current radio broadcast rights agreement
dated May 23, 1996 (the "Rights Agreement") between Pinnacle and the University
of Nebraska (the "University") which grants to Pinnacle the radio broadcast
rights to the University's men's varsity football and basketball games, or a
new rights agreement similar to the existing Rights Agreement, prior to or
following the expiration of Pinnacle's current Rights Agreement with the
University, the Seller shall receive as part of the Total Purchase Price the
sum of Two Hundred Fifty Thousand Dollars ($250,000.00) for each year that the
rights granted to Pinnacle under the Rights Agreement is renewed, up to a
maximum of Seven Hundred Fifty Thousand Dollars ($750,000.00) (the "Contingent
Payment"). The Contingent Payment shall be paid to the Seller upon the signing
of an extension to the existing Rights Agreement or the new rights agreement
with the University in accordance with the terms and provisions of this
Agreement and the Promissory Note and Guaranty. For the purposes of this
Section 2.2, references to "Pinnacle" shall be deemed to include the Buyer,
Triathlon, TSPN, Inc., The Sillerman Companies, Inc., or any subsidiary or
affiliate or radio station owned or controlled by any of the foregoing, whether
singly or in combination.
2.3 Payment. Payment by the Buyer of all sums due to the Seller under
Article 2 of this Agreement shall be made by wire transfer of immediately
available funds to a bank or banks designated in writing by the Seller. Any
wire transfer fees charged or assessed to the Buyer by the Buyer's bank for
originating any wire transfers shall be at the expense of the Buyer.
4
<PAGE>
2.4 Escrow Account. The Buyer shall deposit cash or an irrevocable
stand-by letter of credit in the sum of One Hundred Thirty-Five Thousand
Dollars ($135,000.00) into an escrow account (the "Escrow Account") with
Havelock Bank of Lincoln, Nebraska (the "Escrow Agent"), to be held in escrow
in accordance with the terms of an escrow agreement (the "Escrow Agreement")
between the parties substantially in the form of Exhibit C hereto. The Seller
acknowledges that he has already received a non-refundable deposit in the sum
of Forty-Five Thousand Dollars ($45,000.00) which is being held in escrow and
which will be applied to the Purchase Price in accordance with the terms of the
Extension and Modification Agreement between Triathlon, the Seller and Paul R.
Aaron dated as of March 20, 1997.
ARTICLE 3
CLOSING
-------
3.1 Closing. Except as otherwise mutually agreed upon by the Seller
and the Buyer, the consummation of the Buyer' acquisition of the Membership
Interest (the "Closing") shall occur on or prior to May 1, 1997 (the "Closing
Date"). If, through no fault of the Seller, the Buyer fails to close the
acquisition of the Membership Interest on or before May 1, 1997, the Fixed
Purchase Price shall be increased by the amount of Nine Hundred Dollars
($900.00) per day for each and every day after May 1, 1997 through May 15,
1997. If, through no fault of the Seller, the Buyer fails to close the
acquisition of the Membership Interest on or before May 15, 1997, this
Agreement shall be null and void and the Buyer shall forfeit all amounts
deposited into escrow by the Buyer.
5
<PAGE>
The Closing shall be held at the offices of the Seller's counsel or at
such other place as the Buyer and the Seller shall mutually agree.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer hereby make the following representations and warranties to
the Seller, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
notice to the Seller and shall survive the Closing.
4.1 Organization and Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified to transact business as a foreign corporation
in the State of Nebraska. The Buyer hereby acknowledges that it is aware of all
of the laws, rules and regulations applicable to Nebraska Limited Liability
Companies, and that the Membership Interest to be purchased by the Buyer from
the Seller pursuant to this Agreement has not been registered under any federal
or state securities laws, rules or regulations. The Buyer further hereby
acknowledges and agrees that it has received and reviewed copies of all
contracts described in Section 1 of the Seller's Disclosure Schedule (the
"Reviewed Contracts"), and that the Buyer accepts the terms of the Reviewed
Contracts as presented to it. The Buyer further acknowledges and agrees that it
will maintain in full force and effect, through Pinnacle, the Rights Agreement
currently existing between Pinnacle and the University, and covenants and
agrees that it will not allow Pinnacle to cease to exist as a Nebraska limited
liability
6
<PAGE>
company as long as the Buyer owes any money to the Seller under the terms and
provisions of this Agreement, the Promissory Note and Guaranty and the Pledge
Agreement.
4.2 Authorization and Binding Obligation. The Buyer has all necessary
power and authority to enter into and perform this Agreement and the
transactions contemplated hereby, and to own the Membership Interest and to
carry on the business of Pinnacle as it is now being conducted, and the Buyer's
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on its part. This Agreement has been duly executed and delivered by the
Buyer, and this Agreement constitutes, and the other agreements to be executed
in connection herewith will constitute, the valid and binding obligation of the
Buyer, enforceable in accordance with their terms, except as limited by laws
affecting the enforcement of creditors' rights or equitable principles
generally.
4.3 Litigation and Compliance with Law. There is no litigation,
administrative, arbitration or other proceeding, or petition, complaint or to
the best of the Buyer's knowledge investigation before any court or
governmental body, pending against the Buyer or any of its principals that
would adversely affect the Buyer's ability to perform its obligations pursuant
to this Agreement or the agreements to be executed in connection herewith. To
the best of the Buyer's knowledge, there is no violation of any law, regulation
or ordinance or any other requirement of any governmental body or court which
would have a material adverse effect on the Buyer or its ability to perform its
obligations pursuant to this Agreement or the agreements to be executed in
connection herewith.
7
<PAGE>
4.4 Accuracy of Information. No written statement made by the Buyer
herein and no information provided by the Buyer herein or in the documents,
instruments or other written communications made or delivered directly by the
Buyer to the Seller in connection with the negotiations covering the purchase
and sale of the Membership Interest contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein or herein not misleading, and there is no fact known to the Buyer which
relates to any information contained in any such written document, instrument
or communications which the Buyer has not disclosed to the Seller in writing
which could materially affect adversely Pinnacle. To the extent that a
representation or other information is made to the Buyer's knowledge or is
otherwise qualified by its terms, this representation shall not be interpreted
to expand such limitations or qualifications.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller hereby makes the following representations and warranties
to the Buyer, each of which is true and correct on the date hereof, shall
remain true and correct to and including the Closing Date, shall be unaffected
by any notice to the Buyer other than in the Disclosure Schedule (as defined
herein) and shall survive the Closing. Such representations and warranties are
subject to, and qualified by, any fact or facts disclosed in the separate
Disclosure Schedule which is annexed hereto (the "Disclosure Schedule").
8
<PAGE>
5.1 Organization and Standing of Pinnacle. Pinnacle is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Nebraska and has the power and authority to own, lease
and operate its assets and to carry on its business as now being conducted and
as proposed to be conducted by Pinnacle between the date hereof and the Closing
Date.
