<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TRIATHLON BROADCASTING COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount previously paid:
-----------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------
(3) Filing Party:
---------------------------------------------------
(4) Date Filed:
-----------------------------------------------------
<PAGE>
[TRIATHLON BROADCASTING COMPANY LOGO]
SYMPHONY TOWERS
750 B STREET, SUITE 1920
SAN DIEGO, CALIFORNIA 92101
February 12, 1999
To Our Stockholders:
On behalf of the Board of Directors of Triathlon Broadcasting Company
("Triathlon"), I cordially invite you to attend the Special Meeting of
Stockholders of Triathlon (the "Special Meeting") to be held at 10:00 a.m.,
local time, on Wednesday, March 24, 1999, at the offices of Winston & Strawn,
200 Park Avenue, 41st Floor, New York, New York 10166.
At the Special Meeting, you will be asked to adopt the Agreement and
Plan of Merger, dated as of July 23, 1998 (the "Merger Agreement"), among
Capstar Radio Broadcasting Partners, Inc. ("Buyer"), TBC Radio Acquisition
Corp. ("Buyer Sub") and Triathlon, as well as the merger of Buyer Sub with and
into Triathlon. The Merger Agreement provides for Triathlon to become a
wholly-owned subsidiary of Buyer in a transaction (the "Merger") valuing
Triathlon's equity (not including the assumption of approximately $59.5 million
of debt) at approximately $130 million, representing approximately 13 times
Triathlon's broadcast cash flow for 1997. Pursuant to the Merger, among other
things, each share (other than shares held by stockholders who perfect their
statutory appraisal rights) of Triathlon's (a) Class A Common Stock, Class B
Common Stock, Class C Common Stock and Class D Common Stock (collectively, the
"Common Stock") will convert into the right to receive $13.00, and (b) Series B
Preferred Stock will convert into the right to receive $.01. All shares of
Series B Preferred Stock are held by members of Triathlon's management and
officers of Sillerman Communications Management Corporation, Triathlon's
principal financial adviser. In addition, each Depositary Share will be
entitled to receive $10.83, plus accrued and unpaid dividends up to and
including the date immediately prior to the Merger on one-tenth of a share of
9% Mandatory Convertible Preferred Stock (the "Mandatory Preferred Stock").
Each Depositary Share is currently convertible into .833 of a share of Class A
Common Stock, and the Depositary Share payment is equivalent to .833 of the
merger consideration for a share of Class A Common Stock. The merger
consideration is subject to increase under certain circumstances, as set forth
in the Merger Agreement. In addition, the amount to be paid in respect of each
Depositary Share is subject to increase under certain circumstances, as set
forth in "Summary--Certain Legal Proceedings" in the attached Proxy Statement.
As previously announced, Triathlon had engaged Goldman Sachs & Co. to
explore opportunities to maximize stockholder value, including the outright
sale of Triathlon, a sale of its assets or the combination of Triathlon with
other companies. The entering into of this merger transaction was the result of
Triathlon's full exploration of its strategic options. Goldman Sachs & Co. has
rendered a written opinion to the Board of Directors that, as of July 23, 1998,
the consideration to be received by the holders of Common Stock pursuant to the
Merger Agreement was fair from a financial point of view to such holders.
Adoption of the Merger Agreement will require the affirmative vote of
the holders of a majority of the voting power of all shares of Triathlon's
Class A Common Stock, shares of Class B Common Stock and shares of Mandatory
Preferred Stock (collectively, the "Voting Stock") outstanding on February 1,
1999, the record date, voting together as a single class (with each share of
Class A Common Stock entitled to one vote, each share of Class B Common Stock
entitled to ten votes and each share of Mandatory Preferred Stock entitled to
eight votes). ChaseMellon Shareholder Services L.L.C., as depositary (the
"Depositary"), holds all outstanding shares of Mandatory Preferred Stock and
has issued Depositary Shares, each representing a one-tenth interest in a share
of Mandatory Preferred Stock. Pursuant to the Deposit Agreement relating to the
Depositary Shares, holders of Depositary Shares on the record date for the
Special Meeting will be entitled to direct the Depositary to vote four-fifths
(0.8) of a vote per Depositary Share, which may be
<PAGE>
exercised by instructing the Depositary using the Voting Instruction Card
delivered, along with the attached Proxy Statement, to holders of Depositary
Shares.
I and three other stockholders of Triathlon beneficially own all of
the outstanding shares of Class B Common Stock, which represent approximately
53% of the combined voting power of the Voting Stock. Each of us has agreed to
vote all of his or its shares of capital stock of Triathlon in favor of the
Merger. Accordingly, passage of the proposal to adopt the Merger Agreement is
assured.
YOUR BOARD OF DIRECTORS (WITH MYSELF ABSTAINING DUE TO A POTENTIAL
CONFLICT OF INTEREST) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THEY ARE ADVISABLE, FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TRIATHLON. YOUR BOARD OF
DIRECTORS (WITH MYSELF ABSTAINING DUE TO A POTENTIAL CONFLICT OF INTEREST)
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE MERGER AGREEMENT. IN
ADDITION, THE INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS, WHICH WAS
APPOINTED TO MAKE A RECOMMENDATION TO THE FULL BOARD OF DIRECTORS ON ANY
ACQUISITION PROPOSALS INVOLVING TRIATHLON, HAS RECOMMENDED TO THE BOARD OF
DIRECTORS THAT IT APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS
OF TRIATHLON AND THAT THE BOARD OF DIRECTORS DECLARE ADVISABLE AND RECOMMEND
THE ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF TRIATHLON.
Details of the proposed Merger appear in the accompanying Proxy
Statement. Please give this material your careful attention.
PURSUANT TO SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW,
HOLDERS OF RECORD OF SHARES OF STOCK OF TRIATHLON ON THE RECORD DATE FOR THE
SPECIAL MEETING WHO HOLD THEIR SHARES THROUGH THE TIME OF THE MERGER AND WHO DO
NOT VOTE IN FAVOR OF THE MERGER MAY SEEK AN APPRAISAL OF THE FAIR VALUE OF
THEIR SHARES, EXCLUSIVE OF ANY ELEMENT OF VALUE ARISING FROM THE EXPECTATION OR
ACCOMPLISHMENT OF THE MERGER. STOCKHOLDERS WHO ARE CONSIDERING SEEKING
APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED BY
SECTION 262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE VALUE OF THE
MERGER CONSIDERATION THAT THEY WOULD OTHERWISE RECEIVE IF THEY DID NOT SEEK
APPRAISAL OF THEIR SHARES. IN ADDITION, STOCKHOLDERS SHOULD BE AWARE THAT THE
BOARD OF DIRECTORS OF TRIATHLON HAS DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY ARE ADVISABLE, FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF TRIATHLON AND THAT GOLDMAN SACHS & CO. HAS
RENDERED AN OPINION TO THE BOARD OF DIRECTORS THAT, AS OF JULY 23, 1998, THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT WAS FAIR FROM A FINANCIAL POINT OF VIEW TO SUCH HOLDERS. A
STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS MUST DELIVER TO TRIATHLON,
BEFORE THE VOTE ON THE ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING,
A WRITTEN DEMAND FOR APPRAISAL OF THE HOLDER'S SHARES OF STOCK AND MUST COMPLY
WITH THE OTHER REQUIREMENTS OF SECTION 262. HOLDERS OF DEPOSITARY SHARES WHO
WISH TO EXERCISE APPRAISAL RIGHTS IN RESPECT OF THE MANDATORY PREFERRED STOCK
REPRESENTED THEREBY MUST NOTIFY THE DEPOSITARY IN WRITING AND MUST COMPLY WITH
THE OTHER REQUIREMENTS OF SECTION 262. A COPY OF SECTION 262 IS ATTACHED TO THE
ACCOMPANYING PROXY STATEMENT AS ANNEX E.
Whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy or Voting Instruction Card and
return it in the enclosed prepaid envelope. If you hold shares of Class A
Common Stock or Class B Common Stock and attend the Special Meeting, you may
vote in person even if you have previously returned your proxy card. If you
hold Depositary Shares and attend the Special Meeting, you may direct the
Depositary how to vote your Depositary Shares even if you have previously
returned a Voting Instruction Card. Your prompt cooperation will be greatly
appreciated.
Sincerely,
Norman Feuer
Chief Executive Officer and President
- ii -
<PAGE>
[TRIATHLON BROADCASTING COMPANY LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 24, 1999
To the stockholders of Triathlon Broadcasting Company:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of
Triathlon Broadcasting Company, a Delaware corporation ("Triathlon"), will be
held at 10:00 a.m., local time, on Wednesday, March 24, 1999, at the offices of
Winston & Strawn, 200 Park Avenue, 41st Floor, New York, New York 10166, for
the following purposes:
1. To vote on a proposal to adopt the Agreement and Plan of Merger,
dated as of July 23, 1998 (the "Merger Agreement"), among Capstar
Radio Broadcasting Partners, Inc., a Delaware corporation
("Buyer"), TBC Radio Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Buyer Sub"), and
Triathlon pursuant to which Buyer Sub will merge with and into
Triathlon (the "Merger"). Pursuant to the Merger, Triathlon will
become a wholly-owned subsidiary of Buyer and, among other
things, holders of Triathlon's Class A Common Stock, Class B
Common Stock, Class C Common Stock and Class D Common Stock will
receive $13.00 per share and holders of Triathlon's Depositary
Shares will receive $10.83 per share, plus accrued and unpaid
dividends up to and including the date immediately prior to the
Effective Time (as defined in the Proxy Statement) on one-tenth
of a share of 9% Mandatory Convertible Preferred Stock (the
"Mandatory Preferred Stock"), subject to increase in certain
circumstances, as set forth in the Merger Agreement, which is
described in and attached as Annex A to, the accompanying Proxy
Statement. In addition, the amount to be paid in respect of each
Depositary Share is subject to increase under certain
circumstances, as set forth in "Summary--Certain Legal
Proceedings" in the Proxy Statement.
2. To transact any other business that may properly come before the
Special Meeting and any adjournments or postponements thereof.
Only holders of record of shares of Class A Common Stock, Class B
Common Stock and Mandatory Preferred Stock of Triathlon outstanding on February
1, 1999 (the "Record Date"), will be entitled to vote at the Special Meeting
and any adjournments or postponements thereof. Such shares will vote together
as a single class, with each share of Class A Common Stock entitled to one
vote, each share of Class B Common Stock entitled to ten votes and each share
of Mandatory Preferred Stock entitled to eight votes. All outstanding shares of
Mandatory Preferred Stock are held by ChaseMellon Shareholder Services L.L.C.,
as depositary (the "Depositary"), which has issued Depositary Shares, each
representing a one-tenth interest in a share of Mandatory Preferred Stock.
Pursuant to the Deposit Agreement relating to the Depositary Shares, holders of
Depositary Shares on the Record Date will be entitled to direct the voting of
one-tenth of a share of Mandatory Preferred Stock per Depositary Share (which
is equivalent to four-fifths (0.8) of a vote per Depositary Share), which may
be exercised by instructing the Depositary using the Voting Instruction Card
delivered to holders of Depositary Shares with the accompanying Proxy
Statement.
PURSUANT TO SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW,
HOLDERS OF RECORD OF SHARES OF STOCK OF TRIATHLON ON THE RECORD DATE WHO HOLD
THEIR SHARES THROUGH THE TIME OF THE MERGER AND WHO DO NOT VOTE IN FAVOR OF THE
MERGER MAY SEEK AN APPRAISAL OF THE FAIR VALUE OF THEIR SHARES, EXCLUSIVE OF
ANY ELEMENT OF VALUE ARISING FROM THE EXPECTATION OR ACCOMPLISHMENT OF THE
MERGER. STOCKHOLDERS WHO ARE CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT
THE FAIR VALUE OF THEIR SHARES AS DETERMINED BY SECTION 262 COULD BE MORE THAN,
THE SAME AS OR LESS THAN THE VALUE OF THE MERGER CONSIDERATION THAT THEY WOULD
OTHERWISE RECEIVE IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. IN ADDITION,
STOCKHOLDERS SHOULD BE AWARE THAT THE BOARD OF DIRECTORS OF TRIATHLON HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
TRIATHLON AND THAT GOLDMAN SACHS & CO. HAS RENDERED AN OPINION TO THE BOARD OF
DIRECTORS THAT, AS OF JULY 23, 1998, THE CONSIDERATION TO BE RECEIVED BY THE
HOLDERS OF COMMON STOCK PURSUANT TO THE MERGER AGREEMENT WAS FAIR FROM A
FINANCIAL POINT OF VIEW TO SUCH HOLDERS. A STOCKHOLDER WISHING TO EXERCISE
APPRAISAL RIGHTS MUST DELIVER TO TRIATHLON, BEFORE THE VOTE ON THE ADOPTION OF
THE MERGER AGREEMENT AT THE SPECIAL MEETING, A WRITTEN DEMAND FOR APPRAISAL OF
THE HOLDER'S SHARES OF STOCK AND MUST COMPLY WITH THE OTHER REQUIREMENTS OF
SECTION 262. HOLDERS OF DEPOSITARY SHARES WHO WISH TO EXERCISE APPRAISAL RIGHTS
IN RESPECT OF THE MANDATORY PREFERRED STOCK REPRESENTED THEREBY MUST NOTIFY THE
DEPOSITARY IN WRITING AND MUST COMPLY WITH THE OTHER REQUIREMENTS OF SECTION
262. A COPY OF SECTION 262 IS ATTACHED TO THE ACCOMPANYING PROXY STATEMENT AS
ANNEX E.
By Order of the Board of Directors
Kraig G. Fox
Secretary
San Diego, California
February 12, 1999
All stockholders are cordially invited to attend the Special Meeting.
To ensure your representation at the Special Meeting, however, you are urged to
mark, sign, date and return the enclosed proxy card or Voting Instruction Card
in the accompanying envelope, whether or not you expect to attend the Special
Meeting. No postage is required if mailed in the United States. Any holder of
Class A
<PAGE>
Common Stock or Class B Common Stock attending the Special Meeting may vote in
person even if that stockholder has returned a proxy card. Any holder of
Depositary Shares attending the Special Meeting may direct the Depositary how
to vote the Mandatory Preferred Stock represented by its Depositary Shares even
if that holder has returned a Voting Instruction Card.
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
WE HAVE SENT PROXY CARDS
TO HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
AND VOTING INSTRUCTION CARDS TO HOLDERS OF DEPOSITARY SHARES
TO VOTE YOUR SHARES, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD OR VOTING INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
PLEASE DO NOT SEND US YOUR TRIATHLON STOCK CERTIFICATES.
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<PAGE>
[TRIATHLON BROADCASTING COMPANY LOGO]
PROXY STATEMENT
--------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 24, 1999
--------------------------------------------
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of Triathlon Broadcasting Company, a Delaware corporation
("Triathlon"), in connection with the solicitation of proxies by Triathlon's
Board of Directors for use at a Special Meeting of Stockholders (the "Special
Meeting") to be held at the offices of Winston & Strawn, 200 Park Avenue, 41st
Floor, New York, New York 10166, on Wednesday, March 24, 1999 at 10:00 a.m.,
local time, or at any adjournments or postponements thereof, for the purposes
set forth in the accompanying Notice of Special Meeting of Stockholders. This
Proxy Statement and the related proxy cards and Voting Instruction Cards are
first being mailed to Triathlon's stockholders on or about February 16, 1999.
Proxy cards have been sent to holders of Triathlon's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), and Triathlon's Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"), and Voting
Instruction Cards have been sent to holders of Triathlon's Depositary Shares
(the "Depositary Shares"), each representing a one-tenth interest in a share of
Triathlon's 9% Mandatory Convertible Preferred Stock, par value $.01 per share
(the "Mandatory Preferred Stock").
At the Special Meeting, the holders of record on February 1, 1999 (the
"Record Date") of shares of Class A Common Stock, Class B Common Stock and
Mandatory Preferred Stock will be asked:
1. to vote on a proposal to adopt the Agreement and Plan of Merger,
dated as of July 23, 1998 (the "Merger Agreement"), among Capstar
Radio Broadcasting Partners, Inc., a Delaware corporation
("Buyer"), TBC Radio Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Buyer Sub"), and
Triathlon, and the merger of Buyer Sub with and into Triathlon
(the "Merger"), whereby Triathlon will become a wholly-owned
subsidiary of Buyer; and
2. to transact any other business that may properly come before the
Special Meeting or any adjournments or postponements thereof.
When a Certificate of Merger relating to the Merger is filed with the
Secretary of State of the State of Delaware or as otherwise specified in such
Certificate of Merger (the "Effective Time"), Buyer Sub will merge with and
into Triathlon, with Triathlon as the surviving corporation (the "Surviving
Corporation"). At the Effective Time, each outstanding share (except for shares
of holders who perfect and exercise dissenters' appraisal rights) of
Triathlon's (a) Class A Common Stock, Class B Common Stock, Class C Common
Stock, par value $.01 per share (the "Class C Common Stock"), and Class D
Common Stock, par value $.01 per share (the "Class D Common Stock" and,
collectively with the Class A Common Stock, the Class B Common Stock and the
Class C Common Stock, the "Common Stock"), will convert into the right to
receive $13.00 (the "Common Stock Merger Consideration"), (b) Mandatory
Preferred Stock will convert into the right to receive $108.30, plus accrued
and unpaid dividends up to and including the date immediately prior to the
Effective Time (the "Mandatory Preferred Stock Merger Consideration"), and (c)
Series B Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock"), will convert into the right to receive $.01. Pursuant to the
Deposit Agreement, dated as of March 8, 1996, between Triathlon and ChaseMellon
Shareholder Services L.L.C., as depositary (the "Depositary"), relating to the
Depositary Shares (the "Deposit Agreement"), each Depositary Share, which
represents one-tenth of a share of Mandatory Preferred Stock, will be
<PAGE>
entitled to receive one-tenth of the Mandatory Preferred Stock Merger
Consideration, or $10.83 plus accrued and unpaid dividends up to and including
the date immediately prior to the Effective Time on one-tenth of a share of
Mandatory Preferred Stock (the "Depositary Share Merger Consideration"). The
Depositary Share Merger Consideration is equivalent to .833 of the Common Stock
Merger Consideration, which represents the fraction of a share of Class A
Common Stock into which each Depositary Share is currently convertible. Each
such amount will be payable in cash, without interest. Pursuant to the Merger
Agreement, holders of derivative securities of Triathlon will be able to
receive an amount in respect of such securities which is generally equal to the
difference between $13.00 and the exercise price of the derivative security.
See "The Merger Agreement."
The Common Stock Merger Consideration and the Depositary Share Merger
Consideration are subject to increase under certain circumstances, as set forth
in the Merger Agreement. See "The Merger Agreement--Closing Extension and
Adjustment to Merger Consideration." In addition, the Depositary Share Merger
Consideration is subject to increase under certain circumstances, as set forth
in "Summary--Certain Legal Proceedings."
The Merger will be a taxable transaction to Triathlon's stockholders
for federal income tax purposes. See "Certain Federal Income Tax Consequences
of the Merger."
A conformed copy of the Merger Agreement is included as Annex A to
this Proxy Statement. The summaries of portions of the Merger Agreement set
forth in this Proxy Statement do not purport to be complete; they are subject
to, and are qualified in their entirety by reference to, the text of the Merger
Agreement.
The Board of Directors (with Norman Feuer abstaining due to a
potential conflict of interest) has unanimously approved the Merger Agreement
and the transactions contemplated thereby and determined that they are
advisable, fair to and in the best interests of the stockholders of Triathlon.
The Board of Directors (with Norman Feuer abstaining due to a potential
conflict of interest) unanimously recommends that Triathlon's stockholders
adopt the Merger Agreement. In addition, the Independent Committee of the Board
of Directors, which was appointed to make a recommendation to the full Board of
Directors on any acquisition proposals involving Triathlon (the "Independent
Committee"), has recommended to the Board of Directors that it approve the
Merger Agreement and the transactions contemplated thereby as fair to and in
the best interests of the stockholders of Triathlon and that the Board of
Directors declare advisable and recommend the adoption of the Merger Agreement
by the stockholders of Triathlon.
Goldman Sachs & Co. ("Goldman Sachs") acted as financial advisor to
Triathlon in connection with the Merger. Goldman Sachs has rendered a written
opinion to the Board of Directors that, as of July 23, 1998, the consideration
to be received by the holders of Common Stock pursuant to the Merger Agreement
was fair from a financial point of view to such holders. A copy of the full
text of that written opinion is attached hereto as Annex B and should be read
in its entirety by the stockholders of Triathlon.
As of the Record Date, there were outstanding 3,175,645 shares of
Class A Common Stock, 886,811 shares of Class B Common Stock and 583,400 shares
of Mandatory Preferred Stock. In addition, as of the Record Date, Triathlon had
outstanding 31,000 shares of Class C Common Stock, 802,445 shares of Class D
Common Stock, 565,000 shares of Series B Preferred Stock and certain warrants,
stock options and stock appreciation rights ("SARs"), none of which are
entitled to vote at the Special Meeting. The holders of such warrants, stock
options and SARs are not entitled to exercise dissenters' appraisal rights.
Adoption of the Merger Agreement will require the affirmative vote of
the holders of a majority of the voting power of all outstanding shares of
Class A Common Stock, shares of Class B Common Stock and shares of Mandatory
Preferred Stock (collectively, the "Voting Stock"), voting together as a single
class (with each share of Class A Common Stock entitled to one vote, each share
of Class B Common Stock entitled to ten votes and each share of Mandatory
Preferred Stock entitled to eight votes). All outstanding shares of Mandatory
Preferred Stock are held by the Depositary, which has issued Depositary Shares,
each representing a one-tenth interest in a share of Mandatory Preferred Stock.
Pursuant to the Deposit Agreement, holders of Depositary Shares on the Record
Date will be entitled to direct the voting of one-tenth of a share of Mandatory
Preferred Stock per Depositary Share (which is equivalent to four-fifths (0.8)
of a vote per Depositary Share), which may be exercised by instructing the
Depositary using the Voting Instruction Card delivered to holders of Depositary
Shares with this Proxy Statement.
Mr. Feuer, Robert F.X. Sillerman, Howard J. Tytel and Tomorrow
Foundation (the "Foundation") (collectively, the "Named Stockholders") have
agreed to vote all of their shares of Triathlon's capital stock in favor of the
adoption
(cover page continued)
- ii -
<PAGE>
of the Merger Agreement. The Named Stockholders hold all of the outstanding
shares of Class B Common Stock, representing approximately 53% of the combined
voting power of the Voting Stock. Accordingly, passage of the proposal to adopt
the Merger Agreement is assured. See "The Merger--Stockholder Agreements" and
"Principal Stockholders."
A HOLDER OF RECORD OF SHARES OF STOCK OF TRIATHLON (INCLUDING A HOLDER
OF RECORD OF THE MANDATORY PREFERRED STOCK) ON THE RECORD DATE WHO HOLDS HIS OR
HER SHARES THROUGH THE TIME OF THE MERGER, WHO DOES NOT VOTE IN FAVOR OF THE
MERGER AND WHO COMPLIES WITH THE OTHER REQUIREMENTS OF SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW (THE "DGCL") WILL BE ENTITLED TO EXERCISE
DISSENTERS' APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER. A STOCKHOLDER
WISHING TO EXERCISE DISSENTERS' APPRAISAL RIGHTS MUST DELIVER TO TRIATHLON,
BEFORE THE VOTE ON THE ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING,
A WRITTEN DEMAND FOR APPRAISAL OF THE HOLDER'S SHARES OF STOCK. A VOTE AGAINST
ADOPTION OF THE MERGER AGREEMENT WILL NOT SATISFY THIS REQUIREMENT.
ANY DEMAND FOR APPRAISAL MUST BE MADE BY THE HOLDER OF RECORD OF THE
SHARES. STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER
NOMINEE FORMS AND WHO WISH TO EXERCISE APPRAISAL RIGHTS SHOULD CONSULT WITH
THEIR BROKERS OR NOMINEES TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE
MAKING OF A DEMAND FOR APPRAISAL BY THE BROKER OR NOMINEE. THE HOLDER OF RECORD
OF THE SHARES OF MANDATORY PREFERRED STOCK IS THE DEPOSITARY. ACCORDINGLY, A
HOLDER OF DEPOSITARY SHARES WHO WISHES TO EXERCISE DISSENTERS' APPRAISAL RIGHTS
WITH RESPECT TO THE SHARES OF MANDATORY PREFERRED STOCK REPRESENTED BY HIS OR
HER DEPOSITARY SHARES MUST NOTIFY THE DEPOSITARY IN WRITING BEFORE THE VOTE ON
THE ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
WITHIN 120 DAYS AFTER THE MERGER, A HOLDER OF RECORD WHO HAS COMPLIED
WITH THE FOREGOING PROCEDURES MUST FILE A PETITION FOR APPRAISAL WITH THE
DELAWARE COURT OF CHANCERY DEMANDING AN APPRAISAL OF THE "FAIR VALUE" OF HIS OR
HER SHARES. THE COURT WILL DETERMINE THE "FAIR VALUE" OF THE SHARES EXCLUSIVE
OF ANY ELEMENT OF VALUE ARISING FROM THE ACCOMPLISHMENT OR EXPECTATION OF THE
MERGER AND MAY AWARD INTEREST ON THE AMOUNT DETERMINED TO BE FAIR VALUE.
STOCKHOLDERS WHO ARE CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE
FAIR VALUE OF THEIR SHARES AS DETERMINED BY SECTION 262 COULD BE MORE THAN, THE
SAME AS OR LESS THAN THE VALUE OF THE MERGER CONSIDERATION THAT THEY WOULD
OTHERWISE RECEIVE IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. IN ADDITION,
STOCKHOLDERS SHOULD BE AWARE THAT THE BOARD OF DIRECTORS OF TRIATHLON HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
TRIATHLON AND THAT GOLDMAN SACHS & CO. HAS RENDERED AN OPINION TO THE BOARD OF
DIRECTORS THAT, AS OF JULY 23, 1998, THE CONSIDERATION TO BE RECEIVED BY THE
HOLDERS OF COMMON STOCK PURSUANT TO THE MERGER AGREEMENT WAS FAIR FROM A
FINANCIAL POINT OF VIEW TO SUCH HOLDERS. A COPY OF SECTION 262 OF THE DGCL IS
ATTACHED TO THIS PROXY STATEMENT AS ANNEX E. SEE "THE MERGER--RIGHTS OF
DISSENTING STOCKHOLDERS" FOR A DISCUSSION OF SECTION 262.
Although it is possible that the Merger may not occur for several
months after the Special Meeting, and that the information regarding Triathlon
will change materially from that contained or incorporated by reference herein,
Triathlon's stockholders will not be entitled to another vote on the proposal
to adopt the Merger Agreement. See "Risk Factors--Potential Delay Between
Special Meeting and Merger; Changes in Triathlon." Triathlon anticipates that
the shares of Class A Common Stock and the Depositary Shares will trade on The
Nasdaq Stock Market Inc.'s National Market System (the "Nasdaq National
Market") until the consummation of the Merger.
The proxy cards to be used by holders of Class A Common Stock and
Class B Common Stock and the Voting Instruction Card to be used by holders of
Depositary Shares are being solicited on behalf of the Board of Directors. The
execution of a proxy card does not preclude a holder of Class A Common Stock or
Class B Common Stock from voting in person if he or she so desires. A holder of
Class A Common Stock or Class B Common Stock may revoke or change its proxy
card at any time prior to its use at the Special Meeting by giving Triathlon or
its proxy tabulator a written direction to revoke the proxy card, giving
Triathlon a new proxy card or attending the Special Meeting and voting in
person. Holders of Depositary Shares may also revoke their voting instructions
to the Depositary at any time prior to the vote at the Special Meeting on the
proposal to adopt the Merger Agreement. See "The Special Meeting."
Triathlon's principal executive office is located at Symphony Towers,
750 B Street, Suite 1920, San Diego, California 92101, and its telephone number
is (619) 239-4242.
(cover page continued)
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TABLE OF CONTENTS
PAGE
----
SUMMARY.......................................................................3
Matters to Be Considered.................................................3
Parties to the Merger Agreement..........................................3
The Special Meeting......................................................4
Stockholder Agreements...................................................5
Series B Preferred Stockholders..........................................6
Feuer Termination Agreement..............................................6
Termination of Financial Consulting
Agreement with SCMC..................................................6
The Merger...............................................................7
Certain Federal Income Tax Consequences.................................11
Certain Legal Proceedings...............................................11
Risk Factors............................................................11
RISK FACTORS.................................................................12
Risks Related to Buyer's Ability to Obtain
Financing...........................................................12
Limited Remedy for Breach by Buyer and
for Termination.....................................................12
Litigation Related to the Merger........................................12
Termination Fee If Stockholders Do Not
Adopt the Merger Agreement..........................................12
Stockholders' Right to Seek Appraisal of
Their Shares........................................................12
Stockholder Agreements; Vote on Merger
Assured.............................................................13
Potential Delay Between Special Meeting
and the Merger; Changes in Triathlon................................13
Regulatory Approvals Required...........................................13
Interests of Certain Persons in the Merger..............................14
Conversion of Non-Voting Class D
Common Stock into Super-Voting
Class B Common Stock................................................14
Fairness Opinion Limitations............................................15
Risks Related to a Continuing Interest in
Triathlon...........................................................15
THE SPECIAL MEETING..........................................................16
Date, Time and Place; Matters to Be
Considered..........................................................16
Record Date; Quorum; Voting at the Special
Meeting.............................................................17
Voting of Proxies; Instructions by Holders
of Depositary Shares................................................17
Revocation of Proxies and Voting
Instructions........................................................18
Proxy Solicitation......................................................19
THE MERGER...................................................................20
Background of the Merger................................................20
Reasons for the Merger; Recommendations
of the Board of Directors...........................................24
Opinion of Goldman Sachs................................................25
Stockholder Agreements..................................................28
Series B Agreements.....................................................30
Feuer Termination Agreement.............................................31
Interests of Certain Persons in the Merger..............................32
Effective Time..........................................................34
Certain Effects of the Merger...........................................35
Regulatory Matters......................................................35
Source and Amount of Funds..............................................36
Rights of Dissenting Stockholders.......................................37
Accounting Treatment....................................................39
Certain Legal Proceedings...............................................39
THE MERGER AGREEMENT.........................................................41
The Merger..............................................................41
Treatment of Warrants, Options and Stock
Appreciation Rights.................................................42
Representations and Warranties..........................................42
Covenants...............................................................42
Closing Extension and Adjustment to
Merger Consideration................................................44
Non-Solicitation........................................................44
Conditions..............................................................44
Termination; Fees and Expenses; Letter
of Credit ..........................................................45
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER..............................................47
PRINCIPAL STOCKHOLDERS.......................................................48
Conversion of Class D Common Stock into
Class B Common Stock; Voting Trust
Agreements..........................................................48
SELECTED CONSOLIDATED FINANCIAL DATA . . 54
MARKET PRICES AND DIVIDEND POLICY............................................56
FORWARD-LOOKING STATEMENTS...................................................57
INDEPENDENT AUDITORS.........................................................57
OTHER MATTERS................................................................57
AVAILABLE INFORMATION........................................................57
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE............................................................57
STOCKHOLDER PROPOSALS........................................................58
ANNEX A -- Merger Agreement
ANNEX B -- Opinion of Goldman Sachs & Co.
ANNEX C -- Form 10-K of Triathlon for the
year ended December 31, 1997
ANNEX D -- Form 10-Q of Triathlon for the
quarter ended September 30, 1998
ANNEX E -- Section 262 of the General
Corporation Law of Delaware
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<PAGE>
SUMMARY
This Proxy Statement contains all material information relating to
the Merger. However, the following summary does not purport to be complete. It
is qualified in its entirety by, and should be read in conjunction with, the
more detailed information contained elsewhere in this Proxy Statement,
including the Annexes attached hereto and incorporated by reference herein and
the financial statements and notes thereto included therein. Stockholders are
urged to read this Proxy Statement, including the financial statements and
notes thereto in the Annexes hereto, and the documents referred to herein in
their entirety.
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of Voting Stock will consider the
adoption of the Merger Agreement. As a result of the Merger, Triathlon will
become a wholly-owned subsidiary of Buyer and, among other things, each issued
and outstanding share (except for shares held by persons who perfect and
exercise dissenters' appraisal rights) of Triathlon's (a) Common Stock will
convert into the right to receive $13.00, (b) Mandatory Preferred Stock will
convert into the right to receive $108.30 (which represents the product of (i)
the number of shares of Class A Common Stock into which a share of Mandatory
Preferred Stock is currently convertible (8.33) and (ii) the Common Stock
Merger Consideration ($13.00)), plus accrued and unpaid dividends up to and
including the date immediately prior to the Effective Time, and (c) Series B
Preferred Stock will convert into the right to receive $.01. Pursuant to the
Deposit Agreement, each Depositary Share, which represents one-tenth of a share
of Mandatory Preferred Stock, will be entitled to receive one-tenth of the
Mandatory Preferred Stock Merger Consideration, or $10.83 plus accrued and
unpaid dividends up to and including the date immediately prior to the
Effective Time on one-tenth of a share of Mandatory Preferred Stock. In
addition, each option issued by Triathlon will be canceled at the time of the
Merger and the holder thereof will receive cash in an amount equal to the
difference between $13.00 and the exercise price of such option, each warrant
issued by Triathlon will remain outstanding after the Merger and will be
exercisable without payment of the exercise price for cash in an amount equal
to the difference between $13.00 and the exercise price of such warrant, and
each SAR issued by Triathlon will be canceled at the time of the Merger and the
holder thereof will receive a cash payment in respect of such SAR. Holders of
warrants must tender their warrants to the Surviving Corporation in order to
receive payment in respect of their warrants.
Interest will not be paid on amounts to be received in the Merger by
holders of shares or derivative securities in respect of the period between the
time of the Merger and the time that payment is actually made. The
consideration to be received by the holders of Common Stock, Mandatory
Preferred Stock, Depositary Shares and derivative securities is subject to
increase in certain circumstances. See "The Merger Agreement--The Merger."
If the Merger had occurred on February 1, 1999, and assuming no holder
of Voting Stock exercises appraisal rights, then (a) the 4,895,901 outstanding
shares of Common Stock would have converted into the right to receive an
aggregate of $63,646,713, (b) the 583,400 outstanding shares of Mandatory
Preferred Stock would have converted into the right to receive an aggregate of
$63,182,220, (c) the 565,000 outstanding shares of Series B Preferred Stock
would have converted into the right to receive an aggregate of $5,650, and (d)
the 486,266 outstanding options, warrants and SARs would have converted into
the right to receive (net of the payment of the exercise prices) an aggregate
of approximately $2,725,000.
The Named Stockholders, who collectively hold as of the Record Date
all of the outstanding shares of Class B Common Stock, which represent
approximately 53% of the combined voting power of the Voting Stock, have
executed agreements pursuant to which they have agreed to vote all of their
shares of capital stock of Triathlon in favor of the adoption of the Merger
Agreement. Accordingly, adoption of the Merger Agreement is assured. See "The
Merger--Stockholder Agreements."
PARTIES TO THE MERGER AGREEMENT
The parties to the Merger Agreement are Triathlon, Buyer and Buyer
Sub.
Triathlon Broadcasting Company. Triathlon owns and operates radio
stations primarily in medium and small markets in the midwestern and western
United States. Triathlon generally defines medium and small markets as those
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<PAGE>
ranked below the top 70 markets in terms of population by The Arbitron Company.
Triathlon currently owns and operates, sells advertising on behalf of or
provides programming to 22 FM and 10 AM radio stations in six markets.
Triathlon also owns Pinnacle Sports Productions LLC, a regional sports radio
network (the "Sports Network"), which broadcasts all of the games of the men's
football, basketball and baseball and women's basketball and volleyball teams
of the University of Nebraska over a network of approximately 61 radio stations
located in the western United States.
Additional information regarding Triathlon is included in its Annual
Report on Form 10-K for the year ended December 31, 1997, which is attached
hereto as Annex C, and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, which is attached hereto as Annex D, both of which are
incorporated herein by reference.
Capstar Radio Broadcasting Partners, Inc. Capstar Broadcasting
Corporation ("Capstar") is the largest owner of radio stations in the United
States, based on number of radio stations, operating primarily in medium and
small markets. Since October 1996, Capstar has assembled a portfolio of over
300 owned and operated or programmed radio stations serving over 75 mid-sized
markets nationwide. Buyer, a Delaware corporation and an indirect subsidiary of
Capstar, is currently indirectly controlled by the private investment firm of
Hicks, Muse, Tate & Furst Incorporated and its affiliates (collectively, "Hicks
Muse") through their ownership in Capstar. The total cash cost to Buyer of the
Merger and related repayment of debt will be approximately $190.0 million.
Buyer will be required to obtain financing in order to make such payments.
Buyer has not informed Triathlon how it will obtain its financing. See "Risk
Factors--Risks Related to Buyer's Ability to Obtain Financing." The mailing
address of Buyer's principal executive offices is 600 Congress Avenue, Suite
1400, Dallas, Texas 78701, and its telephone number is (512) 340-7800.
Capstar's principal executive offices are located at 600 Congress Avenue, Suite
1400, Austin, Texas 78701, and its phone number at those offices is (512)
340-7800.
TBC Radio Acquisition Corp. Buyer Sub, a Delaware corporation, was
recently formed by Buyer to effect the transactions contemplated by the Merger
Agreement and related agreements. At the Effective Time, Buyer Sub will be
merged with and into Triathlon, with Triathlon continuing as the surviving
corporation and a wholly-owned subsidiary of Buyer. Buyer Sub has not conducted
any substantial business activities to date other than entering into, and
performing its obligations under, the Merger Agreement and related agreements.
The mailing address of Buyer Sub's principal executive office is 200 Crescent
Court, Suite 1600, Dallas, Texas 75201, and its telephone number is (214)
740-7300.
THE SPECIAL MEETING
The Special Meeting
The Special Meeting will be held at 10:00 a.m., local time, on
Wednesday, March 24, 1999 at the offices of Winston & Strawn, 200 Park Avenue,
41st Floor, New York, New York 10166.
Purpose of the Special Meeting
At the Special Meeting, the stockholders of Triathlon will be asked to
adopt the Merger Agreement and transact any other business that may properly
come before the Special Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS (WITH NORMAN FEUER ABSTAINING DUE TO A POTENTIAL
CONFLICT OF INTEREST) UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF TRIATHLON
VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
Record Date; Shares Outstanding; Quorum
The Board of Directors has fixed the close of business on February 1,
1999 as the Record Date for the determination of the stockholders of record
entitled to notice of, and to vote at, the Special Meeting and any adjournments
or postponements thereof. Only holders of record of shares of Voting Stock will
be entitled to vote at the Special Meeting. Holders of Depositary Shares are
entitled to instruct the Depositary, as the holder of the Mandatory Preferred
Stock, how to vote their Depositary Shares, each of which represents a
one-tenth interest in a share of Mandatory Preferred Stock. The holders of
shares of Class C Common Stock, Class D Common Stock and Series B Preferred
Stock and the holders of warrants, stock options and SARs are not entitled to
vote on the Merger.
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<PAGE>
As of the Record Date, there were issued and outstanding 3,175,645
shares of Class A Common Stock (which are entitled to an aggregate of 3,175,645
votes on the proposal to adopt the Merger Agreement), 886,811 shares of Class B
Common Stock (which are entitled to an aggregate of 8,868,110 votes on such
proposal) and 583,400 shares of Mandatory Preferred Stock (which are entitled
to an aggregate of 4,667,200 votes on such proposal). The presence in person or
by proxy of holders of record of a majority of the combined voting power of the
shares of Voting Stock will constitute a quorum at the Special Meeting for
purposes of adopting the Merger Agreement. See "The Special Meeting--Record
Date; Quorum; Voting at the Special Meeting."
Votes Per Share
Each share of Class A Common Stock will be entitled to one vote, each
share of Class B Common Stock will be entitled to ten votes and each share of
Mandatory Preferred Stock will be entitled to eight votes in all matters upon
which they vote at the Special Meeting or any adjournments or postponements
thereof.
Under the terms of the Deposit Agreement, each holder of Depositary
Shares is entitled to instruct the Depositary how to vote the amount of
Mandatory Preferred Stock represented by its Depositary Shares. Accordingly,
each Depositary Share, which represents a one-tenth interest in a share of
Mandatory Preferred Stock, will entitle the holder thereof to instruct the
Depositary as to how to vote four-fifths (0.8) of a share of Mandatory
Preferred Stock. See "The Special Meeting--Record Date; Quorum; Voting at the
Special Meeting."
Votes Required
The affirmative vote of the holders of a majority of the voting power
of all outstanding shares of the Voting Stock, voting together as a single
class (with each share of Class A Common Stock entitled to one vote, each share
of Class B Common Stock entitled to ten votes and each share of Mandatory
Preferred Stock entitled to eight votes) is required to adopt the Merger
Agreement. Accordingly, the affirmative vote of holders of Voting Stock holding
at least 8,355,478 votes is required to adopt the Merger Agreement.
The Named Stockholders, who collectively hold as of the Record Date
all of the outstanding shares of Class B Common Stock, which represent
approximately 53% of the combined voting power of the Voting Stock, have
executed agreements pursuant to which they have agreed to vote all of their
shares of capital stock of Triathlon in favor of adoption of the Merger
Agreement. Such holders collectively possess the right to cast 8,868,110 of the
16,710,955 votes entitled to be cast at the Annual Meeting. Accordingly,
passage of the proposal to adopt the Merger Agreement is assured. See "The
Merger--Stockholder Agreements."
STOCKHOLDER AGREEMENTS
Concurrently with the execution of the Merger Agreement and as an
inducement and a condition to Buyer entering into the Merger Agreement, the
four Named Stockholders agreed in separate Stockholder Agreements (the
"Stockholder Agreements") to vote all of the capital stock of Triathlon held by
them in favor of the Merger and against, among other things, any acquisition
proposal involving Triathlon or any of its subsidiaries (other than the Merger
or an acquisition proposal with Buyer or any affiliate thereof) for a period of
one year after the termination of the Merger Agreement (unless the Merger
Agreement is terminated under certain specified circumstances).
In the Stockholder Agreements, Messrs. Sillerman and Tytel and the
agreed to convert certain of their shares of Class D Common Stock (136,852.06,
185,068.94 and 320,000 shares, respectively) into shares of Class B Common
Stock. Such conversion was effected on August 5, 1998. See "Principal
Stockholders--Conversion of Class D Common Stock into Class B Common Stock;
Voting Trust Agreements." The Named Stockholders collectively hold as of the
Record Date all of the outstanding shares of Class B Common Stock, which
represent approximately 53% of the combined voting power of the Voting Stock.
Accordingly, passage of the proposal to adopt the Merger Agreement is assured.
In addition, the Named Stockholders have agreed in the Stockholder
Agreements not to sell or transfer their shares of Triathlon capital stock in
connection with any acquisition proposal involving Triathlon or any of its
subsidiaries (other than the Merger) prior to the first anniversary of the
termination of the Merger Agreement. If Buyer
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<PAGE>
increases the consideration in the Merger (other than as a result of an
extension of the Merger Agreement termination date), then each of the Named
Stockholders must waive or repay to Buyer any portion of such increase received
by such party.
In the event that the Merger Agreement is terminated, any attempts by
a third party to acquire Triathlon are likely to be delayed or impeded for a
period of one year after the termination. Such delay is likely because the
Named Stockholders control a majority of the voting power of the Voting Stock,
they are obligated to vote in favor of the Merger and against any competing
transactions for a period of one year from the termination of the Merger
Agreement and they are obligated to pay to Buyer any increased consideration to
be received by them in a competing transaction proposed prior to the first
anniversary of the termination of the Merger Agreement. See "Risk
Factors--Stockholder Agreements."