5.2 Authorization and Binding Obligation. The Seller has the power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Seller, and this Agreement constitutes, and the other agreements to be executed
in connection herewith will constitute, the valid and binding obligation of the
Seller, enforceable in accordance with their terms, except as limited by laws
affecting the enforcement of creditor's rights or equitable principles
generally.
5.3 Membership Interests in Pinnacle. The Seller and Paul R. Aaron
("Aaron") are the sole Members of Pinnacle. Except for this Agreement and the
Purchase and Sale Agreement between the Buyer, TSPN, Inc., and Aaron, there is
outstanding no security, option, right, call, subscription, agreement,
commitment or understanding of any nature whatsoever, fixed or contingent, that
directly or indirectly (i) calls for the issuance, sale, pledge or other
disposition of any membership interest in Pinnacle, including the Membership
Interest, or any securities convertible into, or other rights to acquire, any
such membership interest; or (ii) obligates any of Pinnacle or the Seller to
grant, offer or enter into any of the foregoing; or (iii) relates to the voting
or control of the Membership Interest.
9
<PAGE>
5.4 Title to Membership Interest. The sale and delivery of the
Membership Interest to the Buyer pursuant to this Agreement shall vest in the
Buyer legal and valid title to the Membership Interest, free and clear of all
security interests, mortgages, pledges, conditional sales agreements, or other
liens or encumbrances (collectively, "Encumbrances"), other than Encumbrances
created by the Buyer.
5.5 Absence of Conflicting Agreements or Required Consents. To the
best of the Seller's knowledge, except as set forth in Section 4.1 of this
Agreement and in the Disclosure Schedule, the execution, delivery and
performance of this Agreement by the Seller: (a) does not require the consent
of any third party; (b) will not violate any applicable law, judgment, order,
injunction, decree, rule, regulation or ruling of any governmental authority to
which the Seller is a party or by which the Seller or Pinnacle, is bound; (c)
will not, either alone or with the giving of notice or the passage of time, or
both, conflict with, constitute grounds for termination of or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, agreement, instrument, license or permit to which the
Seller or Pinnacle is now subject; and (d) will not result in the creation of
any lien, charge or Encumbrance on Pinnacle or the Membership Interest.
5.6 Government Authorizations. To the best of the Seller's knowledge,
the Reviewed Contracts or the Disclosure Schedule contain a true and complete
list of all material licenses, permits or other authorizations from
governmental and regulatory authorities which are required for the lawful
conduct of the business and operations of Pinnacle in the manner and to the
full extent they are presently conducted. Pinnacle is the authorized legal
holder of the licenses, permits and
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authorizations described in the Reviewed Contracts or on Disclosure Schedule,
none of which is subject to any restrictions or condition which would limit in
any respect the full operation of Pinnacle as now operated except as set forth
therein. To the best of the Seller's knowledge, except as set forth in the
Disclosure Schedule, there are no applications, complaints or proceedings
pending or threatened as of the date hereof relating to the business or
operations of Pinnacle.
5.8 Affiliates. To the best of the Seller's knowledge, Pinnacle does
not own any equity ownership interest, directly or indirectly, in any person,
corporation or other entity.
5.9 Taxes. To the best of the Seller's knowledge, and except as
described on the Disclosure Schedule, Pinnacle has filed all federal, state,
local and foreign income, franchise, sales, use, property, excise, payroll and
other tax returns required by law and has paid in full all taxes, estimated
taxes, interest, assessments, and penalties due and payable. To the best of the
Seller's knowledge, all returns and forms which have been filed have been true
and correct in all material respects and no tax or other payment in a material
amount other than as shown on such returns and forms are required to be paid
and have been paid by Pinnacle. To the best of the Seller's knowledge, there
are no present disputes as to taxes of any nature payable by Pinnacle.
5.10 Personal Property. To the best of the Seller's knowledge, the
Reviewed Contracts or the Disclosure Schedule contain a list of all material
tangible personal property and assets owned or held by Pinnacle and used
primarily or exclusively in the conduct of Pinnacle's business and operations
(the "Personal Property"). To the best of the Seller's knowledge, except as
disclosed in
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the Disclosure Schedule or in the Reviewed Contracts, and except as may be
subject to lease agreements of Pinnacle specifically identified in the
Disclosure Schedule or in the Reviewed Contracts, Pinnacle owns and has, and
will on the Closing Date have, good and marketable title to all such property
(and to all other tangible and intangible personal property and assets
including cash and receivables to be transferred to the Buyer hereunder), and
none of such property is, or at the Closing will be, subject to any Encumbrance
other than as set forth in the Disclosure Schedule. To the best of the Seller's
knowledge, all of the items of tangible personal property and assets included
in the Disclosure Schedule are in all respects in good operating condition
(ordinary wear and tear excepted) and are available for immediate use in the
conduct of the business and operations of Pinnacle. To the best of the Seller's
knowledge, the technical equipment constituting a part of the tangible personal
property has been properly maintained by Pinnacle and is in good operating
condition. To the best of the Seller's knowledge, the properties listed in the
Disclosure Schedule include all such properties used and necessary to conduct
in all material respects the business and operations of Pinnacle as now
conducted.
5.11 Real Property. To the best of the Seller's knowledge, the
Reviewed Contracts or the Disclosure Schedule contain a complete and accurate
list of all real property owned and/or leased by Pinnacle and used by Pinnacle
in its business and operations, together with all agreements, leases and
contracts of Pinnacle relating thereto (collectively, the "Real Estate
Contracts"). To the best of the Seller's knowledge, the Real Estate Contracts
comprising a part of the Reviewed Contracts or listed in the Disclosure
Schedule constitute valid and binding obligations of Pinnacle and of all other
persons purported to be parties thereto and are in full force and effect as of
the date hereof and will
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on the Closing Date constitute valid and binding obligations of Pinnacle and of
all other persons purported to be parties thereto and shall be in full force
and effect. To the best of the Seller's knowledge, except as set forth in the
Disclosure Schedule, Pinnacle is not in default under any of the Real Estate
Contracts, nor has Pinnacle received or given written notice of any default
thereunder from or to any of the other parties thereto.
5.12 Contracts. To the best of the Seller's knowledge, the Reviewed
Contracts or the Disclosure Schedule list the terms of all written and oral
contracts (the "Contracts") as of the date of this Agreement for which Pinnacle
shall continue to be liable as of the Closing Date, except contracts entered
into in the ordinary course of business (i) of less than three (3) months
duration and which impose monetary obligations of no more than Five Thousand
Dollars ($5,000) in the aggregate, or (ii) which are currently scheduled to
expire prior to the Closing Date and for which Pinnacle will no longer be
liable. Those contracts described on the Disclosure Schedule in Sections A, C,
D and E.4 are critical to the consummation of the transactions contemplated
hereby and are identified as "Material Contracts".