Mr. Feuer is Triathlon's President and Chief Executive Officer. Mr.
Sillerman is the Chairman of the Board and Chief Executive Officer of Sillerman
Communications Management Corporation ("SCMC"), Triathlon's principal financial
advisor. Mr. Tytel is the Executive Vice President, General Counsel and a
Director of SCMC. The Foundation is a charitable foundation in which Mr.
Sillerman serves as Vice President and a Director, and Mr. Sillerman's wife
serves as President and a Director.
SERIES B PREFERRED STOCKHOLDERS
Messrs. Feuer, Sillerman and Tytel, along with three additional
holders of Series B Preferred Stock, have agreed not to offer, sell, transfer,
assign or otherwise dispose of any shares of Series B Preferred Stock held by
them, or grant any proxy or power of attorney with respect thereto. In the
Merger, each outstanding share of Series B Preferred Stock will convert into
the right to receive $.01. They also agreed, among other things, to waive any
appraisal rights with respect to the Series B Preferred Stock arising from the
Merger and any rights to convert shares of Series B Preferred Stock into shares
of Class A Common Stock. See "The Merger--Stockholder Agreements" and "Series B
Agreements."
FEUER TERMINATION AGREEMENT
Concurrently with the execution of the Merger Agreement and as an
inducement and a condition to Buyer entering into the Merger Agreement, Norman
Feuer entered into a Termination Agreement (the "Termination Agreement") with
Buyer and Triathlon. Pursuant to the Termination Agreement, Mr. Feuer has
tendered his resignation as an officer and director of Triathlon and its
subsidiaries, such resignation to be effective as of the Effective Time. In the
Termination Agreement, Mr. Feuer also released Triathlon and its subsidiaries
from all claims, with certain specified exceptions, he may have against such
entities or their stockholders, directors, officers or agents. Mr. Feuer
further agreed to refrain from making any unauthorized use or disclosure of
confidential information relating to Triathlon for a period of five years from
the Effective Time. Pursuant to the Termination Agreement, Mr. Feuer is
entitled to receive a lump-sum payment of $850,000 at the time of the Merger
and the forgiveness of certain loans from Triathlon to Mr. Feuer totaling
$450,000 in aggregate principal amount. He is also entitled to a cash payment
of $25,000 from Triathlon in each calendar quarter prior to the Merger. Prior
to the Effective Time, Mr. Feuer will continue to serve as the President, the
Chief Executive Officer and a Director of Triathlon. See "The Merger--Feuer
Termination Agreement."
TERMINATION OF FINANCIAL CONSULTING AGREEMENT WITH SCMC
SCMC (a company controlled by Mr. Sillerman) serves as Triathlon's
financial consultant pursuant to a financial consulting agreement that was
entered into as of June 30, 1995 and which was amended and restated as of
February 1, 1996. Pursuant to the terms of the Merger Agreement, Triathlon's
financial consulting agreement with SCMC is to be terminated at or prior to the
time of the Merger and Triathlon is required to pay $2.0 million in cash to
SCMC's assignee. The $2.0 million cash payment will compensate SCMC for the
loss of its future rights under the financial consulting agreement, which is
being terminated, and also is in lieu of any investment banking fees otherwise
due SCMC in connection with the Merger. SCMC, among other things, made the
initial contact with Buyer and played a significant role in negotiation the
Merger and related transactions. See "The Merger--Interests of Certain Persons
in the Merger--Termination of Financial Consulting Agreement with SCMC."
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THE MERGER
Recommendations of the Independent Committee and the Board; Reasons
for the Merger
The Board of Directors appointed three members of the Board, John
Miller, Frank E. Barnes III and Jeffrey W. Leiderman, to comprise the
Independent Committee to make a recommendation to the full Board of Directors
on any acquisition proposals involving Triathlon. Although Mr. Miller serves as
the Chairman of the Board of Triathlon, none of the members of the Independent
Committee is an employee of Triathlon; in addition, Messrs. Barnes and
Leiderman were elected to the Board of Directors by the holders of the Class A
Common Stock and Depositary Shares voting as a single class and are considered
"independent directors" for purposes of the rules of the National Association
of Securities Dealers, Inc. and the Certificate of Incorporation of Triathlon.
The Board of Directors (with Norman Feuer abstaining due to a
potential conflict of interest) has unanimously approved the Merger Agreement
and the transactions contemplated thereby and determined that they are
advisable, fair to and in the best interests of the stockholders of Triathlon.
The Board of Directors (with Norman Feuer abstaining due to a potential
conflict of interest) unanimously recommends that Triathlon's stockholders
adopt the Merger Agreement. In addition, the Independent Committee has
recommended to the Board of Directors that it approve the Merger Agreement and
the transactions contemplated thereby as fair to and in the best interests of
the stockholders of Triathlon and that the Board of Directors declare advisable
and recommend the adoption of the Merger Agreement by the stockholders of
Triathlon. The Board of Directors and the Independent Committee, in reaching
their conclusions, considered a number of factors. See "The Merger--Background
of the Merger" and "--Reasons for the Merger; Recommendations of the Board of
Directors."
Opinion of Goldman Sachs
Triathlon retained Goldman Sachs to act as its financial advisor in
connection with the sale of all or a portion of Triathlon. Goldman Sachs has
rendered an opinion to the Board of Directors that, as of July 23, 1998, the
consideration to be received by the holders of the Common Stock pursuant to the
terms of the Merger Agreement was fair from a financial point of view to such
holders. Goldman Sachs was not asked by the Board of Directors to address the
fairness of the Depositary Share Merger Consideration because the $10.83 to be
paid per Depositary Share in the Merger is equal to the amount that a holder of
a Depositary Share would receive in the Merger if he converted such Depositary
Share into Class A Common Stock prior to the Merger. See "Risk
Factors--Fairness Opinion Limited to Common Stock," "The Merger--Background to
the Merger" and "--Reasons for the Merger; Recommendations of the Board of
Directors." A copy of the opinion of Goldman Sachs is attached to this Proxy
Statement as Annex B and should be read in its entirety by the stockholders of
Triathlon. See "The Merger--Opinion of Goldman Sachs."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors that the
stockholders vote in favor of the adoption of the Merger Agreement and the
recommendation of the Independent Committee that the Board of Directors approve
the Merger Agreement and the transactions contemplated thereby, stockholders
should be aware that the members of the Board of Directors and management of
Triathlon, as well as certain of the stockholders of Triathlon who have
executed Stockholder Agreements, have interests in the Merger and the related
transactions that differ from, and are in addition to, the interests of the
stockholders of Triathlon generally, and which may present them with potential
conflicts of interest in connection with the Merger. The interests of
Triathlon's directors and management include: the payment to Mr. Feuer, the
President and Chief Executive Officer of Triathlon, of $850,000 pursuant to the
terms of the Termination Agreement (as defined herein), the forgiveness of
loans in the aggregate principal amount of $450,000 pursuant to the Termination
Agreement and the cash payment of $25,000 by Triathlon to Mr. Feuer in each
calendar quarter prior to the Merger; the indemnification and release of
officers and directors, and the payment to each member of the Independent
Committee of $35,000 as compensation for serving on the Independent Committee.
In addition, SCMC, a company controlled by Robert F.X. Sillerman, is to receive
$2.0 million in connection with the termination of the financial consulting
agreement pursuant to which SCMC serves as Triathlon's principal financial
advisor.
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Each holder of Common Stock, Mandatory Preferred Stock, Series B
Preferred Stock and derivative securities issued by Triathlon will receive in
the Merger the same amount per security as each other holder of such
securities. In the Merger, the members of the Board of Directors of Triathlon
will receive an aggregate of approximately $2,459,013 in respect of their
shares and derivative securities of Triathlon and Mr. Sillerman will receive
approximately $3,352,618 in respect of his shares and derivative securities of
Triathlon. In addition, the Foundation (of which Mr. Sillerman is the Vice
President and the Director) and Mr. Tytel (who serves as an executive office
and Director of SCMC) will receive in the Merger the amount of $13.0 million
and approximately $2,662,055, respectively, in respect of their shares and
derivative securities. The foregoing amounts do not give effect to taxes due in
respect of the amounts to be received and assume no increase in the amount per
share to be paid in the Merger. See "Risk Factors--Interests of Certain Persons
in the Merger" and "The Merger--Interests of Certain Persons in the Merger."
Effective Time
The Effective Time of the Merger will be the time of filing of a
Certificate of Merger relating to the Merger with the Secretary of State of the
State of Delaware in accordance with the provisions of the DGCL or as otherwise
provided in such Certificate of Merger. Subject to the satisfaction or waiver
of the closing conditions set forth in the Merger Agreement, the Merger will be
consummated (the "Closing") on the earlier of (a) April 30, 1999 (subject to
extension under certain circumstances, as provided in the Merger Agreement,
until as late as September 14, 1999) or (b) any other date specified by Buyer
at least 5 business days in advance. It is anticipated that the Effective Time
of the Merger will occur during the second quarter of 1999, although there can
be no assurance to such effect. See "The Merger--Effective Time" and "The
Merger Agreement--Closing Extension and Adjustment to Merger Consideration."
Surrender of Stock Certificates; Payment for Shares
As soon as is practicable after the Effective Time but no later than
three business days following the Effective Time, a transmittal form will be
mailed to each record holder of shares of Common Stock and Preferred Stock. The
transmittal form will set forth the procedure for surrendering to a bank or
trust company mutually acceptable to Triathlon and Buyer (the "Paying Agent")
certificates previously representing stock of Triathlon. In order to receive
the consideration to which the holder will be entitled as a result of the
Merger, the holder will be required, following the Effective Time, to surrender
the holder's stock certificate(s), together with a duly executed and properly
completed transmittal form (and any other required documents), to the Paying
Agent. STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM. Thereafter, the holder will receive as promptly as
practicable, in exchange for the surrendered certificate(s), cash in an amount
equal to: (a) $13.00 per share of Class A Common Stock, Class B Common Stock,
Class C Common Stock and Class D Common Stock (subject to increase under
certain circumstances), (b) $108.30 per share of Mandatory Preferred Stock,
plus accrued and unpaid dividends up to and including the date immediately
prior to the Effective Time (subject to increase under certain circumstances),
and (c) $.01 per share of Series B Preferred Stock. Holders of Depositary
Shares will receive $10.83 per Depositary Share, plus accrued and unpaid
dividends up to and including the date immediately prior to the Effective Time
on one-tenth of a share of Mandatory Preferred Stock. No interest will be paid
on the cash payable upon surrender of the certificate(s). See "The Merger
Agreement--The Merger" and "--Closing Extension and Adjustment to Merger
Consideration."
Holders of warrants, options and SARs issued by Triathlon will be
entitled to receive the amounts described in "The Merger Agreement--Treatment
of Warrants, Options and Stock Appreciation Rights." HOLDERS OF WARRANTS,
OPTIONS AND SARS SHOULD NOT SEND IN THEIR CERTIFICATES REPRESENTING SUCH
SECURITIES.
Conditions to the Merger
The parties' obligations to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including, among others, the
adoption of the Merger Agreement by the stockholders of Triathlon, the consent
of the Federal Communications Commission (the "FCC") to the transfer of control
of station licenses in the Merger (the "FCC Consent"), the expiration or
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"), and the absence of any
injunction or other legal restraint prohibiting the Merger. Buyer's and Buyer
Sub's obligations to consummate the Merger are subject to the satisfaction or
waiver of certain additional conditions, including, among others, the accuracy
of Triathlon's representations and warranties in the Merger Agreement and the
performance by Triathlon of its obligations under the Merger Agreement.
Triathlon's
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obligations to consummate the Merger are subject to the satisfaction or waiver
of certain additional conditions. See "The Merger--Regulatory Matters" and "The
Merger Agreement--Conditions."
Non-Solicitation
Until the Merger Agreement terminates, it prohibits Triathlon, its
subsidiaries and their representatives from (a) soliciting, initiating or
encouraging the submission of any proposal for a merger, consolidation or other
business combination involving Triathlon or any offer to acquire more than 25%
of the voting power or a substantial portion of the assets of Triathlon and its
subsidiaries (a "Takeover Proposal"), or (b) participating in any discussions
or negotiations regarding, or furnishing any information in connection with,
any Takeover Proposal. If, however, before obtaining stockholder approval, the
Board of Directors determines in good faith, based on the advice of outside
counsel, that it must do so in order to comply with its fiduciary duties to
Triathlon's stockholders, then Triathlon and its representatives may, in
response to an unsolicited Takeover Proposal meeting certain criteria, furnish
information with respect to Triathlon pursuant to a confidentiality agreement
and participate in negotiations regarding the proposal. The Merger Agreement
requires Triathlon to keep Buyer fully informed of the status and details of
any Takeover Proposal. See "The Merger Agreement--Non-Solicitation."
Termination; Fees and Expenses; Letter of Credit
The Merger Agreement may be terminated:
(a) By the mutual written consent of Triathlon, Buyer and Buyer Sub.
(b) By either Triathlon or Buyer, if Triathlon's stockholders do not
adopt the Merger Agreement at the Special Meeting (or an
adjournment thereof) or if no stockholder vote is held before the
Termination Date (as defined in "The Merger Agreement--Closing
Extension and Adjustment to Merger Consideration") (unless the
Merger is permanently enjoined or prohibited). If the Merger
Agreement is terminated as set forth in this paragraph, Triathlon
must pay Buyer $2.5 million, plus up to $1.0 million for
expenses. In addition, if, within one year of the termination of
the Merger Agreement, either Triathlon enters into a Takeover
Proposal or 50% or more of the capital stock of Triathlon is
acquired in a tender offer, then Triathlon must pay Buyer an
additional $2.5 million.
(c) By either Triathlon or Buyer, if the Merger is not consummated by
the Termination Date. See "The Merger Agreement--Closing
Extension and Adjustment to Merger Consideration."
(d) By either Triathlon or Buyer, if the Merger is permanently
prohibited or enjoined.
(e) By Buyer if (i) Triathlon breaches any representation or warranty
contained in the Merger Agreement, unless the individual or
aggregate impact of all such breaches of representations and
warranties could not reasonably be expected to have a material
adverse effect on Triathlon or unless such breaches are due to
changes in the United States financial markets generally or to
matters arising after the date of the Merger Agreement that
affect the broadcasting industry generally, or (ii) Triathlon
fails to perform in all material respects its obligations under
the Merger Agreement. However, Buyer may not terminate if the
breach or failure to perform is cured within 30 days after notice
thereof.
(f) By Triathlon if (i) Buyer or Buyer Sub breaches any
representation or warranty contained in the Merger Agreement,
unless the individual or aggregate impact of all such breaches or
representations and warranties has no material adverse effect on
Buyer's ability to perform its obligations under the documents
contemplated by the Merger Agreement (collectively referred to as
the "Transaction Documents"), or (ii) Buyer or Buyer Sub fail to
perform in all material respects their obligations under the
Merger Agreement. However, Triathlon may not terminate if the
breach or failure to perform is cured within 30 days after
notice.
(g) By Triathlon if (i) before obtaining stockholder approval of the
Merger Agreement, the Board of Directors determines, in certain
circumstances, to terminate the Merger Agreement in order for
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Triathlon to enter into an agreement relating to a Superior
Proposal (as defined in the Merger Agreement), (ii)Triathlon
notifies Buyer of the Superior Proposal, and (iii) Buyer does not
offer to revise the terms of the Merger or the Board of Directors
determines in good faith, after receiving advice from its
financial advisor, that the Superior Proposal is superior to
Buyer's revised offer. If the Merger Agreement is terminated as
set forth in this paragraph, Triathlon must pay Buyer $5.0
million, plus up to $1.0 million for expenses.
(h) By Buyer if (i) a tender or exchange offer for 50% or more of the
capital stock of Triathlon is commenced and the Board of
Directors fails to recommend that Triathlon's stockholders not
tender their shares, or (ii) a Takeover Proposal is announced and
the Board of Directors fails to reaffirm its recommendation of
the Merger. If the Merger Agreement is terminated as set forth in
this paragraph, Triathlon must pay Buyer $5.0 million, plus up to
$1.0 million for expenses.
(i) By Buyer if the capitalization of Triathlon (after giving effect
to any conversions of derivative securities) is at any time
different from its capitalization as set forth in the Merger
Agreement. If the Merger Agreement is terminated as set forth in
this paragraph, Triathlon must pay Buyer $1,666,667.
Buyer has placed into escrow an irrevocable letter of credit for $9.0
million. In the event that the Merger Agreement is terminated in certain events
(including if the Merger does not occur by a certain date under certain
circumstances or if there are breaches of representations or covenants by Buyer
or Buyer Sub which materially impair their ability to consummate the Merger),
the letter of credit (or its proceeds) must be released to Triathlon, and Buyer
must pay Triathlon an additional $3.0 million in cash (the "Cash Fee") as
liquidated damages (such $9.0 million and the Cash Fee are collectively
referred to as the "Liquidated Damages"). The Liquidated Damages were
determined by the parties as the reasonable good faith estimate of the actual
damages reasonably expected to result from such termination and, if they become
payable, will be Triathlon's sole remedy. See "Risk Factors--Limited Remedy for
Breach by Buyer and for Termination" and "The Merger Agreement--Termination;
Fees and Expenses; Letter of Credit."
In the event that Merger Agreement is terminated and Triathlon and
Buyer do not agree promptly on whether Triathlon is entitled to the Liquidated
Damages, then, upon the final determination of a court of competent
jurisdiction, the non-prevailing party shall pay the prevailing party its costs
of litigation and, if Triathlon is the prevailing party, Buyer shall pay
Triathlon 10% interest on the total $12.0 million from the date of termination
of the Merger Agreement until the date of receipt of such amount.
Rights of Dissenting Stockholders
Under Delaware law, stockholders who properly file demands for
appraisal prior to the stockholder vote on the Merger Agreement will have the
right to obtain, upon the consummation of the Merger, a judicial determination
of the "fair value" of their shares (excluding any element of value arising
from the accomplishment or expectation of the Merger). However, no holder of
stock who votes in favor of the Merger will be entitled to exercise these
rights. In order to exercise these rights, a stockholder must comply with all
of the procedural requirements of Section 262 of the DGCL, which is described
in "The Merger--Rights of Dissenting Stockholders" and which is attached to
this Proxy Statement as Annex E. The "fair value" would be determined in
judicial proceedings, the result of which cannot be predicted. Failure to take
any of the steps required under Section 262 may result in a loss of dissenters'
appraisal rights. The holders of warrants, stock options and SARs are not
entitled to appraisal rights. Holders of Depositary Shares have no appraisal
rights as such. Holders of Depositary Shares who wish to exercise appraisal
rights with respect to shares of Mandatory Preferred Stock represented by their
Depositary Shares should contact the Depositary, who, as the holder of record
of shares of Mandatory Preferred Stock, is entitled to exercise appraisal
rights with respect to the shares of Mandatory Preferred Stock. See "The
Merger--Rights of Dissenting Stockholders" and Annex E.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, the receipt of cash by a stockholder pursuant to the
Merger or the exercise of appraisal rights will be a taxable event for the
stockholder for federal income tax purposes and may also be taxable events
under applicable local, state and foreign tax laws. The tax consequences for a
particular stockholder will depend upon the facts and circumstances applicable
to that stockholder. Accordingly, each stockholder should consult the holder's
own tax advisor with respect to the federal, state, local or foreign tax
consequences of the Merger. See "Certain Federal Income Tax Consequences."
CERTAIN LEGAL PROCEEDINGS
On July 24,1998, a lawsuit was commenced against Triathlon and its
directors in the Court of Chancery of the State of Delaware, New Castle County
(Civil Action No. 16560). The plaintiff in the lawsuit is Herbert Behrens. The
complaint alleges that the consideration to be paid in the Merger to the
holders of the Depositary Shares is unfair and that the individual defendants
have breached their fiduciary duties. The complaint seeks to have the action
certified as a class action and seeks to enjoin the Merger, or in the
alternative, seeks monetary damages in an unspecified amount. The defendants
have answered the complaint denying its allegations and some preliminary
discovery has occurred. As of January 26, 1999, no hearings with respect to
this litigation had either been held or were scheduled. The parties have
entered into a standstill agreement pursuant to which all proceedings in the
case will be stayed unless either party gives 15 days notice that discovery
should recommence. See "Risk Factors--Litigation Related to the Merger."
On February 12, 1999, the parties signed a Memorandum of Understanding
that provides for the settlement of the action in principle. The amount of the
settlement depends upon whether the average last sale price (or the closing bid
price, if no sale occurs on any day) for the Class A Common Stock of Triathlon
over the twenty trading days ending on the date immediately preceding the
Effective Time of the Merger (the "Average Closing Price") is equal to or lower
than $12.60 per share. If the Average Closing Price is equal to or over $12.60
per share, Buyer will pay $0.11 additional consideration for each Depositary
Share owned by any class member at the Effective Time of the Merger. If the
Average Closing Price is under $12.60 per share, Buyer will pay $0.37
additional consideration for each Depositary Share owned by any class member at
the Effective Time of the Merger. Buyer also agreed in the Memorandum of
Understanding not to oppose plaintiff's counsel's application for attorney fees
and expenses in the aggregate amount of $150,000 if Buyer pays $0.11 additional
consideration for each Depositary Share under the proposed settlement and the
aggregate amount of $400,000 if Buyer pays $0.37 additional consideration for
each Depositary Share under the proposed settlement. The Memorandum of
Understanding provides that the defendants deny all allegations of wrongdoing
but, recognizing the burden, expense and risk attendant to the litigation, they
have concluded that it is desirable that the claims against them be settled.
The proposed settlement is contingent upon confirmatory discovery by
the plaintiff, execution of a definitive settlement agreement, and court
approval. There can be no assurance that the parties will execute a definitive
settlement agreement or that the court will approve the settlement on the terms
and conditions provided for in the Memorandum of Understanding, or at all. See
"The Merger--Certain Legal Proceedings."
RISK FACTORS
In determining whether to vote in favor of the Merger, stockholders
should carefully consider the matters set forth under "Risk Factors," among
others.
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RISK FACTORS
In considering whether to adopt the Merger Agreement, stockholders
should consider the following matters.
RISKS RELATED TO BUYER'S ABILITY TO OBTAIN FINANCING. Buyer has
advised Triathlon that it will require financing in order to consummate the
Merger. Buyer has not informed Triathlon how it will obtain its financing, and,
although Buyer has represented that it will have sufficient financing available
at the Closing, there can be no assurance that Buyer will be able to obtain
financing. If Buyer is unable to consummate the Merger because of its inability
to obtain financing, it will be in breach of the Merger Agreement; however,
Triathlon's remedies against Buyer in such a circumstance will be limited.
LIMITED REMEDY FOR BREACH BY BUYER AND FOR TERMINATION. If Buyer or
Buyer Sub breaches its obligations under the Merger Agreement, Triathlon's sole
remedy for the breach will be the payment by Buyer of the $12.0 million
Liquidated Damages. In addition, Triathlon will be entitled to receive the
$12.0 million Liquidated Damages if (a) the Merger is not consummated by April
30, 1999 (subject to extension) and at such time (i) regulatory approvals for
the transaction shall not have been obtained (unless the failure to obtain such
approvals is the result of acts taken or omitted to be taken by Triathlon or
changes to the laws affecting radio station licenses ("Acts or Changes")); (ii)
there is in effect a preliminary injunction arising out of litigation
concerning the treatment of the Mandatory Preferred Stock in the Merger; or
(iii) all conditions to Buyer's obligation to close the Merger have been
satisfied, other than the condition that the consent of the FCC to the transfer
of Triathlon's radio station licenses to Buyer or Buyer Sub shall have become
final, and Buyer elects not to consummate the Merger; or (b) the Merger is
permanently enjoined (i) by the federal antitrust agencies or the FCC and such
injunction is not primarily due to Acts or Changes or (ii) on the grounds of
the treatment of the Mandatory Preferred Stock in the Merger. The $12.0 million
Liquidated Damages may be significantly less than Triathlon's actual damages
arising out of the breach, and there can be no assurance that Triathlon will be
able at that time to procure another bidder that will offer to Triathlon's
stockholders consideration similar to that set forth in the Merger Agreement.
See "The Merger Agreement--Termination; Fees and Expenses; Letter of Credit."
LITIGATION RELATED TO THE MERGER. Triathlon and its directors are
defendants in a lawsuit that alleges that the consideration to be paid in the
Merger to the holders of the Depositary Shares is unfair and that the
individual defendants have breached their fiduciary duties. The complaint seeks
to have the action certified as a class action and seeks to enjoin the Merger,
or, in the alternative, to obtain monetary damages. Triathlon and its directors
intend to defend the lawsuit vigorously. Although the defendants believe the
lawsuit is without merit, there have been ongoing discussions to settle the
lawsuit and a Memorandum of Understanding that provides for the settlement of
the action in principle has been executed by the parties to the litigation;
however, there can be no assurance that the parties will execute a definitive
settlement agreement or that the court will approve the settlement on the terms
and conditions provided for in the Memorandum of Understanding, or at all. If
the Merger is permanently enjoined as a result of this litigation, then Buyer
will be required to pay the Liquidated Damages to Triathlon. See "The
Merger--Certain Legal Proceedings."
TERMINATION FEE IF STOCKHOLDERS DO NOT ADOPT THE MERGER AGREEMENT. If
the Merger Agreement is terminated because Triathlon's stockholders do not
adopt the Merger Agreement at the Special Meeting, Triathlon will be obligated
to pay Buyer a termination fee of $2.5 million, plus up to $1.0 million for
expenses. In addition, if, within one year of the termination of the Merger
Agreement, either Triathlon enters into a Takeover Proposal or 50% or more of
the capital stock of Triathlon is acquired in a tender offer, then Triathlon
must pay Buyer an additional $2.5 million upon the consummation of the Takeover
Proposal or the tender offer. See "The Merger Agreement--Termination; Fees and
Expenses; Letter of Credit."
STOCKHOLDERS' RIGHT TO SEEK APPRAISAL OF THEIR SHARES. Under Delaware
law, holders of record of shares of stock of Triathlon on the Record Date who
hold their shares through the time of the Merger and who do not vote in favor
of the Merger may seek an appraisal of the fair value of their shares,
exclusive of any element of value arising from the expectation or
accomplishment of the Merger, together with a fair rate of interest, if any. A
stockholder wishing to exercise dissenters' appraisal rights must deliver to
Triathlon, before the vote on the adoption of the Merger Agreement at the
Special Meeting, a written demand for appraisal of the holder's shares of stock
and must comply with the other requirements of Section 262 of the DGCL. Holders
of Depositary Shares who wish to exercise appraisal rights in respect of the
Mandatory Preferred Stock represented thereby must notify the Depositary in
writing and must comply with the other requirements of Section 262 of the DGCL.
A copy of Section 262 is attached to this Proxy Statement
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as Annex E. Stockholders who are considering seeking appraisal should be aware
that the fair value of their shares as determined by Section 262 could be more
than, the same as or less than the value of the merger consideration that they
would otherwise receive if they did not seek appraisal of their shares. In
addition, stockholders should be aware that the Board of Directors of Triathlon
has determined that the Merger Agreement and the transactions contemplated
thereby are advisable, fair to and in the best interests of the stockholders of
Triathlon and that Goldman Sachs & Co. has rendered an opinion to the Board of
Directors that, as of July 23, 1998, the consideration to be received by the
holders of Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such holders. See "The Merger--Rights of Dissenting
Stockholders" and Annex E.
STOCKHOLDER AGREEMENTS; VOTE ON MERGER ASSURED. If the Merger
Agreement is terminated under certain circumstances, then each Named
Stockholder will be required pursuant to the Stockholder Agreements, for a
period of one year after the Termination Date, to vote all shares of capital
stock of Triathlon which he or it owns (a) against any acquisition proposal
involving Triathlon (other than the Merger) and (b) to the extent that any of
the following could reasonably be expected to impede or interfere with the
Merger, or are intended to lead to an alternative acquisition proposal, against
any change in a majority of the Board of Directors of Triathlon, any change in
the present capitalization of Triathlon or any change to the Certificate of
Incorporation of Triathlon. As of the Record Date, the Named Stockholders hold
53% of the combined voting power of the outstanding shares of Voting Stock. In
the event that the Merger Agreement is terminated, any attempts by a third
party to acquire Triathlon are likely to be delayed or impeded for a period of
one year after the termination. Such delay is likely because the Named
Stockholders control a majority of the voting power of the Voting Stock, they
are obligated to vote in favor of the Merger and against any competing
transactions for a period of one year from the termination of the Merger
Agreement and they are obligated to pay to Buyer any increased consideration to
be received by them in a competing transaction proposed prior to the first
anniversary of the termination of the Merger Agreement. See "The
Merger--Stockholder Agreements."
POTENTIAL DELAY BETWEEN SPECIAL MEETING AND THE MERGER; CHANGES IN
TRIATHLON. The Merger may not occur for a period of several months subsequent
to the Special Meeting and Triathlon's stockholders will not receive payment
for their shares until after the Merger occurs. The Merger Agreement, by its
terms, expires on April 30, 1999 (subject to extension, under certain
circumstances, as provided in the Merger Agreement, until as late as September
14, 1999). See "The Merger Agreement--Closing Extension and Adjustment to
Merger Consideration." The information regarding Triathlon may change
materially from that contained or incorporated by reference herein prior to the
time that the Merger is consummated. Regardless of any changes in the
information regarding Triathlon, Triathlon's stockholders will not be entitled
to another vote on the proposal to adopt the Merger Agreement.
REGULATORY APPROVALS REQUIRED. By law, the Merger may not be
consummated prior to the completion of a review by the FCC and the U. S.
Department of Justice, Antitrust Division (the "DOJ") of communications law and
antitrust matters and possible effects of the Merger. Buyer and Triathlon
expect that neither the FCC nor the DOJ will block the Merger if Capstar sells
certain stations in the Wichita, Kansas and Colorado Springs, Colorado markets.
In its FCC application, Buyer represented to the FCC that it would divest
itself of two FM stations in the Wichita, Kansas market and one FM station in
the Colorado Springs, Colorado market in order to come into compliance with the
FCC's local ownership rules. The FCC has indicated that it intends to conduct
additional analysis of the ownership concentration in the Wichita, Kansas
market. By public notice, interested persons were invited by the FCC to file
responses that specifically address the issue of concentration of ownership and
its effect on competition and diversity in the Wichita broadcast market. The
DOJ responded by filing a Comment and Petition for Hearing (the "Petition")
with the FCC claiming that Buyer's proposed acquisition of the Wichita
stations, together with the stations Buyer and its subsidiaries currently own
in the market, raises serious issues as to whether sufficient competition will
exist after the proposed acquisition. The DOJ further suggested that the FCC
should hold a hearing to determine whether the acquisition would serve the
public interest. To date, the FCC has taken no further action with respect to
the FCC application. In its Petition, the DOJ also indicated that it would
continue its investigation into the potential anti-competitive nature of the
proposed acquisition and that it might bring action in United States District
Court irrespective of any action the FCC may take. Buyer has informed Triathlon
that it entered into non-binding letters of intent for the divestiture of three
AM stations and two FM stations in the Wichita, Kansas market as well as two AM
stations and one FM station in the Colorado Springs, Colorado market and filed
applications with the FCC for approval of these divestitures in order to come
into compliance with the FCC's local ownership rules and to address competitive
concerns expressed by the DOJ. There can be no assurance that Buyer will enter
into definitive agreements with respect to these
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divestitures or that the governmental approvals will be obtained in a timely
manner, or at all. See "The Merger--Regulatory Matters."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendation of the Board of Directors that the stockholders vote for the
adoption of the Merger Agreement and the recommendation of the Independent
Committee that the Board of Directors approve the Merger Agreement and the
transactions contemplated thereby, stockholders should be aware that the
members of the Board of Directors and management of Triathlon, as well as
certain of the stockholders of Triathlon who have executed Stockholder
Agreements, have interests in the Merger and the related transactions that
differ from, and are in addition to, the interests of the stockholders of
Triathlon generally, and which may present them with potential conflicts of
interest in connection with the Merger. The interests of Triathlon's directors
and management include: the payment to Mr. Feuer, the President and Chief
Executive Officer of Triathlon, of $850,000 pursuant to the terms of the
Termination Agreement, the forgiveness of loans in the aggregate principal
amount of $450,000 pursuant to the Termination Agreement and the cash payment
of $25,000 by Triathlon to Mr. Feuer in each calendar quarter prior to the
Merger; the indemnification and release of officers and directors; and the
payment to each member of the Independent Committee of $35,000 as compensation
for serving on the Independent Committee. In addition, SCMC, a company
controlled by Robert F.X. Sillerman, is to receive $2.0 million in connection
with the termination of the financial consulting agreement pursuant to which
SCMC serves as Triathlon's principal financial advisor.
Each holder of Common Stock, Mandatory Preferred Stock, Series B
Preferred Stock and derivative securities issued by Triathlon will receive in
the Merger the same amount per security as each other holder of such
securities. In the Merger, the members of the Board of Directors of Triathlon
will receive an aggregate of approximately $2,459,013 in respect of their
shares and derivative securities of Triathlon and Mr. Sillerman will receive
approximately $3,352,618 in respect of his shares and derivative securities of
Triathlon. In addition, the Foundation (of which Mr. Sillerman is the Vice
President and the Director) and Mr. Tytel (who serves as an executive office
and Director of SCMC) will receive in the Merger the amount of $13.0 million
and approximately $2,662,055, respectively, in respect of their shares and
derivative securities. The foregoing amounts do not give effect to taxes due in
respect of the amounts to be received and assume no increase in the amount per
share to be paid in the Merger. See "The Merger--Interests of Certain Persons
in the Merger."
CONVERSION OF NON-VOTING CLASS D COMMON STOCK INTO SUPER-VOTING CLASS
B COMMON STOCK. Triathlon makes borrowings under a credit agreement with
certain institutional lenders and AT&T Commercial Finance Corporation, as agent
(as amended and restated, the "Credit Agreement"). The Credit Agreement
requires Triathlon to, among other things, comply with certain specified
financial covenants, including maintaining on a rolling four-quarter basis
certain levels of broadcast cash flow in excess of fixed charges, maintaining
at all times certain levels of current assets in excess of current liabilities
and refraining from incurring corporate overhead in excess of certain amounts.
Triathlon has been unable to comply with certain of the financial
covenants in the Credit Agreement since the fourth quarter of 1997. It was
anticipated that such defaults would be ongoing in 1998 despite Triathlon's
efforts to improve its financial condition. Triathlon discussed with its
lenders obtaining waivers in advance in the form of an amendment to the Credit
Agreement. The failure to obtain an amendment would result in the
reclassification of the debt borrowed under the Credit Agreement from a
long-term liability to a current liability and thereby assure that Triathlon
would continue to be in default. The lenders refused to grant waivers in
advance. Therefore, Triathlon sought waivers on a retroactive basis, when it
delivered its quarterly financial information to its lenders.
The Certificate of Incorporation of Triathlon permits the holders of
shares of Class D Common Stock, which have no voting rights except as required
by law, to convert such shares into an equal number of shares of Class B Common
Stock, which generally have ten votes per share, in the event that Triathlon is
in default for borrowed money from an institutional lender, and such default
has not been cured or waived. During the Merger negotiations, Buyer, as a
condition and inducement to entering into the Merger Agreement, requested that
the Named Stockholders enter into Stockholder Agreements, which, among other
things, required Messrs. Sillerman and Tytel and the Foundation to convert a
certain number of their shares of Class D Common Stock into shares of Class B
Common Stock which would have the effect of assuring the necessary stockholder
vote to approve the Merger Agreement. When the Merger Agreement was being
negotiated, Triathlon and SCMC held discussions with Triathlon's lenders
regarding obtaining waivers for the defaults that were anticipated to be
contained in the June 30, 1998 financial statements. During the
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course of these discussions management updated the lenders on the status of
merger negotiations. The lenders favored the merger transaction being pursued
with Buyer and the steps taken to facilitate the Merger, including the
conversion of Class D Common Stock into Class B Common Stock. In accordance
with the terms of the Stockholder Agreements, Messrs. Sillerman and Tytel and
the Foundation converted certain of their shares of Class D Common Stock into
Class B Common Stock on August 5, 1998. On September 10, 1998, following the
execution of the Merger Agreement and the Stockholder Agreements and the
conversion of Class D Common Stock into Class B Common Stock, the lenders
granted Triathlon a waiver of its defaults for the period ended June 30, 1998.
Triathlon was also in default of certain of the financial covenants in the
Credit Agreement for the period ended September 30, 1998. Subsequent to such
date, the lenders waived such defaults. See "The Merger--Background of the
Merger," "--Stockholder Agreements" and "Principal Stockholders--Conversion of
Class D Common Stock into Class B Common Stock; Voting Trust Agreements."
FAIRNESS OPINION LIMITATIONS. The Board of Directors of Triathlon,
prior to approving the Merger Agreement, obtained the opinion of Goldman Sachs
that the consideration to be offered to the holders of shares of Common Stock
in the Merger was fair from a financial point of view to such holders. See "The
Merger--Opinion of Goldman Sachs." The Depositary Share Merger Consideration of
$10.83 per Depositary Share is equal to the amount that a holder of a
Depositary Share would receive in the Merger if he converted such Depositary
Share into Class A Common Stock prior to the Merger. Since the consideration to
be paid to the holders of the Depositary Shares in the Merger was determined by
reference to the terms of the Certificate of Designations with respect to the
Mandatory Preferred Stock and the Deposit Agreement, Goldman Sachs was not
asked to address the fairness of the Depositary Share Merger Consideration.
Holders of Common Stock should also be aware that, although acquisition prices
of broadcast companies operating radio stations in small-and medium-sized
markets increased in 1996 after the liberalization of the laws governing the
number of radio stations an entity could own, the Board of Directors of
Triathlon did not request that Goldman Sachs limit its analysis to
post-liberalization transactions because there were relatively few acquisitions
of radio station companies in such markets after such liberalization. There can
be no assurance that a fairness opinion would have been attainable had the
analysis undertaken by Goldman Sachs been limited to post-liberalization
transactions. See "The Merger Agreement--Background of the Merger."
RISKS RELATED TO A CONTINUING INTEREST IN TRIATHLON. If the Merger is
not consummated, stockholders should be aware that Triathlon's continuing
operations will involve a number of risks, including the failure by Triathlon
to comply with certain covenants in its credit agreement; governmental
investigation of the Citadel joint selling agreement ("JSA"); extensive
regulation of radio broadcasting; substantial leverage; potential inability to
service obligations; limitations on ability to pay dividends; historical
losses; holding company structure and dependence upon subsidiaries' operations;
a competitive radio broadcasting industry; control by certain large
stockholders; transactions with affiliates; and restrictions on transfer of
capital stock to non-U.S. persons. See Triathlon's Annual report on Form 10-K
for the year ended December 31, 1997, which is attached hereto as Annex C, and
its Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
which is attached hereto as Annex D, both of which are incorporated herein by
reference.
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THE SPECIAL MEETING
DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED
This Proxy Statement is being furnished to the holders of Voting Stock
in connection with the solicitation of proxies by the Board of Directors for
use at the Special Meeting and any adjournments or postponements thereof. The
Special Meeting will be held at 10:00 a.m., local time, on Wednesday, March 24,
1999, at the offices of Winston & Strawn, 200 Park Avenue, 41st Floor, New
York, New York 10166. At the Special Meeting, the holders of Voting Stock will
be asked to vote on a proposal to adopt the Merger Agreement and transact any
other business that may properly come before the Special Meeting or any
adjournments or postponements thereof.
THE BOARD OF DIRECTORS (WITH NORMAN FEUER ABSTAINING DUE TO A
POTENTIAL CONFLICT OF INTEREST) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THEY ARE
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TRIATHLON.
THE BOARD OF DIRECTORS (WITH NORMAN FEUER ABSTAINING DUE TO A POTENTIAL
CONFLICT OF INTEREST) UNANIMOUSLY RECOMMENDS THAT TRIATHLON'S STOCKHOLDERS
ADOPT THE MERGER AGREEMENT. IN ADDITION, THE INDEPENDENT COMMITTEE HAS
RECOMMENDED TO THE BOARD OF DIRECTORS THAT IT APPROVE THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AS FAIR TO AND IN THE BEST INTERESTS OF
THE STOCKHOLDERS OF TRIATHLON AND THAT THE BOARD OF DIRECTORS DECLARE ADVISABLE
AND RECOMMEND THE ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF
TRIATHLON.
As a result of the Merger, Triathlon will become a wholly-owned
subsidiary of Buyer and, among other things, each issued and outstanding share
(except for shares held by persons who perfect and exercise dissenters'
appraisal rights) of Triathlon's (a) Common Stock will convert into the right
to receive $13.00, (b) Mandatory Preferred Stock will convert into the right to
receive $108.30 (which represents the product of (i) the number of shares of
Class A Common Stock into which a share of Mandatory Preferred Stock is
currently convertible (8.33) and (ii) the Common Stock Merger Consideration
($13.00)), plus accrued and unpaid dividends up to and including the date
immediately prior to the Effective Time and (c) Series B Preferred Stock will
convert into the right to receive $.01. Pursuant to the Deposit Agreement, each
Depositary Share, which represents one-tenth of a share of Mandatory Preferred
Stock, will be entitled to receive one-tenth of the Mandatory Preferred Stock
Merger Consideration, or $10.83 plus accrued and unpaid dividends up to and
including the date immediately prior to the Effective Time on one-tenth of a
share of Mandatory Preferred Stock. In addition, each option issued by
Triathlon will be canceled at the time of the Merger and the holder thereof
will receive cash in an amount equal to the difference between $13.00 and the
exercise price of such option, each warrant issued by Triathlon will remain
outstanding after the Merger and will be exercisable without payment of the
exercise price for cash in an amount equal to the difference between $13.00 and
the exercise price of such warrant, and each SAR issued by Triathlon will be
canceled at the time of the Merger and the holder thereof will receive a cash
payment in respect of such SAR. Holders of warrants must tender their warrants
to the Surviving Corporation in order to receive payment in respect of their
warrants. See "The Merger Agreement--The Merger."
Interest will not be paid on amounts to be received in the Merger by
holders of shares or derivative securities in respect of the period between the
time of the Merger and the time that payment is actually made. The
consideration to be received by holders of Common Stock, Mandatory Preferred
Stock, Depositary Shares and derivative securities is subject to increase in
certain circumstances. See "The Merger Agreement--Closing Extension and
Adjustment to Merger Consideration."
If the Merger had occurred on February 1, 1999, and assuming no holder
of Voting Stock exercises appraisal rights, then (a) the 4,895,901 outstanding
shares of Common Stock would have converted into the right to receive an
aggregate of $63,646,713, (b) the 583,400 outstanding shares of Mandatory
Preferred Stock would have converted into the right to receive an aggregate of
$63,182,220, (c) the 565,000 outstanding shares of Series B Preferred Stock
would have converted into the right to receive an aggregate of $5,650, and (d)
the 486,266 outstanding options, warrants and SARS would have converted into
the right to receive (net of the payment of the exercise prices) an aggregate
of approximately $2,725,000.
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<PAGE>
RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING
The Board of Directors has fixed the close of business on February 1,
1999 as the Record Date for determining the holders of Voting Stock entitled to
notice of and to vote at the Special Meeting. As of the Record Date, there were
issued and outstanding 3,175,645 shares of Class A Common Stock, 886,811 shares
of Class B Common Stock and 583,400 shares of Mandatory Preferred Stock,
represented by 5,834,000 Depositary Shares. In addition, as of the Record Date
there were 31,000 shares of Class C Common Stock, 802,445 of Class D Common
Stock and 565,000 shares of Series B Preferred Stock issued and outstanding,
none of which are entitled to vote at the Special Meeting. Triathlon also has
outstanding warrants, stock options and SARs. The holders of these derivative
securities have no voting rights with respect to the Merger Agreement.
A quorum is necessary in order for a vote on the proposals presented
at the Special Meeting. The presence in person or by proxy of the holders of
record of a majority of the combined voting power of the outstanding shares of
Voting Stock is necessary for there to be a quorum for purposes of voting on
the Merger Agreement.
Abstentions (i.e., votes withheld by stockholders who are present and
entitled to vote) and broker non-votes (i.e., shares held by a broker for its
customers that are not voted because the broker does not receive instructions
from the customer or because the broker does not have discretionary voting
power with respect to the item under consideration) will be counted as present
for purposes of determining whether there is a quorum for the transaction of
business.
The affirmative vote of the holders of a majority of the voting power
of all outstanding shares of the Voting Stock, voting together as a single
class (with each share of Class A Common Stock entitled to one vote, each share
of Class B Common Stock entitled to ten votes and each share of Mandatory
Preferred Stock entitled to eight votes) is required to adopt the Merger
Agreement. Accordingly, abstention and broker non-votes will have the effect of
votes against the adoption of the Merger Agreement.
All outstanding shares of Mandatory Preferred Stock are held by the
Depositary, which has issued Depositary Shares, each representing a one-tenth
interest in a share of Mandatory Preferred Stock. Pursuant to the Deposit
Agreement, holders of Depositary Shares on the Record Date will be entitled to
direct the voting of one-tenth of a share of Mandatory Preferred Stock per
Depositary Share (which is equivalent to four-fifths (0.8) of a vote per
Depositary Share), which may be exercised by instructing the Depositary using
the Voting Instruction Card delivered to holders of Depositary Shares with this
Proxy Statement.
Triathlon will appoint one or more inspectors, who may be employees of
Triathlon, to determine, among other things, the number of shares of Voting
Stock represented at the Special Meeting and the validity of the proxies
submitted for voting at the Special Meeting. Triathlon has retained ChaseMellon
Shareholder Services L.L.C., its transfer agent for the Class A Common Stock
and Mandatory Preferred Stock, as proxy tabulator to assist the inspectors in
the performance of their duties. ChaseMellon Shareholder Services L.L.C. can be
reached at 600 Willow Tree Road, Leonia, New Jersey 07605, facsimile no.
201-296-4142, Attention: Norma Cianfaglione.
The Named Stockholders own as of the Record Date all of the
outstanding shares of Class B Common Stock, which represent approximately 53%
of the combined voting power of the outstanding Voting Stock. Pursuant to the
Stockholder Agreements, the Named Stockholders have agreed to vote all shares
of capital stock of Triathlon held by them in favor of adoption of the Merger
Agreement at the Special Meeting. Such holders collectively possess the right
to cast 8,868,110 of the 16,710,955 votes entitled to be cast at the Annual
Meeting. Accordingly, passage of the proposal to adopt the Merger Agreement is
assured. See "The Merger--Stockholder Agreements."
VOTING OF PROXIES; INSTRUCTIONS BY HOLDERS OF DEPOSITARY SHARES
All shares of Class A Common Stock and Class B Common Stock that are
entitled to vote and are represented at the Special Meeting by properly
executed proxy cards received prior to or at the Special Meeting, and not duly
and timely revoked, will be voted at the Special Meeting (or any adjournment or
postponement thereof) in accordance with the instructions indicated on the
proxy cards. If no instructions are indicated, the proxies will be voted FOR
adoption
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<PAGE>
of the Merger Agreement. Abstentions and broker non-votes will have the effect
of votes against adoption of the Merger Agreement.
Holders of Depositary Shares who wish to direct the Depositary to vote
on the proposal to adopt the Merger Agreement should complete the enclosed
Voting Instruction Card. The Voting Instruction Card authorizes the Depositary,
as holder of record of the shares of Mandatory Preferred Stock, to vote the
amount of Mandatory Preferred Stock represented by the holder's Depositary
Shares as instructed in the Voting Instruction Card at the Special Meeting or
any adjournment of postponement thereof. If no instructions are indicated, the
Voting Instruction Cards will be counted as abstentions on the proposal to
adopt the Merger Agreement.
In the event that there is a motion to adjourn or postpone the Special
Meeting to another time and/or place (including for the purpose of soliciting
additional votes in favor of the adoption of the Merger Agreement), then (i)
proxies of holders of Class A Common Stock and Class B Common Stock who vote in
favor of adoption of the Merger Agreement and proxies of holders of Class A
Common Stock and Class B Common Stock which contain no voting instructions will
be voted in favor of the motion to adjourn or postpone the Special Meeting,
(ii) proxies of holders of Class A Common Stock and Class B Common Stock who
vote against the adoption of the Merger Agreement will be voted against the
motion to adjourn or postpone the Special Meeting, and (iii) proxies of holders
of Class A Common Stock and Class B Common Stock who abstain from voting on the
adoption of the Merger Agreement will abstain on the vote on adjournment or
postponement, which will have the effect of a vote against adjournment or
postponement. If any other matters are properly presented for consideration at
the Special Meeting, then John D. Miller and Jeffrey W. Leiderman (the persons
named in the enclosed proxy card as the proxies for the Class A Common Stock
and Class B Common Stock) will have discretion to vote on these matters in
accordance with their best judgment.
Pursuant to the Deposit Agreement, the Depositary is prohibited from
voting Depositary Shares (including on any proposal to adjourn or postpone the
Special Meeting) in the absence of voting instructions from the holders
thereof.
REVOCATION OF PROXIES AND VOTING INSTRUCTIONS
A holder of Class A Common Stock or Class B Common Stock may revoke a
proxy card given pursuant to this solicitation at any time before the proxy
card is voted by submitting a written revocation to the tabulation agent
(ChaseMellon Shareholder Services L.L.C.), by returning a subsequently dated
proxy card to the proxy tabulator or to the Secretary of Triathlon, by filing
an instrument in writing with the Secretary of Triathlon revoking the proxy
card, or by voting in person at the Special Meeting. Attendance at the Special
Meeting will not in and of itself revoke a proxy card.
Holders of Class A Common Stock and Class B Common Stock who are
entitled to revoke their proxy card may do so via facsimile at the number set
forth above in "--Record Date; Quorum; Voting at the Special Meeting." Any
beneficial owner of Class A Common Stock or Class B Common Stock whose shares
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to revoke should contact the registered holder
promptly and instruct the registered holder to revoke on his behalf. There can
be no assurance that the registered holder will have sufficient time prior to
the Special Meeting to deliver a revocation upon instruction by the beneficial
owner.
A holder of Depositary Shares who wishes to revoke its voting
instructions to the Depositary should deliver a subsequently dated Voting
Instruction Card to the Depositary, or file an instrument in writing with the
Depositary revoking its voting instructions. Any such action must be taken, and
received by the Depositary, prior to the time of the vote at the Special
Meeting on the proposal to adopt the Merger Agreement. Any such subsequently
dated Voting Instruction Card or revocation should be sent by mail, overnight
courier or facsimile to the Depositary at 600 Willow Tree Road, Leonia, New
Jersey 07605, Attn: Norma Cianfaglione, facsimile number 201-296-4142 or
delivered in person to a representative of the Depositary at the Special
Meeting.
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PROXY SOLICITATION
Triathlon will pay its own expenses incurred in connection with this
Proxy Statement and the Special Meeting, including the disbursements of legal
counsel and accountants. In addition to solicitation by mail, proxies may be
solicited by directors, officers and employees of Triathlon in person or by
telephone, facsimile or other means of communication. The directors, officers
and employees will not be additionally compensated, but will be reimbursed for
reasonable out-of-pocket expenses, in connection with their solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by the custodians, nominees and fiduciaries, and Triathlon will
reimburse the custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS OR RECEIPTS REPRESENTING THE DEPOSITARY SHARES WITH THEIR VOTING
INSTRUCTION CARDS.
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Triathlon was formed by Norman Feuer, Robert F.X. Sillerman and Howard
J. Tytel in 1995 to acquire, own and operate radio stations, primarily in
medium and small-sized markets in the midwestern and western United States.
Triathlon's strategy was to identify and acquire established stations (i)
located in a market with a sound local economy, (ii) with a demonstrated record
of audience share and broadcast cash flow or the potential to achieve a
significant audience share and broadcast cash flow in a short period of time
and (iii) which were available for purchase at attractive prices, generally
expressed in terms of multiples of broadcast cash flow. Management's strategy
was to acquire radio stations that would be accretive to broadcast cash flow
("BCF"), so that the purchase price expressed as a multiple of BCF, after
giving effect to anticipated cost savings or revenue enhancements at the
acquired stations, should not exceed the multiple of BCF at which Triathlon
stock traded.
Upon completion of its initial public offering of Class A Common Stock
at $5.50 per share in September 1995, Triathlon acquired or operated three FM
and two AM radio stations in the Wichita, Kansas market. Triathlon currently
owns or operates 22 FM and 10 AM radio stations in six markets and owns a
regional sports radio network. Triathlon's growth was financed principally by
approximately $13 million in net proceeds from its initial public offering in
1995, approximately $56 million in net proceeds from its public offering of
Depositary Shares in 1996 and aggregate borrowings of approximately $79 million
under its senior bank credit facility.
Triathlon sought to capitalize on the changing regulatory environment
which relaxed the restrictions on the number of radio stations an entity could
own. At the time of Triathlon's formation in 1995, the Communications Act of
1934, as amended (the "Communications Act"), and the rules, regulations, orders
and policies promulgated or adopted thereunder by the FCC (the "Communications
Laws") limited the number of radio stations which any entity could own to 20 FM
and 20 AM stations. These ownership limits were based on "attributable"
interest, which, for a corporation, included the interest of officers,
directors and those who, directly or indirectly, had the right to vote 5% or
more of the corporation's voting securities. Triathlon was organized and
structured in such a manner so that Mr. Sillerman's other radio broadcasting
interests, including his former controlling interest in SFX Broadcasting, Inc.
("SFX Broadcasting"), a publicly-held company founded by Mr. Sillerman in 1992
and which acquired, owned and operated radio stations in major and medium-sized
markets, would not be attributable to Triathlon for purposes of the
Communications Laws. Triathlon was organized and structured in this manner in
order to maximize its expansion opportunities. Accordingly, a significant
amount of Mr. Sillerman's ownership interest in Triathlon consisted of
non-voting stock.
In 1996, legislation was enacted that further liberalized the
Communications Laws by eliminating the limit on the number of radio stations
that an individual or entity could own nationally and increased the number of
radio stations that an individual or entity could own in a local market.
Thereafter the consolidation of the radio industry rapidly accelerated and
radio stations in medium- and small-size markets which in the past had not
attracted the interest of large companies because of the limitations on radio
station ownership discussed above were now being aggressively pursued by large
companies, certain of which had significantly greater financial resources than
Triathlon.
Given its capitalization and debt structure, Triathlon found it
increasingly difficult to compete for acquisitions against larger publicly-held
radio broadcasting companies whose securities generally traded at higher
multiples of broadcast cash flow than Triathlon's. As a result of the entry of
large companies into the market for radio stations located in medium- and
small-sized markets, the prices demanded by the owners of these stations
increased considerably and it became increasingly difficult for Triathlon to
identify acquisitions which would be accretive to BCF. Higher acquisition costs
particularly impacted Triathlon because financing acquisitions became
increasingly difficult for two reasons. First, although the broadcast cash flow
multiples required to acquire radio stations increased, lenders did not
increase the multiples at which they would lend to radio station operators such
as Triathlon. Second, Triathlon's stock traded at a lower multiple of BCF than
many of its competitors and, perhaps more importantly, at a lower BCF multiple
than the BCF multiple required to acquire radio stations.
Management recognized that these factors might present opportunities
for Triathlon to maximize stockholder value through a sale of the company.
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<PAGE>
In December 1996, Triathlon instructed its principal financial
advisor, SCMC, to actively explore alternatives to maximize stockholder value,
including a possible sale of Triathlon. In early 1997, SCMC held informal
discussions with a number of owners of radio station groups, including an
affiliate of Buyer, exploring whether there was any interest in acquiring
Triathlon. These discussions were conducted principally by Robert F.X.
Sillerman and Howard J. Tytel of SCMC and Norman Feuer, Triathlon's Chief
Executive Officer and Chairman of the Board. These discussions did not result
in any proposals.
Continuing its efforts on behalf of Triathlon, in the summer of 1997,
Mr. Sillerman held discussions with R. Steven Hicks, an executive officer at
Hicks Muse, about a proposal in which Triathlon would be acquired by an
affiliate of Buyer in a transaction in which the holders of Common Stock would
receive $9.50 per share and holders of Depositary Shares would receive $10.00
per share. The transaction, as proposed by the acquiror, provided that the
acquiror would not be required to consummate the acquisition for up to two
years, during which time the acquiror would be able to operate Triathlon's
radio stations pursuant to a local marketing agreement (an "LMA"). Unable to
agree on principal terms, including price, the time frame for closing and the
requirement that Triathlon make all of its stations subject to an LMA,
Triathlon and the affiliate of Buyer terminated their discussions in early
August 1997.
Through the summer and early fall of 1997, Triathlon, acting
principally through Messrs. Sillerman and Tytel, together with Mr. Feuer, held
preliminary discussions with other potential acquirors but did not receive any
proposals.
In October 1997, in an effort to broaden the scope of potential
acquirors beyond radio station operators to include financial buyers, leverage
buyout groups and merchant banks, Triathlon publicly announced the retention of
Goldman Sachs to assist in exploring ways to maximize stockholder value,
including a potential sale of Triathlon. At that time Triathlon also
established the Independent Committee to make a recommendation to the full
Board of Directors with respect to any bona fide proposals. The Independent
Committee was also empowered to directly participate in negotiations, to the
extent it deemed it desirable.
In making its decision to establish an Independent Committee with
respect to transaction proposals, the Board of Directors considered, among
other things, (i) that certain potential buyers might wish to retain the
services of Mr. Feuer and others would not wish to retain the services of Mr.
Feuer, (ii) that many interested parties would likely have business
relationships with Robert F.X. Sillerman (for example, an affiliate of Hicks
Muse had entered into an agreement to acquire SFX Broadcasting, a company
controlled by Mr. Sillerman), and (iii) that potential buyers might require
that Triathlon's ongoing financial consulting and advisory agreement with SCMC,
a company affiliated with Robert F.X. Sillerman, be terminated. The arrangement
was scheduled to continue through 2005 and, if terminated, would likely require
Triathlon to pay a substantial termination fee.
John D. Miller, Frank E. Barnes III and Jeffrey W. Leiderman were
appointed as the members of the Independent Committee. Although Mr. Miller
serves as Chairman of the Board of Triathlon, none of the members of the
Independent Committee is an employee of Triathlon; in addition, Messrs. Barnes
and Leiderman were elected to the Board of Directors by the holders of the
Class A Common Stock and the Depositary Shares voting together as a single
class and are considered "independent directors" for purposes of the rules of
the National Association of Securities Dealers, Inc. and the Certificate of
Incorporation of Triathlon. The Independent Committee was authorized to make a
recommendation to the Board of Directors on any acquisition proposals involving
Triathlon and, in connection therewith, was authorized to engage its own legal
counsel and advisors, if deemed necessary to assist it in the exercise of its
authority. After interviewing several law firms, the Independent Committee
retained the law firm of Paul, Hastings, Janofsky & Walker LLP ("Paul
Hastings") in November 1997. Paul Hastings had previously served as counsel to
the special independent committee of Multi-Market Radio, Inc., a public company
founded by Mr. Sillerman, in its combination with SFX Broadcasting, and had
also represented Triathlon, SFX Broadcasting and other entities affiliated with
Mr. Sillerman.
Beginning in November 1997, Goldman Sachs contacted approximately 40
entities engaged in, or having investments in, the radio industry about a
potential transaction with Triathlon. The entities contacted included parties
identified and selected by Goldman Sachs and Triathlon as a result of
expectations regarding their strategic and financial interest in pursuing a
transaction with Triathlon, as well as parties who contacted either Goldman
Sachs or SCMC of their own accord. Of these parties, 12 demonstrated sufficient
interest and financial resources to receive more detailed information on
Triathlon. Although Triathlon engaged in limited preliminary discussions with a
number of these parties,
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<PAGE>
none of the discussions progressed beyond the initial stages. Except as
described in the next paragraph, no offers were made by any of these parties.
As a result of Goldman Sachs' efforts, on January 16, 1998 Triathlon
entered into a non-binding letter of intent with a potential buyer which had
interests in radio and television broadcasting. The non-binding letter of
intent was subject to negotiation of a definitive merger agreement and outlined
a proposed tax-free transaction in which holders of Common Stock would receive
$13.00 per share, of which $5.20 was payable in cash and the balance in equity
of a new entity which would include the radio and television interests of the
buyer. The holders of Common Stock would also receive certain contingent value
rights to support the value of the equity securities to be issued to Triathlon
stockholders. In the transaction, the Depositary Shares were to be converted
into the right to receive for each share of Class A Common Stock into which
such Depositary Share is convertible, the same consideration as a share of
Common Stock. The letter of intent established an exclusivity period through
March 5, 1998, during which Triathlon agreed not to entertain any other
proposal for its sale. During the exclusive discussions, the potential buyer
attempted to renegotiate the basic terms of the transaction, including price,
notwithstanding that such terms were set forth in the letter of intent.
Discussions between the parties ceased in March 1998. Thereafter the potential
buyer announced that it was exploring opportunities to sell its broadcasting
holdings. It appeared to management that the potential buyer changed its radio
broadcasting strategy during the exclusivity period.
In early June 1998, Mr. Sillerman spoke with R. Steven Hicks to
determine if there was continued interest in a transaction involving the sale
of Triathlon. In the negotiations, Buyer insisted that it obtain, at the time
of the execution of the definitive merger agreement, the agreement of holders
of at least 50% of the voting power with respect to any merger transaction to
vote in favor thereof. This could be accomplished by having certain holders of
the non-voting Class D Common Stock agree to convert certain of their shares
into Class B Common Stock, each share of which is generally entitled to ten
votes. As had been previously disclosed by Triathlon in its filings with the
Securities and Exchange Commission (the "SEC"), Triathlon had failed to meet
certain financial covenants under a bank credit facility and, as a result,
pursuant to the terms of the Certificate of Incorporation of Triathlon, the
Class D Common Stock was convertible on a share-for-share basis into Class B
Common Stock. Buyer also insisted that all holders of the Series B Preferred
Stock, which was convertible into shares of Class A Common stock, on a
one-for-one basis, under certain circumstances agree to surrender their shares
of Series B Preferred Stock for $.01 per share in the merger transaction. The
Series B Preferred Stock was principally held by Norman Feuer, Robert F.X.
Sillerman and Howard J. Tytel. See "Risk Factors--Conversion of Non-Voting
Class D Common Stock into Super-Voting Class B Common Stock."
On July 14, 1998, the Independent Committee met to discuss the status
of the negotiations. Goldman Sachs outlined its efforts to maximize stockholder
value through a sale of Triathlon and reviewed the economic terms of the
proposed transaction. The Board and its advisors also discussed other issues
relating to the proposal, including termination fees that may become payable in
the event that the agreement were to be terminated, the stockholder lockup
arrangements, the consideration payable by Triathlon to a Sillerman affiliated
company in order to terminate its ongoing financial consulting arrangement and
the consideration payable to Mr. Feuer upon termination of his employment. The
Independent Committee also considered requesting that Goldman Sachs seek
additional bids, but determined that such an effort would not be fruitful.
Thereafter, in the afternoon of July 14, the full Board met with its advisors
to discuss the status of the merger transaction with Buyer. In this meeting,
Goldman Sachs described its financial analysis with respect to the proposal.
Prior to the July 14 meeting and at the July 14 meeting, the Board of
Directors were fully apprised of Mr. Sillerman's past dealings with Buyer,
including Buyer's cash purchase of SFX Broadcasting. Moreover, the Board of
Directors was also aware that D. Geoffrey Armstrong, who had been the Chief
Operating Officer and Executive Vice President of SFX Broadcasting and was then
the Executive Vice President of SFX Entertainment, Inc. ("SFX Entertainment"),
had announced his intention to leave SFX Entertainment to become an officer of
Buyer.
The Independent Committee met again on July 16 to review the status of
the negotiations. The Independent Committee also met on July 22, 1998. At this
meeting the status of the negotiations was reviewed and the terms and
implications of the proposed transaction were discussed, including the
termination fees, "no-shop" provisions and stockholder lockups. There was also
extended discussion concerning the consideration to be paid to the holders of
the Mandatory Preferred Stock and the Depositary Shares, with the intent to
satisfy the terms of the Certificate of Designations with respect to the
Mandatory Preferred Stock. The Independent Committee received an oral
presentation
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<PAGE>
from Goldman Sachs in which Goldman Sachs reviewed the opinion it intended to
give the full Board later that day. Goldman Sachs also reviewed with the
Independent Committee the analysis of the proposed transaction that it would
present later that day to the entire Board.
On July 22, 1998, the full Board met with its legal and financial
advisors in order to discuss the status of the merger transaction with Buyer
and to review the relevant agreements. The full Board discussed the
consideration to be paid to the holders of the Mandatory Preferred Stock and
the Depositary Shares, with the intent to satisfy the terms of the Certificate
of Designations with respect to the Mandatory Preferred Stock. The Depositary
Share Merger Consideration of $10.83 per Depositary Share is equal to the
amount that a holder of a Depositary Share would receive in the Merger if he
converted such Depositary Share into Class A Common Stock prior to the Merger.
The Board also discussed its principal obligation to maximize stockholder value
to the holders of Common Stock. At this meeting, Goldman Sachs gave a
presentation to the Board of Directors, which included its review of the value
of the Common Stock and its review of the value of other companies with
securities with securities with similar attributes in similar transactions.
Goldman Sachs indicated orally to the full Board of Directors that it was of
the opinion that the consideration to be received by the holders of Common
Stock pursuant to the Merger Agreement was fair from a financial point of view
to such holders. Such opinion was subsequently confirmed in writing on July 23,
1998, prior to the execution of the Merger Agreement.
The Independent Committee then unanimously adopted resolutions
recommending to the full Board of Directors that it approve the Merger
Agreement and the transactions contemplated thereby, including the termination
of the SCMC financial consulting agreement and the termination of Mr. Feuer's
employment agreement, as fair to and in the best interest of the stockholders
of Triathlon. The Independent Committee further recommended to the full Board
of Directors that it declare advisable and recommend the Merger Agreement to
the stockholders of Triathlon.
The Independent Committee met separately as a committee and together
with its legal counsel numerous times between July 14, 1998 and July 22, 1998.
In making its recommendation to the Board of Directors, the Independent
Committee consulted with its legal counsel and considered, among other factors
that the Independent Committee deemed relevant, the following:
(a) The history of Triathlon's negotiations with prospective
purchasers, culminating in the proposal from Buyer, and the fact
that approximately 40 entities in the radio industry, or having
investments in the radio industry, had been informed that
Triathlon was interested in pursuing a course of action which
would maximize stockholder value.
(b) The terms of the proposed Merger Agreement and related
transaction documents.
(c) The terms and potential effects of the proposed Stockholder
Agreements and Series B Agreements demanded by Buyer.
(d) The terms of the Termination Agreement.
(e) The current business conditions affecting companies in the media
business generally and the radio broadcasting business
specifically, including recently completed acquisitions, proposed
consolidations and recent announcements of other similar
companies deciding to pursue strategic alternatives.
After receiving the recommendation of the Independent Committee and
upon further deliberation, the Board of Directors (with Mr. Feuer abstaining
due to a potential conflict of interest) unanimously approved and adopted the
draft form of the Merger Agreement in substantially the form executed and the
transactions contemplated thereby as advisable, fair to and in the best
interests of the stockholders of Triathlon and recommended that the
stockholders adopt the Merger Agreement. The parties continued to negotiate and
finalize the Merger Agreement and the related documents during July 22 and July
23, and such documents were executed on July 23, 1998.
At a meeting held on July 23, 1998, prior to the execution by
Triathlon of the Merger Agreement and the related documents, the Board of
Directors discussed the renewed indication of interest by a third party that
had previously expressed interest in Triathlon but that had never made a formal
offer. The bidder had contacted Triathlon's
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representatives about a transaction in which the consideration might be
slightly higher than that provided for in the Merger Agreement. The third
party, however, failed to submit a bona fide written proposal despite several
oral assurances that such a bid was forthcoming, even after Triathlon extended
the deadline for this party on several occasions. The Board of Directors was of
the view that the renewed indication of interest should not delay Triathlon's
execution of the Merger Agreement and the related documents. No formal offer or
written proposal was ever received from the third party.
On July 24, 1998, a lawsuit was filed alleging, among other things,
that the consideration to be paid as a result of the Merger to the holders of
the Depositary Shares is unfair. See "--Certain Legal Proceedings."
On August 5, 1998, three of the Named Stockholders (Messrs. Feuer,
Sillerman and Tytel) entered into an amendment to their respective Stockholder
Agreements. In the amendments, Buyer and Buyer Sub consented to the execution
of a Voting Trust Agreement among Messrs. Feuer, Sillerman and Tytel pursuant
to which Messrs. Sillerman and Tytel placed the shares of Class B Common Stock
received by them upon the conversion of their Class D Common Stock into a
voting trust, with Mr. Feuer as voting trustee. Pursuant to such Voting Trust
Agreement, Mr. Feuer has the right to vote the shares of Class B Common Stock
received by Messrs. Sillerman and Tytel upon the conversion of their Class D
Common Stock, which conversion was effected in accordance with the terms of the
Stockholder Agreements. See "Principal Stockholders--Conversion of Class D
Common Stock into Class B Common Stock; Voting Trust Agreements."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors believes that the terms of the Merger Agreement
and the Merger contemplated thereby are advisable, fair to, and in the best
interests of the stockholders of Triathlon. Accordingly, the Board of Directors
has unanimously approved the Merger Agreement and the Merger and has
recommended that Triathlon's stockholders adopt the Merger Agreement. In
addition to the factors considered by the Independent Committee discussed above
under "--Background of the Merger," in reaching its conclusion to approve the
Merger Agreement and the Merger, the Board of Directors consulted with
Triathlon's management as well as Triathlon's financial and legal advisors, and
considered a number of factors, including the following:
(a) The Board of Director's familiarity with the radio broadcast
industry generally, its awareness of the trend toward
consolidation in the radio broadcast industry and its review and
analysis of Triathlon's existing business, financial condition,
results of operations and prospects and the competitive
environment facing Triathlon.
(b) The recent consolidation in the radio industry which has made it
increasingly difficult for Triathlon to identify and consummate
acquisitions that meet Triathlon's investment criteria. While
management was not dissatisfied with Triathlon's financial
performance and market position, the Board of Directors was
concerned about Triathlon's ability to implement an effective
expansion plan in view of the ongoing consolidation in the radio
industry and the increasing acquisition prices of radio stations.
(c) The value of the Common Stock Merger Consideration to be received
by the holders of the Common Stock in the Merger. The Board of
Directors considered the historical market prices and trading
information with respect to the Class A Common Stock, the price
per share offered by Buyer, the certainty of the value provided
by the cash consideration and the fact that such price represents
a significant premium over the market prices at which the Class A
Common Stock had previously traded, including (but not limited
to) the fact that the $13.00 cash consideration per share of
Class A Common Stock represented a premium of 46% from the $87/8
trading price on October 22, 1997, the day before Triathlon
announced that it had retained Goldman Sachs with the intention
of maximizing stockholder value. As detailed above under
"--Background of the Merger," the Board of Directors noted that
the consideration to be received in the Merger was the result of
an extensive and exhaustive process that resulted in discussions
with a number of potential acquirors and the ultimate selection
of Buyer's proposal.
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(d) The value of the Depositary Share Merger Consideration to be
received by the holders of the Depositary Shares. The Board
reviewed the Deposit Agreement and the Certificate of
Designations with respect to the Mandatory Preferred Stock with a
view to satisfying the rights of the holders of the Depositary
Shares. In accordance with those rights, the Depositary Share
Merger Consideration is equal to the Common Stock Merger
Consideration times the portion of a share of Class A Common
Stock into which each Depositary Share is currently convertible
(.833).
(e) The prospects of continuing to operate Triathlon and the
possibility that Triathlon's future performance might not in the
foreseeable future lead to a trading price for the shares of
Class A Common Stock having a higher present value than the
Common Stock Merger Consideration.
(f) The presentation of Goldman Sachs (including a consideration of
the assumptions and methodologies underlying its analyses) made
to the Board of Directors of Triathlon on July 22, 1998 and the
opinion of Goldman Sachs to the Board of Directors that, as of
July 23, 1998, the consideration to be received by the holders of
the Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such holders. See "--Opinion of
Goldman Sachs."
(g) The terms and conditions of the Merger Agreement, including the
lack of any financing condition for the benefit of Buyer, the
$9.0 million letter of credit placed in escrow to secure the
performance of Buyer and the obligation of Buyer to pay an
additional $3.0 million to Triathlon in the event that the Merger
Agreement is terminated under certain circumstances.
The discussion contained herein of the information and factors
considered by the Board of Directors and the Independent Committee is not
intended to be exhaustive. In view of the wide variety of factors considered in
connection with its evaluation of the proposed Merger, the Board of Directors
and the Independent Committee did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to any of the factors
discussed herein. In addition, individual members of the Board of Directors and
the Independent Committee may have given different weights to different
factors. For a discussion of the interests of certain members of the Board of
Directors in the Merger, which interests were considered by the Board of
Directors and the Independent Committee, see "--Interests of Certain Persons in
the Merger."
THE BOARD OF DIRECTORS (WITH NORMAN FEUER ABSTAINING DUE TO A
POTENTIAL CONFLICT OF INTEREST) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THEY ARE
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TRIATHLON.
THE BOARD OF DIRECTORS (WITH NORMAN FEUER ABSTAINING DUE TO A POTENTIAL
CONFLICT OF INTEREST) UNANIMOUSLY RECOMMENDS THAT TRIATHLON'S STOCKHOLDERS
ADOPT THE MERGER AGREEMENT. IN ADDITION, THE INDEPENDENT COMMITTEE HAS
RECOMMENDED TO THE BOARD OF DIRECTORS THAT IT APPROVE THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AS FAIR TO AND IN THE BEST INTERESTS OF
THE STOCKHOLDERS OF TRIATHLON AND THAT THE BOARD OF DIRECTORS DECLARE ADVISABLE
AND RECOMMEND THE ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF
TRIATHLON.
OPINION OF GOLDMAN SACHS
On July 23, 1998, Goldman Sachs delivered its written opinion to the
Board of Directors of Triathlon (confirming its oral opinion given to the Board
of Directors of Triathlon on July 22, 1998) that, as of the date of such
opinion, the Common Stock Merger Consideration to be received by the holders of
the Common Stock pursuant to the Merger Agreement was fair from a financial
point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JULY 23,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS OF TRIATHLON ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
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<PAGE>
In connection with its opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement; (ii) Triathlon's Registration Statement on
Form S-1, dated September 7, 1995, relating to its initial public offering of
Class A Common Stock; (iii) Annual Reports to Stockholders and Annual Reports
on Form 10-K of Triathlon for the two years ended December 31, 1997; (iv)
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
Triathlon; (v) the Certificate of Designations relating to the Mandatory
Preferred Stock; (vi) certain other communications from Triathlon to its
stockholders; and (vii) certain internal financial analyses and forecasts for
Triathlon prepared by its management. Goldman Sachs also held discussions with
members of the senior management of Triathlon regarding Triathlon's past and
current business operations, financial condition and future prospects. In
addition, Goldman Sachs reviewed the reported price and trading activity for
the Common Stock, compared certain financial and stock market information for
Triathlon with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the broadcasting industry specifically and performed
such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of Triathlon or any of its subsidiaries and Goldman Sachs was not
furnished with any such evaluation or appraisal. Furthermore, Goldman Sachs was
not asked to consider, and its opinion did not address, the fairness of any
amounts to be received by holders of the Mandatory Preferred Stock and Series B
Preferred Stock pursuant to the Merger Agreement. The opinion of Goldman Sachs
referred to herein and its advisory services were provided for the information
and assistance of the Board of Directors of Triathlon in connection with its
consideration of the transaction contemplated by the Merger Agreement, and such
opinion does not constitute a recommendation as to how any holder of Common
Stock should vote with respect to such transaction.
The following is a summary of certain of the financial and comparative
analyses which Goldman Sachs presented to the Board of Directors of Triathlon
on July 22, 1998, and which provided the basis for Goldman Sachs' written
opinion dated as of July 23, 1998.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for shares of Common Stock and
analyzed the consideration to be received by holders of shares of
Common Stock pursuant to the Merger Agreement in relation to the
closing market price of such shares during the time periods referenced
below. Such analysis indicated that from September 8, 1995 to July 17,
1998, the closing market price ranged from a low of $5.50 to a high of
$13.00.
In addition, Goldman Sachs reviewed the historical performance of
the Common Stock from September 8, 1995 (the date of the initial
public offering of the Common Stock) to July 17, 1998, and from
October 23, 1997 (the date of the public announcement that Triathlon
had hired Goldman Sachs to assist in the pursuit of strategic
alternatives) to July 17, 1998, and compared it to the Standard &
Poor's 500 Stock Index (the "S&P 500 Index") and an index comprised of
a group of selected companies in the radio broadcasting industry (the
"Radio Index"). The Radio Index consists of Capstar Broadcasting
Corporation, Chancellor Media Corporation, Clear Channel
Communications, Inc., Cox Radio, Inc., Emmis Broadcasting Corporation,
Heftel Broadcasting Corporation, Jacor Communications, Inc., and Saga
Communications, Inc. The comparison shows that the price of the Common
Stock increased by 101% between September 8, 1995 and July 17, 1998,
while the S&P 500 Index increased by 52% and the Radio Index increased
by 58% over the same period. In addition, the price of the Common
Stock increased by 18% between October 23, 1997 and July 17, 1998,
while the S&P 500 Index increased by 25% and the Radio Index increased
by 41% over the same period.
(ii) Market Valuation of Selected Companies. Goldman Sachs
performed a market valuation analysis of thirteen selected radio
broadcasting companies (including Triathlon). The thirteen selected
companies were Capstar Broadcasting Corporation, CBS, Inc., Chancellor
Media Corporation, Citadel Broadcasting Company, Clear Channel
Communications, Inc., Cox Radio, Inc., Cumulus Media Inc., Emmis
Broadcasting Corporation, Heftel Broadcasting Corporation, Jacor
Communications, Inc., Metro Networks, Inc., Saga Communications, Inc.,
and Triathlon. Goldman Sachs first analyzed the thirteen companies as
a single group, and the analysis indicated that (i) the estimated 1998
levered BCF multiple (defined as enterprise value divided by BCF)
ranged
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<PAGE>
from a low of 11.4x to a high of 30.3x, with an average of 18.8x, as
compared to an estimated 1998 levered BCF multiple of 12.0x for
Triathlon; and (ii) the estimated 1999 levered BCF multiple ranged
from 10.4x to a high of 23.4x, with an average of 16.1x, as compared
to an estimated 1999 BCF multiple of 10.7x for Triathlon.
Goldman Sachs also performed a market valuation analysis of the
same companies after sorting the companies by size of markets served.
Goldman Sachs sorted the companies into three separate market-size
groups: large market group, middle market group and small market
group. Triathlon was included as a member of and compared to the small
market group. The analysis for the small market group indicated that
(i) the estimated 1998 levered BCF multiple ranged from a low of 11.4x
to a high of 19.2x, with an average of 15.3x, as compared to an
estimated 1998 BCF multiple of 12.0x for Triathlon; and (ii) the
estimated 1999 levered BCF multiple ranged from a low of 10.4x to a
high of 16.3x, with an average of 13.4x, as compared to an estimated
1999 BCF multiple of 10.7x for Triathlon.
(iii) Present Value of Potential Future Share Prices. Goldman
Sachs performed an analysis of the present value at June 30, 1998 of
the potential future share price of the Common Stock at June 30, 1999
as a multiple of estimated 1999 BCF based on internal Company data and
management estimates. Such analysis used levered BCF multiples ranging
from 9.0x to 15.0x and discount rates ranging from 10% to 15%. Under
this analysis, the present value of potential future prices of Common
Stock based on such estimated 1999 BCF ranged from a low of $7.92 to a
high of $17.17.
In addition, Goldman Sachs analyzed the present value of the
$13.00 Common Stock Merger Consideration assuming (i) 6 months until
closing, (ii) 9 months until closing, and (iii) 12 months until
closing (assuming Common Stock Merger Consideration of $13.75 per
share based on a three month extension of the closing). The analysis
used discount rates ranging from 10% to 15%. Such analysis indicated
that the present value of the $13.00 per share Common Stock Merger
Consideration ranged from a low of $12.12 to a high of $12.40 for the
six-month calculation, from a low of $11.71 to a high of $12.10 for
the nine-month calculation, and from a low of $11.96 to a high of
$12.50 for the twelve-month calculation (assuming Common Stock Merger
Consideration of $13.75 per share based on a three month extension of
the closing).
(iv) Selected Transactions Analysis. Goldman Sachs reviewed 91
selected transactions in the radio broadcasting industry from January
1994 to May 1998, which period was selected in order to provide a
relatively large and diverse sampling of recent transactions in the
industry. Goldman Sachs also analyzed certain information relating to
such selected merger transactions based upon selected broadcast
industry trade reports, press releases and various research reports.
Such analysis indicated that (i) the levered values of such
transactions ranged from a low of $21.0 million to a high of $18.8
billion, with an average of $570.1 million, as compared to $190.1
million for the Merger; (ii) the levered BCF multiples for the
calendar year in which the transactions were announced ranged from a
low of 7.1x to a high of 29.3x, with an average of 14.1x, as compared
to 12.8x for the Merger (based on Triathlon's estimated 1998 BCF); and
(iii) the levered BCF multiples for the calendar year following the
year in which the transactions were announced ranged from a low of
9.6x to a high of 16.8x, with an average of 12.3x, as compared to
11.4x for the Merger (based on Triathlon's estimated 1999 BCF).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable
to Triathlon or the contemplated transaction. The analyses were prepared solely
for purposes of Goldman Sachs providing its opinion to the Board of Directors
of Triathlon as to the fairness from a financial point of view of the $13.00
per share in cash to be received by the holders of Common Stock pursuant to the
Merger Agreement and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Triathlon, Goldman Sachs or
any other person
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<PAGE>
assumes responsibility if future results are materially different from those
forecast. As described above, Goldman Sachs' opinion to the Board of Directors
of Triathlon was one of many factors taken into consideration by the Board of
Directors of Triathlon in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analysis performed by Goldman Sachs and is qualified by reference to the
written opinion of Goldman Sachs set forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. Triathlon
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs is familiar with Triathlon,
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Merger Agreement.
In addition, Goldman Sachs has provided certain investment banking services to
Capstar, of which Buyer is a wholly-owned subsidiary, including acting as (i)
an agent in the syndication of its $1.4 billion senior secured credit facility
in April 1998 and (ii) an underwriter of its approximately $590 million initial
public offering of Class A Common Stock, par value $.01 per share, in May 1998.
In addition, Goldman Sachs has provided certain investment banking services to
SFX Broadcasting, a company controlled by Robert F.X. Sillerman before its sale
to an affiliate of Hicks Muse in 1998, and to SFX Entertainment, a company of
which Mr. Sillerman serves as Executive Chairman and in which he holds the
largest percentage of voting power.
Goldman Sachs is also familiar with Hicks Muse, which has a
controlling equity interest in Buyer, acting recently as (i) a co-manager of an
approximately $2.0 billion bank financing for Hicks Muse in February 1998, (ii)
joint book-running manager of a $1.0 billion issuance of common stock of a
company in which Hicks Muse has an equity interest in March 1998, and (iii) an
advisor on the recent sale of two companies in which Hicks Muse had a
controlling equity interest. Goldman Sachs was also an advisor to Chancellor
Media Corporation, in which Hicks Muse has an equity interest, in connection
with its proposed merger with Capstar. Goldman Sachs may provide investment
banking services to Buyer, Capstar, Chancellor Media Corporation and their
respective subsidiaries and Hicks Muse and its affiliates in the future.
Pursuant to a letter agreement dated October 28, 1997 (the "Engagement
Letter"), Triathlon engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated sale of all or a portion of Triathlon.
Pursuant to the terms of the Engagement Letter, Triathlon paid Goldman Sachs a
fee of $250,000 in cash upon execution thereof, which will be applied against
any transaction fee which becomes payable pursuant to the Engagement Letter.
Pursuant to the terms of the Engagement Letter, upon the purchase of 50% or
more of the outstanding voting stock of Triathlon in one or a series of
transactions, Triathlon has agreed to pay Goldman Sachs a fee of $1,000,000, if
the Common Stock Merger Consideration is equal to or less than $13.00 per
share, or $1,000,000 plus 5% of the amount of aggregate consideration paid in
such transactions that is in excess of the aggregate consideration that would
have been realized to the extent the Common Stock Merger Consideration was
$13.00, if the Common Stock Merger Consideration is greater than $13.00 per
share. Triathlon has also agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
STOCKHOLDER AGREEMENTS
Concurrently with the execution of the Merger Agreement and as an
inducement and a condition to Buyer entering into the Merger Agreement, each of
the Named Stockholders entered into a separate Stockholder Agreement with
Buyer, Buyer Sub and Triathlon. Pursuant to their respective Stockholder
Agreements, Messrs. Sillerman and Tytel and the Foundation have converted
136,852.06, 185,068.94 and 320,000 shares, respectively, of Class D Common
Stock owned by them into shares of Class B Common Stock. See "Principal
Stockholders--Conversion of Class D Common Stock into Class B Common Stock;
Voting Trust Agreements." The Named Stockholders collectively hold as of the
Record Date all of the outstanding shares of Class B Common Stock, which
represent approximately 53% of the combined voting power of the Voting Stock.
Pursuant to and subject to the terms and conditions of its respective
Stockholder Agreement, each Named Stockholder is required to vote all of the
shares of Triathlon capital stock which it owns (a) in favor of the Merger
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Agreement and the Merger, (b) against any acquisition proposal involving
Triathlon or any of its subsidiaries (other than the Merger or an acquisition
proposal with Buyer or any affiliate thereof), and (c) to the extent that any
of the following could reasonably be expected to impede or interfere with the
Merger or are intended to lead to an alternative acquisition proposal, against
any change in a majority of the Board of Directors, any change in the present
capitalization of Triathlon, any change to Triathlon's Certificate of
Incorporation or By-Laws, any amendment to Triathlon's Certificates of
Designations of the Series B Preferred Stock or the Mandatory Preferred Stock
or any other material change in Triathlon's corporate structure or business.
Accordingly, passage of the proposal to adopt the Merger Agreement is assured.
Under the Stockholder Agreements, if any Named Stockholder sells or
transfers its shares of Triathlon capital stock in connection with the
consummation of an acquisition proposal (other than the Merger) involving
Triathlon or any of its subsidiaries that is in existence on or that has been
made prior to the first anniversary of the termination of the Merger Agreement,
then such Named Stockholder is required to pay to Buyer the difference between
the total consideration received by such Named Stockholder upon the
consummation of the other acquisition and any other transactions contemplated
thereby and the total consideration to be received by such Named Stockholder
upon the consummation of the Merger and the transactions contemplated thereby.