5.13 Status of Contracts. To the best of the Seller's knowledge,
except as noted in the Disclosure Schedule, the Seller has delivered to the
Buyer true and complete copies of all written Material Contracts, including any
and all amendments and other modifications to such Material Contracts. To the
best of the Seller's knowledge, all Material Contracts were validly and duly
executed by Pinnacle. To the best of the Seller's knowledge, Pinnacle has
complied in all material respects with all Material Contracts and is not in
default beyond any applicable grace periods under
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any of the Material Contracts, and no other contracting party is in default
under any of the Material Contracts.
5.14 Environmental Matters. To the best of the Seller's knowledge,
Pinnacle has not unlawfully disposed of any hazardous waste or hazardous
substance including Polychlorinated Byphenyls ("PCBs") in a manner which has
caused, or could cause, the Buyer to incur a material liability under
applicable law in connection therewith. To the best of the Seller's knowledge,
Pinnacle has complied in all material respects with all federal, state and
local environmental laws, rules and regulations applicable to Pinnacle's
business and operations. To the best of the Seller's knowledge, no hazardous
waste has been disposed of by Pinnacle and no hazardous waste has been disposed
of by any other person on the real estate owned and/or leased by Pinnacle. As
used herein, the term "hazardous waste" shall mean as defined in the Resource
Conservation and Recovery Act (RCRA) as amended and in the equivalent state
statute under applicable state law.
5.15 Copyrights, Trademarks and Similar Rights. To the best of the
Seller's knowledge, the Disclosure Schedule lists, in all material respects,
all copyrights, trademarks, trade names, licenses, patents, permits and other
similar intangible property rights and interests applied for, issued to or
owned by Pinnacle or under which Pinnacle is a licensee or franchisee and which
are used exclusively or primarily in the conduct of the business and operations
of Pinnacle. To the best of the Seller's knowledge, except as set forth in the
Disclosure Schedule, all of such rights and interests are issued to or owned by
Pinnacle, or if licensed or franchised to Pinnacle are valid and in good
standing and uncontested. To the best of the Seller's knowledge, the Seller has
delivered or made
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available to the Buyer copies of all material documents, if any, establishing
such rights, licenses or other authority. To the best of the Seller's
knowledge, Pinnacle has not received any written notice with respect to, nor
has it any knowledge of, any infringements or unlawful use of such property. To
the best of the Seller's knowledge, the properties listed in the Disclosure
Schedule include all such properties necessary to conduct in all material
respects the business and operations of Pinnacle as now conducted.
5.16 Personnel Information. To the best of the Seller's knowledge, the
Disclosure Schedule contains a true and complete list of all persons employed
by Pinnacle, and the Reviewed Contracts or the Disclosure Schedule describe the
material compensation arrangements and employee benefit plans and other terms
of any and all agreements affecting such persons.
5.16.1 To the best of the Seller's knowledge, Pinnacle is not a
party to any contract with any labor organization, nor has any Pinnacle agreed
to recognize any union or other collective bargaining unit, nor has any union
or other collective bargaining unit been certified as representing any of
Pinnacle's employees. The Seller has no knowledge of any organizational effort
currently being made or threatened by or on behalf of any labor union with
respect to employees of Pinnacle.
5.16.2 To the best of the Seller's knowledge, except as disclosed
in the Disclosure Schedule, Pinnacle has complied in all material respects with
all laws relating to the employment of labor, including, without limitation,
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
those laws relating to wages, hours, collective bargaining, unemployment
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insurance, workers' compensation, equal employment opportunity, sexual
harassment and payment and withholding of taxes. More specifically, to the best
of the Seller's knowledge, Pinnacle has substantially complied with and is not
in default in any material respect under any laws, rules and regulations
relating to employment of labor, including those relating to wages, hours,
equal employment opportunities, sexual harassment, employment of protected
minorities (including women and persons over 40 years of age), collective
bargaining and the withholding and payment of taxes and contributions and has
withheld all amounts required or agreed to be withheld from wages and salaries
of its employees, and is not liable for any arrearage of wages or for any tax
or penalty or failure to comply with the foregoing. To the best of the Seller's
knowledge, there are no claims or complaints pending or threatened against
Pinnacle before any court or governmental agency and involving any alleged
unlawful employment practices, whether or not relating to the laws described
above. To the best of the Seller's knowledge, Pinnacle has not consented to any
decree involving any claim of unfair labor practice nor been held in any
judicial proceeding to have committed any unfair labor practice, and there are
no material controversies pending or threatened between Pinnacle and any of its
employees.
5.17 Financial Statements. To the best of the Seller's knowledge, the
Seller has delivered to the Buyer complete copies of the reviewed balance sheet
of Pinnacle as of December 31, 1996 and the reviewed statements of income of
Pinnacle for the fiscal year ended December 31, 1996, including the notes
thereto (the "Reviewed Statements"). A copy of the internally prepared and
unaudited balance sheet and statements of income of Pinnacle for the two (2)
month period ending February 28, 1997 (the "Interim Statements"; and together
with the Reviewed Statements, the
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"Financial Statements"), shall be contained in the Disclosure Schedule. To the
best of the Seller's knowledge, except as noted therein, the Reviewed
Statements fairly present the consolidated financial position of Pinnacle and
its results of operations as of those dates in conformity with generally
accepted accounting principles consistently applied for such period. To the
best of the Seller's knowledge, Pinnacle has not acquired, either directly or
indirectly, any other corporation, business or assets with respect to which
there is not available financial information.
5.18 Liabilities. To the best of the Seller's knowledge, except as
described in the Reviewed Contracts or as set forth in the Disclosure Schedule
and the Financial Statements, Pinnacle has no debts, obligations or liabilities
of any kind or nature, either direct or indirect, absolute or contingent,
matured or unmatured.
5.19 Absence of Certain Changes or Events. To the best of the Seller's
knowledge, except as described in the Reviewed Contracts or as set forth in the
Disclosure Schedule or except as otherwise contemplated by this Agreement,
since February 28, 1997, there has not been (a) any damage, destruction or
casualty loss to the physical properties of Pinnacle (whether covered by
insurance or not); (b) any material change in the business, operations or
financial condition of Pinnacle; (c) any entry into any transaction, commitment
or agreement (including without limitation any borrowing or capital
expenditure) material to Pinnacle's course of business; (d) any setting aside
or payment of any distribution in cash or property with respect to the Seller's
Membership Interest; (e) any increase in the rate or terms of compensation
payable or to become payable by Pinnacle to its Members, officers or employees
or any increase in the rate or terms of any bonus, pension,
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insurance or other employee benefit plan, payment or arrangement made to, for
or with any such Member, officers or key employees; (f) any change in or
acceleration of sales, or reduction of aggregate administrative, marketing,
advertising and promotional expenses or research expenditures other than in the
ordinary course of business; (g) any sale, transfer or other disposition of any
asset of Pinnacle to any party, including the Seller, except for payment of
third-party obligations incurred in the ordinary course of business in
accordance with Pinnacle's regular payment practices; (h) any termination or
waiver of any rights of value to the business of Pinnacle; or (i) any failure
by Pinnacle to pay its accounts payable or other obligations in the ordinary
course of business consistent with past practices.