If the consideration currently provided for in the Merger Agreement is
increased (other than pursuant to any extension by Buyer of the Merger
Agreement termination date), then the Stockholder Agreements require the Named
Stockholders to (a) pay to Buyer any increase in the total consideration
received by them upon the consummation of the Merger and the other transactions
contemplated thereby or (b) waive their rights (and any rights of their
respective affiliates) to receive that difference.
Each of the Named Stockholders has agreed in its respective
Stockholder Agreement that it will not, without Buyer's consent, offer, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of any shares
of Triathlon capital stock (or any securities convertible into or exercisable
or exchangeable for any of such shares) that it owns or grant any proxy or
power of attorney with respect thereto, except that any Named Stockholder may
pledge or encumber its securities in connection with a bona fide lending
transaction in certain circumstances.
Each Named Stockholder's obligation to vote as described terminates
upon the earlier of the Effective Time or the first anniversary of the
termination of the Merger Agreement, except that each of the Stockholder
Agreements, including the obligation to vote against any acquisition proposal
involving Triathlon or any of its subsidiaries, will be void and of no further
force or effect if:
(a) the Merger Agreement is terminated because (i) the Merger is
permanently prohibited or enjoined by a judicial order, decree or ruling
arising from claims or litigation involving Triathlon and its stockholders;
(ii)(x) before obtaining stockholder approval of the Merger Agreement, the
Board of Directors determines, in certain circumstances, to terminate the
Merger Agreement in order for Triathlon to enter into an agreement relating to
a Superior Proposal (as defined in the Merger Agreement), (y) Triathlon
notifies Buyer of the Superior Proposal, and (z) within five business days from
receipt of the notice, Buyer does not offer to revise the terms of the Merger
or the Board of Directors determines in good faith, after receiving advice from
its financial advisor, that the Superior Proposal is superior to Buyer's
revised offer; (iii) of certain environmental remediation costs for which the
Surviving Corporation in the Merger would be liable; or (iv) Triathlon has
outstanding more than a certain number of shares of certain classes of its
capital stock (including derivative securities), as specified in the Merger
Agreement; or
(b) (i) the Merger Agreement is terminated by mutual written consent
of Buyer, Buyer Sub and Triathlon or because (x) the Merger is not consummated
on or before the Termination Date, as it may be extended, (y) of the issuance
of a final and nonappealable order, injunction, decree or ruling permanently
enjoining, restraining or otherwise prohibiting the Merger (except for any such
order, decree, ruling or other action arising from claims or litigation
involving Triathlon and its stockholders, other than a proceeding brought by a
holder of Mandatory Preferred Stock on the basis of the treatment of the
Mandatory Preferred Stock under the Merger Agreement) or (z) of a material
uncured breach by Buyer of any representation, warranty, covenant or other
agreement contained in the Merger Agreement and (ii) Triathlon is entitled to
request a release of the letter of credit deposited into escrow by Buyer upon
the execution of the Merger Agreement. See "The Merger Agreement--Termination;
Fees and Expenses; Letter of Credit."
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If the Merger Agreement is terminated other than as described above,
the Named Stockholders will remain obligated for one year after such
termination to vote against acquisition proposals and against the previously
described changes in Triathlon's Board of Directors, capitalization,
Certificate of Incorporation, By-Laws, Certificates of Designations of the
Series B Preferred Stock or the Mandatory Preferred Stock or in Triathlon's
corporate structure or business. In the event that the Merger Agreement is
terminated, any attempts by a third party to acquire Triathlon are likely to be
delayed or impeded for a period of one year after the termination. Such delay
is likely because the Named Stockholders control a majority of the voting power
of the Voting Stock, they are obligated to vote in favor of the Merger and
against any competing transactions for a period of one year from the
termination of the Merger Agreement and they are obligated to pay to Buyer any
increased consideration to be received by them in a competing transaction
proposed prior to the first anniversary of the termination of the Merger
Agreement.
Each Named Stockholder has also agreed in its Stockholder Agreement to
waive (a) any appraisal rights with respect to any shares of capital stock of
Triathlon arising from the Merger (or any transaction with Buyer and/or Buyer
Sub as a result of any increase in the merger consideration provided in the
Merger Agreement), (b) any rights to convert shares of Series B Preferred Stock
which it owns into shares of Class A Common Stock, and (c) any default by
Triathlon that may arise in connection with its failure to redeem any shares of
Series B Preferred Stock that may be required to be redeemed pursuant to the
Certificate of Designations of the Series B Preferred Stock.
On December 30, 1998, the Stockholder Agreements of the Foundation and
Mr. Sillerman were amended. The amendment to the Foundation's Stockholder
Agreement permitted the Foundation to enter into a "forward purchase contract"
with an investment bank pursuant to which the Foundation agreed to deliver its
shares of Triathlon stock to the investment bank at a future date in return for
the payment of the purchase price for such shares on the date of execution of
the forward purchase contract. The Foundation is not obligated to deliver the
shares of Triathlon stock to the investment bank until a settlement date is
selected by the investment bank, which may not occur until September 15, 1999,
unless the Merger occurs prior to such date or the Merger Agreement is
terminated prior to such date. Until the shares of Triathlon stock are
delivered to the investment bank, the Foundation will retain the right to vote
them. The amendment to the Foundation's Stockholder Agreement permitted the
forward purchase contract to be entered into notwithstanding the prohibition on
offers, sales and other dispositions contained in the Foundation's Stockholder
Agreement. In connection with the execution of the forward purchase contract by
the Foundation, Mr. Sillerman entered into an agreement with the investment
bank pursuant to which the investment bank has the right, but not the
obligation, to put the forward purchase contract to Mr. Sillerman. The price to
be paid by Mr. Sillerman in the event that the put is exercised varies,
depending on the date of exercise. The amendment to Mr. Sillerman's Stockholder
Agreement provides that, in the event that the forward purchase contract is put
to Mr. Sillerman, the shares that are the subject of the forward purchase
contract will be subject to the terms of Mr. Sillerman's Stockholder Agreement.
In order to secure its obligations under the forward purchase
contract, the Foundation has pledged its shares of Triathlon stock to the
investment bank. In the event that the Foundation defaults in the performance
of its obligations under the forward purchase contract, the investment bank has
agreed that, prior to foreclosing on the pledged shares (which the investment
bank may not do until the earlier of September 15, 1999 or the termination of
the Merger Agreement), it will permit Mr. Sillerman to purchase the rights of
the investment bank under the forward purchase contract at a price based upon
the then current market price of the shares of Triathlon subject to the forward
purchase contract. Pursuant to a Guaranty and Indemnity Agreement entered into
between Mr. Sillerman and Buyer, Mr. Sillerman has agreed to purchase the
investment bank's rights under such circumstances. In the event that Mr.
Sillerman does not purchase the investment bank's rights under such
circumstances, the investment bank has agreed that Buyer will have the right to
purchase the investment bank's rights. Only if Mr. Sillerman and Buyer fail to
purchase the investment bank's rights will the investment bank have the right
to foreclose upon the pledged shares. In addition, pursuant to the Guaranty and
Indemnity Agreement, Mr. Sillerman has agreed to indemnify Buyer for all losses
sustained by Buyer in the event that it purchases the investment bank's rights
under the forward purchase contract.
SERIES B AGREEMENTS
Concurrently with the execution of the Merger Agreement and as an
inducement and a condition to Buyer entering into the Merger Agreement, Dennis
R. Ciapura, John D. Miller and C. Terry Robinson (collectively, the "Series B
Stockholders") each entered into a separate Series B Agreement with Buyer,
Buyer Sub and Triathlon. Messrs.
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Ciapura, Miller and Robinson own as of the Record Date approximately 0.4%, 0.5%
and 5.3%, respectively, of the outstanding shares of Series B Preferred Stock.
Pursuant to the Series B Agreements, each Series B Stockholder has
agreed not to offer, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of any of the shares of Series B Preferred Stock (and any
securities convertible into or exercisable for any of such shares) that he owns
or grant any proxy or power of attorney, or deposit any such shares into a
voting trust or enter into a voting agreement, with respect thereto.
Each Series B Stockholder has also agreed to waive (a) any appraisal
rights with respect to the Series B Preferred Stock arising from the Merger (or
any transaction with Buyer and/or Buyer Sub as a result of any increase in the
merger consideration provided for in the Merger Agreement), (b) any rights to
convert shares of Series B Preferred Stock which he owns into shares of Class A
Common Stock, and (c) any default by Triathlon that may arise in connection
with its failure to redeem any shares of Series B Preferred Stock that may be
required to be redeemed pursuant to the Certificate of Designations of the
Series B Preferred Stock.
Each of the Series B Agreements (other than the waivers in respect to
item (c) above) will be void and of no further force or effect upon the
occurrence of the Termination Date.
FEUER TERMINATION AGREEMENT
Concurrently with the execution of the Merger Agreement and as an
inducement and a condition to Buyer entering into the Merger Agreement, Norman
Feuer, Triathlon's Chief Executive Officer and President, entered into the
Termination Agreement with Buyer and Triathlon. Pursuant to the Termination
Agreement, effective as of the Effective Time, Mr. Feuer has tendered his
resignation as an officer and director of Triathlon and its subsidiaries, and
his Employment Agreement, dated as of August 8, 1995, with Triathlon (the
"Employment Agreement") will be terminated in full (other than certain
indemnification obligations of Triathlon in respect of actions taken by Mr.
Feuer on behalf of Triathlon or legal proceedings to which he may be made a
party on account of his having been an officer and/or director of Triathlon).
Mr. Feuer has released Triathlon and its subsidiaries and their
respective stockholders, directors, officers, employees, agents, insurance
carriers, employee benefit plans, predecessors, successors, assigns, executors,
administrators, attorneys and representatives from all claims and damages based
on any matters occurring on or before the date of the Termination Agreement,
other than (a) Mr. Feuer's (i) entitlement to continued group medical coverage,
(ii) vested account balances in Triathlon's employee benefit plans, (iii)
rights arising under the Transaction Documents, (iv) accrued and unpaid salary,
severance (subject to certain conditions) and expenses incurred prior to the
Effective Time and (v) consideration payable to Mr. Feuer under the Termination
Agreement; (b) claims related to or arising from Mr. Feuer's capacity as an
officer or director of Triathlon or its subsidiaries to which he has a
statutory, contractual or other right of indemnification; and (c) in the event
that Mr. Feuer is terminated by Triathlon prior to the Effective Time and the
consideration payable to Mr. Feuer under the Termination Agreement has not been
paid, any claims Mr. Feuer may have against Triathlon related to such
termination of his employment.
The foregoing release is effective as of the Effective Time or as of
the payment of such consideration payable to Mr. Feuer under the Termination
Agreement if not paid to Mr. Feuer prior to or contemporaneously with the
Effective Time (the "Release Date"). Under the Termination Agreement, Mr. Feuer
is required to deliver to Triathlon an additional release as above relating to
matters occurring on or before the Release Date.
The Termination Agreement prohibits Mr. Feuer from making any
unauthorized use or disclosure of any Confidential Information and Trade
Secrets for five years commencing at the Effective Time. "Confidential
Information and Trade Secrets" is defined to include Triathlon's and its
subsidiaries' contracts, books, records, and documents, their technical
information concerning their services, pricing techniques, and computer system
and software, and the names of and other information concerning their customers
and business affiliates (excluding information that is or becomes generally
available in the public domain other than through any unauthorized disclosure
by Mr. Feuer, is generally known to the industry as a whole or is not specific
to the operations and business of Triathlon and its subsidiaries). Mr. Feuer
must notify Triathlon if he is requested or required by applicable law to
disclose any Confidential Information
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and Trade Secrets, but is not prohibited from complying with any such request
unless an appropriate protective order is in place.
Contemporaneously with the Effective Time, provided Mr. Feuer has
fulfilled his obligations under the Employment Agreement up to such time,
Triathlon will pay Mr. Feuer the following consideration: (a) cash in one
lump-sum amount of $850,000, plus (i) accrued but unpaid salary and expenses
and (ii) cash in the amount of $25,000 payable per calendar quarter from July
23, 1998 to the first to occur of the Effective Time or the date upon which Mr.
Feuer's employment is terminated subsequent to the Merger Agreement but prior
to the Effective Time (prorated for the calendar quarter in which the Effective
Time occurs), but excluding (x) any other bonuses to which Mr. Feuer may be
entitled unless payment thereof has been declared by the Board of Directors but
not made prior to the Effective Time and is permitted by the Merger Agreement,
and (b) forgiveness of certain loans in the aggregate principal amount of
$450,000.
If Mr. Feuer is terminated by Triathlon prior to the Effective Time,
he is to receive only the compensation specified in the Employment Agreement.
The Employment Agreement requires Triathlon to pay Mr. Feuer any unpaid base
salary (currently $150,000 per annum) and bonus (a minimum of $25,000 provided
Triathlon is not in default under any credit agreement, plus a $25,000
achievement bonus and an additional bonus determined at the sole discretion of
the Board of Directors) earned through the date of termination of his
employment for cause, plus a payment equal to 12 months base salary if he is
terminated without cause (other than due to disability or death).
The Termination Agreement provides that if (i) Triathlon notifies
Buyer of a Superior Proposal pursuant to Section 7.01(c) of the Merger
Agreement, (ii) Buyer offers to revise the terms of the Merger which would
result in an increase in the consideration currently provided for in the Merger
Agreement and (iii) Triathlon accepts Buyer's offer, then Triathlon and Mr.
Feuer will restructure the Termination Agreement or enter into other
arrangements substantially similar to the arrangements proposed to be entered
into with Mr. Feuer in connection with the Superior Proposal.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors that the
stockholders vote for the adoption of the Merger Agreement and the Merger and
the recommendation of the Independent Committee that the Board of Directors
approve the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that the members of the Board of Directors and
management of Triathlon, as well as certain of the stockholders of Triathlon
who have executed Stockholder Agreements, have certain interests in the Merger
and the related transactions that differ from, and are in addition to, the
interests of the stockholders of Triathlon generally, and which may present
them with potential conflicts of interest. In addition, the members of the
Independent Committee have received compensation for serving on the Independent
Committee and certain of the stockholders who have executed Stockholder
Agreements may be deemed to have interests in the Merger and related
transactions that are different from stockholders generally.
Feuer Termination and Stockholder Agreement
Concurrently with the execution of the Merger Agreement, Mr. Feuer
entered into the Termination Agreement with Buyer and Triathlon. Pursuant to
and subject to the terms of the Termination Agreement, Mr. Feuer tendered his
resignation as an officer and director of Triathlon, effective as of the
Effective Time, and agreed that his employment agreement with Triathlon (other
than the provisions requiring Triathlon to indemnity Mr. Feuer for his actions
as an officer and director of Triathlon) would be terminated as of that time.
Mr. Feuer agreed to release Triathlon, effective as of the Effective Time, from
all claims he may have then against Triathlon, whether arising out of his
employment agreement or otherwise, with certain specified exceptions, including
the right to receive the merger consideration in respect of shares of capital
stock of Triathlon owned by him. Mr. Feuer also agreed in the Termination
Agreement not to disclose confidential information of Triathlon for a period of
five years after the Effective Time.
In the Termination Agreement, Triathlon agreed to pay Mr. Feuer, at
the Effective Time, $850,000 plus any accrued but unpaid salary and expenses.
Triathlon also agreed to forgive loans totaling $450,000 made by Triathlon to
Mr. Feuer and to make a cash payment of $25,000 per calendar quarter to him on
the first day of each calendar quarter, starting October 1, 1998 and ending on
the first day of the calendar quarter in which the Merger occurs.
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Mr. Feuer has also entered into a Stockholder Agreement, in his
capacity as a stockholder of Triathlon, pursuant to which he has agreed to,
among other things, vote his shares of capital stock of Triathlon and those
shares of Messrs. Sillerman and Tytel held in a voting trust for which Mr.
Feuer is voting trustee in favor of the Merger Agreement and the Merger and
against any acquisition proposals regarding Triathlon (other than the Merger).
See "-- Stockholder Agreements" and "Principal Stockholders--Conversion of
Class D Common Stock into Class B Common Stock; Voting Trust Agreements."
Termination of Financial Consulting Agreement with SCMC
On June 30, 1995, Triathlon and SCMC, a company controlled by Robert
F.X. Sillerman, a substantial stockholder of Triathlon, entered into an
agreement (which was amended and restated on February 1, 1996) pursuant to
which SCMC agreed to serve as Triathlon's financial consultant and to provide
customary financial and advisory services to Triathlon. Howard J. Tytel,
another substantial stockholder of Triathlon, is an executive officer of SCMC.
Each of Mr. Sillerman and Mr. Tytel executed a Stockholder Agreement in which
they agreed, among other things, to vote all of their shares of capital stock
of Triathlon in favor of the Merger.
Pursuant to the financial consulting agreement with Triathlon, SCMC
has agreed to perform, or assist Triathlon in performing, among other things:
(i) the placement of financing; (ii) the generation of financial reports and
other data for Triathlon that are required for presentation to the lenders of
Triathlon under Triathlon's senior credit agreements and Triathlon's investors
as required under the securities laws; (iii) assistance with the preparation of
Triathlon's regular books and records for audit by Triathlon's independent
public accountants; (iv) the maintenance of relationships and connections with
financial institutions participating in the financing of Triathlon; (v)
preparation and delivery to Triathlon 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 Triathlon; (vii) the purchase, installation and
implementation of hardware and software appropriate to the accounting system to
be utilized by Triathlon; (viii) the implementation of cash management systems
to facilitate the collection of revenues for Triathlon 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 Triathlon's accounting systems.
SCMC has also agreed to advise Triathlon from time to time with
respect to any investment banking services that Triathlon may require. In the
event that SCMC provides such services to Triathlon, 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 Triathlon,
(iii) 4% of the proceeds to Triathlon from the issuance of any subordinated
debt, and (iv) 7% of the proceeds to Triathlon 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 Triathlon and SCMC.
Triathlon's agreement with SCMC requires Triathlon to pay to SCMC
(whose right to receive such payments was assigned to SFX Entertainment), as
compensation for its services, an annual advisory fee until June 1, 2005 of
$500,000 per year. In addition, Triathlon is obligated to advance an additional
$500,000 per year to SCMC (whose right to receive such payment was assigned to
SFX Entertainment) as an advance against fees earned by SCMC for investment
banking services rendered to Triathlon, which advance, to the extent not
earned, must be repaid at the termination of the financial consulting agreement
or the acquisition by any entity of a majority of the capital stock of
Triathlon.
Pursuant to the terms of the Merger Agreement, the financial
consulting agreement with SCMC is to be terminated and, in connection
therewith, Triathlon is required to pay SFX Entertainment $2.0 million cash.
(In April 1996, SCMC assigned to SFX Broadcasting its right to receive fees
under its financial consulting agreement with Triathlon in connection with the
termination of SCMC's financial consulting agreement with SFX Broadcasting. SFX
Broadcasting subsequently assigned its rights to SFX Entertainment.) The
termination arrangement was approved by the Independent Committee. The $2.0
million cash payment will compensate SCMC for its loss of its future rights
under the financial consulting agreement, which is being terminated, and also
is in lieu of any investment banking fees otherwise due SCMC in connection with
the Merger.
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Stock Options and Stock Appreciation Rights; Cash Payments to
Directors, Officers and Certain Stockholders
The Merger Agreement provides that, at the Effective Time, holders of
outstanding options granted under Triathlon's stock option plans and holders of
SARs will receive a cash payment for each option or SAR held. The holders of
options and SARs will receive the benefit of this payment, whether or not their
options or SARs have vested, and their options and SARs will be canceled. The
payment will generally be equal to the difference between the Common Stock
Merger Consideration and the per share exercise price or base price of the
option or SAR. As of the Record Date, Triathlon's directors and executive
officers held options to purchase an aggregate of 33,500 shares of Class A
Common Stock (of which options to purchase 23,820 shares were exercisable
within 60 days of July 23, 1998) at a weighted average exercise price of $10.90
and SARs (none of which have vested or will vest within 60 days of July 23,
1998) relating to an aggregate of 11,000 shares of Class A Common Stock at a
weighted average base price of $5.87.
Each holder of Common Stock, Mandatory Preferred Stock, Series B
Preferred Stock and derivative securities issued by Triathlon will receive in
the Merger the same amount per security as each other holder of such
securities. In the Merger, the members of the Board of Directors of Triathlon
will receive an aggregate of approximately $2,459,013 in respect of their
shares and derivative securities of Triathlon and Mr. Sillerman will receive
approximately $3,352,618 in respect of his shares and derivative securities of
Triathlon. In addition, the Foundation (of which Mr. Sillerman is the Vice
President and the Director) and Mr. Tytel (who serves as an executive office
and Director of SCMC) will receive in the Merger the amount of $13.0 million
and approximately $2,662,055, respectively, in respect of their shares and
derivative securities. The foregoing amounts do not give effect to taxes due in
respect of the amounts to be received and assume no increase in the amount per
share to be paid in the Merger.
Fees to Independent Committee
In connection with the Merger, John D. Miller, Frank E. Barnes III and
Jeffrey W. Leiderman served as members of the Independent Committee, which
evaluated the fairness of the terms of the Merger and other acquisition
proposals involving Triathlon to the holders of Class A Common Stock. Each
Independent Committee member received an aggregate of $35,000 for serving as a
member of the Independent Committee ($20,000 of which was paid in February and
$15,000 of which was paid in July 1998, following the execution of the Merger
Agreement). The payment of the fee was not dependent upon the adoption of the
Merger Agreement by the stockholders of Triathlon.
Directors' and Officers' Indemnification and Release
In the Merger Agreement, Buyer and the Surviving Corporation have
agreed to indemnify and hold harmless (to the fullest extent permitted by the
DGCL) the present and former directors, officers, employees and agents of
Triathlon and its subsidiaries, as well as Messrs. Sillerman and Tytel, all
affiliates of Mr. Sillerman, and each of the officers, directors, employees and
agents of Mr. Sillerman's affiliates, against all amounts paid in connection
with any actual or threatened legal suit based in whole or part on the fact
that such person was a director, officer, employee, agent, representative or
consultant of Triathlon or any of its subsidiaries and pertaining to any matter
existing, or arising out of acts or omissions occurring, at or prior to the
Effective Time. The Merger Agreement also obligates Buyer to maintain
Triathlon's directors' and officers' liability insurance covering the directors
and officers of Triathlon and all others covered by such insurance on the date
of the Merger Agreement for at least six years after the Effective Time, but
Buyer is not required to pay annual premiums more than twice Triathlon's last
annual premium. See "The Merger Agreement--Covenants."
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger relating to the Merger with the Secretary of State of the
State of Delaware in accordance with the provisions of the DGCL, or as
otherwise provided in such Certificate of Merger. Subject to the satisfaction
or waiver of the closing conditions set forth in the Merger Agreement, the
Merger will be consummated on the earlier of (a) April 30, 1999 (subject to
extension under certain circumstances, as provided in the Merger Agreement,
until as late as September 14, 1999) or (b) any other date specified in a
notice from Buyer to Triathlon at least five business days in advance. Buyer
may postpone the date of Closing specified in its notice up to three times (but
no later than the Termination Date); however, upon the third such postponement,
it must pay Triathlon the sum of $25,000. See "The Merger--Closing Extension
and Adjustment to
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Merger Consideration." It is anticipated that the Effective Time of the Merger
will occur during the second quarter of 1999, although there can be no
assurance to such effect.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, Triathlon's stockholders will not have
an opportunity to continue their equity interest in Triathlon's radio
operations and, therefore, will not share in future earnings and growth, if
any, of those operations. Triathlon anticipates that the shares of Class A
Common Stock and the Depositary Shares will trade on the Nasdaq National Market
until the consummation of the Merger. If the Merger is consummated, public
trading of the shares of Class A Common Stock and the Depositary Shares (the
only publicly traded securities of Triathlon) will cease, the shares of Class A
Common Stock and the Depositary Shares will cease to be quoted on the Nasdaq
National Market, and the registration of the shares of Class A Common Stock and
the Depositary Shares under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), will be terminated. As a result, the Surviving
Corporation will be relieved of the duty to file informational reports under
the Exchange Act.
For information concerning the federal income tax consequences of the
Merger, see "Certain Federal Income Tax Consequences of the Merger."
REGULATORY MATTERS
FCC Matters
The obligations of Buyer and Buyer Sub to consummate the Merger are
conditioned upon the FCC granting its consent to the transfer of control in
connection with the Merger of the FCC licenses held by Triathlon's radio
stations and the grant of such consent becoming a final order. On August 21,
1998, Triathlon, certain of its subsidiaries that hold FCC licenses and Buyer
applied to the FCC for the approval of transfer of control of the licenses. In
the transfer application, Buyer represented to the FCC that it would divest
itself of two FM stations in the Wichita, Kansas market and one FM station in
the Colorado Springs, Colorado market in order to come into compliance with the
FCC's local ownership rules.
The FCC has indicated with respect to the Wichita stations that it
intends to conduct additional analysis of the ownership concentration in the
Wichita, Kansas market. By public notice, interested persons were invited by
the FCC to file responses that specifically address the issue of concentration
and its effect on competition and diversity in the Wichita broadcast market.
The DOJ responded by filing the Petition with the FCC claiming that Buyer's
proposed acquisition of the Wichita stations, together with the stations Buyer
and its subsidiaries currently own in the market, raises serious issues as to
whether sufficient competition will exist after the acquisition. The DOJ
further suggested that the FCC should hold a hearing to determine whether the
acquisition would serve the public interest. To date, the FCC has taken no
further action with respect to the FCC application. In its Petition, the DOJ
also indicated that it would continue its investigation into the potential
anti-competitive nature of the proposed acquisition and that it might bring
action in United States District Court irrespective of any action the FCC may
take. Buyer has informed Triathlon that it entered into a non-binding letter of
intent for the divestiture of three AM stations and two FM stations in the
Wichita, Kansas market and filed applications with the FCC for approval of this
divestiture in order to comply with the FCC's local ownership rules and to
address the competitive concerns expressed by the DOJ. There can be no
assurance that Buyer will enter into a definitive agreement to sell the Wichita
assets or the FCC or DOJ will approve the transfer of the licenses to the
intended buyer. If the sale of the Wichita stations cannot be consummated
immediately following the consummation of the Merger, Buyer has informed
Triathlon that it intends to place the assets of such stations (including their
FCC licenses) in trust pending the sale thereof by a trustee. Buyer has
requested approval from the FCC to place the assets in trust. Buyer has
informed Triathlon that, upon consummation of the sale of any assets that may
be placed in trust, the trustee will distribute the net proceeds to Buyer.
Triathlon cannot predict whether the FCC will approve the transfer of control
of Triathlon's FCC licenses in sufficient time for the Merger to be consummated
in a timely manner, or at all. See "Risk Factors--Regulatory Approvals
Required."
Pursuant to the Merger Agreement, Triathlon agreed to use commercially
reasonable efforts to (i) execute an agreement with Saga Communications of
Iowa, Inc. ("Saga") for the downgrade, if necessary, of Saga's signal for
KIOA-FM, Des Moines, Iowa and the upgrade by Triathlon of its signal for
KTNP-FM, Bennington, Nebraska and
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(ii) obtain the FCC's consent for such downgrade and upgrade. On August 12,
1998, Triathlon executed an agreement with Saga. On September 10, 1998,
Triathlon filed with the FCC a petition for rulemaking with respect thereto,
and Triathlon plans to file an application to obtain the FCC's consent for the
upgrade as soon as permitted and practicable.
Triathlon cannot predict whether the FCC will approve the downgrade and
upgrade.
Antitrust Matters
The Merger is subject to antitrust review by the DOJ and the Federal
Trade Commission (the "FTC"). Under the HSR Act, certain transactions,
including the Merger, may not be consummated until the parties have filed a
notice with the DOJ and the FTC and certain waiting period requirements have
been satisfied. On August 17, 1998, Triathlon and Buyer filed their respective
Premerger Notification and Report Forms in compliance with the HSR Act.
Triathlon and Buyer have received a request for additional information from the
DOJ relating solely to the combined parties' radio station operations in the
Wichita, Kansas market. At any time before the Effective Time, the DOJ, which
is the primary agency that exercises antitrust enforcement jurisdiction in the
radio broadcasting industry, could take action under the antitrust laws seeking
to enjoin the Merger. Triathlon understands that Buyer has initiated a separate
transaction to address competitive concerns that may be expressed by the DOJ in
Wichita, Kansas, and Triathlon believes that the competitive circumstances in
this city can be satisfactorily addressed or restructured, and any DOJ
investigation is not likely to prevent consummation of the Merger. See "--FCC
Matters" for a description of the Wichita divesture. In addition, a state
Attorney General in any state in which the combined companies will operate
radio stations could take an enforcement action to enjoin consummation of the
Merger.
Following the passage of the Telecommunications Act of 1996, the DOJ
indicated its intention to investigate certain existing industry practices that
had not been previously subject to antitrust review. Triathlon has received
information requests regarding the JSA Triathlon had from September 1 to
December 31, 1996, in the Wichita, Kansas market and the JSA Triathlon has in
the Colorado Springs, Colorado and Spokane, Washington markets with Citadel
Broadcasting Company (the "Citadel JSA"). These information requests also cover
another JSA which Triathlon has in Spokane, Washington. The Citadel JSA
provided approximately 15% of Triathlon's net revenues during the six months
ended June 30, 1998. In the event that the DOJ required the termination or
modification of the Citadel JSA, Triathlon believes that it will not have a
long-term material adverse effect on Triathlon because Triathlon believes that
it can efficiently provide the services currently performed by Citadel
Broadcasting Company given the fee structure of the Citadel JSA. However,
Triathlon may suffer a short-term disruption in sales efforts caused by the
transition in the event that the DOJ requires the termination of the Citadel
JSA. The Merger Agreement permits Triathlon to terminate the Citadel JSA under
certain circumstances or to reach a mutually satisfactory arrangement with the
DOJ and Citadel Broadcasting Company regarding the Citadel JSA, without
affecting the consummation of the Merger or the Common Stock Merger
Consideration or Depositary Share Merger Consideration. Buyer has informed
Triathlon that it entered into a non-binding letter of intent to, immediately
after consummation of the Merger, (i) sell two AM stations in the Colorado
Springs, Colorado market and one AM and one FM station in the Spokane,
Washington market and (ii) exchange an FM station for an FM station in the
Colorado Springs, Colorado market. Buyer has informed Triathlon that a
condition to the consummation of the sale and exchange is the termination of
the Citadel JSA. Buyer and the intended buyer for the Spokane and Colorado
Springs stations have applied to the FCC for approval of transfer of control of
the licenses to the respective buyers. There can be no assurance that Buyer
will enter into a definitive agreement to sell and exchange such assets or the
FCC will approve the transfer of the license to the respective buyers. Buyer
has informed Triathlon that, if the sale and exchange of the Colorado Springs
and Spokane stations cannot be consummated immediately following the Merger, it
intends to place the assets of such stations (including their FCC licenses) in
trust as described above for the Wichita sale. See "--FCC Matters."
SOURCE AND AMOUNT OF FUNDS
Triathlon has been advised that Buyer intends to finance its
obligations under the Merger Agreement through one or more financing
transactions, which may include (but are not limited to) the following:
borrowings under a senior bank facility, borrowings under one or more tranches
of senior subordinated debt, the issuance of one or more classes of preferred
stock, the issuance of one or more classes of equity securities or the issuance
of rights to purchase equity securities. As of the date of this Proxy
Statement, however, Buyer has not informed Triathlon that any financing
commitment is in place. Buyer has not informed Triathlon how it will obtain its
financing, and there can be no assurance that Buyer will be able to obtain
financing. Buyer's and Buyer Sub's obligations under the Merger Agreement are
not
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subject to any conditions regarding their ability to obtain financing. However,
Triathlon's remedies against Buyer and Buyer Sub for any inability to
consummate the Merger due to a lack of financing will be limited to the payment
to Triathlon by Buyer of the $12.0 million Liquidated Damages. The total cash
cost to Buyer of the Merger and related repayment of debt will be approximately
$190.0. See "Risk Factors--Risks Related to Buyer's Ability to Obtain
Financing."
RIGHTS OF DISSENTING STOCKHOLDERS
Holders of record of shares of capital stock (including holders of
Mandatory Preferred Stock) of Triathlon who follow the appropriate procedures
will be entitled to appraisal rights under Section 262 of the DGCL in
connection with the Merger. Holders of Triathlon's warrants, options and SARs
are not entitled to appraisal rights in connection with the Merger. The
following discussion is not a complete statement of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is reprinted in its entirety as Annex E to this
Proxy Statement. Except as set forth in Section 262, Triathlon's stockholders
will not be entitled to appraisal rights in connection with the Merger.
Under Section 262, record holders of capital stock of Triathlon who
follow the procedures set forth in Section 262 will be entitled to have their
shares appraised by the Delaware Court of Chancery and to receive payment of
the "fair value" of their shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, as determined by the court. However, no holder of Voting Stock who
votes in favor of adopting the Merger Agreement will be entitled to exercise
these rights.
Under Section 262, where a merger agreement is to be submitted for
adoption at a meeting of stockholders, as in the case of the Special Meeting,
not less than 20 days prior to the meeting, Triathlon must notify each of its
stockholders of record at the close of business on the Record Date that
appraisal rights are available and include in each such notice a copy of
Section 262. THIS PROXY STATEMENT CONSTITUTES THE REQUIRED NOTICE TO HOLDERS OF
COMMON STOCK, MANDATORY PREFERRED STOCK AND SERIES B PREFERRED STOCK. Any
stockholder who wishes to exercise appraisal rights should review the following
discussion and Annex E carefully, because failure to timely and properly comply
with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A stockholder wishing to exercise appraisal rights must deliver to
Triathlon, before the vote on the adoption of the Merger Agreement at the
Special Meeting, a written demand for appraisal of the holder's shares of
stock. A vote against the adoption of the Merger Agreement will not satisfy
this requirement. In addition, a stockholder wishing to exercise appraisal
rights must hold of record the shares in question on the date the written
demand for appraisal is made and must continue to hold such shares through the
Effective Time.
Only a holder of record of shares of capital stock of Triathlon is
entitled to assert appraisal rights for the shares registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates.
If the shares are owned of record in a fiduciary capacity, such as by
a trustee, guardian or custodian, execution of the demand should be made in
that capacity; if the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for the
record owner or owners. A record holder such as a broker or the Depositary, who
hold shares as nominee for several beneficial owners, may exercise appraisal
rights with respect to the shares held for one or more beneficial owners, while
not exercising appraisal rights with respect to the shares held for other
beneficial owners; in that event, the written demand should set forth the
number of shares as to which appraisal is sought (and, where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
held in the name of the record owner). Stockholders who hold their shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers or nominees to determine the
appropriate procedures for the making of a demand for appraisal by the broker
or nominee. All written demands for appraisal of shares should be mailed or
delivered to Triathlon Broadcasting Company, 750 B Street, Suite 1920, San
Diego, California 92101, Attention: Secretary, so as to be received before the
vote on the adoption of the Merger Agreement at the Special Meeting.
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Holders of Depositary Shares who wish to exercise appraisal rights in
respect of the Mandatory Preferred Stock represented by their Depositary Shares
must notify the Depositary in writing. The Depositary, as the holder of record
of the Mandatory Preferred Stock, will exercise appraisal rights on behalf of
holders of Depositary Shares who so request. Any such request to the Depositary
to exercise appraisal rights should be delivered to the Depositary before the
vote on the adoption of the Merger Agreement at the Special Meeting. Such
notice of instruction to exercise appraisal rights should be delivered by mail,
overnight courier service or facsimile to ChaseMellon Shareholder Services
L.L.C., 450 West 33rd Street, 10th Floor, New York, New York 10001, Attention:
Selwyn Crawford, fax number: 212-947-7628.
Stockholders or holders of Depositary Shares electing to exercise
their appraisal rights under Section 262 must not vote for adoption of the
Merger Agreement. Accordingly, a vote against adoption of the Merger Agreement,
or an abstention with respect to the Merger Agreement, will not prevent a
holder of Voting Stock from exercising appraisal rights, but a vote in favor of
adoption of the Merger Agreement will prevent such holder from exercising
appraisal rights. However, if a holder of Class A Common Stock or Class B
Common Stock returns a signed proxy card, but does not specify a vote against
adoption of the Merger Agreement or a direction to abstain, then the proxy
card, if not revoked, will be voted for the Merger, which will have the effect
of waiving that stockholder's appraisal rights. If a holder of Depositary
Shares returns a signed Voting Instruction Card, but does not specify how to
vote on the proposal to adopt the Merger Agreement or directs the Depositary to
abstain on such vote, then the Depository Shares to which such Voting
Instruction Card relates will be voted as an abstention, the effect of which is
to preserve the right of such holder to demand appraisal rights in respect of
the shares of Mandatory Preferred Stock represented by such Depositary Shares.
Within ten days after the Effective Time, Triathlon, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person (including, if applicable, the Depositary) who has satisfied the
appropriate provisions of Section 262. Within 120 days after the Effective
Time, but not thereafter, Triathlon, or any holder of shares entitled to
appraisal rights under Section 262 who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. Triathlon is not under any
obligation, and has no present intention, to file a petition with respect to
the appraisal of the fair value of the shares. Accordingly, it is the
obligation of the stockholders to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares
who has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from Triathlon a statement setting
forth the aggregate number of shares of Triathlon stock with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. The statements must be mailed within ten days after Triathlon
receives a written request therefor.
If a petition for an appraisal is timely filed, then, after a hearing
on the petition, the Delaware Court of Chancery will determine the holders of
shares entitled to appraisal rights and will appraise the "fair value" of the
shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares as
determined under Section 262 could be more than, the same as or less than the
value of the merger consideration that they would otherwise receive if they did
not seek appraisal of their shares. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in the appraisal proceedings. More specifically, the Delaware
Supreme Court has stated that: "Fair value, in an appraisal context, measures
'that which has been taken from the shareholder, viz., his proportionate
interest in a going concern.' In the appraisal process the corporation is
valued 'as an entity,' not merely as a collection of assets or by the sum of
the market price of each share of its stock. Moreover, the corporation must be
viewed as an on-going enterprise, occupying a particular market position in the
light of future prospects." In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a stockholder's exclusive remedy. The Delaware Court of Chancery will also
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares have been appraised. The costs of the action
may be determined by the court and taxed upon the parties as the court deems
equitable. The court may also order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal (including,
reasonable attorneys fees and the fees and expenses of
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experts utilized in the appraisal proceeding, among others) be charged pro rata
against the value of all of the shares entitled to appraisal.
Any holder of shares who has duly demanded an appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote the
shares subject to the demand for appraisal for any purpose, and will not be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of shares
of the same class or series of stock as of a date prior to the Effective Time).
If any stockholder who demands appraisal of shares under Section 262
fails to perfect, or effectively withdraws or loses, the right to appraisal
provided in the DGCL, then that holders shares will be converted into the
appropriate merger consideration, without interest, in accordance with the
Merger Agreement. A holder of shares will fail to perfect, or will effectively
lose, the right to appraisal if no petition for appraisal is filed within 120
days after the Effective Time. A holder may withdraw a demand for appraisal by
delivering to Triathlon a written withdrawal of the demand for appraisal and
acceptance of the Merger, except that any such attempt to withdraw made more
than 60 days after the Effective Time will require the written approval of
Triathlon.
Failure to follow the steps required by Section 262 for perfecting
appraisal rights may result in the loss of appraisal rights.
ACCOUNTING TREATMENT
The Merger will be treated by Buyer as a "purchase," as that term is
used under United States generally accepted accounting principles, for
accounting and financial reporting purposes.
CERTAIN LEGAL PROCEEDINGS
On July 24,1998, a lawsuit was commenced against Triathlon and its
directors in the Court of Chancery of the State of Delaware, New Castle County
(Civil Action No. 16560). The plaintiff in the lawsuit is Herbert Behrens. The
complaint alleges that the consideration to be paid in the Merger to the
holders of the Depositary Shares is unfair and that the individual defendants
have breached their fiduciary duties. The complaint seeks to have the action
certified as a class action and seeks to enjoin the Merger, or in the
alternative, seeks monetary damages in an unspecified amount. The defendants
have answered the complaint denying its allegations and some preliminary
discovery has occurred. As of January 1, 1999, no hearings with respect to this
litigation had either been held or were scheduled. The parties have entered
into a standstill agreement pursuant to which all proceedings in the case will
be stayed unless either party gives 15 days notice that discovery should
recommence. See "Risk Factors--Litigation Related to the Merger."
On February 12, 1999, the parties signed a Memorandum of Understanding
that provides for the settlement of the action in principle. The amount of the
settlement depends upon whether the average last sale price (or the closing bid
price, if no sale occurs on any day) for the Class A Common Stock of Triathlon
over the twenty trading days ending on the date immediately preceding the
Effective Time of the Merger (the "Average Closing Price") is equal to or lower
than $12.60 per share. If the Average Closing Price is equal to or over $12.60
per share, Buyer will pay $0.11 additional consideration for each Depositary
Share owned by any class member at the Effective Time of the Merger. If the
Average Closing Price is under $12.60 per share, Buyer will pay $0.37
additional consideration for each Depositary Share owned by any class member at
the Effective Time of the Merger. Buyer also agreed in the Memorandum of
Understanding not to oppose plaintiff's counsel's application for attorney fees
and expenses in the aggregate amount of $150,000 if Buyer pays $0.11 additional
consideration for each Depositary Share under the proposed settlement and the
aggregate amount of $400,000 if Buyer pays $0.37 additional consideration for
each Depositary Share under the proposed settlement. The Memorandum of
Understanding provides that the defendants deny all allegations of wrongdoing
but, recognizing the burden, expense and risk attendant to the litigation, they
have concluded that it is desirable that the claims against them be settled.
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The proposed settlement is contingent upon confirmatory discovery by
the plaintiff, execution of a definitive settlement agreement, and court
approval. There can be no assurance that the parties will execute a definitive
settlement agreement or that the court will approve the settlement on the terms
and conditions provided for in the Memorandum of Understanding, or at all.
Triathlon is also a party to certain regulatory proceedings. See
"--Regulatory Matters."
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached hereto as Annex A and incorporated
herein by reference. This summary does not purport to be a complete description
of the Merger Agreement and is qualified in its entirety by reference to the
full text of the Merger Agreement. STOCKHOLDERS ARE URGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE MERGER.
THE MERGER
If Triathlon's stockholders adopt the Merger Agreement, and if the
other conditions to the Merger are satisfied or waived, then, at the Effective
Time, Buyer Sub will be merged with and into Triathlon, with Triathlon
continuing as the Surviving Corporation and a wholly-owned subsidiary of Buyer.
Upon the consummation of the Merger, pursuant to the Merger Agreement,
except for (a) shares held in the treasury of Triathlon or owned by Buyer or
any of their respective wholly-owned subsidiaries (including Buyer Sub), all of
which will be canceled, and (b) shares held by persons who exercise dissenters'
appraisal rights, each issued and outstanding share of Triathlon's (i) Class A
Common Stock, Class B Common Stock, Class C Common Stock and Class D Common
Stock will convert into the right to receive $13.00 in cash, subject to
increase under certain circumstances described below, without interest, (ii)
Mandatory Preferred Stock will convert into the right to receive $108.30, plus
any accrued but unpaid dividends up to and including the date immediately prior
to the Effective Time, in cash (subject to increase under certain circumstances
described below), without interest, and (iii) Series B Preferred Stock
(together with the Mandatory Preferred Stock, hereinafter collectively referred
to as the "Preferred Stock") will convert into the right to receive $.01 in
cash, without interest. Pursuant to the Deposit Agreement, each Depositary
Share, which represents one-tenth of a share of Mandatory Preferred Stock, will
be entitled to receive the Depositary Share Merger Consideration, which is
equal to one-tenth of the Mandatory Preferred Stock Merger Consideration, or
$10.83 in cash, plus accrued and unpaid dividends up to and including the date
immediately prior to the Effective Time on one-tenth of a share of Mandatory
Preferred Stock, without interest. All amounts payable to Triathlon's
stockholders in accordance with this paragraph will be net of any applicable
withholding taxes. The circumstances under which the consideration to be
received by the stockholders of Triathlon may be increased are described under
"--Closing Extension and Adjustment to Merger Consideration."
Messrs. Feuer, Sillerman and Tytel and the Foundation, who
beneficially own, among other shares, 886,811 shares of Class B Common Stock
and possess in the aggregate 53% of the voting power of the Voting Stock, have
agreed to vote in favor of the Merger. These holders will have sufficient
voting power under the DGCL to adopt the Merger Agreement. See "The
Merger--Stockholder Agreements."
Stockholders who do not vote in favor of the Merger, and who comply
with the provisions of the DGCL regarding the exercise of statutory dissenters'
appraisal rights, have the right to seek a determination and payment of the
fair value of their shares in lieu of the consideration set forth in the Merger
Agreement. See "The Merger--Rights of Dissenting Stockholders."
As soon as is reasonably practicable after the Effective Time but no
later than three business days following the Effective Time, transmittal forms
will be mailed to each holder of record of shares of Common Stock and Preferred
Stock. The transmittal forms should be used in forwarding the holder's stock
certificates for surrender and exchange for cash pursuant to the Merger
Agreement. After receipt of a transmittal form, each holder of certificates
formerly representing shares of Common Stock or Preferred Stock should
surrender the certificates to the Paying Agent and will receive from the Paying
Agent cash as set forth above. Instructions specifying other details of the
exchange (including the method of surrendering Depositary Shares and receiving
payment therefor) will accompany the transmittal forms. After the Effective
Time, each certificate previously evidencing shares of Common Stock or
Preferred Stock will be deemed for all purposes to evidence only the right to
receive the consideration set forth in the Merger Agreement.
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<PAGE>
STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
TREATMENT OF WARRANTS, OPTIONS AND STOCK APPRECIATION RIGHTS
Each warrant to purchase shares of Common Stock granted by Triathlon
that is outstanding at the Effective Time will continue to be outstanding after
the Effective Time (subject to the terms and conditions contained in the
appropriate warrant agreement) and will be exercisable without payment of the
per share exercise price for an amount of cash, without interest, equal to the
difference between the Common Stock Merger Consideration and the per share
exercise price of such warrant, less any applicable withholding taxes.
Each option granted by Triathlon that is outstanding at the Effective
Time, whether or not it is then exercisable, will be canceled at the Effective
Time. Each holder of a canceled option will be entitled to receive, in
consideration for the cancellation, an amount of cash, without interest, equal
to the difference between the Common Stock Merger Consideration and the per
share exercise price of the canceled option, less any applicable withholding
taxes.
Each SAR, whether or not then exercisable, will be canceled at the
Effective Time. Each holder of a canceled SAR will be entitled to receive, in
consideration for the cancellation, an amount of cash, without interest, equal
to (a) with respect to each then outstanding cash-only SAR granted to Messrs.
Jeffrey Leiderman and Frank E. Barnes, III under agreements dated January 31,
1996, providing for the grant to each such individual of SARs in respect of
2,000 shares of Class A Common Stock, 50% of the difference between $0.01 and
the Common Stock Merger Consideration or (b) with respect to all other
outstanding SARs, the difference between the Common Stock Merger Consideration
and the per share base price of such SAR, in every case less any applicable
withholding taxes.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
by Triathlon relating to, among other things, (a) the organization and good
standing of Triathlon and its subsidiaries, (b) the capital structure of
Triathlon, (c) the corporate power and authority of Triathlon, (d) the lack of
conflict of the Transaction Documents with (i) the organizational documents of
Triathlon or its subsidiaries or (ii) certain agreements, judgments, statutes
or regulations, (e) the documents filed by Triathlon and its subsidiaries with
the SEC, state securities authorities and other governmental entities including
the FCC, (f) the absence, since December 31, 1997, of certain changes, (g)
litigation, (h) employee benefits and labor matters, (i) taxes, (k)
governmental approvals and permits, (l) material contracts, (m) FCC matters,
(n) environmental matters, (o) real property matters, (p) transactions and
relationships with affiliates of Triathlon, and (q) the absence, since December
31, 1995, of material acquisitions or dispositions by, or certain obligations
of, Triathlon or its subsidiaries, other than those disclosed in the Merger
Agreement.
The Merger Agreement contains representations and warranties of Buyer
and Buyer Sub relating to, among other things, (a) the organization and good
standing of Buyer and Buyer Sub, (b) the corporate power and authority of each
of Buyer and Buyer Sub, (c) the lack of conflict of the Transaction Documents
with (i) the certificate of incorporation or by-laws of Buyer and Buyer Sub or
(ii) certain agreements, judgments, statutes or regulations, (d) the accuracy
of information supplied by Buyer or Buyer Sub specifically for inclusion or
incorporation by reference in this Proxy Statement and (e) litigation. In
addition, Buyer and Buyer Sub have represented and warranted that Buyer had
available as of the date of the Merger Agreement, or at the closing will have
available, sufficient funds to enable Buyer to consummate the transactions
contemplated by the Transaction Documents and Buyer and Buyer Sub have
acknowledged that their obligations under the Merger Agreement are not subject
to any conditions regarding their ability to obtain financing therefor.
COVENANTS
Triathlon has agreed that, until the Effective Time, except as
contemplated by the Transaction Documents, it will, and will cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as theretofore conducted, and
will not, and will not permit its subsidiaries to, without the consent of
Buyer, among other things: (a) declare or pay dividends or other distributions
or sell or acquire any
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shares of its capital stock (with certain exceptions, including scheduled cash
dividends on shares of the Mandatory Preferred Stock and issuances of Common
Stock upon the conversion or exercise of outstanding securities), (b) amend its
certificate of incorporation or by-laws, (c) acquire or sell any assets, (d)
with certain exceptions, incur any indebtedness in excess of $50,000 or capital
expenditures in excess of $25,000 in the aggregate or make any loans, (e)
modify, terminate or fail to renew any material contract (with certain
exceptions), (f) fail to act in the ordinary course of business consistent with
past practices exercising commercially reasonable care to (i) preserve
substantially intact Triathlon's and each subsidiary's present business
organization, (ii) keep available the services of certain employees or (iii)
preserve its relationships with customers, suppliers and others, (g) fail to
use commercially reasonable efforts to maintain Triathlon's and each
subsidiary's material assets, (h) merge or consolidate with any other entity or
dissolve or liquidate any subsidiary, (i) materially increase the compensation
or benefits of any director, officer or employee, (j) pay, discharge or satisfy
any material claims or liabilities other than in the ordinary course of
business or fail to pay any material accounts payable, (k) enter into a local
marketing agreement, time-brokerage agreement, joint sales agreement,
non-compete agreement or similar agreement with any entity other than Buyer,
(l) engage in any transaction with any of its affiliates (with certain
exceptions), (m) fail to pay on each scheduled quarterly payment date all
accrued and unpaid dividends on the outstanding Mandatory Preferred Stock, (n)
take any action that would result in any adjustment to the Redemption Rate or
the Optional Conversion Rate (each as defined in the Certificate of
Designations of the Mandatory Preferred Stock), or (o) authorize, commit or
agree to take any of the foregoing actions.
Prior to the Effective Time, Triathlon is obligated to obtain from all
members of its management holding options and SARs, and to use its commercially
reasonable efforts to obtain from all other holders of options and SARs, an
agreement relating to such holders' options and SARs. In this agreement, as
described under "--Treatment of Warrants, Options and Stock Appreciation
Rights" above, the holders agree to cancel their options and SARs and will
receive in return, without payment therefor, a per share amount equal to the
Common Stock Merger Consideration less the exercise price per option or base
price per SAR.
Triathlon and Buyer are required to use all reasonable efforts to
complete the Merger, to file an application requesting the FCC Consent for the
transfer of control of Triathlon's radio stations (and those of its
subsidiaries) resulting from the Merger and to file all documents required
under the HSR Act. Without the prior written consent of Buyer, Triathlon is
prohibited, with certain exceptions, from taking any action that could impair
or delay obtaining the FCC Consent or complying with or satisfying the terms
thereof. The FCC application was filed on August 21, 1998 and has not been
granted to date. The filing under the HSR Act was made on August 17, 1998 and
the waiting period thereunder has been extended due to Triathlon's receipt of a
request for additional information from the DOJ. See "The Merger--Regulatory
Matters." In addition, Triathlon and Buyer are required to use all reasonable
efforts to (i) obtain all necessary consents, approvals or waivers from third
parties including the waiver from Triathlon's lenders under the Credit
Agreement of certain prepayment premiums, penalties and fees and (ii) defend
any lawsuit challenging Transaction Documents or the transactions contemplated
thereby.
Triathlon is required, at or prior to the Effective Time, to amend or
terminate certain agreements with affiliates without any liability to
Triathlon. Triathlon is also required to use commercially reasonable efforts to
enter into an agreement, on terms acceptable to Buyer, to downgrade the signal
for a certain radio station, if necessary, and to upgrade the signal for
another radio station.
The Merger Agreement contains certain additional provisions requiring
the Surviving Corporation to (a) provide certain employee benefits and (b)
indemnify, to the fullest extent permitted by the DGCL, each officer, director,
employee or agent of (i) Triathlon or any of its subsidiaries or (ii) Howard
Tytel or Robert F.X. Sillerman or affiliates of Mr. Sillerman (the "Indemnified
Parties"), against certain losses, reasonable expenses (including reasonable
attorneys' fees), claims, damages, liabilities and amounts paid in connection
with certain threatened or actual claims, actions, suits, proceedings or
investigations. The Surviving Corporation also is to maintain in effect, for a
period of six years after the Effective Time, directors' and officers'
liability insurance currently maintained by Triathlon covering the directors
and officers of Triathlon and others covered thereby as of the date of the
Merger Agreement, with certain limitations.
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CLOSING EXTENSION AND ADJUSTMENT TO MERGER CONSIDERATION
The "Termination Date" is April 30, 1999, subject to extension by
Buyer for up to three months, in half-calendar-month intervals; however, if
Buyer does so, the Common Stock Merger Consideration will be increased by
$0.125 and the Depositary Share Merger Consideration will be increased by
$0.104 for each half-calendar month of extension. No increase will be paid,
however, if (a) the FCC Consent or the termination of the HSR Act waiting
period is not obtained (unless Buyer fails to consummate the Merger within ten
business days after such consent and termination are obtained (the
"Satisfaction Date"), in which case the increases in the merger consideration
will be payable for each half-calendar month commencing after the Satisfaction
Date) after all other conditions to Buyer's obligation to consummate the Merger
have been satisfied, because of (i) acts or omissions by Triathlon or its
subsidiaries in conducting their respective operations and activities (other
than actions or omissions relating to the number of licenses or amount of
revenues in a particular market and other than relating to the Citadel JSA),
(ii) a breach by Triathlon of its obligations under the Merger Agreement or
(iii) certain statutory changes or enactments relating to radio license
ownership (collectively, "Acts or Changes") or (b) the Merger is restrained by
a judicial order, under certain circumstances.
If a judicial order restraining the Merger is rendered in a proceeding
brought by a holder of Mandatory Preferred Stock on the basis of the treatment
of the Mandatory Preferred Stock under the Merger Agreement (a "Mandatory
Preferred Order") and has not been lifted by June 15, 1999, then Buyer may
extend the Termination Date until July 31, 1999 in half-month intervals with
an increase in the Common Stock Merger Consideration and Depositary Share
Merger Consideration as above, beginning on June 16, 1999. Under certain
circumstances, if any judicial order delaying the Merger is lifted, and if
Buyer fails to consummate the Merger within ten days thereafter (and such
failure is not due to Triathlon's failure to fulfill certain closing
conditions), then the Common Stock Merger Consideration shall be increased by
$0.25 and the Depositary Share Merger Consideration shall be increased by
$0.208 for each half-calendar month (or portion thereof) between the initial
Termination Date and the date of Closing. If any judicial order is not lifted
by July 31, 1999, then either Triathlon or Buyer may extend the date of the
Closing for an additional 45 days. However, if (a) neither Triathlon nor Buyer
elect to extend the Closing for an additional 45 days or (b) the Closing is so
extended by the order is not lifted by the end of the 45-day period, then,
unless the order is a Mandatory Preferred Order, the Merger Agreement will
automatically terminate without any liability or obligation of the parties
other than obligations to split the FCC and HSR Act filing fees. See
"--Termination; Fees and Expenses; Letter of Credit."
NON-SOLICITATION
Until the termination of the Merger Agreement, Triathlon, its
subsidiaries and their respective representatives are prohibited from
soliciting, initiating or encouraging the submission of any Takeover Proposal,
or discussing, negotiating or furnishing information regarding any Takeover
Proposal. However, prior to the receipt of stockholder adoption of the Merger
Agreement, Triathlon and its representatives may, under certain circumstances,
furnish information with respect to Triathlon and participate in negotiations
regarding any unsolicited Takeover Proposal meeting certain criteria, if the
Board of Directors of Triathlon reasonably believes after receiving advice from
its financial advisor that the Proposal provides Triathlon stockholders with
superior value than the consideration provided for in the Merger, and if the
Board of Directors determines in good faith, based on the advice of outside
counsel, that it is necessary to do so in order for the Board of Directors to
comply with its fiduciary duties under applicable law. The Merger Agreement
requires Triathlon to keep Buyer fully informed of the status and details of
any Takeover Proposal.
In addition, neither the Board of Directors nor any committee thereof
(including the Independent Committee) may (a) withdraw or modify, in a manner
adverse to Buyer, its approval of the Merger or (b) approve or recommend any
Takeover Proposal. However, this prohibition does not apply to certain Takeover
Proposals that are determined by the Board of Directors to be more favorable to
Triathlon's stockholders than the Merger, provided that the Merger Agreement is
terminated by Triathlon.
CONDITIONS
The obligations of each party to consummate the Merger are subject to
the satisfaction or waiver of certain conditions, including, among others: (a)
the adoption of the Merger Agreement by the stockholders of Triathlon, (b)
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<PAGE>
the issuance of the FCC Consent, (c) the expiration or termination of the
waiting period under the HSR Act and (d) the absence of any injunction or other
legal restraint prohibiting the Merger.
The obligations of Buyer and Buyer Sub to consummate the Merger are
subject to the satisfaction or waiver of the following additional conditions,
among others: (a) the accuracy of Triathlon's representations and warranties in
the Merger Agreement, (b) the performance by Triathlon of its obligations under
the Merger Agreement, (c) the finality of the FCC Consent and absence of
adverse conditions therein on account of Acts or Changes, (d) obtaining
releases of options and SARs from Triathlon's directors and executive officers,
(e) obtaining material third party consents to the Merger, (f) the termination
by Triathlon of certain affiliate relationships, and (h) Triathlon not having
outstanding more than a specified number of shares of certain classes of its
capital stock (including derivative securities).
The obligations of Triathlon to consummate the Merger are subject to
the satisfaction or waiver of the following additional conditions: (a) the
accuracy of Buyer's and Buyer Sub's representations and warranties in the
Merger Agreement and (b) Buyer's and Buyer Sub's performance of their
obligations under the Merger Agreement.
TERMINATION; FEES AND EXPENSES; LETTER OF CREDIT
The Merger Agreement may be terminated:
(a) By the mutual written consent of Triathlon, Buyer and Buyer Sub.
(b) By either Triathlon or Buyer, if Triathlon's stockholders do not
adopt the Merger Agreement at the Special Meeting (or any adjournment thereof)
or if no stockholder vote is held before the Termination Date (unless the
Merger is permanently enjoined or prohibited). If the Merger Agreement is
terminated as set forth in this paragraph, Triathlon must pay Buyer a
termination fee of $2.5 million (and an additional $2.5 million if, within one
year of the termination, either Triathlon enters into a Takeover Proposal or
50% of the capital stock of Triathlon is acquired in a tender offer) and must
reimburse Buyer for its reasonable out-of-pocket expenses (not to exceed $1.0
million).
(c) By either Triathlon or Buyer, if the Merger is not consummated on
or before the Termination Date.
(d) By either Triathlon or Buyer, if the Merger is permanently
prohibited or enjoined for any reason, including as a result of a proceeding (a
"Mandatory Preferred Proceeding") which challenges the Mandatory Preferred
Stock Merger Consideration or the treatment of the Mandatory Preferred Stock in
the Merger Agreement.
(e) By Buyer if (i) Triathlon breaches any representation or warranty
contained in the Merger Agreement, unless the individual or aggregate impact of
all such breaches of representations and warranties could not reasonably be
expected to have a material adverse effect on Triathlon or unless such breaches
are due to changes in the United States financial markets generally or to
matters arising after the date of the Merger Agreement that affect the
broadcasting industry generally, or (ii) Triathlon fails to perform in all
material respects its obligations under the Merger Agreement. However, Buyer
may not terminate if the breach or failure to perform is cured within 30 days
after notice thereof.
(f) By Triathlon if (i) Buyer or Buyer Sub breaches any representation
or warranty contained in the Merger Agreement, unless the individual or
aggregate impact of all such breaches of representations and warranties could
not reasonably be expected to have a material adverse effect on Buyer's ability
to perform its obligations under the Transaction Documents, or (ii) Buyer or
Buyer Sub fail to perform in all material respects their obligations under the
Merger Agreement. However, Triathlon may not terminate if the breach or failure
to perform is cured within 30 days after notice.
(g) By Triathlon if before obtaining stockholder approval of the
Merger Agreement, (i) the Board of Directors determines, in certain
circumstances, to terminate the Merger Agreement in order for Triathlon to
enter into an agreement relating to a Superior Proposal, (ii) Triathlon
notifies Buyer of the Superior Proposal, and (iii) within five business days
from receipt of the notice, Buyer does not offer to revise the terms of the
Merger or the Board of Directors determines in good faith, after receiving
advice from its financial advisor, that the Superior Proposal is superior to
Buyer's revised offer. If the Merger Agreement is terminated as set forth in
this paragraph, Triathlon must pay Buyer
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<PAGE>
a termination fee of $5.0 million and must reimburse Buyer for its reasonable
out-of-pocket expenses (not to exceed $1.0 million).
(h) By Buyer if (i) a tender or exchange offer for 50% or more of the
capital stock of Triathlon is commenced and the Board of Directors fails to
timely recommend that Triathlon's stockholders not tender their shares, or (ii)
a Takeover Proposal is announced and the Board of Directors fails to reaffirm
its recommendation of the Merger. If the Merger Agreement is terminated as set
forth in this paragraph, Triathlon must pay Buyer a termination fee of $5.0
million and must reimburse Buyer for its reasonable out-of-pocket expenses (not
to exceed $1.0 million).
(i) By Buyer if Triathlon has outstanding more than a certain number
of shares of certain classes of its capital stock (including derivative
securities), as specified in the Merger Agreement. If the Merger Agreement is
terminated as set forth in this paragraph, Triathlon must pay Buyer a
termination fee of $1,666,667.
Simultaneously with the execution of the Merger Agreement, Buyer
placed into escrow an irrevocable letter of credit for $9.0 million. The
escrowed amount must be released to Triathlon, and Buyer must pay Triathlon the
$3.0 million Cash Fee, if the Merger Agreement is terminated because: (a) the
Merger is not consummated by April 30, 1999 (subject to extension) and at such
time (i) regulatory approvals for the transaction shall not have been obtained
(unless the failure to obtain such approvals is the result of Acts or Changes);
(ii) there is in effect a preliminary injunction arising out of litigation
concerning the treatment of the Mandatory Preferred Stock in the Merger; or
(iii) all conditions to Buyer's obligation to close the Merger have been
satisfied, other than that the consent of the FCC to the transfer of
Triathlon's radio station licenses to Buyer or Buyer Sub shall have become
final, and Buyer elects not to consummate the Merger; (b) the Merger is
permanently enjoined (i) by the federal antitrust agencies or the FCC and such
injunction is not primarily due to Acts or Changes or (ii) on the grounds of
the treatment of the Mandatory Preferred Stock in the Merger; or (c) Triathlon
terminates the Merger Agreement as described in paragraph (f) above. Except as
otherwise provided in the Merger Agreement, the release of the letter of credit
and payment of the Cash Fee to Triathlon will be its sole remedy if the Merger
Agreement is terminated as discussed above.
If the Merger Agreement is terminated for reasons other than those for
which the Merger Agreement provides liquidated damages, the non-breaching party
will be entitled to recover its damages and expenses from the other party or
parties.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion sets forth certain federal income tax
consequences of the Merger applicable to stockholders that hold their shares as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). However, the discussion does not address all
federal income tax considerations that may be relevant to particular
stockholders in light of their specific circumstances, such as stockholders who
are dealers in securities, foreign persons or stockholders who acquired their
shares in connection with stock options or stock purchase warrants. Each
stockholder is urged to consult the holder's own tax advisor to determine the
tax consequences to the holder of the Merger in light of the holder's
particular circumstances, including the applicability and effect of federal,
state, local and foreign income and other tax laws and possible changes in
those tax laws (which may have retroactive effect).
The receipt by a Triathlon stockholder of cash pursuant to the Merger
(or cash pursuant to the exercise of dissenters' rights of appraisal) will be a
taxable event for the stockholder. A stockholder will generally recognize
capital gain or loss for federal income tax purposes equal to the difference
between (a) the amount of cash received and (b) the tax basis in the shares of
Triathlon stock surrendered in exchange therefor (generally, the amount paid
for the shares of Triathlon). The gain or loss will be long-term capital gain
or loss if the stockholder's holding period for the surrendered shares is more
than one year at the Effective Time. Under recently enacted legislation,
individuals whose holding period for shares of Triathlon stock exceeds one year
will, in general, be subject to no more than a 20% tax on any gain. If a
Triathlon stockholder owns more than one block of shares of Triathlon stock,
the cash received must be allocated ratably among the blocks in the proportion
that the number of shares of Triathlon stock in a particular block bears to the
total number of shares of Triathlon stock owned by the stockholder.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of amounts paid to the stockholder, unless the
stockholder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS
BASED ON EXISTING LAW AS OF THE DATE OF THIS PROXY STATEMENT. STOCKHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER (INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table gives information concerning the beneficial
ownership of Triathlon's Voting Stock and Class D Common Stock as of February
1, 1999 by: (i) each person known to Triathlon to own more than 5% of any class
of Common Stock or Depositary Shares of Triathlon, (ii) the Chief Executive
Officer and each of the directors and (iii) all directors and executive
officers of Triathlon as a group.
CONVERSION OF CLASS D COMMON STOCK INTO CLASS B COMMON STOCK; VOTING TRUST
AGREEMENTS
The table below gives effect to the conversion on August 5, 1998 by
Robert F.X. Sillerman, Howard J. Tytel and the Foundation of an aggregate of
641,921 shares of Class D Common Stock into an equal number of shares of Class
B Common Stock. (Mr. Sillerman converted 136,852.06 shares, Mr. Tytel converted
185,068.94 shares and the Foundation converted 320,000 shares.) Such conversion
was effected pursuant to the Stockholder Agreements entered into by these
stockholders concurrently with the execution of the Merger Agreement. See "The
Merger Agreement--Stockholder Agreements." Triathlon's Certificate of
Incorporation permits the holders of shares of Class D Common Stock, which has
no voting rights except as required by law, to convert such shares into an
equal number of shares of Class B Common Stock, which generally has ten votes
per share, in the event that Triathlon is in default for borrowed money from an
institutional lender, which default has not been cured or waived. As of June
30, 1998, Triathlon had breached certain covenants in its Credit Agreement,
which breaches permitted the conversion of the Class D Common Stock into Class
B Common Stock. See "Risk Factors--Conversion of Non-Voting Class D Common
Stock into Super-Voting Class B Common Stock."
Prior to the conversion, on March 12, 1998, Messrs. Sillerman and
Tytel had entered into a Voting Trust Agreement with Mr. Feuer, as voting
trustee, pursuant to which they had transferred to Mr. Feuer the right to vote
an aggregate of 100,000 shares of Class B Common Stock held by them. The
aggregate of 321,921 shares of Class B Common Stock received by Messrs.
Sillerman and Tytel in the conversion of Class D Common Stock into Class B
Common Stock are subject to a Voting Trust Agreement, dated August 5, 1998,
with Mr. Feuer, as voting trustee. The shares of Class B Common Stock that Mr.
Feuer may vote pursuant to the two Voting Trust Agreements, together with the
shares beneficially owned by Mr. Feuer, will entitle Mr. Feuer to direct the
vote of approximately 33.9% of the voting power of the Voting Stock on the
proposal to adopt the Merger Agreement.
The two Voting Trust Agreements provide that Mr. Feuer is entitled to
exercise the power to vote the shares of Class B Common Stock he holds as
voting trustee in favor or against substantially all actions or resolutions
presented to Triathlon's stockholders. Each Voting Trust Agreement will
continue in effect until the tenth anniversary of their respective execution,
unless prior to such time (i) the stockholders of Triathlon shall vote to
dissolve Triathlon and wind up its affairs, (ii) Triathlon shall repurchase all
of the Class B Common Stock, (iii) Triathlon shall file a registration
statement with respect to its Class B Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or (iv) in the case of the Voting
Trust Agreement dated August 5, 1998, the stockholders of Triathlon shall vote
in favor of Triathlon's consolidation with or merger into any other entity.
- 48 -
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class D
Common Stock Common Stock(2) Common Stock(2)
Name and
Address of
Beneficial Number Percent Number of Percent Number of Percent
Owner(1) of Shares of Class Shares of Class Shares of Class
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Directors and Executive Officers:
John D. Miller................ 25,000(4) * -- -- -- --
Norman Feuer.................. 15,000(5) * 566,811(6) 63.9% -- --
William G. Thompson........... 3,820(7) * -- -- -- --
Dennis R. Ciapura............. 5,000(8) * -- -- -- --
Jeffrey W. Leiderman.......... 1,000(9) * -- -- -- --
Frank E. Barnes III........... --(9) -- -- -- -- --
All Directors and Executive
Officers as a Group
(6 persons).............. 48,820(10) 1.5% 566,811 63.9% -- --
Others:
Robert F.X. Sillerman......... 60,200(11) 1.9% 542,852(12) 61.2% 680,000(13) 84.7%
C. Terry Robinson............. 10,000(14) * -- -- 122,445 15.3%
Howard J. Tytel............... 9,800(15) * 199,069(16) 22.4% -- --
Tomorrow
Foundation(17)........... -- -- 320,000 36.1% 680,000 84.7%
Wellington Management
Company, LLP(18)......... 690,557 17.9% -- -- -- --
Wynnefield Partners Small
Cap Value, L.P. et al.(19) 628,600 18.4% -- -- -- --
Putnam Investments,
Inc.(20)................. 379,156 11.9% -- -- -- --
General Motors Employees
Domestic Group Pension
Trust(21)................ 362,855 11.4% -- -- -- --
Morgan Stanley Dean Witter
& Co.(22)................ 325,703 10.3% -- -- -- --
Wellington Trust Company,
NA(23)................... 335,699 9.6% -- -- -- --
State Retirement and
Pension System of
Maryland(24)............. 199,920 5.9% -- -- -- --
Third Point Management
Company L.L.C. &
Daniel S. Loeb(25)....... 182,400 5.7% -- -- -- --
P. Schoenfeld Asset
Management LLC &
Peter M. Schoenfeld(26).. 179,400 5.6% -- -- -- --
Lawrence M. Blau and
Mark Metzger(27)......... 174,000 5.5% -- -- -- --
Loeb Partners Corporation 173,325 5.5% -- -- -- --
and Loeb Arbitrage
Fund(28).................
</TABLE>
<TABLE>
<CAPTION>
Depositary Shares(3)
Percent of
Name and Voting
Address of Power on
Beneficial Number Percent the
Owner(1) of Shares of Class Merger(2)(3)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Directors and Executive Officers:
John D. Miller................ -- -- *
Norman Feuer.................. -- -- 33.9%
William G. Thompson........... -- -- *
Dennis R. Ciapura............. -- -- *
Jeffrey W. Leiderman.......... -- -- *
Frank E. Barnes III........... -- -- *
All Directors and Executive
Officers as a Group
(6 persons).............. -- -- 34.2%
Others:
Robert F.X. Sillerman......... -- -- *
C. Terry Robinson............. -- -- *
Howard J. Tytel............... -- -- *
Tomorrow
Foundation(17)........... -- -- 19.1%
Wellington Management
Company, LLP(18)......... 829,000 14.2% 4.0%
Wynnefield Partners Small
Cap Value, L.P. et al.(19) 300,000 5.1% 3.7%
Putnam Investments,
Inc.(20)................. -- -- 2.3%
General Motors Employees
Domestic Group Pension
Trust(21)................ -- -- 2.2%
Morgan Stanley Dean Witter
& Co.(22)................ -- -- 1.9%
Wellington Trust Company,
NA(23)................... 403,000 6.9% 1.9%
State Retirement and
Pension System of
Maryland(24)............. 240,000 4.1% 1.1%
Third Point Management
Company L.L.C. &
Daniel S. Loeb(25)....... -- -- 1.1%
P. Schoenfeld Asset
Management LLC &
Peter M. Schoenfeld(26).. -- -- 1.1%
Lawrence M. Blau and
Mark Metzger(27)......... -- -- 1.0%
Loeb Partners Corporation -- -- 1.0%
and Loeb Arbitrage
Fund(28).................
</TABLE>
- ------------------
* Less than 1%
(1) Except as otherwise noted, the address of each of the persons named is
c/o 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 Triathlon 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 February
1, 1999 to have "beneficial ownership" of any security
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<PAGE>
that such person has the right to acquire within 60 days of February 1,
1999. 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 Triathlon, which is
non-voting and convertible into Class A Common Stock upon transfer.
There were 31,000 shares of Class C Common Stock outstanding on February
1, 1999. This table also does not include 565,000 shares of Series B
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
Preferred Stock is non-voting and convertible into 565,000 shares of
Class A Common Stock in the event that the market price of the Class A
Common Stock exceeds certain levels.
(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 Triathlon. 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 any
required FCC approval) provided that Triathlon 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,
Triathlon is not aware of the existence of any arrangements that would
result in a change of control of Triathlon.
(3) Each Depositary Share has four-fifths (0.8) of a vote and is convertible
into 0.833 shares of Class A Common Stock. The numbers in the column
entitled "Percent of Voting Power on the Merger" assume no conversion of
Depositary Shares into Class A Common Stock. The figures in the column
showing the percentage ownership of Class A Common Stock assume the
conversion of any Depositary Shares held by such person into Class A
Common Stock, but do not assume any such conversion by any other holder
of Depositary Shares.
(4) Does not include 3,000 shares of Series B Preferred Stock, of which 50%
become convertible into 1,500 shares of Class A Common Stock once the
market price of Class A Common Stock has been greater than $14.00 for 20
consecutive days, and the remaining 50% of which become convertible into
1,500 shares of Class A Common Stock once the market price of Class A
Common Stock has been greater than $15.00 for 20 consecutive days. Also
does not include 5,000 SARs granted on October 30, 1995 which when
exercised will be equal to the difference between the market price of
the Class A Common Stock on October 30, 2000 and $5.50.
(5) Consists of options to purchase 15,000 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which are
fully vested. 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 Triathlon's 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 vested 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. Does not
include 60,000 shares of Series B Preferred Stock, of which 50% become
convertible into 30,000 shares of Class A Common Stock once the market
price of Class A Common Stock has been greater than $14.00 for 20
consecutive days, and the remaining 50% of which become convertible into
30,000 shares of Class A Common Stock once the market price of Class A
Common Stock has been greater than $15.00 for 20 consecutive days.
(6) Includes 86,000 shares of Class B Common Stock owned by Mr. Sillerman
and 14,000 shares of Class B Common Stock owned by Mr. Tytel. Mr. Feuer
may be deemed to beneficially own such 100,000 shares of Class B Common
Stock because he retains power to vote such 100,000 shares pursuant to a
Voting Trust Agreement entered into on March 12, 1998. Mr. Feuer had
previously pledged such shares to Radio Investors, Inc., a corporation
controlled by Mr. Sillerman, to secure Mr. Feuer's obligation to deliver
40.835% of the consideration received from the sale of all or a portion
of the 244,890 shares of Class B Common Stock which had been owned by
Mr. Feuer. On March 12, 1998, the 100,000 shares of Class B Common Stock
subject to the pledge were transferred to Messrs. Sillerman and Tytel
subject to the Voting Trust Agreement (which expires on March 12, 2008,
or at any prior such time that the shareholders vote to dissolve
Triathlon, or the outstanding Class B Common Stock is either repurchased
or registered under the Securities Act). At the same time, Mr. Feuer's
pledge to Radio Investors, Inc. was terminated. Also includes 136,852
shares of Class B Common Stock owned by Mr. Sillerman and 185,069 shares
of Class B Common Stock owned by Mr. Tytel which Mr. Feuer may be deemed
to beneficially own because he retains power to vote such shares
pursuant to a second Voting Trust Agreement entered into on August 5,
1998 (which expires on August 5, 2008, or at any prior such time that
the shareholders vote to dissolve, consolidate, or merge Triathlon, or
the outstanding Class B Common Stock is either repurchased or registered
under the Securities Act). In addition, varying percentages of Mr.
Feuer's shares are subject to surrender to Triathlon in the event that
he voluntarily terminates his employment prior to the expiration of the
term of his employment agreement. Mr. Feuer has pledged 35,294 shares to
Triathlon to secure a loan from Triathlon in the amount of $150,000.
- 50 -
<PAGE>
(7) Consists of options to purchase 2,500 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which are
fully vested. Also consists of 1,320 vested options out of a total of
3,300 options to purchase shares of Class A Common Stock granted
pursuant to Triathlon's 1996 Stock Option Plan; does not include the
remaining 1,980 options, which will vest in 20% increments on August 7
in each of 1999, 2000 and 2001. Also does not include options to
purchase 4,200 shares of Class A Common Stock granted in 1998 outside
any stock option plan, 40% of which vest on April 29, 2000, another 40%
of which vest on April 29, 2002, and the remaining 20% of which vest on
April 29, 2003. All of Mr. Thompson's unvested stock options will vest
immediately upon any change in control of Triathlon, including the
Merger.
(8) Consists of options to purchase 5,000 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which are
fully vested. Does not include options to purchase 3,500 shares of Class
A Common Stock granted in 1998 outside any stock option plan, 40% of
which vest on April 29, 2000, another 40% of which vest on April 29,
2002, and the remaining 20% of which vest on April 29, 2003, all of
which will vest immediately upon any change in control of Triathlon,
including the Merger. In addition to the options, on October 30, 1995
Mr. Ciapura received the right to a cash bonus in the amount of $30,000,
representing the difference between $5.50 (the price of the Class A
Common Stock at Triathlon's initial public offering) and $11.50 (the
closing price of the Class A Common Stock on October 30, 1995),
multiplied by 5,000. The bonus vested in two equal installments on
October 30, 1996, and October 30, 1997 and will be paid upon exercise of
Mr. Ciapura's options. Mr. Ciapura has not exercised any options. Does
not include 2,000 shares of Series B Preferred Stock, of which 50%
become convertible into 1,000 shares of Class A Common Stock once the
market price of Class A Common stock has been greater than $14.00 for 20
consecutive days, and the remaining 50% of which become convertible into
1,000 shares of Class A Common Stock once the market price of Class A
Common Stock has been greater than $15.00 for 20 consecutive days.
(9) Does not include 1,000 SARs granted on October 30, 1995 which when
exercised will be equal to the difference between the market price of
the Class A Common Stock on October 30, 2000 and $5.50. Nor does it
include 2,000 SARs granted on January 31, 1996 which when exercised will
be equal to the sum, if any, of (1) the market price of the Class A
Common Stock on January 31, 2001 - $.01 (if the stock trades higher than
$14.00 for 20 consecutive days before January 31, 2001) plus (2) the
market price of the Class A Common Stock on January 31, 2001 - $.01 (if
the stock trades higher than $15.00 for 20 consecutive days before
January 31, 2001).
(10) Includes 23,820 vested options out of a total of 33,500 options to
purchase shares of Class A Common Stock granted pursuant to Triathlon's
1995 Stock Option Plan, Triathlon's 1996 Stock Option Plan, or granted
outside of any stock option plan. Does not include the remaining 9,680
stock options, which will vest at intervals extending to April 29, 2003,
all of which will vest immediately upon any change in control of
Triathlon, including the Merger (see footnotes 5, 7, and 8).
(11) Consists of options to purchase 60,200 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which
have vested. Does not include 404,200 shares of Series B Preferred
Stock, of which 50% become convertible into 202,100 shares of Class A
Common Stock once the market price of Class A Common Stock has been
greater than $14.00 for 20 consecutive days, and the remaining 50% of
which become convertible into 202,100 shares of Class A Common Stock
once the market price of Class A Common Stock has been greater than
$15.00 for 20 consecutive days.
(12) Includes 320,000 shares of Class B Common Stock owned by Tomorrow
Foundation, of which Mr. Sillerman is a Vice President and Director (see
footnote 17). Also includes 86,000 shares of Class B Common Stock owned
by Mr. Sillerman but over which Mr. Feuer exercises the right to vote
pursuant to a Voting Trust Agreement dated March 12, 1998, and 136,852
shares of Class B Common Stock owned by Mr. Sillerman but over which Mr.
Feuer exercises the right to vote pursuant to a Voting Trust Agreement
dated August 5, 1998. (See footnote 6).
(13) Includes 680,000 shares of Class D Common Stock owned by Tomorrow
Foundation, of which Mr. Sillerman is a Vice President and Director (see
footnote 17).
(14) Consists of options to purchase 10,000 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which
have vested. Does not include 30,000 shares of Series B Preferred Stock,
of which 50% become convertible into 15,000 shares of Class A Common
Stock once the market price of Class A Common Stock has been greater
than $14.00 for 20 consecutive days, and the remaining 50% of which
become convertible into 15,000 shares of Class A Common Stock once the
market price of Class A Common Stock has been greater than $15.00 for 20
consecutive days.
(15) Consists of options to purchase 9,800 shares of Class A Common Stock
granted pursuant to Triathlon's 1995 Stock Option Plan, all of which
have vested. Does not include 65,800 shares of Series B Preferred Stock,
of
- 51 -
<PAGE>
which 50% become convertible into 32,900 shares of Class A Common Stock
once the market price of Class A Common Stock has been greater than
$14.00 for 20 consecutive days, and the remaining 50% of which become
convertible into 32,900 shares of Class A Common Stock once the market
price of Class A Common Stock has been greater than $15.00 for 20
consecutive days.
(16) Includes 14,000 shares of Class B Common Stock owned by Mr. Tytel but
over which Mr. Feuer exercises the right to vote pursuant to a Voting
Trust Agreement dated March 12, 1998, and 185,069 shares of Class B
Common Stock owned by Mr. Tytel but over which Mr. Feuer exercises the
right to vote pursuant to a Voting Trust Agreement dated August 5, 1998.
(See footnote 6).
(17) On June 29, 1998, Robert F.X. Sillerman transferred 1,000,000 shares of
Class D Common Stock to the Foundation, a charitable organization.
Pursuant to a Stockholder Agreement dated July 23, 1998, the Foundation
agreed to convert 320,000 of its Class D Common Stock into Class B
Common Stock. Robert F.X. Sillerman is the Vice President and a Director
of the Foundation, and therefore may be deemed a beneficial owner of the
shares owned by the Foundation. Likewise, Mr. Sillerman's wife, Laura B.
Sillerman, who is the President of the Foundation, and Mitch Nelson, a
Director of the Foundation, may also be deemed beneficial owners of the
shares owned by the Foundation. On December 30, 1998, the Foundation
entered into a "forward purchase contract" with an investment bank
pursuant to which the Foundation agreed to deliver its shares of
Triathlon stock to the investment bank at a future date in return for
the payment of the purchase price for such shares on the date of
execution of the forward purchase contract. Until delivered to the
investment bank (which is not anticipated to occur until after the
Merger), the Foundation will retain the right to vote the shares.
(18) Data regarding beneficial ownership of Class A Common Stock includes
335,699 shares of Class A Common Stock (through the potential conversion
of 403,000 Depositary Shares) beneficially owned by Wellington Trust
Company, NA, which number includes 199,920 shares of Class A Common
Stock (through the potential conversion of 240,000 Depositary Shares)
owned by the State Retirement and Pension System of Maryland. Data based
on information contained in Schedules 13G/A filed with the SEC on
February 10, 1998 and February 12, 1998. The address of Wellington
Management Company, LLP ("Wellington Management") is 75 State Street,
Boston, Massachusetts 02109. Wellington Management, in its capacity as
investment advisor, may be deemed to own 690,557 shares of Class A
Common Stock through the potential conversion of 829,000 Depositary
Shares which are held of record by clients of Wellington Management.
Wellington Management has shared power to vote with respect to 274,057
shares of Class A Common Stock and 329,000 Depositary Shares and shared
power to dispose of 690,557 shares of Class A Common Stock and 829,000
Depositary Shares.
(19) Data based on information contained in an amendment to a Schedule 13D
filed with the SEC on October 23, 1998, and information contained in a
Schedule 13D filed with the SEC on October 16, 1997. The address of
Wynnefield Partners Small Cap Value, L.P. ("Wynnefield Partnership") and
Wynnefield Partners Small Cap Value, L.P. I ("Wynnefield Partnership I")
is One Penn Plaza, Suite 4720, New York, New York 10119. The address of
Wynnefield Small Cap Value Offshore Fund, Ltd. ("Wynnefield Offshore")
is c/o Olympia Capital (Cayman) Ltd., Williams House, 20 Reid Street,
Hamilton HM 11, Bermuda. Wynnefield Partnership, Wynnefield Partnership
I, and Wynnefield Offshore own 180,926, 121,274, and 76,500 shares of
Class A Common Stock, respectively. Wynnefield Partnership, Wynnefield
Partnership I, and Wynnefield Offshore have sole voting and dispositive
power over their respective shares of Class A Common Stock. Wynnefield
Partnership, Wynnefield Offshore, and Wynnefield Partnership I also own
159,746, 55,000, and 85,254 Depositary Shares, respectively, the
potential conversion of which is included in the total ownership of
628,600 Class A Common Stock. Wynnefield Partnership, Wynnefield
Offshore, and Wynnefield Partnership I have sole voting and dispositive
power over their Depositary Shares. Nelson Obus, Joshua Landes, and
Robert Melnick are the general partners of Wynnefield Partnership and
Wynnefield Partnership I and also serve as executives of the investment
manager of Wynnefield Offshore.
(20) Data based on information contained in a Schedule 13G filed with the SEC
on January 28, 1998. The address of Putnam Investments, Inc. ("Putnam")
is One Post Office Square, Boston, Massachusetts 02109. Putnam, a
wholly-owned subsidiary of Marsh & McLennan Companies, Inc., may be
deemed to beneficially own 379,156 shares of Class A Common Stock.