5.20 Title to Properties. To the best of the Seller's knowledge,
except as described in the Reviewed Contracts or as set forth on the Disclosure
Schedule, Pinnacle has good and marketable title to all of the assets and
properties which it purports to own and which are reflected on the Financial
Statements, free and clear of all Encumbrances, except for (a) liens for
current taxes not yet due and payable or for taxes the validity of which is
being contested in good faith by appropriate proceedings, and (b) Encumbrances
which individually or in the aggregate do not materially and adversely affect
the business, operations or financial condition of Pinnacle.
5.21 Litigation. To the best of the Seller's knowledge, except as set
forth in the Disclosure Schedule, (a) Pinnacle is not subject to a judgment,
award, order, writ, injunction, arbitration decision or decree materially
adversely affecting the conduct of Pinnacle's business or operations, and there
is no litigation, arbitration, administration or other proceeding or
investigation pending or
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any basis for any person to assert a claim or threatened against Pinnacle in
any federal, state or local court, or before any administrative agency or
arbitrator, or before any other tribunal duly authorized to resolve disputes,
which would reasonably be expected to have any material adverse effect upon the
business, property, assets or condition (financial or otherwise) of Pinnacle or
which seeks to enjoin or prohibit, or otherwise questions the validity of, any
action taken or to be taken pursuant to or in connection with this Agreement;
and (b) in particular, but without limiting the generality of the foregoing,
there are no applications, complaints or proceedings pending or, to the best of
the Seller's knowledge, threatened before any governmental organization with
respect to or adverse to the business or operations of Pinnacle.
5.22 Compliance With Laws. To the best of the Seller's knowledge,
except as set forth in the Disclosure Schedule, (a) Pinnacle has not received
any notice asserting any non-compliance by it in connection with the business
or operation of Pinnacle with any applicable statute, rule or regulation,
whether federal, state or local; (b) Pinnacle is not in default with respect to
any judgment, order, injunction or decree of any court, administrative agency
or other governmental authority or any other tribunal duly authorized to
resolve disputes in any respect material to the transactions contemplated
hereby; and (c) Pinnacle is in compliance with all material laws, regulations
and governmental orders applicable to the conduct of the business and
operations of Pinnacle, the failure to comply with which would have a material
adverse effect on the business, operations or financial condition of Pinnacle,
and its present use of its assets does not violate any of such laws,
regulations or orders, violation of which would have a material adverse effect
on Pinnacle's operations.
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5.23 Insurance. To the best of the Seller's knowledge, all insurance
policies with respect to the properties, assets, operations and business of
Pinnacle (the "Insurance Policies") are in full force and effect. To the best
of the Seller's knowledge, except as set forth in the Disclosure Schedule,
there are no pending claims against the Insurance Policies by Pinnacle as to
which the insurers have denied liability and with respect to which there is a
reasonable likelihood of a settlement or determination adverse to Pinnacle. To
the best of the Seller's knowledge, there are no circumstances existing which
would enable the insurers to avoid liability under the Insurance Policies, nor
are there any other parties having an interest under the Insurance Policies. To
the best of the Seller's knowledge, except as set forth in the Disclosure
Schedule, (i) there exist no material claims under the Insurance Policies that
have not been properly filed by Pinnacle; (ii) no insurance company has refused
to renew any material insurance policy of Pinnacle during the past eighteen
(18) months; and (iii) there have been no material rate or premium increases or
written notice of prospective changes therein on general liability, property or
directors and officers liability Insurance Policies during the past eighteen
(18) months. To the best of the Seller's knowledge, the Reviewed Contracts or
the Disclosure Schedule contain a list that includes all Insurance Policies.
5.24 Accuracy of Information. To the best of the Seller's knowledge,
no written statement made by the Seller herein and no information provided by
the Seller herein or in the documents, instruments or other written
communications made or delivered directly by the Seller to the Buyer in
connection with the negotiations covering the purchase and sale of the
Membership Interest contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein or herein not
misleading and there is no fact known to the Seller which
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relates to any information contained in any such written document, instrument
or communications which the Seller has not disclosed to the Buyer in writing
which materially affects adversely Pinnacle. To the extent that a
representation or other information is made to the Seller's knowledge or is
otherwise qualified by its terms, this representation shall not be interpreted
to expand such limitations or qualifications.
5.25 Accounts Receivable. To the best of the Seller's knowledge, all
accounts receivable reflected on the Interim Statements represent sales
actually made or services actually rendered in the ordinary course of business
on or prior to February 28, 1997; all accounts receivable of Pinnacle as of the
Closing Date will represent sales actually made or services actually rendered
in the ordinary course of business consistent with past practices prior to the
Closing Date.
ARTICLE 6
COVENANTS OF THE BUYER
----------------------
6.1 Closing. On the Closing Date, the Buyer shall purchase the
Membership Interest from the Seller as provided in Article 1 hereof and shall
deliver or cause to be delivered to the Seller the Purchase Price as provided
in Article 2 hereof.
6.2 Notification. The Buyer shall notify the Seller of any litigation,
arbitration or administrative proceeding pending or, to its knowledge,
threatened against the Buyer which challenges the transactions contemplated
hereby.
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6.3 No Inconsistent Action. The Buyer shall not take any other action
which is materially inconsistent with its obligations under this Agreement.
6.4 Required Consents. On the Closing Date, the Buyer shall deliver
any and all necessary third party consents to the execution, delivery and
performance of this Agreement by the Buyer.
6.5 Maintenance of Legal Existence. From and after the Closing Date,
the Buyer shall maintain Pinnacle in good standing under the laws of the State
of Nebraska, and shall maintain the Buyer's corporate existence in good
standing as a foreign corporation duly qualified to transact business under the
laws of the State of Nebraska, until all payments due and owing from the Buyer
to the Seller pursuant to this Agreement, the Promissory Note and Guaranty and
the Pledge Agreement have been paid in full.
6.6 No Assignment, Transfer or Sale. From and after the Closing Date,
the Buyer shall not, without the Seller's prior written consent, sell,
transfer, assign or otherwise encumber all or any portion of the Membership
Interest sold by the Seller to the Buyer pursuant to this Agreement, until all
amounts due and owing from the Buyer to the Seller hereunder and under the
terms and provisions of the Promissory Note and Guaranty or the Pledge
Agreement have been paid in full.
6.7 Maintenance of Rights Agreement. From and after the Closing Date,
the Buyer shall maintain, and cause Pinnacle to maintain, in full force and
effect, and perform and discharge and
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cause Pinnacle to perform and discharge, on a timely basis, all duties and
obligations imposed upon Pinnacle pursuant to and in accordance with the terms
and provisions of the Rights Agreement between Pinnacle and the University, as
identified on the Disclosure Schedule.
6.8 Bankruptcy. From and after the Closing Date, the Buyer shall not
file any voluntary petition in bankruptcy, nor allow Pinnacle to file any
voluntary petition in bankruptcy.
6.9 Release of Seller as Guarantor. On or before the Closing Date, the
Buyer shall deliver to the Seller a written release from Havelock Bank of
Lincoln, Nebraska ("Havelock"), pursuant to which the Seller, as guarantor,
shall have been forever released and discharged from all guarantees executed by
the Seller pursuant to which the Seller has guaranteed any of the debts,
liabilities, duties or obligations of Pinnacle to Havelock, including, but not
limited to, Pinnacle's debts and Letters of Credit Notes with Havelock.
6.10 Event of Default/Acceleration of Obligations. In the event that
the Buyer defaults on any of the terms or provisions of Sections 6.5 through
6.9, the Buyer shall be deemed to be in default under the terms and provisions
of the Promissory Note and Guaranty and this Agreement, and the Seller shall
have the immediate right to declare all amounts due and owing to the Seller
under the terms and provisions of the Promissory Note and Guaranty, plus any
amounts due and owing as a Contingent Payment, payable in full. Regardless of
anything else set forth herein, the provisions set forth in Sections 6.5
through 6.10 shall survive the Closing and remain in full force and effect
until payment of all amounts due to the Seller under the Promissory Note and
Guaranty
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or the Pledge Agreement.
ARTICLE 7
COVENANTS OF THE SELLER
-----------------------
7.1 Pre-Closing Covenants. The Seller covenants and agrees that
between the date hereof and the Closing Date, except as expressly permitted by
this Agreement or with the prior written consent of the Buyer, he and Pinnacle
shall act in accordance with the following:
7.1.1 Pinnacle shall conduct its business and operations in the
ordinary and prudent course of business and with the intent of preserving the
ongoing operations and assets of Pinnacle, including, but not limited to, using
its reasonable best efforts to retain the services of its employees and keeping
in good standing all licenses, permits and authorizations.
7.1.2 Pinnacle shall use reasonable efforts to preserve its
operations intact and to preserve the business of its customers, suppliers,
affiliates and others having business relations with Pinnacle and continue to
conduct the financial operations of Pinnacle, including its credit and
collection policies, in the ordinary course of business with substantially the
same effort, and to substantially the same extent and in the same manner, as in
the prior conduct of the business and operations of Pinnacle.
7.1.3 Pinnacle shall not other than in the ordinary course of
business or in
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accordance with a pre-existing plan or arrangement described in the Reviewed
Contracts or listed in the Disclosure Schedule (i) sell or dispose of or commit
to sell or dispose of any of its assets; (ii) grant or agree to grant any
general increases in the rates of salaries or compensation payable to employees
of Pinnacle; (iii) grant or agree to grant any specific bonus or increase to
any executive or management employee of Pinnacle; or (iv) provide for any new
pension, retirement or other employment benefits for employees of Pinnacle or
any increases in any existing benefits
7.1.4 On the Closing Date, the Seller shall provide the Buyer with
written notice of any change in any of the information contained in the
representations and warranties made in Article 5 hereof or any Exhibits or the
Disclosure Schedule herein or attached hereto.
7.3 Notification. The Seller shall notify the Buyer of any material
litigation, arbitration or administrative proceeding pending or, to his
knowledge, threatened against the Seller which challenges the transactions
contemplated hereby.
7.4 No Inconsistent Action. The Seller shall take no action which is
materially inconsistent with his obligations under this Agreement.
7.5 Closing Covenant. On the Closing Date, the Seller shall sell and
deliver the Membership Interest to the Buyer as provided in Article 1 of this
Agreement.
7.6 Post-Closing Covenant. From and after the Closing Date, provided
the Buyer is not
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in default of its obligations under this Agreement, the Promissory Note and
Guaranty, or the Pledge Agreement, and if the Buyer advises the Seller in
writing that the Seller intends to submit a viable bid or offer to the
University for the new broadcast rights agreement referred to in Section 2.2 of
this Agreement in compliance with the University's conditions for such bid or
offer, and such written notice is delivered to the Seller at least forty-five
(45) days prior to the date on which such bid or offer is due and sets forth
the amount, terms and provisions of the Buyer's or Pinnacle's bid (the
"Buyers's Bid"), the Seller shall not, directly or indirectly, in any manner,
submit a bid or offer to the University in competition with the Buyer's Bid.
This Section 7.6 shall not apply to any entity in which the Seller holds no
more than a 20%, non-voting, economic interest. The parties acknowledge and
agree that no portion of the Purchase Price has been or will be allocated to
the covenant set forth in this Section 7.6.
ARTICLE 8
JOINT COVENANTS
The Buyer and the Seller covenant and agree that between the date
hereof and the Closing Date, they shall act in accordance with the following:
8.1 Conditions. Except as otherwise provided in this Agreement, if any
event should occur, either within or without the control of any party hereto,
which would prevent fulfillment of the conditions upon the obligations of any
party hereto to consummate the transactions contemplated by this Agreement, the
parties hereto shall use their reasonable best efforts to cure the event as
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expeditiously as possible; provided, however, that the Buyer's failure to pay
the portion of the Fixed Purchase Price due on the Closing Date, or to execute
and deliver the Promissory Note and Guaranty and the Pledge Agreement on the
Closing Date, shall not give rise to a delay in the Closing to cure such
failure.
8.2 Confidentiality. The Buyer and the Seller shall each keep
confidential all information obtained by it or them with respect to the other
in connection with this Agreement and the negotiations preceding this
Agreement, and will use such information solely in connection with the
transactions contemplated by this Agreement, and if the transactions
contemplated hereby are not consummated for any reason, each shall return to
the other, without retaining a copy thereof, any schedules, documents or other
written information obtained from the other in connection with this Agreement
and the transactions contemplated hereby. Notwithstanding the foregoing, no
party shall be required to keep confidential or return any information which
(i) is known or available through other lawful sources, not bound by a
confidentiality agreement with the disclosing party, (ii) is or becomes
publicly known through no fault of the receiving party or its agents, (iii) is
required to be disclosed pursuant to an order or request of a judicial or
governmental authority or because of the rules and regulations of the SEC
(provided the other parties are given reasonable prior notice), or (iv) is
developed by the receiving party independently of the disclosure by the
disclosing party.
8.3 Cooperation. The Buyer and the Seller shall cooperate fully with
each other in taking any actions, including actions to obtain the required
consent of any governmental instrumentality or any third party necessary or
helpful to accomplish the transactions contemplated by this
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Agreement; provided, however, that no party shall be required to take any
action which would have a material adverse effect upon it or any affiliated
entity.