Putnam has shared voting power over 84,337 shares of Class A Common
Stock and shared dispositive power over 379,156 shares of Class A Common
Stock. Putnam Investment Management, Inc., a wholly-owned subsidiary of
Putnam, is the investment advisor to the Putnam family of mutual funds
and has shared dispositive power over 257,826 shares of Class A Common
Stock. The Putnam Advisory Company, Inc., a wholly-owned subsidiary of
Putnam, is the investment advisor to Putnam's institutional clients and
has shared voting and dispositive power over 121,330 shares of Class A
Common Stock. Shares of Class A Common Stock referenced in this footnote
are beneficially owned by clients of Putnam Investment Management, Inc.
and Putnam Advisory Company, Inc.
- 52 -
<PAGE>
(21) Data based on information contained in a Schedule 13G filed with the SEC
on February 13, 1998. The address of General Motors Employees Domestic
Group Pension Trust ("GM Trust") is 767 Fifth Avenue, New York, New York
10153. GM Trust, a trust formed under and for the benefit of one or more
employee benefit plans of General Motors Corporation and its
subsidiaries, may be deemed to beneficially own 362,855 shares of Class
A Common Stock because it has shared voting and dispositive power over
them. General Motors Investment Management Corporation is the investment
advisor to GM Trust. General Motors Investment Management Corporation
has shared voting and dispositive power over the 362,855 shares of Class
A Common Stock, and therefore may be deemed to beneficially own them.
(22) Data based on information contained in an amendment to a Schedule 13G
filed with the SEC on February 5, 1999 on behalf of Morgan Stanley Dean
Witter & Co. ("Morgan") and Morgan Stanley Dean Witter Advisors, Inc.
("Morgan Advisors"). The address of Morgan is 1585 Broadway, New York,
New York, 10036. Morgan and Morgan Advisors may be deemed to
beneficially own 325,703 shares of Class A Common Stock. Morgan and
Morgan Advisors have shared voting power over 325,703 shares of Class A
Common Stock and shared dispositive power over 325,703 shares of Class A
Common Stock.
(23) Data regarding beneficial ownership of Class A Common Stock includes
199,920 shares of Class A Common Stock (through the potential conversion
of 240,000 Depositary Shares) owned by the State Retirement and Pension
System of Maryland. Data based on information contained in Schedules
13G/A filed with the SEC on February 11, 1998. The address of the
Wellington Trust Company, NA ("Wellington Trust") is 75 State Street,
Boston, Massachusetts 02109. Wellington Trust, in its capacity as
investment advisor, may be deemed to beneficially own 335,699 shares of
Class A Common Stock and 403,000 Depositary Shares, which are held of
record by its clients. Wellington Trust has shared voting power over
135,779 shares of Class A Common Stock and over 163,000 Depositary
Shares, and has shared dispositive power over 335,699 shares of Class A
Common Stock and 403,000 Depositary Shares.
(24) Data based on information contained in a Schedule 13G filed with the SEC
on February 17, 1998. The address of the State Retirement and Pension
System of Maryland ("SRPS") is 301 West Preston Street, Baltimore,
Maryland 21201. SRPS may be deemed to beneficially own 199,920 shares of
Class A Common Stock through the potential conversion of 240,000
Depositary Shares. SRPS has shared voting and dispositive power over
199,920 shares of Class A Common Stock through the potential conversion
of 240,000 Depositary Shares.
(25) Data based on information contained in a Schedule 13D filed with the SEC
on February 5, 1998. The address of Third Point Management Company
L.L.C. ("Third Point") is 277 Park Avenue, 26th Floor, New York, New
York 10172. Third Point, in its capacity as discretionary investment
manager, and Daniel S. Loeb, as sole managing member of Third Point, may
be deemed to beneficially own 182,400 shares of Class A Common Stock,
which are held of record by its clients. Third Point and Mr. Loeb have
shared voting and dispositive power over 182,400 shares of Class A
Common Stock.
(26) Data based on information contained in a Schedule 13D filed with the SEC
on July 24, 1998. The address of P. Schoenfeld Asset Management LLC
("PSAM") is 1330 Avenue of the Americas, 34th Floor, New York, New York
10019. PSAM, in its capacity as discretionary investment manager, and
Peter M. Schoenfeld, as sole managing member of PSAM, may be deemed to
hold 179,400 shares of Class A Common Stock which are held of record by
PSAM's clients. PSAM and Mr. Schoenfeld share voting and dispositive
power over 179,400 shares of Class A Common Stock.
(27) Data based on information contained in an amendment to a Schedule 13G
filed with the SEC on January 28, 1999. The business address of Messrs.
Blau and Metzger is 520 Madison Avenue, New York, New York 10022.
Messrs. Blau and Metzger are the managing partners of BEM Partners, L.P.
("BEM"). Messrs. Blau and Metzger may be deemed to beneficially own
174,000 shares of Class A Common Stock because they are primarily
responsible for managing the assets of BEM, which holds 174,000 shares
of Class A Common Stock. Messrs. Blau and Metzger have shared voting and
dispositive power over 174,000 shares of Class A Common Stock.
(28) Data based on information contained in a Schedule 13D filed with the SEC
on August 4, 1998. The address of both Loeb Partners Corporation ("LPC")
and Loeb Arbitrage Fund ("LAF") is 61 Broadway, New York, New York
10006. LPC and LAF are registered broker/dealers. LPC has sole voting
and dispositive power over 13,419 shares of Class A Common Stock, and
shared voting and dispositive power over 8,579 shares of Class A Common
Stock. LAF has sole voting and dispositive power over 151,327 shares of
Class A Common Stock. Mr. Arthur E. Lee is the President of Loeb
Arbitrage Management, Inc., the general partner of LAF, and he is also
the Executive Vice President of LPC. Mr. Thomas L. Kempner is the
President, Chief Executive Officer, and a Director of LPC.
- 53 -
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data are derived from the Consolidated
Financial Statements of Triathlon that appear in Triathlon's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and its Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1998, which are
attached to this Proxy Statement as Annex C and Annex D, respectively, and
incorporated herein by reference. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of
Triathlon and Notes thereto that appear in such Annual Report.
<TABLE>
<CAPTION>
Predecessor(1)
---------------------------------------
Nine Months June 29, 1995
Year Ended Ended (Triathlon's
December 31, September Inception) to
---------------------- 30, December 31,
1993 1994 1995 1995(2)
---- ---- ---- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues........................... $ 2,651 $ 2,750 $ 1,756 $ 1,108
Station operating expenses............. 3,098 2,814 1,900 1,015
Depreciation and amortization.......... 323 395 420 145
Corporate expenses..................... -- 72 132 234
Deferred compensation.................. -- -- 81 227
DOJ information request costs.......... -- -- -- --
-------- -------- --------- ---------
Operating (loss) income................ (770) (531) (777) (513))
Interest (expense) income - net........ (151) (170) (143) 60
Other income (expense)................. 8 7 12 --
-------- -------- --------- ---------
Loss before extraordinary items and
income benefit..................... (913) (694) (908) (453)
Income tax benefit..................... (336) (101) -- --
-------- -------- --------- ---------
Loss before extraordinary item......... (577) (593) (908) (453)
Extraordinary item..................... -- -- -- --
-------- -------- --------- ---------
Net loss............................... (577) (593) (908) (453)
Preferred stock dividend requirement... -- -- -- --
-------- -------- --------- ---------
Net loss applicable to common stock.... $ (577) $ (593) $ (908) $ (453)
======== ========= ========= =========
LOSS PER BASIC COMMON SHARE:
Loss before extraordinary item..... $ (0.21)
Extraordinary item................. --
---------
Net loss per basic common share........ $ (0.21)
=========
Weighted average basic common shares
outstanding........................ 2,154
=========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------------- ------------------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues........................... $ 18,963 $ 33,641 $ 22,996 $ 28,703
Station operating expenses............. 13,678 23,415 16,194 19,412
Depreciation and amortization.......... 1,427 4,134 2,723 3,573
Corporate expenses..................... 1,719 2,068 1,481 1,589
Deferred compensation.................. 366 390 292 99
DOJ information request costs.......... 300 -- -- --
--------- --------- --------- ---------
Operating (loss) income................ 1,473 3,634 2,306 4,030
Interest (expense) income - net........ (1,852) (4,365) (2,860) (4,532)
Other income (expense)................. (60) (138) -- (934)
--------- --------- --------- ---------
Loss before extraordinary items and
income benefit..................... (439) (869) (554) (1,436)
Income tax benefit..................... -- -- -- --
--------- --------- --------- ---------
Loss before extraordinary item......... (439) (869) (554) (1,436)
Extraordinary item..................... (320) (958) (958) --
--------- --------- --------- ---------
Net loss............................... (759) (1,827) (1,512) (1,436)
Preferred stock dividend requirement... (4,414) (5,507) (4,131) (4,131)
--------- --------- --------- ---------
Net loss applicable to common stock.... $ (5,173) $ (7,334) $ (5,643) $ (5,567)
======== ========= ========= =========
LOSS PER BASIC COMMON SHARE:
Loss before extraordinary item..... $ (0.97) $ (1.30) $ (0.96) $ (1.14)
Extraordinary item................. $ (0.10) $ (0.20) $ (0.20) --
--------- --------- --------- ---------
Net loss per basic common share........ $ (1.07) $ (1.50) $ (1.16) $ (1.14)
======== ========= ========= =========
Weighted average basic common shares
outstanding........................ 4,842 4,882 4,877 4,893
======== ========= ========= =========
</TABLE>
- 54 -
<PAGE>
<TABLE>
<CAPTION>
Predecessor(1)
----------------------------------------
Nine Months June 29, 1995
Year ended Ended (Triathlon's
December 31, September Inception) to
---------------------- 30, December 31,
1993 1994 1995 1995(2)
-------- --------- ---------- -------
OTHER OPERATING DATA
<S> <C> <C> <C> <C>
Broadcast cash flow(3)................. $ (447) $ (64) $ (144) $ 93
Cash capital expenditures.............. 10 6 83 55
Net cash (used in) provided by
operating activities............... (231) (70) (183) (682)
Net cash provided by (used in)
investing activities............... (2) 2,091 (83) (7,377)
Net cash provided by (used in)
financing activities............... 204 (2,036) 285 13,105
BALANCE SHEET DATA (AS OF THE END OF
THE PERIOD)
Cash and cash equivalents.............. $ 32 $ 16 $ 35 $ 5,046
Working capital (deficit)(4)........... (1,316) (1,426) (1,470) 5,122
Intangible assets-net.................. 3,282 2,891 2,823 5,603
Total assets........................... 5,114 4,857 4,599 13,735
Long term debt(5)...................... 9,896 4,129 4,304 --
Stockholders' equity (deficit)......... (5,003) 406 (363) 12,879
</TABLE>
<TABLE>
<CAPTION>
Year ended Nine Months Ended
December 31, September 30,
-------------------------- ----------------------------
1996 1997 1997 1998
-------- --------- --------- ---------
(unaudited) (unaudited)
OTHER OPERATING DATA
<S> <C> <C> <C> <C>
Broadcast cash flow(3)................. $ 5,285 $ 10,226 $ 6,802 $ 9,291
Cash capital expenditures.............. 1,555 869 582 1,290
Net cash (used in) provided by
operating activities............... 1,330 3,482 837 3,147
Net cash provided by (used in)
investing activities............... (65,273) (45,525) (64,030) (1,150)
Net cash provided by (used in)
financing activities............... 61,980 40,732 62,425 (3,402)
BALANCE SHEET DATA (AS OF THE END OF
THE PERIOD)
Cash and cash equivalents.............. $ 3,083 $ 1,771 $ 2,315 $ 366
Working capital (deficit)(4)........... 4,492 (55,405) 3,412 (59,370)
Intangible assets-net.................. 65,159 111,674 112,756 109,130
Total assets........................... 88,394 132,741 154,288 129,667
Long term debt(5)...................... 13,000 60,333 80,800 61,062
Stockholders' equity (deficit)......... 64,382 57,896 59,493 52,431
</TABLE>
(1) Predecessor represents the combined historical financial information of
Triathlon's initial Wichita stations (consisting of KFH-AM, KWSJ-FM,
KQAM-AM and KRBB-FM) for the years ended December 31, 1993 and 1994 and for
the nine months ended September 30, 1995.
(2) Triathlon commenced radio station operations on September 13, 1995.
(3) Although broadcast cash flow, defined as earnings before interest, taxes,
depreciation, amortization and corporate expenses, is not a measure of
performance calculated in accordance with generally accepted accounting
principals, Triathlon 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.
(4) Working capital represents the difference between current assets and
current liabilities.
(5) Long term debt includes the current portion of long term debt included in
current liabilities.
- 55 -
<PAGE>
MARKET PRICES AND DIVIDEND POLICY
The table below sets forth the high and low sales prices per share of
Class A Common Stock and the Depositary Shares, as reported by the Nasdaq
National Market or the Nasdaq SmallCap Market, for the calendar quarters
indicated. (The shares of Class A Common Stock have traded on the Nasdaq
National Market since June 2, 1997; prior to that date, the shares traded on
The Nasdaq Stock Market's SmallCap Market.)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK DEPOSITARY SHARES
HIGH LOW HIGH LOW
---- --- ---- ---
1996:
<S> <C> <C> <C> <C>
First Quarter(1)............................ $11 3/8 $10 1/4 $11 1/8 $10 1/4
Second Quarter.............................. 10 3/4 7 7/8 11 1/4 9 5/8
Third Quarter............................... 9 1/8 6 3/4 11 8 3/4
Fourth Quarter.............................. 10 1/8 8 11 8
1997:
First Quarter............................... $ 8 3/4 $ 7 $10 1/4 $ 8
Second Quarter.............................. 8 5 1/2 9 1/4 7 1/2
Third Quarter............................... 9 3/16 6 7/8 10 1/4 8 1/2
Fourth Quarter.............................. 11 1/2 8 3/16 12 8 5/8
1998:
First Quarter............................... $11 1/2 $ 9 7/8 $12 1/8 $10
Second Quarter.............................. 11 1/8 9 5/8 12 10
Third Quarter............................... 14 9 1/2 12 9 1/2
Fourth Quarter ............................. 11 13/16 8 9 7/8 9
1999:
First Quarter (through February 12, 1999) $12 10 5/8 9 3/4 9 1/4
</TABLE>
------------------
(1) The Depositary Shares were first quoted on March 5, 1996.
On July 23, 1998, the last trading day preceding the public
announcement of the execution of the Merger Agreement, the high and low sale
prices of the Class A Common Stock as reported by the Nasdaq National Market
were $14.00 and $11 1/2 and the high and low sale prices of the Depositary
Shares as reported by the Nasdaq National Market were $12 and $11 5/8. On
February 12, 1999, the last day trading day prior to the date of this Proxy
Statement, the high and low sale prices of the Class A Common Stock, as
reported by the Nasdaq National Market, were both $11 5/8 and the high ask and
low bid prices of the Depositary Shares, as reported by the Nasdaq National
Market, were $10 1/4 and $9 1/4. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT
PRICE QUOTATION FOR THE CLASS A COMMON STOCK AND THE DEPOSITARY SHARES.
No cash dividends have been declared or paid on the Class A Common
Stock since Triathlon's incorporation. In addition, Triathlon's current credit
facility and the Merger Agreement prohibit the payment of cash dividends. See
"The Merger Agreement--Covenants."
- 56 -
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement, including the Annexes attached hereto, contains
forward-looking statements. Future events and actual results, financial or
otherwise, may differ materially from the results set forth in or implied in
the forward-looking statements. Factors that might cause such a difference
include the risks and uncertainties involved in Triathlon's business,
including, but not limited to, the possible inability to obtain regulatory
approvals required to consummate the Merger, the effect of economic and market
conditions, the level and volatility of interest rates, the impact of current
or pending legislation and regulation and the other risks and uncertainties
discussed in "Risk Factors" in this Proxy Statement and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Triathlon's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, which is attached as Annex C to this Proxy Statement.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as Triathlon's independent auditors. A
representative of Ernst & Young LLP will be at the Special Meeting to answer
questions by stockholders and will have the opportunity to make a statement if
so desired.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at
the Special Meeting. However, if any other matters are properly brought before
the Special Meeting, the persons named in the accompanying form of proxy card
as proxies by the holders of Class A Common Stock and Class B Common Stock will
vote thereon in accordance with their best judgment.
AVAILABLE INFORMATION
Triathlon is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the SEC. The reports, proxy statements and other information
filed by Triathlon with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following Regional
Offices of the SEC: Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the material also can be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Triathlon is an electronic filer under the EDGAR
(Electronic Data Gathering, Analysis and Retrieval) system maintained by the
SEC. The SEC maintains a Web Site (http://www.sec.gov) on the Internet that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC. In addition,
material filed by Triathlon can be inspected at the offices of The Nasdaq Stock
Market, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information contained in Triathlon's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and Triathlon's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 is incorporated herein by
reference, as permitted by the rules and regulations of the SEC. Copies of both
such reports are attached to this Proxy Statement as Annexes.
- 57 -
<PAGE>
STOCKHOLDER PROPOSALS
Under the rules of the SEC, any Triathlon stockholder who wishes to
submit a proposal for presentation at Triathlon's 1999 Annual Meeting of
Stockholders (if the Merger has not been consummated prior to the date that
Meeting is to be held) must submit the proposal to Triathlon at its principal
executive offices, Attention: Secretary. The proposal must be received no later
than September 30, 1999 for inclusion, if appropriate, in Triathlon's proxy
statement and form of proxy card relating to the 1999 Annual Meeting. Proposals
which Triathlon's stockholders intend to present at the 1999 Annual Meeting of
Stockholders (if such a meeting is held) pursuant to Rule 14a-8 promulgated
under the Exchange Act and wish to have included in Triathlon's proxy materials
relating to that meeting must be received by Triathlon a reasonable time prior
to the date that Triathlon distributes the proxy materials to its stockholders.
Under the rules of the SEC, if a stockholder fails to notify Triathlon
of its intention to bring a non-Rule 14a-8 proposal before the 1999 Annual
Meeting within a reasonable time prior to the date that Triathlon distributes
the proxy materials relating to such meeting to its stockholders, then the
proxy card solicited by the Board of Directors of Triathlon may grant
discretionary voting authority to the proxies named in the proxy card with
respect to the non-Rule 14a-8 proposal.
BY ORDER OF THE BOARD OF DIRECTORS
Kraig G. Fox
Secretary
February 12, 1999
- 58 -
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CAPSTAR RADIO BROADCASTING PARTNERS, INC.,
TBC RADIO ACQUISITION CORP.
AND
TRIATHLON BROADCASTING COMPANY
DATED AS OF JULY 23, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger.............................................A-2
SECTION 1.02. Closing................................................A-2
SECTION 1.03. Effective Time.........................................A-2
SECTION 1.04. Effects of the Merger..................................A-2
SECTION 1.05. Certificate of Incorporation and By-laws...............A-2
SECTION 1.06. Directors..............................................A-3
SECTION 1.07. Officers...............................................A-3
ARTICLE 2
EFFECT OF THE MERGER ON THE SECURITIES OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock and Derivative Securities......A-3
SECTION 2.02. Exchange of Certificates...............................A-6
SECTION 2.03. Warrants, Options and SARs.............................A-7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company..........A-9
SECTION 3.02. Representations and Warranties of Parent and Sub......A-29
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business...................................A-32
SECTION 4.02. No Solicitation.......................................A-37
SECTION 4.03. Stockholders Meeting..................................A-38
SECTION 4.04. Assistance............................................A-39
SECTION 4.05. Releases..............................................A-39
SECTION 4.06. Termination of Certain Affiliate Transactions.........A-39
SECTION 4.07. Signal Downgrade/Upgrade..............................A-39
ARTICLE 5
ADDITIONAL AGREEMENTS
SECTION 5.01. Access to Information; Confidentiality................A-40
A-i
<PAGE>
SECTION 5.02. Reasonable Efforts....................................A-40
SECTION 5.03. Benefit Plans; Vacation...............................A-42
SECTION 5.04. Indemnification, Exculpation and Insurance............A-43
SECTION 5.05. Fees and Expenses; Deposit............................A-44
SECTION 5.06. Public Announcements..................................A-47
SECTION 5.07. Closing Extension.....................................A-47
SECTION 5.08. Citadel JSA...........................................A-49
SECTION 5.09. Environmental Assessments.............................A-50
SECTION 5.10. Conversion of Class D Common Stock....................A-51
SECTION 5.11. Acquisition of Antelope Creek Property................A-52
ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To
Effect the Merger...................................A-53
SECTION 6.02. Conditions to Obligations of Parent and Sub...........A-53
SECTION 6.03. Conditions to Obligation of the Company...............A-55
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination...........................................A-56
SECTION 7.02. Effect of Termination.................................A-58
SECTION 7.03. Amendment.............................................A-58
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties.........A-59
SECTION 8.02. Notices...............................................A-59
SECTION 8.03. Definitions...........................................A-60
SECTION 8.04. Interpretation........................................A-64
SECTION 8.05. Counterparts..........................................A-64
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries........A-65
SECTION 8.07. Governing Law.........................................A-65
SECTION 8.08. Assignment............................................A-65
SECTION 8.09. Enforcement...........................................A-65
SECTION 8.10. Director and Officer Liability........................A-65
SECTION 8.11. Termination Date......................................A-66
SECTION 8.12. Binding Effect........................................A-66
SECTION 8.12. Binding Effect........................................A-66
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of July 23, 1998, among Capstar Radio Broadcasting Partners, Inc., a
Delaware corporation ("Parent"), TBC Radio Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and Triathlon
Broadcasting Company, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have approved the
merger of Sub with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, as a condition of the willingness of Parent and Sub to
enter into this Agreement, simultaneously with the execution of this Agreement
by the parties hereto, each of the record holders of outstanding capital stock
of the Company listed on Schedule A attached hereto (collectively, the
"Principal Stockholders") is entering into a Stockholder Agreement dated as of
the date hereof (collectively, the "Stockholder Agreements") with Parent, Sub
and the Company which provides, among other things, that, subject to the terms
and conditions thereof, each of the Principal Stockholders will vote all shares
of Capital Stock (as defined in Section 2.01(c)(i)) with respect to which such
Principal Stockholder possesses the power to vote or direct the vote thereof
(whether by direct ownership, voting trust, voting agreement, proxy or
otherwise) in favor of the Merger and the approval and adoption of this
Agreement and the transactions contemplated hereby to the extent such shares
are entitled to vote thereon;
WHEREAS, as a condition to the willingness of Parent and Sub to
enter into this Agreement, simultaneously with the execution of this Agreement
by the parties hereto, each of the record holders of outstanding Series B
Convertible Preferred Stock, par value $.01 per share, of the Company ("Series
B Preferred Stock") listed on Schedule B attached hereto (collectively, the
"Series B Preferred Stockholders") is entering into a Series B Agreement dated
as of the date hereof (the "Series B Agreement") with Parent and the Company;
WHEREAS, contemporaneously with the execution and delivery hereof,
Norman Feuer has entered into a Termination Agreement (the "Termination
Agreement") with Parent and the Company, which establishes the terms and
provisions under which such individual's employment with the Company shall
terminate;
WHEREAS, the Board of Directors of the Company has approved for
purposes of Section 203 of the Delaware General Corporation Law (the "DGCL")
the terms of the Stockholder Agreements and the transactions contemplated
thereby;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
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ARTICLE 1
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, Sub
shall be merged with and into the Company at the Effective Time (as defined in
Section 1.03). Following the Effective Time, the separate corporate existence
of Sub shall cease and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights
and obligations of Sub in accordance with the DGCL.
SECTION 1.02. CLOSING. Subject to the provisions of Article 6, the
closing of the Merger (the "Closing") will take place at the offices of Vinson
& Elkins L.L.P., 2001 Ross Avenue, Suite 3700, Dallas, Texas 75201, on the
earlier of (i) April 30, 1999 (as such date may be extended pursuant to Section
5.07), or (ii) such time, date or place as Parent shall specify by providing
written notice to the Company at least five (5) business days prior to such
date, provided that, at any time and from time to time prior to the occurrence
of the Closing, the date of Closing specified in any such notice may be delayed
by Parent on up to three separate occasions to a date not later than the
Termination Date by Parent delivering written notice to the Company at any time
prior to the occurrence of the Closing (the "Closing Date"), provided that upon
the third of such delays, Parent will pay the Company $25,000 within five
business days after the date such notice is given.
SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the
DGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or at such other
time as Sub and the Company shall agree should be specified, and is so
specified, in the Certificate of Merger (the time the Merger becomes effective
being hereinafter referred to as the "Effective Time").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Section 259 of the DGCL.
SECTION 1.05. CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The certificate of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(b) The by-laws of Sub as in effect at the Effective Time shall
be the by-laws of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
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SECTION 1.06. DIRECTORS. The directors of Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.07. OFFICERS. The officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE 2
EFFECT OF THE MERGER ON THE SECURITIES OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. EFFECT ON CAPITAL STOCK AND DERIVATIVE SECURITIES. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the holder of any shares of the capital stock of the Company or Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of
capital stock of Sub shall be converted into and become a number of fully paid
and nonassessable shares of Class A Common Stock, par value $.01 per share, of
the Surviving Corporation equal to the quotient realized by dividing (i) the
sum of the aggregate number of shares of Class A Common Stock (as defined in
Section 2.01(b)(i)) determined on a fully-diluted basis immediately prior to
the Effective Time by (ii) the aggregate number of shares of capital stock of
Sub issued and outstanding immediately prior to the Effective Time. The term
"on a fully-diluted basis" shall mean, as of any date, the number of shares of
Class A Common Stock then outstanding (including any Dissenting Shares (as
defined in Section 2.01(e)) and shares of Class A Common Stock that are owned
by and held in the treasury of the Company), together with the aggregate number
of shares of Class A Common Stock that the Company may be required, as of such
date or thereafter, to issue (with or without notice, lapse of time or the
action of any third party) pursuant to any outstanding securities, options,
warrants, commitments, agreements, arrangements or undertakings of any kind
(including, without limitation, the Options, Warrants (as such terms are
defined in Section 2.03) and all Preferred Stock (as defined in Section 8.03)
and assuming the maximum number of shares of Common Stock (as defined in
Section 2.01(b)(iv)) issuable thereunder).
(b) CONVERSION OF COMMON STOCK.
(i) Each issued and outstanding share of Class A Common
Stock, par value $.01 per share, of the Company ("Class A Common
Stock") (other than shares to be canceled in accordance with Section
2.01(d) and Dissenting Shares) shall be converted into the right to
receive the Common Per Share Price (as defined in Section 8.03) (the
"Class A Merger Consideration"), payable to the holder thereof in
cash, without any interest thereon, upon surrender of the certificate
representing such share; and all such shares of Class A Common Stock
shall no longer be outstanding and automatically shall be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of Class A Common Stock shall cease to
have any rights with respect thereto, except the
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right to receive the Class A Merger Consideration to be paid
in consideration therefor upon surrender of such certificate in
accordance with Section 2.02, without interest.
(ii) Each issued and outstanding share of Class B Common
Stock, par value $.01 per share, of the Company ("Class B Common
Stock") (other than shares to be canceled in accordance with Section
2.01(d) and Dissenting Shares) shall be converted into the right to
receive the Common Per Share Price (the "Class B Merger
Consideration"), payable to the holder thereof in cash, without any
interest thereon, upon surrender of the certificate representing such
share; and all such shares of Class B Common Stock shall no longer be
outstanding and automatically shall be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Class B Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Class B Merger
Consideration to be paid in consideration therefor upon surrender of
such certificate in accordance with Section 2.02, without interest.
(iii) Each issued and outstanding share of Class C Common
Stock, par value $.01 per share, of the Company ("Class C Common
Stock") (other than shares to be canceled in accordance with Section
2.01(d) and Dissenting Shares) shall be converted into the right to
receive the Common Per Share Price (the "Class C Merger
Consideration"), payable to the holder thereof in cash, without any
interest thereon, upon surrender of the certificate representing such
share; and all such shares of Class C Common Stock shall no longer be
outstanding and automatically shall be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Class C Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Class C Merger
Consideration to be paid in consideration therefor upon surrender of
such certificate in accordance with Section 2.02, without interest.
(iv) Each issued and outstanding share of Class D Common
Stock, par value $.01 per share, of the Company ("Class D Common
Stock" and together with the Class A Common Stock, the Class B Common
Stock and the Class C Common Stock, the "Common Stock") (other than
shares to be canceled in accordance with Section 2.01(d) and
Dissenting Shares) shall be converted into the right to receive the
Common Per Share Price (the "Class D Merger Consideration" and,
together with the Class A Merger Consideration, the Class B Merger
Consideration and the Class C Merger Consideration, the "Common Stock
Merger Consideration"), payable to the holder thereof in cash, without
any interest thereon, upon surrender of the certificate representing
such share; and all such shares of Class D Common Stock shall no
longer be outstanding and automatically shall be canceled and retired
and shall cease to exist, and each holder of a certificate
representing any such shares of Class D Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
Class D Merger Consideration to be paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.02, without
interest.
(c) CONVERSION OF THE PREFERRED STOCK AND DEPOSITARY SHARES.
(i) Each issued and outstanding share of 9% Mandatory
Convertible Preferred Stock, par value $.01 per share, of the Company
("Mandatory Preferred Stock"; the
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Common Stock, the Mandatory Preferred Stock and the Series B
Preferred Stock are sometimes collectively referred to herein as the
"Capital Stock") (other than shares to be canceled in accordance with
Section 2.01(d) and Dissenting Shares) shall be converted into the
right to receive the Mandatory Preferred Per Share Price (as defined
in Section 8.03) (the "Mandatory Preferred Merger Consideration"),
payable to the holder thereof in cash, without any interest thereon,
upon surrender of the certificate representing such share; and all
such shares of Mandatory Preferred Stock shall no longer be
outstanding and automatically shall be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Mandatory Preferred Stock shall cease to have any rights
with respect thereto, except the right to receive the Mandatory
Preferred Merger Consideration to be paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.02,
without interest.
(ii) Each Depositary Share shall be converted into the right
to receive the Depositary Share Merger Consideration (as defined in
Section 8.03), payable to the holder thereof in cash, without any
interest thereon, upon surrender and exchange of the receipt
representing such Depositary Share. The Company shall cooperate with
Parent in notifying the Depositary (as defined in Section 8.03) to
establish the duties and responsibilities of the Depositary, on terms
reasonably acceptable to Parent, in distributing the Depositary Share
Merger Consideration (as defined in Section 8.03) to holders of
Depositary Shares.
(iii) Each issued and outstanding share of Series B
Preferred Stock (other than shares to be canceled in accordance with
Section 2.01(d) and Dissenting Shares) shall be converted into the
right to receive $.01 (the "Series B Merger Consideration" and,
together with the Common Stock Merger Consideration and the Mandatory
Preferred Merger Consideration, the "Merger Consideration"), payable
to the holder thereof in cash, without any interest thereon, upon
surrender of the certificate representing such share; and all such
shares of Series B Preferred Stock shall no longer be outstanding and
automatically shall be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares of
Series B Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive $.01 per share to be paid in
consideration therefor upon surrender of such certificate in
accordance with Section 2.02, without interest.
(d) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each
share of Common Stock and Preferred Stock that is owned by the Company or by
any wholly-owned Subsidiary (as defined in Section 8.03) of the Company and
each share of Common Stock and Preferred Stock that is owned by Parent, Sub or
any other wholly-owned Subsidiary of Parent automatically shall be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(e) DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock and Preferred Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by
stockholders who properly have exercised appraisal rights with respect thereto
under Section 262 of the DGCL (the "Dissenting Shares") shall not be converted
into the right to receive the consideration therefor specified in this Section
2.01, but the holders of Dissenting Shares shall be entitled to receive such
payment as shall be determined
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pursuant to Section 262 of the DGCL; provided, however, that if any such holder
shall have failed to perfect or shall withdraw or lose the right to appraisal
and payment under the DGCL, each such holder's shares of Common Stock or
Preferred Stock thereupon shall be deemed to have been converted as of the
Effective Time into the right to receive the consideration therefor specified
in this Section 2.01, without any interest thereon, as provided in Section
2.02, and such shares shall no longer be Dissenting Shares.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. At or prior to the Effective Time, Parent shall
enter into an agreement with a bank or trust Company mutually acceptable to
Parent and the Company (the "Paying Agent"), which shall provide that Parent
shall deposit with the Paying Agent immediately after the Effective Time, for
the benefit of the holders of shares of Common Stock and shares of Preferred
Stock for exchange in accordance with this Article 2, through the Paying Agent,
cash in the aggregate amount required to make the payments specified in Section
2.01, in respect of the Common Stock and the Preferred Stock issued and
outstanding at the Effective Time (other than Dissenting Shares and shares
canceled in accordance with Section 2.01(d)), such sum of cash being
hereinafter referred to as the "Exchange Fund." The Paying Agent shall,
pursuant to irrevocable instructions, deliver cash in exchange for surrendered
certificates representing Common Stock or Preferred Stock in accordance with
Sections 2.01 and 2.02.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time but no later than three business days following the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Common Stock or Preferred Stock
(collectively, the "Certificates"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the consideration payable therefor pursuant to
Section 2.01. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the consideration which such
holder has the right to receive pursuant to the provisions of this Article 2,
and the Certificate so surrendered shall forthwith be canceled. If any holder
of Common Stock or Preferred Stock shall be unable to surrender such holder's
Certificates because such Certificates have been lost, stolen or destroyed,
such holder may deliver in lieu thereof an affidavit and indemnity agreement in
form and substance reasonably satisfactory to the Parent. In the event payment
is requested to be made to a person other than the person in whose name a
surrendered Certificate is registered in the books of the Company, cash
representing the consideration payable pursuant to Section 2.01 may be paid to
a Person other than the Person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the Person requesting such payment shall pay any
transfer or other Taxes (as defined in Section 3.01(j)(ix)) required by reason
of payment of the consideration specified in Section 2.01 to a Person other
than the registered holder of such Certificate or establish to the satisfaction
of Parent that such Tax has been paid or is not applicable.
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Until surrendered as contemplated by this Section 2.02, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the consideration specified in this Article 2. No
interest will be paid or will accrue on any cash payable to holders of
Certificates pursuant to the provisions of this Article 2.
(c) TRANSFER BOOKS. At and after the Effective Time, there shall
be no transfers on the stock transfer books of the Company of the shares of
Common Stock or shares of Preferred Stock which were outstanding immediately
prior to the Effective Time. On or after the Effective Time, any Certificates
presented to the Surviving Corporation or the Paying Agent for any reason,
except notations thereon that a stockholder has elected to exercise his rights
to appraisal pursuant to Delaware law, shall be canceled and exchanged as
provided in this Article 2.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of the Certificates for one
year after the Effective Time shall be delivered to Parent, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article 2 shall thereafter look only to Parent for payment of the consideration
therefor specified in this Article 2.
(e) NO LIABILITY. None of Parent, Sub, the Company or the Paying
Agent shall be liable to any Person in respect of any cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) INVESTMENT OF EXCHANGE FUND. The Paying Agent shall invest
any cash included in the Exchange Fund, as directed by Parent, on a daily
basis, provided that any such investment is guaranteed as to payment of
principal and interest by the federal government of the United States. Any
interest and other income resulting from such investments shall be paid to
Parent.
(g) WITHHOLDING OF TAX. Parent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any former holder of Capital Stock such amount as Parent (or any
Affiliate thereof) or the Paying Agent is required to deduct and withhold with
respect to the making of such payment under the United States Internal Revenue
Code of 1986, as amended (the "Code"), or state, local or foreign Tax law. To
the extent that amounts are so withheld by Parent, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the former
holder of Capital Stock in respect of which such deduction and withholding was
made by Parent.
SECTION 2.03. WARRANTS, OPTIONS AND SARS.
(a) WARRANTS. At the Effective Time, each then outstanding
warrant to purchase shares of Common Stock pursuant to the Warrants to purchase
Class A Common Stock dated September 7, 1995 (the "Warrant Agreement") (whether
or not then presently exercisable) (collectively, the "Warrants"), shall
continue to be outstanding subject to the respective terms and conditions of
the agreements relating thereto and, subsequent to the Effective Time, shall be
exercisable for cash, with each agreement evidencing the Warrants immediately
prior to the Effective Time evidencing the right to receive (without payment of
the per share exercise price of such Warrant) an amount in cash, without any
interest thereon, for each share of Class A Common Stock
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subject to such Warrant, equal to the difference between the Common Per Share
Price and the per share exercise price of such Warrant to the extent such
difference is a positive number, less any applicable withholding Taxes. The
aggregate consideration payable to each Warrant holder shall be rounded to the
nearest penny. The surrender of a Warrant to the Company in exchange for the
consideration set forth in this Section 2.03(a) shall, to the extent permitted
by law, be deemed a release of any and all rights the holder had or may have
had in respect of such Warrant.
(b) OPTIONS. At the Effective Time, each then outstanding option
to purchase shares of Common Stock granted by the Company (whether or not then
presently vested or exercisable) (collectively, the "Options"), shall be
canceled, and each holder of a canceled Option shall be entitled to receive,
as soon as practicable (but in no event later than one business day) after the
Effective Time, in consideration for the cancellation of such Option, an amount
in cash, without any interest thereon, for each share of Common Stock subject
to such Option equal to the difference between the Common Per Share Price and
the per share exercise price of such Option to the extent such difference is a
positive number, less any applicable withholding Taxes. Each agreement
evidencing the Options immediately prior to the Effective Time that are settled
pursuant to this Section shall be deemed for all purposes to evidence solely
the right to receive the consideration per Option as provided in this Section
2.03(b). The aggregate cash consideration payable to each holder of Options
shall be rounded up to the nearest penny. The surrender of an Option to the
Company in exchange for the consideration set forth in this Section 2.03(b)
shall, to the extent permitted by law, be deemed a release of any and all
rights the holder had or may have had in respect of such Option.
(c) STOCK APPRECIATION RIGHTS. At the Effective Time, each then
outstanding stock appreciation right with respect to shares of Common Stock
granted by the Company (whether or not presently exercisable) (collectively,
the "SARs") shall be canceled, and each holder of a canceled SAR shall be
entitled to receive, as soon as practicable (but in no event later than one
business day) after the Effective Time, in consideration for the cancellation
of such SAR, an amount in cash, without any interest thereon, for each share of
Common Stock subject to such SAR equal to (i) with respect to each then
outstanding 1996 SAR (as defined in Section 8.03), one-half of the difference
between $0.01 and the Common Per Share Price or (ii) with respect to each then
outstanding 1995 SAR (as defined in Section 8.03) and all other outstanding
SARs, the difference between the Common Per Share Price and the per share base
price of such SAR to the extent such difference is a positive number, in all
cases less any applicable withholding Taxes. Each agreement evidencing the SARs
immediately prior to the Effective Time that are settled pursuant to this
Section 2.03(c) shall be deemed for all purposes to evidence solely the right
to receive the consideration per SAR as provided in this Section 2.03(c). The
aggregate consideration payable to each SAR holder shall be rounded up to the
nearest penny. The surrender of a SAR to the Company in exchange for the
consideration set forth in this Section 2.03(c) shall, to the extent permitted
by law, be deemed a release of any and all rights the holder had or may have
had in respect of such SAR.
(d) OPTION AND SAR TRANSFER BOOKS. At and after the Effective
Time, there shall be no transfers on the books of the Company of the Options or
SARs which were outstanding immediately prior to the Effective Time. On or
after the Effective Time, any certificates or agreements evidencing Options or
SARs presented to the Surviving Corporation for any reason shall be canceled
and exchanged as provided in this Article 2.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to Parent and Sub as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the
Company and each of its Subsidiaries (as defined in Section 8.03) is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated or
organized and has the requisite corporate or other such entity power and
authority to carry on its business as now being conducted. Each of the Company
and each of its Subsidiaries is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect
(as defined in Section 8.03) on the Company. The Company has delivered (or, in
the case of the Company's Subsidiaries, made available) to Parent prior to the
execution of this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as in effect on the date of this Agreement, and the
certificate of incorporation and by-laws (or comparable organizational
documents) of its Subsidiaries, in each case as amended to date.
(b) SUBSIDIARIES. Section 3.01(b)(i) of the Company Disclosure
Schedule (as defined in Section 8.03) sets forth a true and complete list, as
of the date hereof, of each Subsidiary of the Company, together with the
jurisdiction of incorporation or organization and the percentage of each
Subsidiary's outstanding capital stock or other equity interests owned by the
Company or another Subsidiary of the Company. Except as set forth in Section
3.01(b)(ii) of the Company Disclosure Schedule, all the outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary of the
Company have been validly issued and (with respect to corporate Subsidiaries)
are fully paid and nonassessable and are owned directly or indirectly by the
Company, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively,
"Liens"). Except for the capital stock of its Subsidiaries and the partnership
interests listed in Section 3.01(b)(iii) of the Company Disclosure Schedule, as
of the date hereof, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, limited liability
company, partnership, joint venture or other entity.
(c) CAPITAL STRUCTURE.
(i) The authorized capital stock of Company consists of
30,000,000 shares of Class A Common Stock, 1,689,256 shares of Class B
Common Stock, 367,344 shares of Class C Common Stock, 1,444,366 shares
of Class D Common Stock and 4,000,000 shares of preferred stock, par
value $.01 per share ("Authorized Preferred Stock"), of which, as of
the date of this Agreement, (A) 3,172,533 shares of Class A Common
Stock are issued and outstanding, (B) 244,890 shares of Class B Common
Stock are issued and outstanding, (C) 31,000 shares of Class C Common
Stock are issued and outstanding, (D) 1,444,366 shares of Class D
Common Stock are issued and outstanding, (E) 600,000 shares
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of Authorized Preferred Stock are designated as Series B
Preferred Stock, 565,000 shares of which are issued and outstanding,
(F) 598,000 of the Authorized Preferred Stock are designated as
Mandatory Preferred Stock, 583,400 shares of which are issued and
outstanding, and (G) no shares of Class A Common Stock, Class B Common
Stock, Class C Common Stock or Class D Common Stock are held by the
Company in its treasury or by any of the Company's Subsidiaries.
(ii) As of the date hereof, there are no bonds, debentures,
notes or other indebtedness issued or outstanding having the right to
vote on any matters on which holders of Common Stock or Authorized
Preferred Stock may vote, including without limitation the Merger.
(iii) Section 3.01(c)(iii) of the Company's Disclosure
Schedule sets forth a complete and correct list as of the date hereof,
of each holder of record of shares of Class B Common Stock, Class C
Common Stock, Class D Common Stock and Series B Preferred Stock and,
in each case, the number of shares held of record by each such holder.