ARTICLE 9
CONDITIONS OF CLOSING BY THE BUYER
----------------------------------
The obligations of the Buyer hereunder are, at its option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
9.1 Representations, Warranties and Covenants.
9.1.1 All representations and warranties of the Seller made in
this Agreement shall be true and complete in all material respects as of the
date hereof and on and as of the Closing Date as if made on and as of that
date.
9.1.2 All of the terms, covenants and conditions to be complied
with and performed by the Seller on or prior to Closing Date shall have been
complied with or performed in all material respects.
9.1.3 The Buyer shall have received a certificate, dated as of the
Closing Date, executed by the Seller, to the effect that his representations
and warranties contained in this Agreement are true and complete in all
material respects on and as of the Closing Date as if made
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on and as of that date, and that he has complied with or performed all terms,
covenants and conditions to be complied with or performed by him in all
material respects on or prior to the Closing Date.
9.2 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered against,
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
9.3 Legal Opinion. The Seller shall have delivered to the Buyer a
written opinion of his counsel, dated as of the Closing Date, substantially in
the form attached hereto as Exhibit D.
9.4 Delivery of Certificates. On the Closing Date, the Buyer shall
have received such certificates or documents as shall be required to assign to
the Buyer the Seller's Membership Interest.
9.5 Acquisition of Other Membership Interests. On the Closing Date,
the Buyer and TSPN, Inc., shall have consummated their acquisition of Aaron's
membership interest in Pinnacle (the "Aaron Acquisition") on the terms and
conditions set forth in the Purchase and Sale Agreement between the Buyer,
TSPN, Inc., and Aaron which is being entered into simultaneously with this
Agreement.
29
<PAGE>
9.6 Closing Documents. On the Closing Date, the Seller shall have
delivered or caused to be delivered to the Buyer each of the documents required
to be delivered by the Seller pursuant to Article 12.
ARTICLE 10
CONDITIONS OF CLOSING BY THE SELLER
-----------------------------------
The obligations of the Seller hereunder are, at his option, subject to
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
10.1 Representations, Warranties and Covenants.
10.1.1 All representations and warranties of the Buyer shall be
true and complete in all material respects as of the date hereof and on and as
of the Closing Date as if made on and as of that date.
10.1.2 All the terms, covenants and conditions to be complied
with and performed by the Buyer on or prior to the Closing Date shall have been
complied with or performed in all material respects.
10.1.3 The Seller shall have received a certificate, dated as of
the Closing Date,
30
<PAGE>
executed by a duly qualified officer of the Buyer, to the effect that the
representations and warranties of the Buyer contained in this Agreement are
true and complete in all material respects on and as of the Closing Date as if
made on and as of that date, and that the Buyer has complied with or performed
all terms, covenants and conditions to be complied with or performed by it in
all material respects on or prior to the Closing Date.
10.2 Adverse Proceedings. No suit, action, claim or governmental
proceeding shall be pending against, and no other, decree or judgment of any
court, agency or other governmental authority shall have been rendered against
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
10.3 Legal Opinion. The Buyer shall have delivered to the Seller an
opinion of its corporate counsel, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit E.
10.4 Payment of Purchase Price. The Buyer shall have delivered or
caused to be delivered to the Seller the Purchase Price in accordance with the
terms of Article 2 hereof.
10.5 Closing Documents. On the Closing Date, the Buyer shall have
delivered or caused to be delivered to the Seller each of the documents
required to be delivered by the Buyer pursuant to Article 12.
31
<PAGE>
ARTICLE 11
FEES AND EXPENSES
-----------------
11.1 Expenses. Each party hereto shall be solely responsible for all
costs and expenses incurred by it in connection with the negotiation,
preparation and performance of and compliance with the terms of this Agreement;
provided, however, that any legal or accounting fees incurred by the Seller in
connection with the preparation and closing of this Agreement shall be paid by
Pinnacle and be considered a trade payable of Pinnacle as of the Closing Date.
ARTICLE 12
DOCUMENTS TO BE DELIVERED AT CLOSING
------------------------------------
12.1 The Seller's Documents. At the Closing, the Seller shall deliver
or cause to be delivered to the Buyer the following:
12.1.1 A certificate, dated the Closing Date, by the Seller in
the form described in Section 9.1.3 above;
12.1.2 Governmental certificates showing that Pinnacle is duly
organized as a limited liability company and is in good standing in the State
of Nebraska, dated not more than forty-five (45) calendar days before the
Closing Date;
32
<PAGE>
12.1.3 Copies of the Articles of Organization and Operating
Agreement of Pinnacle, with all amendments thereto, certified by the Managing
Member as of the Closing Date;
12.1.3 The opinion letter, dated the Closing Date, referenced in
Section 10.3 above;
12.1.4 Certificates or other required documentation evidencing
assignment of the Seller's Membership Interest to the Buyer; and
12.1.5 Such additional information and material as the Buyer
shall have requested in a timely manner in writing and which is reasonably
necessary for the Closing.
12.2 The Buyer's Documents. At the Closing, the Buyer shall deliver or
cause to be delivered to the Seller the following:
12.2.1 The Purchase Price in accordance with Section 2.1 hereof.
12.2.2 A certificate, dated the Closing Date, by the Buyer in the
form described in Section 9.1.3 above.
12.2.3 The opinion of the Buyer's corporate counsel, dated the
Closing Date, referenced in Section 9.4;
33
<PAGE>
12.2.4 Governmental certificates showing that the Buyer and
Triathlon are duly incorporated and in good standing in the State of Delaware,
and that the Buyer is duly qualified to transact business in the State of
Nebraska, in each case dated not more than forty-five (45) calendar days before
the Closing Date;
12.2.5 Certified resolutions of the Board of Directors of the
Buyer and Triathlon approving the execution and delivery of this Agreement and
each of the other documents and agreements referred to herein and authorizing
the consummation of the transactions contemplated hereby and thereby;
12.2.6 Copies of the Articles of Incorporation and Bylaws of the
Buyer, and all amendments thereto, certified by the Buyer's corporate secretary
as of the Closing Date;
12.2.7 The Promissory Note and Guaranty, and the Pledge
Agreement; and
12.2.8 Such additional information and material as the Seller
shall have requested in a timely manner in writing and which is reasonably
necessary for the Closing.
ARTICLE 13
INDEMNIFICATION
---------------
13.1 The Seller's Indemnities. The Seller hereby agree to indemnify,
defend and hold the
34
<PAGE>
Buyer harmless with respect to any and all demands, claims, actions, suits,
proceedings, assessments, judgments, costs, losses, damages, liabilities and
expenses (including, without limitation, reasonable attorneys' fees) asserted
against, resulting from, imposed upon or incurred by the Buyer directly or
indirectly relating to or arising out of the inaccuracy of any representation
or warranty, or the breach of any covenant or agreement, contained herein or in
any instrument or certificate delivered pursuant hereto.
13.2 The Buyer's Indemnities. The Buyer hereby agree to indemnify,
defend and hold the Seller harmless with respect to any and all demands,
claims, actions, suits, proceedings, assessments, judgments, costs, losses,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) asserted against, resulting from, imposed upon or incurred by
the Seller directly or indirectly relating to or arising out of the inaccuracy
of any representation or warranty, or the breach of any covenant or agreement,
contained herein or in any instrument or certificate delivered pursuant hereto,
or arising from and after the Closing under Pinnacle's lease for its offices
located in Elkhorn, Nebraska.
13.3 Rights. The Buyer and the Seller agree that the rights of
indemnification provided in this Article 13 are exclusive of and in addition to
any and all other such rights of the Buyer and the Seller hereunder.
13.4 Survival of Representations and Warranties. Except for the
provisions set forth in Sections 6.5 through 6.10 of this Agreement, which
shall survive the Closing until the Seller is paid
35
<PAGE>
in full for all amounts due and owing under this Agreement, the Promissory Note
and Guaranty and the Pledge Agreement, all other representations and warranties
contained herein shall survive the Closing for the period from the Closing Date
through and including December 31, 1997 (the "Claims Period"). Any claim for
indemnification hereunder which arises during the Claims Period must be
asserted by the party seeking indemnification within forty-five (45) days after
such claim arose, or within forty-five (45) days after the date on which the
party seeking indemnification, through reasonable diligence, should have
discovered such claim, whichever occurs last, and upon the expiration of such
forty-five (45) day period such claim shall lapse and be of no further effect.
13.5 Limitation on Indemnity. Notwithstanding anything to the contrary
contained in this Agreement, and subject to the proviso set forth in this
Section 13.5, neither the Buyer nor the Seller shall have any liability or
obligation to the other for breach of any representation, warranty, covenant or
agreement of such other party made in this Agreement except to the extent that
the aggregate of all claims by such other party for such breaches exceed Twenty
Thousand Dollars ($20,000) (the "Threshold Amount") in the aggregate, in which
event the party so liable shall then be liable for all claims for any such
breaches, including the sums constituting the Threshold Amount.
13.6 Procedures.
13.6.1 Promptly after the receipt by any party (the "Indemnified
Party") of notice of (A) any claim or (B) the commencement of any action or
proceeding which may entitle such party to indemnification under this Section,
such party shall give the other party (the "Indemnifying
36
<PAGE>
Party") written notice of such claim or the commencement of such action or
proceeding and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting from such claim. The failure to give the
Indemnifying Party timely notice under this clause shall not preclude the
Indemnified Party from seeking indemnification from the Indemnifying Party
unless such failure has materially prejudiced the Indemnifying Party's ability
to defend the claim or litigation, except as set forth in Section 13.4 of this
Agreement.
13.6.2 If Indemnifying Party assumes the defense of any such
claim or litigation resulting therefrom with counsel reasonably acceptable to
Indemnified Party, the obligations of the Indemnifying Party as to such claim
shall be limited to taking all steps necessary in the defense or settlement of
such claim or litigation resulting therefrom and to holding the Indemnified
Party harmless from and against any losses, damages and liabilities caused by
or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation resulting therefrom;
however, the Indemnified Party may participate, at its or his expense, in the
defense of such claim or litigation provided that the Indemnifying Party shall
direct and control the defense of such claim or litigation. The Indemnified
Party shall cooperate and make available all books and records reasonably
necessary and useful in connection with the defense. The Indemnifying Party
shall not, in the defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment, except with the written consent of the
Indemnified Party, or enter into any settlement, except with the written
consent of the Indemnified Party, which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such claim or litigation.
37
<PAGE>
13.6.3 If the Indemnifying Party shall not assume the defense of
any such claim or litigation resulting therefrom, the Indemnified Party may,
but shall have no obligation to, defend against such claim or litigation in
such manner as it may deem appropriate, and the Indemnified Party may
compromise or settle such claim or litigation without the Indemnifying Party's
consent. The Indemnifying Party shall promptly reimburse the Indemnified Party
for the amount of all expenses, legal or otherwise, incurred by the Indemnified
Party in connection with the defense against or settlement of such claim or
litigation if, and only if, the Indemnifying Party has failed to assume the
defense of such claim or litigation pursuant to Section 13.6.2. If no
settlement of the claim or litigation is made, the Indemnifying Party shall
promptly reimburse the Indemnified Party for the amount of any judgment
rendered with respect to such claim or in such litigation and of all expenses,
legal or otherwise, incurred by the Indemnified Party in the defense against
such claim or litigation if, and only if, the Indemnifying Party has failed to
assume the defense of such claim or litigation pursuant to Section 13.6.2.
ARTICLE 14
TERMINATION RIGHTS
------------------
14.1 Termination. This Agreement may be terminated by either the Buyer
or the Seller if the party seeking to terminate is not in material default or
breach of this Agreement, upon written notice to the other upon the occurrence
of any of the following:
(a) if, on or prior to the Closing Date, a party defaults in any
material
38
<PAGE>
respect in the observance or in the due and timely performance of any of its or
their covenants or agreements herein contained and such material default shall
not be cured within ten (10) calendar days of the date of written notice of
default served by the party claiming such material default; or
(b) if there shall be in effect any judgment, final decree or
order that would prevent or make unlawful the Closing of this Agreement; or
(c) by the Buyer only, if the Buyer and TSPN, Inc., have not
consummated the Aaron Acquisition due to a default by Aaron; or
(d) as provided in Section 15.2 or any other Section of this
Agreement which specifically provides for termination.
14.2 Liability. The termination of this Agreement under Section 14.1
shall not relieve any party of any liability for breach of this Agreement prior
to the date of termination.
ARTICLE 15
OTHER PROVISIONS
----------------
15.1 Liquidated Damages. If the parties hereto shall fail to
consummate this Agreement due to the Buyer' breach of any material
representation, warranty, covenant or condition hereunder, and the Seller is
not at that time in breach of any material representation, warranty, covenant
or
39
<PAGE>
condition hereunder, then the Seller would suffer direct and substantial
damages, which damages cannot be determined within reasonable certainty.
Therefore, because of the expense and delay which would be incurred in such
event by Seller, the Buyer shall pay to the Seller the amount of One Hundred
Eighty Thousand Dollars ($180,000.00), which amount shall constitute liquidated
damages. Forty-Five Thousand Dollars ($45,000.00) of such amount has already
been delivered to the Seller, and an additional One Hundred Thirty Five
Thousand Dollars ($135,000.00) shall be delivered to the Seller by the Escrow
Agent from the Escrow Account. It is understood and agreed that such liquidated
damage amount represents the Buyer's and the Seller's reasonable estimate of
actual damages and does not constitute a penalty. Recovery of liquidated
damages of One Hundred Eighty Thousand Dollars ($180,000.00) shall be the sole
and exclusive remedy of the Seller against the Buyer for failing to consummate
this Agreement on the Closing Date and shall be applicable regardless of the
actual amount of damages sustained.