(iv) Giving effect to the applicable provisions of the
Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate"), the Certificate of Designation of Series B
Convertible Preferred Stock (the "Series B Designation"), the
Certificate of Designations of Preferred Stock of Triathlon
Broadcasting Company to be designated 9% Mandatory Convertible
Preferred Stock (the "Mandatory Designation") and all other
instruments affecting the rights of holders of Capital Stock to which
the Company is a party or is bound (which, if any, other than the
Restated Certificate, the Series B Designation, the Mandatory
Designation and the Transaction Documents (as defined in Section
8.03), are set forth in Section 3.01(c)(iv) of the Company Disclosure
Schedule):
(A) each outstanding share of Class D Common Stock is
convertible into one share of Class A Common Stock or, in the
event of an occurrence set forth in paragraph 4.2(f)(iii)(B) of
Article Four of the Restated Certificate, one share of Class B
Common Stock, in each case subject to any necessary FCC (as
defined in Section 3.01(d)(iii)) approval and approval under the
HSR Act (as defined in Section 3.01(d)(iii)); other than as set
forth in paragraph 4.2(f)(iii)(B) of the Restated Certificate and
any restrictions or required approval of the FCC or under the HSR
Act, there are no restrictions or limitations, contractual or
otherwise, binding upon the Company or to which the Company is
subject that prohibit or limit the right of a holder of Class D
Common Stock to convert shares of Class D Common Stock into
shares of Class A Common Stock or Class B Common Stock; and the
conversion of any Class D Common Stock into shares of Class A
Common Stock or Class B Common Stock will not violate or result
in or constitute a default under the Credit Agreement or any
other loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or any other
contract, agreement, arrangement or understanding to which the
Company is a party or by which it or any of its properties or
assets are bound;
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(B) as of the date hereof, no event has occurred
permitting any outstanding shares of Series B Preferred Stock to
become convertible into any shares of Capital Stock; and
(C) as of the date hereof, each outstanding share of
Mandatory Preferred Stock is convertible into 8.33 shares of
Class A Common Stock, and no event has occurred requiring any
adjustment to the Redemption Rate (as defined in paragraph 6(a)
of the Mandatory Designation), pursuant to paragraph 8 of the
Mandatory Designation or otherwise, or the Optional Conversion
Rate (as defined in Paragraph 7(a) of the Mandatory Designation),
pursuant to paragraph 8 of the Mandatory Designation or
otherwise.
(v) Except as set forth in Section 3.01(c)(v) of the Company
Disclosure Schedule, there are no outstanding stock options, stock
appreciation rights or other rights to receive shares of Capital Stock
granted under the Option Plans. Without limiting the generality of the
foregoing, except as set forth in Section 3.01(c)(v) of the Company
Disclosure Schedule, there are no outstanding "Options" as defined in
the Option Plans. Section 3.01(c)(v) of the Company Disclosure
Schedule sets forth a complete and correct list, as of the date
hereof, of the holders of all Warrants, Options and SARs, and the
number, class and series of shares subject to each such Warrant,
Option and SAR, and the exercise or base prices thereof. Except for
the Options, Warrants, Class B Common Stock, Class C Common Stock,
Class D Common Stock, Series B Preferred Stock and Mandatory Preferred
Stock (as to which no more than 7,388,728 shares of Class A Common
Stock and, except for 1,444,366 shares of Class B Common Stock
issuable upon conversion of outstanding Class D Common Stock, no
shares of any other class or series of Capital Stock are issuable upon
exercise or conversion thereof, as applicable) and, except as set
forth above or in Section 3.01(c)(v) of the Company Disclosure
Schedule, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its Subsidiaries is a party
or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the Company or of any of its Subsidiaries or obligating
the Company or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking ("Derivative
Securities"). Except as set forth in the Mandatory Designation, the
Series B Designation and in Section 3.01(c)(iv) of the Company
Disclosure Schedule, there are no outstanding contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries, and during the period commencing on March 4, 1996,
and ending on July 31, 1997, the Company took such actions as
necessary to satisfy the requirements of paragraph 9 of the Mandatory
Designation and has not at any time been required to repurchase any
shares of Mandatory Preferred Stock pursuant to paragraph 9 of the
Mandatory Designation.
(vi) All outstanding shares of capital stock of the Company
and its Subsidiaries are, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive or similar rights.
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<PAGE>
(vii) Except as contemplated hereby or in the other
Transaction Documents or as set forth in Section 3.01(c)(vii) of the
Company Disclosure Schedule, there are not as of the date hereof and
there will not be at the Effective Time any stockholder agreements,
voting agreements or trusts, proxies or other agreements or
contractual obligations to which the Company or any Subsidiary is a
party or bound with respect to the voting or disposition of any shares
of the capital stock of the Company or any of its Subsidiaries and, to
the Company's knowledge, as of the date hereof, there are no other
stockholder agreements, voting agreements or trusts, proxies or other
agreements or contractual obligations among the stockholders of the
Company with respect to the voting or disposition of any shares of the
capital stock of the Company or any of its Subsidiaries.
(d) AUTHORITY; NONCONTRAVENTION.
(i) The Company has all requisite corporate power and
authority to enter into this Agreement and the other Transaction
Documents to which it is a party and, subject to the Stockholder
Approval (as defined in Section 3.01(k)), to consummate the
transactions contemplated by the Transaction Documents. The execution
and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary
corporate action on the part of the Company, subject to the
Stockholder Approval. Each of the Transaction Documents to which the
Company is a party has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
(ii) Except as disclosed in Section 3.01(d)(ii) of the
Company Disclosure Schedule, the execution and delivery by the Company
of the Transaction Documents to which the Company is a party do not,
and compliance by the Company with the provisions of the Transaction
Documents will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries under, (i) subject to, with respect
to the Merger, Stockholder Approval, the certificate of incorporation
or by-laws of the Company or the comparable organizational documents
of any of its Subsidiaries, (ii) subject to the consents and other
matters referred to in Section 3.01(d)(iii), any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or any of its Subsidiaries or their respective properties or
assets, including without limitation those agreements set forth in
Section 3.01(o)(v) of the Company Disclosure Schedule or (iii) subject
to the governmental filings and other matters referred to in Section
3.01(d)(iii), any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, Liens, judgments, orders, decrees, statutes, laws,
ordinances, rules or regulations that individually or in the aggregate
could not reasonably be expected to (x) have a Material Adverse Effect
on the Company, (y) impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material
respect or (z) delay in any material respect or
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prevent the consummation of any of the transactions contemplated by
the Transaction Documents.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Federal, state or local
government or any court, administrative or regulatory agency or
commission or other governmental authority or agency (a "Governmental
Entity") or other Person, is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution
and delivery of the Transaction Documents by the Company or the
consummation by the Company of the transactions contemplated by the
Transaction Documents, except for (1) the filing of a premerger
notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"); (2) the filing with the Securities and Exchange Commission
(the "SEC") of (A) a proxy statement relating to the Stockholders
Meeting (as defined in Section 4.03), as amended or supplemented from
time to time (the "Proxy Statement") and (B) such reports under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with
the Transaction Documents and the transactions contemplated by the
Transaction Documents; (3) the filing of the Certificate of Merger
with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is
qualified to do business; (4) such filings with and approvals and
authorizations of the Federal Communications Commission or any
successor entity (the "FCC") as may be required under the
Communications Act of 1934, as amended, and the rules, regulations and
policies of the FCC thereunder (collectively, the "Communications
Act"), including filings and approvals in connection with the transfer
of control of the FCC Licenses (as defined in Section 3.01(p)); (5)
such other filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the
Merger or the transactions contemplated by the Transaction Documents;
(6) such consents, approvals, orders or authorizations the failure of
which to be made or obtained could not reasonably be expected to have
a Material Adverse Effect on the Company, impair the ability of the
Company to perform its obligations under this Agreement in any
material respect or delay in any material respect or prevent the
consummation of the transactions contemplated by the Transaction
Documents; and (7) as disclosed in Section 3.01(d)(iii) of the Company
Disclosure Schedule.
(e) FILED DOCUMENTS; UNDISCLOSED LIABILITIES.
(i) The Company and its Subsidiaries have filed, except, in
the case of (B) and (C), where the failure to file could not
reasonably be expected to have a Material Adverse Effect on the
Company, and delivered or made available to Parent true and complete
copies of, all reports, schedules, forms, statements and other
documents required to be filed with (A) the SEC (collectively, the
"Company SEC Documents"), (B) any applicable state securities
authorities (collectively, the "Blue Sky Reports") and (C) any other
Governmental Entities including the FCC (collectively, the "Other
Company Reports").
(ii) As of their respective dates, the Company SEC Documents
and Blue Sky Reports complied in all material respects with the
requirements of the Securities Act,
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<PAGE>
the Exchange Act, or applicable state securities laws, as
the case may be, and the rules and regulations of the SEC and
applicable state securities authorities promulgated thereunder
applicable to such Company SEC Documents and Blue Sky Reports; and the
Other Company Reports were prepared in all material respects in
accordance with the requirements of applicable law. None of the
Company SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any
Company SEC Documents has been revised or superseded by a later filed
Company SEC Document, none of the Company SEC Documents contains any
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(iii) The Company's Consolidated Balance Sheets as of
December 31, 1996 and 1997, and the Company's Consolidated Statements
of Operations, Cash Flows and Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997, included in the Company's Form 10-K
for the year ended December 31, 1997, as filed with the SEC (the "Form
10-K"), and the Company's Consolidated Balance Sheets as of March 31,
1998, and the Company's Consolidated Statements of Operations, Cash
Flows and Stockholders' Equity for the three months ended March 31,
1998, included in the Company's Form 10-Q for the period ended March
31, 1998, as filed with the SEC (the "Form 10-Q") (collectively, the
"Current Financial Statements"), comply as to form in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC and pro forma financial statements as required by SEC
Regulation S-X) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position
of the Company and its Subsidiaries on a consolidated basis as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(iv) Except (A) as set forth on Section 3.01(e) of the
Company Disclosure Schedule, (B) as set forth in the Current Financial
Statements, (C) liabilities and obligations incurred in the ordinary
course of business consistent with past practice since December 31,
1997, and (D) liabilities under the Transaction Documents, neither the
Company nor any of its Subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of the Company
and its consolidated Subsidiaries or in the notes thereto.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Form 10- Q, as contemplated by the Transaction Documents or as disclosed in
Section 3.01(f) of the Company Disclosure Schedule, since December 31, 1997,
each of the Company and its Subsidiaries have conducted their business only in
the ordinary course consistent with past practice, and there has not
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<PAGE>
been (i) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any capital
stock of the Company (other than regular cash dividends on shares of Mandatory
Preferred Stock declared and paid on each scheduled quarterly record date and
payment date, respectively, in accordance with the terms of the Mandatory
Designation as in effect on the date hereof), (ii) any split, combination or
reclassification of any capital stock of the Company or any of its Subsidiaries
or (other than issuances of shares of Class A Common Stock upon the exercise of
Options or Warrants and/or issuances of Class A Common Stock and/or Class B
Common Stock upon conversion after the date hereof of shares of Capital Stock
outstanding on December 31, 1997) any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company or any of its Subsidiaries, (iii)
(x) any granting by the Company or any of its Subsidiaries to any executive
officer or other key employee of the Company or any of its Subsidiaries of any
increase in compensation, except for normal increases in the ordinary course of
business consistent with past practice or as required under employment or other
agreements or benefit arrangements in effect as of December 31, 1997, or (y)
any granting by the Company or any of its Subsidiaries to any such executive
officer of any increase in severance or termination pay, except as was required
under any employment, severance, termination or other agreements or benefit
arrangements in effect as of December 31, 1997, (iv) except as required by a
change in generally accepted accounting principles, any change in accounting
methods, principles or practices by the Company or any of its Subsidiaries
materially affecting its assets, liabilities or business or (v) any event,
circumstance, or fact that has resulted in a Material Adverse Change in the
Company.
(g) LITIGATION. Except as disclosed in the Form 10-K, the Form
10-Q or in Section 3.01(g) of the Company Disclosure Schedule, there is no
suit, action, proceeding or indemnification claim (including any proceeding by
or before the FCC but excluding proceedings of general applicability to the
radio industry and proceedings by or before any Federal Antitrust Agencies (as
defined in Section 5.02(b)) or the FCC relating to the transactions
contemplated hereby and proceedings arising under the Communications Act
relating to such transactions) pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries that,
individually or in the aggregate, reasonably could be expected to (i) have a
Material Adverse Effect on the Company or any of its Subsidiaries, (ii) impair
the ability of the Company to perform its obligations under the Transaction
Documents in any material respect or (iii) delay in any material respect or
prevent the consummation of any of the transactions contemplated by the
Transaction Documents, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
or any of its Subsidiaries which reasonably could be expected to have, any
effect referred to in clause (i), (ii) or (iii) above, except for any suit,
action or proceeding asserted after the date hereof by any stockholders of the
Company in connection with any of the transactions contemplated by the
Transaction Documents.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS. Except (x) as disclosed
in Section 3.01(h) of the Company Disclosure Schedule, (y) for normal increases
in the ordinary course of business consistent with past practice or as required
by law or (z) as contemplated by the Transaction Documents, since December 31,
1997, there has not been any adoption or amendment in any material respect by
the Company or any of its Subsidiaries of any collective bargaining agreement
or any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance,
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<PAGE>
disability, death benefit, hospitalization, medical or other material plan
providing material benefits to any current or former employee, officer or
director of the Company or any of its Subsidiaries. Without limiting the
foregoing, except as disclosed in Section 3.01(h) of the Company Disclosure
Schedule, since December 31, 1997, there has not been any change in any
actuarial or other assumption used to calculate funding obligations with
respect to any Pension Plan (as defined below), or in the manner in which
contributions to any Pension Plan are made or the basis on which such
contributions are determined. Except as disclosed in Section 3.01(h) of the
Company Disclosure Schedule and except for the Termination Agreement, there
exist no employment, consulting or severance agreements currently in effect
between the Company or any of its Subsidiaries and any current or former
employee, officer or director of the Company or any of its Subsidiaries
providing for annual base compensation or other payments (including amounts
payable upon consummation of the transactions contemplated by the Transaction
Documents) in excess of $100,000.
(i) ERISA COMPLIANCE. Except as disclosed in Section 3.01(i) of
the Company Disclosure Schedule:
(i) The Company has delivered or made available to Parent
each "employee pension benefit plan" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (a "Pension Plan"), each "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA) (a "Welfare Plan"), each stock
option, stock purchase, deferred compensation plan or arrangement,
employment agreement, severance plan or agreement, consulting
agreement and each other employee fringe benefit plan or arrangement
maintained, contributed to or required to be maintained or contributed
to by the Company, any of its Subsidiaries or any other Person or
entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each, a
"Commonly Controlled Entity"), which is currently in effect for the
benefit of any current or former employees, officers, directors or
independent contractors of the Company or any of its Subsidiaries or
with respect to which the Company or any Commonly Controlled Entity
has any material contingent liability (collectively, "Benefit Plans").
The Company has delivered or made available to Parent true, complete
and correct copies of (w) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Benefit
Plan for which the filing of any such report is required by ERISA or
the Code, (x) the most recent summary plan description for each
Benefit Plan for which the preparation of any such summary plan
description is required by ERISA, (y) each currently effective trust
agreement, insurance or group annuity contract and each other funding
or financing arrangement relating to any Benefit Plan and (z) a
schedule of employer expenses with respect to each Benefit Plan for
the current plan year of each Benefit Plan.
(ii) Each Benefit Plan has been administered in material
compliance with its terms, the applicable provisions of ERISA, the
Code and all other applicable laws and the terms of all applicable
collective bargaining agreements. To the knowledge of the Company,
there are no investigations by any governmental agency, termination
proceedings or other claims (except routine claims for benefits
payable under the Benefit Plans), suits or proceedings pending or
threatened against any Benefit Plan or asserting any rights or claims
to benefits under any Benefit Plan that, individually or in the
aggregate, reasonably could be expected to result in a Material
Adverse Effect on the Company.
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(iii) (A) No Pension Plan is subject to the minimum funding
standards imposed by Section 412 of the Code.
(iv) Each Pension Plan that is intended to be a
tax-qualified plan has been the subject of a determination letter from
the Internal Revenue Service to the effect that such Pension Plan and
related trust is qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code; to the
knowledge of the Company, no such determination letter has been
revoked, revocation of such letter has not been threatened nor has
such Pension Plan been amended since the effective date of its most
recent determination letter in any respect that would adversely affect
its qualification. The Company has delivered or made available to
Parent a copy of the most recent determination letter received with
respect to each Pension Plan for which such a letter has been issued,
as well as a copy of any pending application for a determination
letter. To the knowledge of the Company, no event has occurred that
could subject the Company or any Pension Plan to any liability under
Section 502 of ERISA that, individually or in the aggregate,
reasonably could be expected to result in a Material Adverse Effect on
the Company.
(v) (A) Neither the Company nor any of its Subsidiaries has
engaged in a "prohibited transaction" (as defined in Section 4975 of
the Code or Section 406 of ERISA) that involves the assets of any
Benefit Plan that reasonably could be expected to subject the Company,
any of its Subsidiaries, any employee of the Company or its
Subsidiaries or, to the knowledge of the Company, a non-employee
trustee, non-employee administrator or other non-employee fiduciary of
any trust created under any Benefit Plan to any Tax or penalty on
prohibited transactions imposed by Section 4975 of the Code that,
individually or in the aggregate, reasonably could be expected to
result in a Material Adverse Effect on the Company; (B) within the
past five years, the Company has not maintained any Pension Plan that
is subject to Title IV of ERISA; and (C) none of the Company, any of
its Subsidiaries or, to the knowledge of the Company, any non-employee
trustee, non-employee administrator or other non-employee fiduciary of
any Benefit Plan has breached the fiduciary duty provisions of ERISA
or any other applicable law in a manner that, individually or in the
aggregate, has had or is reasonably likely to result in a Material
Adverse Effect on the Company.
(vi) No Commonly Controlled Entity sponsors any Pension Plan
that is a "defined benefit pension plan" (as defined in Section 3(35)
of ERISA) (a "Defined Benefit Plan").
(vii) No Commonly Controlled Entity has incurred any
liability under Title IV of ERISA.
(viii) No Commonly Controlled Entity has engaged in a
transaction described in Section 4069 of ERISA that could subject the
Company to liability at any time after the date hereof that
individually, or in the aggregate, reasonably could be expected to
result in a Material Adverse Effect on the Company.
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(ix) No Commonly Controlled Entity has withdrawn from any
multi-employer plan (as defined in Section 3(37) or 4001(a)(3) of
ERISA) where such withdrawal has resulted in any "withdrawal
liability" (as defined in Section 4201 of ERISA) that has not been
fully paid.
(x) Prior to the date hereof, the Company has made available
to Parent copies of all agreements and Benefit Plans under which any
employee of the Company or any of its Subsidiaries will be entitled to
any additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Benefit Plan or under any
employment, severance, termination or compensation agreement as a
result of the transactions contemplated by this Agreement and Section
3.01(i) of the Company Disclosure Schedule sets forth any severance
payments contained in such agreements or Benefit Plans which provide
for payments in excess of $100,000 to any such employee.
(xi) No Benefit Plan provides that payments pursuant to such
Benefit Plan may be made in securities of a Commonly Controlled
Entity, nor does any trust maintained pursuant to any Benefit Plan
hold any securities of a Commonly Controlled Entity.
(xii) Notwithstanding any of the foregoing to the contrary,
the representations and warranties of this Section 3.01(i), other than
clauses (i) and (ix), shall not apply to any multi-employer plan (as
defined in Section 3(37) or 4001(a)(3) of ERISA), nor shall they apply
with respect to any actions or omissions of a Pension Plan prototype
plan sponsor of which the Company has no knowledge.
(j) TAXES.
(i) Each of the Company, its Subsidiaries and any
affiliated, consolidated, combined, unitary or similar group of which
the Company or any of its Subsidiaries is or was a member (a "Tax
Group") has filed all federal, state and other material tax returns
and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have
not expired, except to the extent that such failures to file or to
have extensions granted that remain in effect individually or in the
aggregate could not reasonably be expected to have a Material Adverse
Effect on the Company. All returns filed by the Company, each of its
Subsidiaries and any Tax Group are complete and accurate in all
material respects to the knowledge of the Company. The Company and
each of its Subsidiaries has paid (or the Company has paid on its
behalf) all Taxes shown as due on such returns, and the Current
Financial Statements reflect an adequate reserve for all Taxes payable
by the Company and its Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its Subsidiaries
that are not adequately reserved for, except for deficiencies that
individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect on the Company, and no requests for
waivers of the time to assess any such Taxes have been granted or are
pending that, individually or in the aggregate, reasonably could be
expected to have a Material Adverse Effect on the Company.
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<PAGE>
The statute of limitations on assessment or collection of
any Federal income taxes due from the Company, any of its Subsidiaries
or any Tax Group has expired for all taxable years of the Company, any
of its Subsidiaries or any Tax Group through 1991. No audit or other
proceeding by any court, governmental or regulatory authority or
similar Person is pending in regard to any material Taxes due from or
with respect to the Company or any of its Subsidiaries or any material
tax return filed by, or with respect to the Company, any of its
Subsidiaries or any Tax Group, other than normal and routine audits by
non-federal governmental authorities. None of the assets or properties
of the Company or any of its Subsidiaries is subject to any tax lien,
other than any such liens for Taxes which are not yet due and payable,
which may thereafter be paid without penalty or the validity of which
is being contested in good faith by appropriate proceedings and for
which adequate reserves are being maintained in accordance with
generally accepted accounting principles ("Permitted Tax Liens").
(iii) No consent to the application of Section 341(f)(2) of
the Code (or any predecessor provision) has been made or filed by or
with respect to the Company or, for so long as the Company has owned
any Subsidiary, by or with respect to such Subsidiary. None of the
Company or any of its Subsidiaries has agreed to make any material
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method, and there
is no application pending with any taxing authority requesting
permission for any changes in any accounting method of the Company or
any of its Subsidiaries which, in each respective case, will or would
reasonably cause the Company or any of its Subsidiaries to include any
material adjustment in taxable income for any taxable period (or
portion thereof) ending after the Closing Date.
(iv) Except as set forth in the Form 10-K or the Form 10-Q,
neither the Company nor any of its Subsidiaries is a party to, is
bound by, or has any obligation under, any tax sharing agreement, tax
allocation agreement or similar contract, agreement or arrangement.
(v) Neither the Company nor any of its Subsidiaries has
executed or entered into with the Internal Revenue Service, or any
taxing authority, a closing agreement pursuant to Section 7121 of the
Code or any similar provision of state, local, foreign or other income
tax law, which will require any increase in taxable income or
alternative minimum taxable income, or any reduction in tax credits
for, the Company or any of its Subsidiaries for a taxable period
ending after the Closing Date.
(vi) Except as disclosed in Section 3.1(j) of the Company
Disclosure Schedule, there is no contract, agreement, plan or
arrangement covering any person that, individually or collectively,
could give rise to the payment of any amount by the Company or any
Subsidiary that would not be deductible by the Company or any of its
Subsidiaries by reason of Section 280G of the Code or that would
constitute compensation whose deductibility is limited under Section
162(m) of the Code.
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(vii) The Company is not a party to nor has it assumed any
"corporate acquisition indebtedness" as defined in Section 279(b) of
the Code or any obligations described in Section 279(a) of the Code.
(viii) There are no excess loss accounts or deferred
intercompany transactions between the Company and/or any of its
Subsidiaries within the meaning of Treas. Reg. ss.ss. 1.1502-13 or
1.1502-19, respectively.
(ix) As used in this Agreement, "Taxes" shall include all
Federal, state and local income, franchise, use, property, sales,
excise and other taxes, tariffs or governmental charges of any nature
whatsoever, domestic or foreign, including any interest, penalties or
additions with respect thereto.
(k) VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of Class A Common Stock,
Class B Common Stock and Mandatory Preferred Stock, voting as a single class,
is the only vote of the holders of any class or series of Company's capital
stock necessary to approve and adopt this Agreement and the Merger. The votes
required in the preceding sentence are collectively referred to herein as the
"Stockholder Approval."
(l) STATE TAKEOVER STATUTES. The Board of Directors of the
Company has approved the terms of this Agreement and the Stockholder Agreements
and the consummation of the Merger and the other transactions contemplated by
this Agreement and the Stockholder Agreements, and such approval is sufficient
to render inapplicable to the Merger and the other transactions contemplated by
this Agreement and the Stockholder Agreements, the restrictions on business
combinations set forth in Section 203 of the DGCL. To the Company's knowledge,
no other state takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement, the Stockholder Agreements or
any of the transactions contemplated by this Agreement or the Stockholder
Agreements, and no provision of the certificate of incorporation, by-laws or
other governing instruments of the Company or any of its Subsidiaries would,
directly or indirectly, restrict or impair the ability of Parent to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of
the Company and its Subsidiaries that may be acquired or controlled by Parent.
(m) LABOR MATTERS. Neither the Company nor any of its
Subsidiaries is the subject of any suit, action or proceeding which is pending
or, to the knowledge of the Company, threatened, asserting that the Company or
any of its Subsidiaries has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or applicable state statutes) or
seeking to compel the Company or any of its Subsidiaries to bargain with any
labor organization as to wages and conditions of employment, in any such case,
that reasonably could be expected to result in a material liability of the
Company and its Subsidiaries. No strike or other labor dispute involving the
Company or any of its Subsidiaries is pending or, to the knowledge of the
Company, threatened, and, to the knowledge of the Company, there is no activity
involving any employees of the Company or any of its Subsidiaries seeking to
certify a collective bargaining unit or engaging in any other organizational
activity, except for any such dispute or activity which could not reasonably be
expected to have a Material Adverse Effect on the Company.
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(n) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and each
of its Subsidiaries has in effect all Federal, state and local governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights ("Permits") necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit, except for
the lack of Permits and for defaults under Permits which lack or defaults,
individually or in the aggregate, could not reasonably be expected to (i) have
a Material Adverse Effect on the Company, (ii) impair the ability of the
Company to perform its obligations under this Agreement in any material respect
or (iii) delay in any material respect or prevent the consummation of the
transactions contemplated by this Agreement. Except as disclosed in the Form
10-K or the Form 10-Q, the Company and its Subsidiaries are in compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for possible noncompliance which, individually or
in the aggregate, could not reasonably be expected to (x) have a Material
Adverse Effect on the Company, (y) impair the ability of the Company to perform
its obligations under this Agreement in any material respect or (z) delay in
any material respect or prevent the consummation of the transactions
contemplated by this Agreement.
(o) CONTRACTS; DEBT INSTRUMENTS.
(i) Section 3.01(o)(i) of the Company Disclosure Schedule
lists all defaults that, to the Company's knowledge, currently exist,
or that have existed at any time since December 31, 1997, and all
conditions which upon the passage of time or the giving of notice
would cause a violation or default, under the Credit Agreement (as
defined in Section 8.03) (collectively, "Credit Defaults"), and
identifies each such Credit Default that currently exists and each
such Credit Default with respect to which a waiver or forbearance has
been requested or obtained.
(ii) Except as disclosed in Sections 3.01(o)(i) and
3.02(o)(ii) of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries is in violation of or in default under
(nor does there exist any condition which upon the passage of time or
the giving of notice would cause such a violation of or default under)
any loan or credit agreement, note, bond, mortgage, indenture, lease,
permit, concession, franchise, license or any other contract,
agreement, arrangement or understanding to which it is a party or by
which it or any of its properties or assets is bound, except for
violations or defaults that, individually or in the aggregate, could
not reasonably be expected to (x) have a Material Adverse Effect on
the Company, (y) impair the ability of the Company to perform its
obligations under this Agreement in any material respect or (z) delay
in any material respect or prevent the consummation of the
transactions contemplated by this Agreement. The agreements described
in Section 3.01(o) of the Company Disclosure Schedule are in full
force and effect and are binding on the Company and each of the
Subsidiaries to the extent any such entity is a party thereto.
(iii) The Company has made available to Parent (x) true and
correct copies of the Credit Agreement and all other loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements
and instruments pursuant to which any Indebtedness of the Company or
any of its Subsidiaries in an aggregate principal amount in excess of
$50,000
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is outstanding or may be incurred and (y) accurate
information regarding the respective principal amounts outstanding
thereunder as of the date hereof. For purposes of this
Agreement,"Indebtedness" shall mean, with respect to any Person,
without duplication, (A) all obligations of such Person for borrowed
money, or with respect to deposits or advances of any kind to such
Person, (B) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations of such
Person under conditional sale or other title retention agreements
relating to property purchased by such Person, (D) all obligations of
such Person issued or assumed as the deferred purchase price of
property or services (excluding obligations of such Person to
creditors for raw materials, inventory, services and supplies incurred
in the ordinary course of such Person's business), (E) all capitalized
lease obligations of such Person, (F) all obligations of others
secured by a Lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been
assumed, (G) all obligations of such Person under interest rate or
currency hedging transactions (valued at the termination value
thereof), (H) all letters of credit issued for the account of such
Person and (I) all guarantees and arrangements having the economic
effect of a guarantee of such Person of any Indebtedness of any other
Person.
(iv) Except for agreements that are terminable by the
Company upon not more than 60 days prior notice without payment of any
termination fee or other amounts (other than commissions earned prior
to termination), neither the Company nor any of its Subsidiaries is a
party to any sales representation, commission, agent or similar
agreement or arrangement with any person related to the sale of
advertising or other air time to be provided by the Company's
broadcast operations.
(v) Section 3.01(o)(v) of the Company Disclosure Schedule
sets forth a true and complete list of the following, true and
complete copies of which have been provided or made available to
Parent:
(A) all joint sales agreements ("JSAs") and local
marketing agreements ("LMAs") to which the Company or any
Subsidiary of the Company is a party or by which the Company or
any Subsidiary of the Company is otherwise bound; except as set
forth in Section 3.01(o)(v) of the Company Disclosure Schedule,
no JMAs or LMAs set forth therein require the payment by the
Company or any Subsidiary of the Company of any renewal or
similar fees to maintain such agreements in force;
(B) each other contract, agreement or other instrument
to which the Company or any Subsidiary of the Company is a party
or by which the Company or any Subsidiary of the Company
otherwise is bound that by its terms reasonably could be expected
to require the future payment by or to the Company or any
Subsidiary of the Company of $50,000 or more or, in the case of
employment agreements with any employee of the Company or its
Subsidiaries entered into in the ordinary course of business
consistent with past practice, $100,000 or more;
(C) all contracts, agreements or other instruments to
which the Company or any Subsidiary of the Company is a party or
otherwise is bound which
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by its terms prohibits or restricts the rights of the
Company or any Subsidiary of the Company to conduct broadcast
operations in any market or geographic region or prohibits or
restricts the right of any other party to such contract,
agreement or instrument to conduct broadcast operations in any
market or geographic region.
Each contract or agreement disclosed or required to be disclosed in
Section 3.01(o)(v) of the Company Disclosure Schedule is in full force
and effect and constitutes a legal, valid and binding obligation of
the Company and each Subsidiary of the Company to the extent any such
entity is a party thereto and, to the knowledge of the Company, each
other party thereto. Neither the Seller nor the Company has received
from any other party to such contract or agreement any notice, whether
written or oral, of termination or intention to terminate such
contract or agreement. Except as set forth in Section 3.01(o)(v) of
the Company Disclosure Schedule, neither the Company nor, to the
knowledge of the Company, any other party to such contract or
agreement is in violation or breach of or default under any such
contract or agreement (or with or without notice or lapse of time or
both, would be in violation or breach of or default under any such
contract or agreement), which violation, breach or default has had or
reasonably could be expected to have a Material Adverse Effect on the
Company. Except as set forth in Section 3.01(o)(v) of the Company
Disclosure Schedule, none of the contracts or agreements disclosed or
required to be disclosed therein contains any change of control or
similar provision that would give the other party thereto the right to
terminate any such contract or agreement as a result of the execution
and delivery of this Agreement or the consummation of the Merger.
(p) FCC LICENSES; OPERATIONS OF LICENSED FACILITIES. The Company
and its Subsidiaries have operated the radio stations for which the Company or
any of its Subsidiaries holds licenses from the FCC (the "Licensed Facilities")
in material compliance with the terms of the Permits issued by the FCC to the
Company and its Subsidiaries for the operation of the Licensed Facilities (the
"FCC Licenses"), and the Communications Act, except for possible non-compliance
which could not reasonably be expected to (i) have a Material Adverse Effect on
the Company, (ii) impair the ability of the Company to perform its obligations
under this Agreement in any material respect or (iii) delay in any material
respect or prevent the consummation of the transactions contemplated by this
Agreement. The Company and its Subsidiaries have filed or made all
applications, reports and other disclosures required by the FCC to be filed or
made with respect to the Licensed Facilities and have paid all FCC regulatory
fees with respect thereto except for possible filings, disclosures or payments
that if not so filed, disclosed or paid could not reasonably be expected to (x)
have a Material Adverse Effect on the Company, (y) impair the ability of the
Company to perform its obligations under this Agreement in any material respect
or (z) delay in any material respect or prevent the consummation of the
transactions contemplated by this Agreement. The Company and each of its
Subsidiaries are the authorized legal holders of all FCC Licenses necessary or
used in the operation of the businesses of the Licensed Facilities as presently
operated except where the absence of such FCC Licenses could not reasonably be
expected to have a Material Adverse Effect on the Company. All such FCC
Licenses are validly held and are in full force and effect, unimpaired by any
act or omission of the Company, each of its Subsidiaries or their respective
officers, employees or agents, except for such lack of being in full force and
effect or for such impairment that (A) could not reasonably be expected to have
a Material Adverse Effect on the Company, (B) could not reasonably be expected
to prevent the continued operation of the Licensed
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Facilities as presently operated, (C) could not reasonably be expected to
impair the ability of the Company to perform its obligations under this
Agreement in any material respect and (D) could not reasonably be expected to
delay in any material respect or prevent the consummation of the transactions
contemplated by this Agreement. Except as disclosed in Section 3.01(p) of the
Company Disclosure Schedule, as of the date hereof, no application, action or
proceeding is pending for the renewal or major modification of any of the FCC
Licenses and, to the Company's knowledge, there is not now before the FCC any
material investigation, proceeding, notice of violation, order of forfeiture or
complaint against the Company or any of its Subsidiaries relating to any of the
Licensed Facilities that, if adversely decided, reasonably could be expected to
have a Material Adverse Effect on the Company, impair the ability of the
Company to perform its obligations under this Agreement in any material respect
or delay in any material respect or prevent the consummation of the
transactions contemplated by this Agreement (and the Company is not aware of
any basis that would cause the FCC not to renew any of the FCC Licenses that
are renewable). Except as disclosed in Section 3.01(p) of the Company
Disclosure Schedule, there is not now pending and, to the Company's knowledge,
there is not threatened, any action by or before the FCC to revoke, suspend,
cancel, rescind or modify in any material respect any of the FCC Licenses that,
if adversely decided, reasonably could be expected to have a Material Adverse
Effect on the Company.
(q) ENVIRONMENTAL MATTERS. Section 3.01(q)(i) of the Company
Disclosure Schedule sets forth a true and complete list of all Phase I, Phase
II or similar reports currently in the possession of the Company or that have
been prepared for or on behalf of or at the direction of the Company regarding
the environmental condition of any real properties or facilities that currently
are, or in the past have been, leased, owned or operated by the Company or any
of its Subsidiaries ("Environmental Reports"), and true and correct copies of
all Environmental Reports in the possession of the Company or that, to the
Company's knowledge, are available to the Company have been delivered to
Parent. Except as disclosed in Section 3.01(q) of the Company Disclosure
Schedule or in the Environmental Reports, to the knowledge of the Company:
(i) the real property and facilities owned by the Company or
any of its Subsidiaries and the operations of the Company or any of
its Subsidiaries thereon comply in all material respects with all
Environmental Laws;
(ii) no judicial proceedings are pending or threatened
against the Company or any of its Subsidiaries alleging the violation
of any Environmental Laws, and there are no administrative proceedings
pending or threatened against the Company or any of its Subsidiaries
alleging the material violation of any Environmental Laws and no
written notice from any Governmental Entity or any private or public
Person has been received by the Company or any of its Subsidiaries
claiming any material violation of any Environmental Laws in
connection with any real property or facility owned by the Company or
any of its Subsidiaries, or requiring any material remediation,
clean-up, modification, repairs, work, construction, alterations, or
installations on or in connection with any real property or facility
owned, operated or leased by the Company or any of its Subsidiaries
that are necessary to comply with any Environmental Laws and that have
not been complied with or otherwise resolved to the satisfaction of
the party giving such notice;
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(iii) all material Permits required to be obtained or filed
by the Company or any of its Subsidiaries under any Environmental Laws
in connection with the Company's or any of its Subsidiaries'
operations, including those activities relating to the generation,
use, storage, treatment, disposal, release, or remediation of
Hazardous Substances (as such term is defined in Section 3.01(q)(iv)
hereof), have been duly obtained or filed, and the Company and each of
its Subsidiaries are in compliance in all material respects with the
terms and conditions of all such Permits;
(iv) all Hazardous Substances used or generated by the
Company or any of its Subsidiaries on, in, or under any of the
Company's or any of its Subsidiaries owned, operated, or leased real
property or facilities are and have at all times been generated,
stored, used, treated, disposed of, and released by such Persons or on
their behalf in such manner as not to result in any material
Environmental Costs or Liabilities. "Hazardous Substances" means (A)
any hazardous materials, hazardous wastes, hazardous substances, toxic
wastes, and toxic substances as those or similar terms are defined
under any Environmental Laws; (B) any asbestos or any material which
contains any hydrated mineral silicate, including chrysolite, amosite,
crocidolite, tremolite, anthophylite and/or actinolite, whether
friable or non-friable; (C) PCBs, or PCB-containing materials, or
fluids; (D) radon; (E) any other hazardous, radioactive, toxic or
noxious substance, material, pollutant, contaminant, constituent, or
solid, liquid or gaseous waste regulated under any Environmental Law;
(F) any petroleum, petroleum hydrocarbons, petroleum products, crude
oil and any fractions or derivatives thereof, any oil or gas
exploration or production waste, and any natural gas, synthetic gas
and any mixtures thereof; and (G) any substance that, whether by its
nature or its use, is subject to regulation under any Environmental
Laws or with respect to which any Environmental Laws or Governmental
Entity requires environmental investigation, monitoring or
remediation. "Environmental Costs or Liabilities" means any material
losses, liabilities, obligations, damages, fines, penalties,
judgments, settlements, actions, claims, costs and expenses
(including, without limitation, reasonable fees, disbursements and
expenses of legal counsel, experts, engineers and consultants, and the
reasonable costs of investigation or feasibility studies and
performance of remedial or removal actions and cleanup activities) in
connection with (A) any violation of any Environmental Laws, (B) order
of, or contract of the Company or any of its Subsidiaries with, any
Governmental Entity or any private or public Persons arising out of or
resulting from the treatment, storage, disposal or release by the
Company or any of its Subsidiaries of any Hazardous Substances in
material violation of any Environmental Law or (C) a claim by any
private or public Person arising out of any material exposure of any
Person or property to Hazardous Substances in material violation of
any Environmental Law;
(v) there are not now, nor have there been in the past, on,
in or under any property or facilities when owned by the Company or
any of its Subsidiaries or when owned, leased or operated by any of
their predecessors, any Hazardous Substances that are in a condition
or location that materially violates any Environmental Law or that has
required or reasonably could be expected to require any material
remediation under any Environmental Laws or give rise to a claim for
material damages or compensation by any affected Person or to any
material Environmental Costs or Liabilities and that have not been
cured, complied
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with, remediated, or resolved to the satisfaction of such
affected Person or paid or resolved in all material respects; and
(vi) neither the Company nor any of its Subsidiaries has
received any written notification from any source advising the Company
or any of its Subsidiaries that: (A) it is a potentially responsible
party under CERCLA or any other Environmental Laws; (B) any real
property or facility currently or previously owned, operated, or
leased by it is identified or proposed for listing as a federal
National Priorities List ("NPL") (or state-equivalent) site or a
Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS") list (or state-equivalent) site; or (C)
any facility to which it has ever transported or otherwise arranged
for the disposal of Hazardous Substances is identified or proposed for
listing as an NPL (or state-equivalent) site or CERCLIS (or
state-equivalent) site.
(r) BOARD RECOMMENDATION. As of the date hereof, the Board of
Directors of the Company, at a meeting duly called and held, has (i) determined
that this Agreement and the transactions contemplated hereby are advisable and
are fair to and in the best interests of the Company's stockholders and have
approved the same and (ii) resolved to recommend that the Company's
stockholders approve this Agreement and the transactions contemplated herein.
(s) PROPERTY.
(i) Section 3.01(s)(i) of the Company Disclosure Schedule
sets forth all of the real property owned in fee by the Company and
its Subsidiaries that are material to the conduct of business of the
Company and its Subsidiaries, taken as a whole. Each of the Company
and its Subsidiaries owns fee title to each parcel of real property
owned by it free and clear of all Liens, except for Permitted Liens
(as defined in this Section 3.01(s)).
(ii) With respect to the tangible properties and assets of
the Company and its Subsidiaries (excluding real property) that are
material to the conduct of the broadcast operations of the Company and
its Subsidiaries, the Company and its Subsidiaries have good title to,
or hold pursuant to valid and enforceable leases, all such properties
and assets, with only such exceptions as, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company and subject to the Permitted Liens. All of the
assets of the Company and its Subsidiaries have been maintained and
repaired for their continued operation and are in good operating
condition, reasonable wear and tear excepted, and usable in the
ordinary course of business, except where the failure to be in such
repair or condition or so usable individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect on
the Company.
(iii) Section 3.01(s)(ii) of the Company Disclosure Schedule
sets forth each lease, sublease, license, sublicense or other
agreement (collectively, the "Property Leases") under which the
Company or any of its Subsidiaries uses or occupies or has the right
to use or occupy, now or in the future, any real property or personal
property material to the conduct of the businesses of the Company and
its Subsidiaries, taken as a whole or any real property leased or
licensed by the Company or its Subsidiaries. Except to the extent that
(x) it could
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not reasonably be expected to have a Material Adverse Effect
on the Company, or (y) the term of such Property Lease has expired or
been terminated and the Company or its Subsidiaries continues to use
or occupy any of the subject property on a period to period basis
(i.e., "month to month"), each Property Lease is valid, binding and in
full force and effect, all rent and other sums and charges which are
due and payable by the Company and its Subsidiaries as tenants
thereunder are current except as set forth in Section 3.01(s)(ii) of
the Company Disclosure Schedule, and neither the Company nor any of
its Subsidiaries has received actual notice that any party thereto is
in default in any material respect under any lease, sublease, license,
sublicense or use or occupancy agreement listed in Section 3.01(s)(ii)
of the Company Disclosure Schedule. Each of the Company and its
Subsidiaries has a valid leasehold interest (including subleasehold
and subleasehold estates) and/or right of use under a license or
sublicense agreement or other possessory rights in each location used
or occupied for broadcast purposes (whether office, studio, tower,
transmitter building and/or antenna) leased, subleased, subsubleased,
licensed, sublicensed or used by it free and clear of all Liens,
except for Permitted Liens.