15.2 Risk of Loss. The risk of loss or damage to the assets of
Pinnacle prior to the Closing Date shall be upon the Seller. The Seller agrees
that Pinnacle shall repair, replace and restore any such damaged or lost asset
to its prior condition, as soon as possible and in no event later than the
Closing Date. Except as provided below, if Pinnacle fails to restore or replace
any such asset having a value exceeding Ten Thousand Dollars ($10,000.00) and
such loss is not insured by Pinnacle for its full replacement value, the Buyer
may elect either to terminate this Agreement pursuant to Article 14 hereof or
to consummate the Closing on the Closing Date. If Pinnacle fails to restore or
replace such asset and the Buyer do not elect to terminate this Agreement, the
Seller shall cause Pinnacle to assign to the Buyer at Closing its rights under
any insurance policy or pay over to the Buyer all
40
<PAGE>
proceeds of insurance covering such asset's damage, destruction or loss. If the
restoration and replacement of any damaged or destroyed property has not been
completed at the time the Closing would otherwise be held, then unless the
Seller and the Buyer otherwise agree, the Closing Date shall be delayed and
shall take place within fifteen (15) calendar days after the Seller gives
written notice to the Buyer of completion of the restoration or replacement of
such asset.
15.3 Specific Performance. In the event of a material breach by the
Seller of his representations and obligations hereunder, not cured within ten
(10) calendar days after written notice to that effect from the Buyer, the
Buyer shall have the right to bring an action to enforce the terms of this
Agreement by decree of specific performance, it being agreed that the
Membership Interest to be transferred hereunder is unique and not readily
available in the open market, and the Seller thereby further agrees to waive
any and all defenses against any such action for specific performance based on
the grounds that there is an adequate remedy for money damages available.
15.4 Further Assurances. After the Closing, the Seller shall from time
to time, at the request of and without further cost or expense to the Buyer,
execute and deliver such other instruments of conveyance and transfer and take
such other actions as may reasonably be requested in order to more effectively
consummate the transactions contemplated hereby to vest in the Buyer good and
marketable title to the Membership Interest being transferred hereunder.
15.5 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party may
41
<PAGE>
voluntarily or involuntarily assign its interest under this Agreement without
the prior written consent of the other party.
15.6 Entire Agreement. This Agreement, the Disclosure Schedule and the
Exhibits hereto embody the entire agreement and understanding of the parties
hereto and supersede any and all prior agreements, arrangements and
understandings relating to the matters provided for herein. In the event of a
conflict between the terms of this Agreement and any other agreement executed
in connection herewith, the terms of this Agreement shall prevail. No
amendment, waiver of compliance with any provision or condition hereof or
consent pursuant to this Agreement shall be effective unless evidenced by an
instrument in writing signed by the party against whom enforcement of any
waiver, amendment, change, extension or discharge is sought.
15.7 Headings. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
15.8 Governing Law. The construction and performance of this Agreement
shall be governed by the laws of the State of Nebraska without giving effect to
the choice of law provisions thereof. The parties hereto hereby acknowledge and
agree that the sole and only forum for litigating any issues which may arise
between the parties under this Agreement shall be the District Court of
Lancaster County, Nebraska.
15.9 Notices. Any notice, demand or request required or permitted to
be given under the
42
<PAGE>
provisions of this Agreement shall be in writing and shall be deemed to have
been duly delivered and received on the date of personal delivery or on the
date of receipt, if mailed by registered or certified mail, postage prepaid and
return receipt requested, or on the date of a stamped receipt, if sent by an
overnight delivery service, or on the date of written confirmation of delivery
by facsimile or telecopy transmission, and shall be addressed to the following
addresses, or to such other address as any party may request, in the case of
the Seller, by notifying the Buyer, and in the case of the Buyer, by notifying
the Seller:
To the Seller: Dale M. Jensen
2417 Ridge Road
Lincoln, Nebraska 68512
Telecopy No.
With a Copy to: W. Michael Morrow, Esq.
Morrow, Poppe, Otte, Watermeier & Phillips, P.C.
201 North 8th Street, Suite 300
Lincoln, Nebraska 68508
Telecopy No. (402) 474-5020
To the Buyer: Triathlon Sports Programming, Inc.
Symphony Towers
750 B Street, Suite 1920
San Diego, California 92101
Att: Mr. Norman Feuer
President
Telecopy No. (619) 239-4270
With a Copy to: Richard A. Liese, Esq.
The Sillerman Companies
150 East 58th Street
19th Floor
New York, New York 10155
Telecopy No. (212) 486-4830
43
<PAGE>
15.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
TRIATHLON SPORTS PROGRAMMING, INC.
By:
------------------------------------
Norman Feuer
President
---------------------------------------
Dale M. Jensen
44
<PAGE>
LIST OF SUBSIDIARIES OF TRIATHLON BROADCASTING COMPANY
STATE OF
INCORPORATION
-------------
Triathlon Broadcasting of Little Rock, Inc. Delaware
Triathlon Broadcasting of Omaha, Inc. Delaware
Triathlon Broadcasting of Lincoln, Inc. Delaware
Triathlon Broadcasting of Spokane, Inc. Delaware
Triathlon Broadcasting of Tri-Cities, Inc. Delaware
Triathlon Broadcasting of Wichita, Inc. Delaware
Wichita Operating Company New York
Wichita Acquisition Corp. New York
Triathlon Sports Programming, Inc. Delaware
TSPN, Inc. Delaware
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-21267) of Triathlon Broadcasting Company and in the related
Prospectus of our report dated April 4, 1997, except for Note 13, as to which
the date is April 25, 1997, with respect to the consolidated financial
statements of Triathlon Broadcasting Company included in this Annual Report
(Form 10-KSB) for the transition period from April 1, 1996 to December 31,
1996.
Ernst & Young LLP
New York, New York
May 9, 1997
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<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,083,000
<SECURITIES> 0
<RECEIVABLES> 5,003,000
<ALLOWANCES> 405,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,970,000
<PP&E> 8,112,000
<DEPRECIATION> 578,000
<TOTAL-ASSETS> 88,394,000
<CURRENT-LIABILITIES> 3,478,000
<BONDS> 0
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6,000
<COMMON> 48,000
<OTHER-SE> 64,322,000
<TOTAL-LIABILITY-AND-EQUITY> 88,394,000
<SALES> 18,908,000
<TOTAL-REVENUES> 16,902,000
<CGS> 0
<TOTAL-COSTS> 13,975,000
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,004,000
<INCOME-PRETAX> 156,000
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