(iv) As used in this Agreement, "Permitted Liens" shall
mean: (i) statutory liens securing payments not yet delinquent or the
validity of which are being contested in good faith by appropriate
actions, (ii) purchase money liens arising in the ordinary course,
(iii) liens for Taxes and special assessments (e.g., for municipal
improvements) not yet due and payable and/or delinquent, (iv) liens
reflected or reserved against in the unaudited balance sheet of the
Company dated as of March 31, 1998, included in the Form 10-Q (which
have not been discharged), (v) liens which in the aggregate do not
materially detract from the value for use for broadcasting purposes or
materially impair the present and continued use of the properties or
assets subject thereto in the usual and normal conduct of the radio
broadcast business of the Company and its Subsidiaries, (vi) liens on
leases, subleases, sub-subleases, easements, licenses, rights of use,
rights to access and rights of way arising from the provisions of such
agreements or benefitting or created by any superior estate, right or
interest which is prior in right or prior in lien to that of the
subject lease, sublease, sub-sublease, easement, license, right of
use, right to access or right of way, (vii) any liens set forth in the
title policies, endorsements, title commitments, title certificates
and title reports relating to the Company's interests in real property
identified in Section 3.01(s)(iv) of the Company Disclosure Schedule,
true and correct copies of which have been made available to Parent
and Sub, (viii) any leases, subleases, occupancy agreements or
licenses set forth in Section 3.01(s) of the Company Disclosure
Schedule, (ix) the lien of any and all security agreements, documents,
mortgages and deeds of trust held by, or for the benefit of, AT&T
Commercial Finance Corporation and/or Union Bank of California, as
co-lenders under the Credit Agreement, and their respective successors
and assigns, (x) any state of facts that an accurate survey or
personal inspection of the Company's real property (whether owned,
leased or licensed) would show, provided same does not material
adversely affect the use thereof for their present broadcasting
purposes, (xi) encroachments of stoops, areas, cellar steps or doors,
trim, copings, retaining walls, bay windows, balconies, sidewalk
elevators, fences, fire escapes, cornices, foundations, footings and
similar projections, if any, on, over or under any of the Company's
real property (whether owned, leased or licensed) or the streets or
sidewalks abutting any of such real property, and the rights of
governmental authorities to require the removal of any such
projections and variations between record lines
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of such real property and retaining walls and the like, if
any, (xii) any easements or rights of use, if any, created in favor of
any public utility or municipal department or agency for electricity,
steam, gas, telephone, cable television, water, sewer or other
services in any street or avenue abutting the Company's real property
(whether owned, leased or licensed), and the right, if any, to use and
maintain wires, cables, terminal boxes, lines, service connections,
poles, mains and facilities servicing any of such real property or in,
on, over or across any of such real property, (xiii) covenants,
easements, restrictions, agreements, consents and other instruments,
now of record, provided same do not materially adversely interfere
with the use of the Company's real property (whether owned, leased or
licensed) for their present broadcast purposes, (xiv) variations, if
any, between tax lot lines and property lines, (xv) deviations, if
any, of fences or shrubs from property lines, (xvi) any other
declaration or instrument affecting any of the Company's real property
(whether owned, leased or licensed) necessary or appropriate to comply
with any law, ordinance, regulation, zoning resolution or requirement
of applicable governmental authorities or any other public authority,
applicable to the maintenance, demolition, construction, alteration,
repair or restoration of the improvements at the Company's real
property (whether owned, leased or licensed), which does not
materially adversely affect the use of thereof for their present
broadcast purposes, (xvii) the provisions of the applicable zoning
resolution and other regulations, resolutions and ordinances and any
amendments thereto now or hereafter adopted, provided same do not
materially adversely interfere with the use of the Company's real
property for their present broadcast purposes, (xviii) Liens described
in the Form 10-K or Form 10-Q, and (xix) any other Liens set forth in
Section 3.01(s) of the Company Disclosure Schedule. For the purposes
hereof "Company's real property" and "Company's interests in real
property" shall include the real property and interests therein owned
or held (as leasehold interests or otherwise) respectively by the
Company and/or its Subsidiaries.
(t) AFFILIATE RELATIONSHIPS. Except as set forth in Sections
3.01(c)(vii) and 3.01(t) of the Company Disclosure Schedule or as contemplated
in the Transaction Documents (including Section 4.01(a)(vi) hereof), no
director, officer, Affiliate or "associate" (as such term is defined in Rule
12b-2 under the Exchange Act) of the Company (other than any of its
wholly-owned Subsidiaries) (i) currently is a party to any transaction which
would be required to be disclosed by the Company under Item 404 of Regulation
S-K of the Securities Act, (ii) has any outstanding indebtedness or other
similar obligations to the Company or any of its Subsidiaries that,
individually or in the aggregate, exceed $60,000 or (iii) is otherwise a party
to any contract, arrangement or understanding with the Company or any of its
Subsidiaries that, individually or in the aggregate, require any payments or
create liabilities or obligations of any party thereto in excess of $60,000
(the transactions and relationships described in clauses (i), (ii) and (iii)
collectively referred to as "Affiliate Relationships").
(u) ACQUISITIONS; RELATED OBLIGATIONS.
(i) Except as disclosed in Section 3.01(u) of the Company
Disclosure Schedule or in the Form 10-K, since December 31, 1995,
neither the Company nor any Subsidiary of the Company has engaged in
any Significant Transaction or entered into or become bound by any
agreement or binding obligation to engage in any Significant
Transaction. For purposes of this Agreement, "Significant Transaction"
shall mean (A) any
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acquisition or disposition of (1) any business, limited
liability company, association or other business organization or
division thereof or any material partnership interest or material
joint venture interest, (2) any material assets or properties other
than in the ordinary course of business or (3) any radio broadcast
station, (B) any disposition of any Subsidiary of the Company or (C)
any acquisition of any subsidiary or other business enterprise from
any third party.
(ii) Except as disclosed in Section 3.01(u) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary of the
Company is a party to or bound by any written contract or other
binding agreement (whether written or oral), related to any
Significant Transaction (whether engaged in before or after December
31, 1995) pursuant to which the Company or any Subsidiary of the
Company has any continuing indemnity obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise) to any third
party or any obligations (whether absolute, accrued, asserted,
unasserted or contingent or otherwise, and whether pursuant to any
earn-out or post-closing adjustment) to issue any shares of Capital
Stock or other securities of the Company or any securities of any
Subsidiary of the Company or otherwise provide additional, or refund
amounts received as, purchase consideration as part of any such
Significant Transaction. The Company has not received (as of the date
hereof) any written or, to the Company's knowledge, any other demand
or threatened demand for indemnification or issuance of Capital Stock
or other securities of the Company under any contract or agreement set
forth in Section 3.01(u) of the Company Disclosure Statement that was
not satisfied in full on or prior to December 31, 1997.
(v) BROKERS.
(i) Except for the engagement by the Company of Goldman,
Sachs & Co. ("GSC"), neither the Company nor any Subsidiary of the
Company has engaged any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with
the transactions contemplated by this Agreement. The fees,
commissions, expenses and other amounts payable by the Company to GSC
with respect to the transactions contemplated by this Agreement shall
be calculated pursuant to the engagement letter agreement dated
October 28, 1997, between GSC and the Company.
(ii) The Board of Directors of the Company (or the
Independent Committee) has received from GSC a fairness opinion
related to the transactions contemplated by this Agreement, in form
and substance acceptable to the Board of Directors of the Company,
indicating that the terms of this Merger are fair, from a financial
point of view, to the holders of Common Stock of the Company.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent
and Sub represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of Parent
and Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its
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business as now being conducted or currently proposed to be conducted. Each of
Parent and Sub is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect on
Parent or materially impair or delay the consummation of the transactions
contemplated by this Agreement. Parent has delivered to the Company prior to
the execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws and the certificate of incorporation and by-laws
of Sub, in each case as amended to the date hereof.
(b) AUTHORITY; NON-CONTRAVENTION.
(i) Each of Parent and Sub has all requisite corporate power
and authority to execute and deliver the Transaction Documents to
which it is a party and to consummate the transactions contemplated by
the Transaction Documents. The execution and delivery by each of
Parent and Sub of the Transaction Documents to which it is a party and
the consummation by Parent and Sub of the transactions contemplated by
the Transaction Documents have been unanimously approved by the Board
of Directors of Parent and Sub and duly authorized by all necessary
corporate action on the part of Parent and Sub, and no other corporate
proceedings on the part of Parent and Sub are necessary to authorize
the Transaction Documents or to consummate such transactions. No vote
of Parent stockholders is required to approve the Transaction
Documents or the transactions contemplated hereby. Each of the
Transaction Documents has been duly executed and delivered by Parent
and Sub and, assuming due authorization, execution and delivery of the
Transaction Documents by the Company and the other parties thereto,
constitutes a valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms.
(ii) The execution and delivery by each of Parent and Sub of
the Transaction Documents to which it is a party do not, and the
consummation of the transactions contemplated by the Transaction
Documents and compliance with the provisions of the Transaction
Documents by Parent or Sub, as the case may be, will not, conflict
with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of
a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Parent, Sub or any of Parent's
other Subsidiaries under, (i) the articles or certificate of
incorporation or by-laws of Parent and Sub, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to
Parent, Sub or such other Subsidiary or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence and subject to such divestitures
of radio stations attributable to Parent as are required for
compliance with the provisions of the Communications Act and FCC
regulations regarding radio multiple ownership, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Parent, Sub or such other Subsidiary or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, Liens, judgments, orders,
decrees, statutes, laws,
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ordinances, rules or regulations that individually or in the
aggregate could not reasonably be expected to (x) have a Material
Adverse Effect on Parent, (y) impair the ability of Parent and Sub to
perform their respective obligations under the Transaction Documents
in any material respect or (z) delay in any material respect or
prevent the consummation of any of the transactions contemplated by
the Transaction Documents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery of the Transaction
Documents or the consummation by Parent or Sub, as the case may be, of
any of the transactions contemplated by the Transaction Documents,
except for (1) the filing of a pre-Merger notification and report form
by Parent under the HSR Act; (2) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business; (3) such filings with and approvals of the
FCC as may be required under the Communications Act, including filings
and approvals in connection with the transfer of control of the FCC
Licenses; and (4) such consents, approvals, orders or authorizations
the failure of which to be made or obtained could not reasonably be
expected to have a Material Adverse Effect on Parent, impair the
ability of Parent to perform its obligations in any material respect
or delay in any material respect or prevent the consummation of the
transactions contemplated by this Agreement.
(c) INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will, at the date the Proxy Statement is first
mailed to the Company's stockholders or at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
(d) FINANCING. Parent has available, or at the Closing will have
available, sufficient funds (through existing credit arrangements or otherwise)
to enable it to consummate the transactions contemplated by the Transaction
Documents on their respective terms and conditions. Parent's and Sub's
obligations hereunder are not subject to any conditions regarding their ability
to obtain financing for the consummation of the transactions contemplated by
the Transaction Documents. Parent and Sub are each able to lawfully certify in
the FCC Applications (as defined in Section 5.02(b)) that it is financially
qualified to consummate the transactions contemplated hereby.
(e) LITIGATION. There is no suit, action, proceeding or
indemnification claim (including any proceeding by or before the FCC but
excluding proceedings of general applicability to the radio industry) pending
or, to the knowledge of Parent, threatened against or affecting Parent or any
of its Subsidiaries that individually or in the aggregate reasonably could be
expected to (i) impair the ability of Parent or Sub to perform its obligations
under the Transaction Documents in any material respect or (ii) delay in any
material respect or prevent the consummation of any of the transactions
contemplated by the Transaction Documents, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Parent or any of its Subsidiaries having, or which reasonably could be
expected to have, any effect referred to in clause (i) or (ii) above, except
for any suit, action or proceeding asserted after the date hereof by any
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stockholders of the Company in connection with any of the transactions
contemplated by this Agreement.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY THE COMPANY. During the period from
the date of this Agreement to the Effective Time, except as contemplated by the
Transaction Documents and the transactions contemplated thereby, the Company
shall, and shall cause its Subsidiaries to, carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations (including the Communications Act). Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, except as contemplated by the Transaction
Documents and the transactions contemplated thereby, the Company shall not, and
shall not permit any of its Subsidiaries to, without the consent of Parent:
(i) (A) except as set forth in Section 4.01(a)(i) of the
Company Disclosure Schedule, declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by a direct or indirect
wholly owned Subsidiary of the Company to its parent and scheduled
quarterly cash dividends on outstanding shares of Mandatory Preferred
Stock, payable in arrears on the dates and as set forth in accordance
with the present terms contained in the Mandatory Designation, (B)
split, combine or reclassify any of its capital stock or (other than
issuances of Class A Common Stock upon the exercise of Options or
Warrants outstanding, and in accordance with their terms as in effect,
as of the date hereof and issuances of Common Stock upon conversion of
outstanding Capital Stock in accordance with the terms of the
instruments governing the rights of the holders thereof as in effect
on the date hereof) issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock or (C) except pursuant to the terms of the Series B
Designation as in effect on the date hereof, purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) except as set forth in Section 4.01(a)(ii) of the
Company Disclosure Schedule, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities other than (A) the issuance of Class A Common Stock upon
the exercise of Options outstanding on the date of this Agreement and
in accordance with their present terms, (B) the issuance of Class A
Common Stock upon conversion of the Class B Common Stock, the Class C
Common Stock, Class D Common Stock or any Mandatory Preferred Stock,
in each case in accordance with their present terms as contained in
the Restated Certificate or the Mandatory Designation, as applicable,
(C) the issuance of Class B Common Stock upon the conversion of Class D
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Common Stock in accordance with the present terms contained
in the Restated Certificate, and (D) the issuance of Class A Common
Stock upon the exercise of Warrants outstanding on the date of this
Agreement and in accordance with their present terms.
(iii) amend its certificate of incorporation, by-laws or
other comparable organizational documents;
(iv) except and to the extent as set forth in Section
4.01(a)(iv) and (v) of the Company Disclosure Schedule and as
contemplated by Section 5.11, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, (A) any business or any
corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof, (B)
any assets that individually or in the aggregate are material to the
Company and its Subsidiaries taken as a whole or (C) any broadcast
radio stations;
(v) except and to the extent as set forth in Section
4.01(a)(iv) and (v) of the Company Disclosure Schedule, sell, lease,
license, mortgage or otherwise encumber or subject to any Lien (other
than Permitted Liens) or otherwise dispose of (A) any of its
properties or assets, other than in the ordinary course of business
consistent with past practices of the Company, but, with respect to
sales or dispositions, in no event involving an asset having a fair
market value in excess of $50,000 unless such asset is replaced with
an asset or assets of substantially equal values or (B) any broadcast
radio stations;
(vi) except as set forth in Section 4.01(a)(vi) of the
Company Disclosure Schedule, except to finance capital expenditures
permitted by clause (vii) below, except as contemplated by Section
5.11, and except for borrowings for working capital purposes not in
excess of $60,500,000 (including amounts outstanding under the Credit
Agreement) at any one time outstanding incurred in the ordinary course
of business consistent with past practice and except for intercompany
Indebtedness between the Company and any of its Subsidiaries or
between such Subsidiaries, (A) incur or guarantee any Indebtedness for
borrowed money or any other Indebtedness, not to exceed $50,000 in the
aggregate at any one time incurred or guaranteed in the ordinary
course of business, or (B) make any loans, advances or capital
contributions to, or investments in, any other Person, other than to
the Company or any direct or indirect wholly owned Subsidiary of the
Company or to officers and employees of the Company or any of its
Subsidiaries for travel, business or relocation expenses in the
ordinary course of business;
(vii) except as set forth under the caption "Committed
Projects" in Section 4.01(a)(vii) of the Company Disclosure Schedule,
make or agree to make any new capital expenditures which in the
aggregate are in excess of $25,000; provided, however, that with the
consent of Parent, the Company may make additional capital
expenditures (which consent shall not be unreasonably withheld with
respect to those capital expenditures set forth under the caption
"Proposed Projects" in Section 4.01(a)(vii) of the Company Disclosure
Schedule or capital expenditures to the extent required to replace or
repair property and equipment of the Company damaged after the date of
this Agreement);
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(viii) make any tax election that reasonably could be
expected to have a Material Adverse Effect on the Company or settle or
compromise any material income Tax liability;
(ix) except as set forth in Section 4.01(a)(ix) of the
Company Disclosure Schedule or as required by law (or, with respect to
the Citadel JSA (as defined in Section 5.08), as permitted under
Section 5.08), and except in the ordinary course of business and as
could not reasonably be expected to have a Material Adverse Effect on
the Company, modify, amend, terminate or fail to renew (to the extent
such contract or agreement can be unilaterally renewed by the Company
of any of its Subsidiaries) any contract or agreement to which the
Company or any Subsidiary is a party, including the Credit Agreement,
or waive, release or assign any material rights or claims thereunder;
(x) make any material change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles;
(xi) fail to act in the ordinary course of business
consistent with past practices of the Company exercising commercially
reasonable care to (A) preserve substantially intact the Company's and
each of its Subsidiaries' present business organization, (B) keep
available the services of any employee with an employment contract
with the Company or any of its Subsidiaries, and (C) preserve its
present relationships with customers, suppliers and others having
business dealings with them;
(xii) fail to use commercially reasonable efforts to
maintain the material assets of the Company and each of its
Subsidiaries in their current physical condition, except for ordinary
wear and tear and damage, provided that nothing contained herein shall
be deemed to require the Company or its Subsidiaries to undertake or
complete any capital improvements or replacements;
(xiii) merge or consolidate with or into any other legal
entity or dissolve or liquidate any of its Subsidiaries;
(xiv) except as set forth in Section 4.01(a)(xiv) of the
Company Disclosure Schedule and as required by the terms and
provisions of the Termination Agreement or other written contracts
between the Company or any of its Subsidiaries and an employee thereof
as in existence on the date of this Agreement or except in connection
with the extension of any collective bargaining agreements, (A) adopt
or amend any Benefit Plan other than in the ordinary course of
business consistent with past practice or as required by law, (B)
change the vacation policy with respect to the accrual, loss or use of
vacation time with respect to any employee of the Company or its
Subsidiaries, (C) materially increase in any manner the aggregate
compensation or fringe benefits (including, without limitation,
commissions) of any officer, director, or employee or other station
and broadcast personnel of the Company or any of its Subsidiaries
(whether employees or independent contractors) other than as required
by law, (D) pay any discretionary bonuses to any employee or
consultant of the Company or any Subsidiary of the Company or (E) make
any loans to any employee or consultant of the Company or any
Subsidiary of the Company in lieu of any bonus otherwise
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required to be paid or determined in the discretion of the
Board of Directors of the Company as payable to any employee or
consultant of the Company or any Subsidiary of the Company;
(xv) except as set forth in Section 4.01(a)(xv) of the
Company Disclosure Schedule, pay, discharge, or satisfy any material
(on a consolidated basis for the Company and its Subsidiaries taken as
a whole) claims, liabilities, or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than in the
ordinary course of business consistent with past practice, or fail to
pay or otherwise satisfy (except if being contested in good faith) any
material (on a consolidated basis for the Company and its Subsidiaries
taken as a whole) accounts payable, liabilities, or obligations when
due and payable;
(xvi) except as set forth in Section 4.01(a)(xvi) of the
Company Disclosure Schedule, enter into any agreement with any Person
other than Parent or any of the Company's Subsidiaries with respect to
any local marketing agreement, time brokerage agreement, joint sales
agreement, non-compete agreement or any other similar agreement;
(xvii) engage in any Affiliate Relationships or other
transactions with any of its Affiliates (other than among the Company
and its Subsidiaries and among such Subsidiaries), other than
transactions disclosed in Section 4.01(a)(xvii) of the Company
Disclosure Schedule which could not reasonably be expected to have a
Material Adverse Effect on the Company, impair the ability of the
Company to perform its obligations under the Transaction Documents in
any material respect or delay in any material respect or prevent the
consummation of the transactions contemplated by the Transaction
Documents;
(xviii) fail to declare and pay in cash on each scheduled
quarterly record date and payment date, respectively, all accrued and
unpaid dividends on outstanding Mandatory Preferred Stock, subject to
restrictions imposed by the Credit Agreement or under applicable laws;
(xix) take any action that would cause or result in any
adjustment to the Redemption Rate or Optional Conversion Rate (each as
defined in the Mandatory Designation) as provided in paragraph 8 of
the Mandatory Designation or otherwise;
(xx) except as disclosed on Section 4.01(xx) of the Company
Disclosure Schedule, enter into any contract or agreement which, if in
effect as of the date hereof, would have been required to be disclosed
in Section 3.01(o)(v) of the Company Disclosure Schedule; or
(xxi) authorize, or commit or agree to take, any of the
foregoing actions.
(b) OTHER ACTIONS. The Company and Parent shall not, and shall
not permit any of their respective Subsidiaries to, except as otherwise
expressly permitted by the Transaction Documents, take any action that would,
or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Merger set forth in
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Article 6 not being satisfied. In addition, the Company further covenants that
from and after the date hereof until the Effective Time, without the prior
written consent of Parent, the Company shall not, except as otherwise set forth
in Section 4.01(b) of the Company Disclosure Schedule, take any action that
could reasonably be expected to (x) impair or delay in any material respect
obtaining the FCC Consent (as defined in Section 6.01(b)) or complying with or
satisfying the terms thereof or (y) result in imposition of materially adverse
conditions on the FCC Consent. On and prior to the Effective Time, Parent and
Sub shall remain qualified under the Communications Act and otherwise to
consummate the transactions contemplated herein, subject to such divestitures
of radio stations attributable to Parent as are required for compliance with
the provisions of the Communications Act and FCC regulations regarding radio
multiple ownership.
(c) ADVICE OF CHANGES. The Company and Parent shall promptly
advise the other party orally and in writing of (i) any representation or
warranty made by the advising party contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by the advising party to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by the advising party under this
Agreement or (iii) any change or event having, or which reasonably could be
expected to have, a Material Adverse Effect on such party or on the truth of
its respective representations and warranties or the ability of the conditions
set forth in Article 6 to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(d) NOTIFICATION OF CERTAIN MATTERS. If Parent (or its
Affiliates) or the Company receives an administrative or other order or
notification relating to any violation or claimed violation of the rules and
regulations of the FCC, or of any Governmental Entity, that could affect
Parent's, Sub's or the Company's ability to consummate the transactions
contemplated hereby, or should Parent (or its Affiliates) or the Company become
aware of any fact (including any change in law or regulations (or any
interpretation thereof by the FCC)) relating to the qualifications of Parent
(and its controlling Persons) that reasonably could be expected to cause the
FCC to withhold its consent to the transfer of control of the FCC Licenses
contemplated hereunder, Parent or the Company, as the case may be, shall
promptly notify the other party thereof and the Company shall use all
reasonable efforts to take such steps as may be necessary, to remove any such
impediment of the Company to consummate the transactions contemplated by this
Agreement. In addition, Parent or the Company, as the case may be, shall give
to the other party prompt written notice of (i) the occurrence, or failure to
occur, of any event of which it becomes aware that has caused or that would be
likely to cause any representation or warranty of Parent and Sub or the
Company, as the case may be, contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing Date, and (ii) the
failure of Parent and Sub or the Company, as the case may be, or any officer,
director, employee or agent thereof, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
by it hereunder. No such notification shall affect the representations or
warranties of the parties or the conditions to their respective obligations
hereunder.
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SECTION 4.02. NO SOLICITATION.
(a) From and after the date hereof until the termination of this
Agreement, neither the Company nor any of its Subsidiaries, nor any of their
respective officers, directors, representatives, agents or Affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) (collectively,
"Representatives") will, and the Company will cause the employees and
Representatives of the Company and its Subsidiaries not to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Takeover
Proposal (as defined in Section 8.03), (ii) enter into any agreement with
respect to any Takeover Proposal or give any approval of the type referred to
in Section 3.01(l) with respect to any Takeover Proposal or (iii) participate
in any discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal; provided, however, that if at any
time prior to the receipt of the Stockholder Approval, the Board of Directors
of the Company determines in good faith, based on the advice of outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to the Company's stockholders under applicable law, the Company (and its
Representatives) may, in response to an unsolicited Takeover Proposal of the
sort referred to in clause (x) of the definition of "Superior Proposal" as
contained in Section 8.03 that involves consideration to the Company's
stockholders with a value that the Company's Board of Directors reasonably
believes, after receiving advice from the Company's financial advisor, is
superior to the consideration provided for in the Merger, and subject to
compliance with Section 4.02(c), (x) furnish information with respect to the
Company pursuant to a customary confidentiality agreement (having terms
substantially similar to those contained in the Confidentiality Agreement (as
defined in Section 5.01)) to any Person making such proposal and (y)
participate in negotiations regarding such proposal. The Company shall
immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any parties
conducted heretofore by the Company or any Representatives with respect to any
Takeover Proposal existing on the date hereof. Without limiting the foregoing,
it is understood that any violation of the restrictions set forth in the
preceding sentence by any Representative of the Company or any of its
Subsidiaries, whether or not such Person is purporting to act on behalf of the
Company or any of its Subsidiaries or otherwise, shall be deemed to be a breach
of this Section 4.02(a) by the Company.
(b) Neither the Board of Directors of the Company nor any
committee thereof (including without limitation the Independent Committee)
shall (x) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, the approval (including, without limitation, either the
Board of Directors' or the Independent Committee's resolution providing for
such approval) or recommendation by such Board of Directors or such committee
of this Agreement or the Merger or (y) approve or recommend, or propose to
approve or recommend, any Takeover Proposal, except in the case of clause (x)
or (y), in connection with a Superior Proposal (as defined in Section 8.03) and
then only at or after the termination of this Agreement pursuant to Section
7.01(c).
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.02, the Company promptly shall advise
Parent orally and in writing of any request for information or of any Takeover
Proposal or any inquiry with respect to or which could
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reasonably be expected to lead to any Takeover Proposal, the identity of the
Person making any such request, Takeover Proposal or inquiry and all the terms
and conditions thereof. The Company will keep Parent fully informed of the
status and details (including amendments or proposed amendments) of any such
request, Takeover Proposal or inquiry.
(d) Nothing contained in this Section 4.02 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act; provided,
however, neither the Company nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 4.02(b), withdraw or modify, or
propose to withdraw or modify, its approval or recommendation with respect to
this Agreement or the Merger (including, without limitation, either the Board
of Directors' or the Independent Committee's resolution providing for such
approval) or approve or recommend, or propose to approve or recommend, a
Takeover Proposal.
SECTION 4.03. STOCKHOLDERS MEETING.
(a) The Company will, as soon as practicable following the date
of this Agreement duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of obtaining the
Stockholder Approval. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first sentence of this
Section 4.03 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any Takeover Proposal. The
Company will, through its Board of Directors and the Independent Committee,
recommend to its stockholders the approval and adoption of this Agreement and
the Merger and such recommendation and approval shall be set forth in the Proxy
Statement, except to the extent that the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger and terminated this Agreement in accordance with
Section 7.01(c).
(b) The Company shall prepare and file a preliminary Proxy
Statement with the SEC within six weeks following the date of this Agreement
and shall use its commercially reasonable efforts to respond to any comments of
the SEC or its staff, and, to the extent permitted by law, to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC staff and
in any event at least twenty (20) business days prior to the Stockholders
Meeting. The Company shall notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondences between
the Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger.
Prior to the filing of the Proxy Statement or any amendment thereto with the
SEC, the Company shall provide the Parent and its legal counsel with a
reasonable opportunity to review and comment on such document. If at any time
prior to the Stockholders Meeting there shall occur any event that should be
set forth in an amendment or supplement to the Proxy Statement, the Company
shall promptly prepare and mail to its stockholders such an amendment or
supplement. The Company shall not mail any Proxy Statement, or any amendment or
supplement thereto, to which Parent reasonably objects. Parent shall cooperate
with and provide
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such information as is reasonably requested by the Company in the preparation
of the Proxy Statement or any amendment or supplement thereto.
SECTION 4.04. ASSISTANCE. If Parent requests, the Company will
cooperate, and the Company will cause each of its Subsidiaries and will request
its accountants, at the sole cost and expense of Parent, to cooperate in all
reasonable respects in connection with any financing efforts of Parent or its
Affiliates (including providing reasonable assistance in the preparation of one
or more registration statements or other offering documents relating to debt
and/or equity financing) and any other filings that may be made by Parent or
its Affiliates with the SEC, all at the sole expense of Parent and during
normal business hours, upon reasonable prior notice and in such manner as will
not unreasonably interfere with the conduct of the Company's or any of its
Subsidiaries' businesses. Subject to the foregoing, the Company shall, and
shall cause each of its Subsidiaries to, (i) furnish to its independent
accountants (or, if requested by Parent to Parent's independent public
accountants), such customary management representation letters as its
accountants may reasonably require of the Company as a condition to its
execution of any required accountants' consents necessary in connection with
the delivery of any "comfort" letters requested by financing sources of Parent
or its Affiliates, and (ii) furnish to Parent all financial statements (audited
and unaudited) and other information in the possession of the Company or any of
its Subsidiaries or their representatives or agents as Parent shall reasonably
determine is required in connection with such financing.
SECTION 4.05. RELEASES. The Company shall (a) use its commercially
reasonable efforts to receive, prior to the Effective Time, an Option, SAR and
Warrant Surrender Agreement, Release and Waiver in substantially the form
attached hereto as Annex A (a "Release Agreement") from each Person (other than
the Persons named in Section 4.05 of the Company Disclosure Schedule (the
"Executive Group")) who is the holder of any Options or SARs and (b) obtain
from each member of the Executive Group a Release Agreement.
SECTION 4.06. TERMINATION OF CERTAIN AFFILIATE TRANSACTIONS. At or
prior to the Effective Time, the Company will amend or terminate each of the
agreements set forth Part I of Section 4.06 of the Company Disclosure Schedule,
and all other Affiliate Relationships then existing other than those set forth
in Part II of Section 4.06 of the Company Disclosure Schedule, in each case
without any liability to, or fees or payments by, the Company or any of its
Subsidiaries resulting from such termination (other than payments made pursuant
to the express terms of the agreements related to periods or services provided
prior to the termination date of such agreements) except as expressly set forth
in Part I of Section 4.06 of the Company Disclosure Schedule, and so that as of
and after the Effective Time none of the Company, the Surviving Corporation or
any of their Subsidiaries will have any liability or obligations thereunder.
SECTION 4.07. SIGNAL DOWNGRADE/UPGRADE. The Company shall use
commercially reasonable efforts to execute an agreement with Saga
Communications of Iowa, Inc. ("Saga") on terms reasonably acceptable to Parent
(the "Saga Agreement") for the downgrade, if necessary, of Saga's signal for
KIOA-FM, Des Moines, Iowa, from Channel 227C to 227C1, and the upgrade by the
Company of its signal for KTNP(FM), Bennington, Nebraska, from 227A to 227C3.
The Company shall use commercially reasonable efforts to obtain the FCC's
consent for such downgrade and upgrade.
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ARTICLE 5
ADDITIONAL AGREEMENTS
SECTION 5.01. ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company shall, and shall cause its Subsidiaries to,
afford to Parent and to the officers, employees, accountants, counsel,
financial advisors, lenders and other representatives of Parent, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, the Company shall, and shall
cause its Subsidiaries to, prepare or cause to be prepared, or furnish promptly
to Parent (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. Except as required
by law or the rules or regulations of the Nasdaq Stock Market or any national
stock exchange, Parent agrees that, until the earlier of (i) two years from the
date of this Agreement and (ii) the Effective Time, Parent will not, and will
cause its Subsidiaries and Representatives not to, disclose, in whole or in
part, to any other Person any nonpublic information obtained from the Company
other than to Representatives of Parent in connection with an evaluation of the
transactions contemplated by this Agreement, and Parent will not, and will
cause its Subsidiaries and the Representatives of the Parent and its
Subsidiaries not to, use any of such nonpublic information to directly or
indirectly divert or attempt to divert any business, customer or employee of
the Company or any of its Subsidiaries.
(b) Parent and Sub shall prepare or cause to be prepared, and
furnish promptly to the Company such information concerning the business,
properties and personnel of Parent and Sub as the Company may reasonably
request for including in the Proxy Statement or as otherwise required to be
included in any filings required to be made by the Company with any
Governmental Entity in connection with the transactions contemplated by this
Agreement. Except as required by law or the rules of regulations of the Nasdaq
Stock Market or any national stock exchange, the Company agrees that, until the
earlier of (i) two years from the date of this Agreement and (ii) the Effective
Time, the Company will not, and will cause its Subsidiaries and the
Representatives of the Company and its Subsidiaries not to, without the prior
written consent of Parent, disclose, in whole or in part, to any other Person
any nonpublic information obtained from Parent that is not provided for use in
the Proxy Statement, other than to Representatives of the Company and its
Subsidiaries in connection with the preparation for the consummation of the
transactions contemplated by this Agreement, and the Company will not, and will
cause its Subsidiaries and the Representatives of the Company and its
Subsidiaries not to, use any of such nonpublic information to directly or
indirectly divert or attempt to divert any business, customer or employee of
Parent or any of its Subsidiaries.
SECTION 5.02. REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable,
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the Merger and the other transactions contemplated by the Transaction
Documents, including (i) the obtaining of all necessary consents, approvals or
waivers from third parties ("Third Party Consents"), (ii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging any of the Transaction Documents or the consummation of the
transactions contemplated by the Transaction Documents (such as in connection
with the transfer of control of the FCC Licenses), including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, (iii) the waiver from the lenders
under the Credit Agreement of all prepayment premiums, penalties and fees
payable under the terms of the Credit Agreement and (iv) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, the Transaction
Documents. Except for making the filings contemplated in Section 5.02(b),
notwithstanding anything to the contrary contained in this Agreement, nothing
in this Agreement shall obligate Parent or Sub to use reasonable efforts to
obtain approval of the FCC Applications or clearance under the HSR Act and the
grant of any waivers in connection therewith. However, notwithstanding the
preceding sentence, Parent shall obtain approval of the FCC Applications (as
defined in Section 5.02(b)) and clearance under the HSR Act and the grant of
any waivers in connection therewith prior to the Termination Date (as defined
in Section 7.01(b)(ii)) unless the failure to obtain such clearance, consents
and waivers is primarily the result of Acts or Changes. For purposes of this
Agreement "Acts or Changes" shall mean (A) acts or omissions on the part of the
Company or any of its Subsidiaries in conducting their respective operations
and activities other than relating to the number of licenses or amount of
revenues in a particular market and other than relating to the Citadel JSA, (B)
a breach by the Company of its obligations under this Agreement, or (C) a
statutory change or enactment made by Congress which (1) decreases the number
of radio licenses which an entity may own nationally or locally or (2)
adversely relates to the concentration of radio licenses which an entity may
own in a market and, as a result of the change or enactment referred to in
either clause (1) or (2) above, Parent's performance of its obligations under
this Agreement would result in a Material Adverse Effect on Parent and its
Attributable Entities, taken as a whole. For purposes of the preceding
sentence, "Attributable Entities" shall mean Parent and any entities whose
radio licenses would be attributable to Parent under applicable FCC rules or
regulations or under the HSR Act.
(b) In connection with and without limiting the foregoing, Parent
and the Company shall file the applications (the "FCC Applications") with the
FCC for the transfer of control of the FCC Licenses contemplated hereunder
within 21 business days after the date hereof. Additionally, as soon as
practicable after the date of this Agreement, but in no event more than 21
business days after the date of this Agreement, Parent and the Company will
file or will cause to be filed all notifications and documents in connection
with this Agreement required to be filed pursuant to the HSR Act, and the rules
and regulations promulgated under the HSR Act. Parent and the Company will make
or cause to be made all such other filings and submissions under the HSR Act
and regulations thereunder required to consummate the transactions contemplated
by this Agreement. Both Parent and the Company will request early termination
of the waiting period imposed by the HSR Act. Parent and the Company will
coordinate and cooperate with one another in exchanging information and
reasonable assistance as the other may request in connection with notifications
or other filings made under the HSR Act. Parent and the Company shall keep the
other party apprised of the status of any inquiries made by the U.S. Department
of Justice, Antitrust Division, or the Federal Trade Commission (collectively,
the "Federal Antitrust Agencies"), with respect to the
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transactions contemplated by this Agreement. Both Parent and the Company shall
use their best efforts to cause a termination of the waiting period imposed by
the HSR Act without the entry by a court of competent jurisdiction of an order
enjoining the consummation of or the transactions contemplated by this
Agreement; provided that, Parent shall consent to the divestiture of such
properties as may be necessary to receive approval by the Federal Antitrust
Agencies without entry of such an injunction; provided, however, that Parent
and Sub (and their Affiliates) shall not be required by this provision to
divest any interest they may hold in any television station. Parent shall pay
all expenses and assume all obligations with respect to such divestitures. As
may be reasonably requested by Parent, and subject to the receipt of
confidentiality agreements reasonably acceptable to the Company, the Company
shall provide to potential third party buyers identified by Parent reasonable
access to the business, assets and operations of the Company and its
Subsidiaries, on a basis consistent with that described in Section 5.01, as may
be necessary to cooperate with Parent in connection with its efforts to
effectuate, contemporaneously with the Effective Time, divestitures of the
assets and properties of the Company and its Subsidiaries, and the Company
shall otherwise reasonably cooperate with Parent by making any required
governmental filing in connection with such divestitures. If control of Parent
and Sub will change during the pendency of the FCC Applications, Parent shall
amend the FCC Applications accordingly as may be necessary so long as such
amendment does not delay the Closing beyond the Termination Date.
(c) In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement, the Stockholder Agreements or
any of the other transactions contemplated by this Agreement or the Stockholder
Agreements and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement, the Stockholder
Agreements or any other transaction contemplated by this Agreement or the
Stockholder Agreements, take all action necessary to ensure that the Merger and
the other transactions contemplated by this Agreement and the Stockholder
Agreements may be consummated as promptly as practicable on the terms
contemplated by this Agreement and the Stockholder Agreements and otherwise to
minimize the effect of such statute or regulation on the Merger and the other
transactions contemplated by this Agreement and the Stockholder Agreements.
SECTION 5.03. BENEFIT PLANS; VACATION.
(i) Parent shall take such action as may be necessary so
that on and after the Effective Time and for one year thereafter,
directors (who are employees of the Company or any of its
Subsidiaries), officers and employees of the Company and its
Subsidiaries shall be provided employee benefits, plans and programs
(including but not limited to incentive compensation, deferred
compensation, pension, life insurance, medical (which eligibility
shall not be subject to any exclusions for any pre-existing conditions
if such individual has met the participation requirements of such
benefits, plans or programs of the Company or its Subsidiaries),
profit sharing (including 401(k), severance, salary continuation and
fringe benefits) which are no less favorable in the aggregate than
those generally available to similarly situated directors, officers
and employees of Capstar Broadcasting Corporation and its
Subsidiaries. For purposes of eligibility to participate and vesting
in all benefits provided to directors, officers and employees, the
directors, officers and employees of the Company and its Subsidiaries
will be credited with their years of service with the Company and its
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Subsidiaries and prior employers to the extent service with the
Company and its Subsidiaries and prior employers is taken into
account under plans of the Company and its Subsidiaries. Upon
termination of any health plan of the Company or any of its
Subsidiaries, individuals who were directors, officers or employees
of the Company or its Subsidiaries at the Effective Time shall, if
employed by the Company and its Subsidiaries, become eligible to
participate in such health plans established by Parent. Amounts paid
before the Effective Time by directors, officers and employees of
the Company and its Subsidiaries under any health plans of the
Company shall after the Effective Time be taken into account in
applying deductible and out-of-pocket limits applicable under the
health plans of Parent provided as of the Effective Time to the same
extent as if such amounts had been paid under such health plans of
Parent.
(ii) Parent shall permit and shall cause the Surviving
Corporation to permit all individuals who are employees of the Company
and its Subsidiaries immediately prior to the Effective Time to retain
and take any paid vacation days accrued but not taken or lost under
the Company's and its Subsidiaries' vacation policies prior to the
Effective Time, provided that such vacation days are taken or paid in
lieu of being taken within one year after the Effective Time.
SECTION 5.04. INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) The certificate of incorporation and by-laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
exculpation, indemnification and advancement of expenses than are set forth in
the certificate of incorporation and by-laws of the Company, as in effect on
the date hereof, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would affect adversely the rights thereunder of (i) individuals who at any time
prior to the Effective Time were directors, officers or employees or agents of
the Company or any of its Subsidiaries or (ii) any of Howard Tytel, Robert F.
X. Sillerman, any member of the Sillerman Group or each of their respective
officers, directors, employees, agents and shareholders, unless such
modification shall be required by law.
(b) From and after the Effective Time, Parent and the Surviving
Corporation shall indemnify, defend and hold harmless each Person who is now,
or has been at any time prior to the date of this Agreement or who becomes
prior to the Effective Time, an officer, director, employee or agent of the
Company or any of its Subsidiaries and each of Howard Tytel, Robert F. X.
Sillerman, any member of the Sillerman Group and each of their respective
officers, directors, employees, agents and shareholders (collectively, the
"Indemnified Parties"), to the same extent as such Indemnified Parties were
indemnified by the Company and its Subsidiaries as of the date of the
Agreement, against all losses, reasonable expenses (including reasonable
attorneys' fees), claims, damages, liabilities or amounts that are paid in
settlement of, or otherwise in connection with, any threatened or actual claim,
action, suit, proceeding or investigation (a "Claim"), based in whole or in
part on or arising in whole or in part out of the fact that the Indemnified
Party (or the Person controlled by the Indemnified Party) is or was a director,
officer, employee, agent, representative or consultant of the Company or any of
its Subsidiaries and pertaining to any matter existing or arising out of
actions or omissions occurring at or prior to the Effective Time (including
without limitation any claim arising out of this Agreement or any of the
transactions contemplated hereby), whether
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asserted or claimed prior to, at or after the Effective Time, in each case to
the fullest extent permitted under Delaware law, and shall pay any expenses, as
incurred, in advance of the final disposition of any such action or proceeding
to each Indemnified Party to the fullest extent permitted under Delaware law.
Without limiting the foregoing, in the event any such Claim is brought against
any of the Indemnified Parties, (i) such Indemnified Parties may retain counsel
(including local counsel) satisfactory to them and which shall be reasonably
satisfactory to Parent and the Surviving Corporation and they shall pay all
reasonable fees and expenses of such counsel for such Indemnified Parties; and
(ii) Parent and the Surviving Corporation shall use all reasonable efforts to
assist in the defense of any such Claim, provided that Parent and the Surviving
Corporation shall not be liable for any settlement effected without their
written consent, which consent, however, shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, nothing contained in this Section 5.04
shall be deemed to grant any right to any Indemnified Party which is not
permitted to be granted to an officer, director or employee of Parent under
Delaware law, assuming for such purposes that Parent's certificate of
incorporation and bylaws provide for the maximum indemnification permitted by
law.
(c) Parent will cause to be maintained for a period of not less
than six years from the Effective Time the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time ("D&O Insurance") for
all Persons who are directors and officers of the Company or otherwise are
covered by the D&O Insurance on the date of this Agreement, so long as the
annual premium therefor would not be in excess of 200% of the last annual
premium therefor paid prior to the date of this Agreement (the "Maximum
Premium"); provided, however, that Parent may, in lieu of maintaining such
existing D&O Insurance as provided above, cause coverage to be provided under
any policy maintained for the benefit of Parent or any of its Subsidiaries, so
long as the terms thereof are no less advantageous to the intended
beneficiaries thereof than the existing D&O Insurance. If the existing D&O
Insurance expires, is terminated or canceled during such six-year period,
Parent will use all reasonable efforts to cause to be obtained as much D&O
Insurance as can be obtained for the remainder of such period for an annualized
premium not in excess of the Maximum Premium, on terms and conditions no less
advantageous to the covered Persons than the existing D&O Insurance. The
Company represents to Parent that the Maximum Premium is $234,000.
SECTION 5.05. FEES AND EXPENSES; DEPOSIT.
(a) Except as provided below in this Section 5.05, and as
provided in Section 5.11 and Section 7.02, and except for FCC filing fees in
connection with the filing of the FCC Applications and filing fees under the
HSR Act in connection with the transactions contemplated by this Agreement, 50%
of which shall be paid by Parent and 50% of which shall be paid by the Company,
all fees and expenses incurred in connection with the Merger, this Agreement,
the Stockholder Agreements and the transactions contemplated by this Agreement
and the Stockholder Agreements shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or shall cause to be paid, in same day
funds to Parent, or its designee, the following specified termination fee (the
"Termination Fee") if this Agreement is terminated as follows: (i) if this
Agreement is terminated pursuant to Section 7.01(b)(i), then a
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Termination Fee of $2,500,000 shall be payable; (ii) if this Agreement is
terminated pursuant to Section 7.01(f), then a Termination Fee of $1,666,667
shall be payable; or (iii) if this Agreement is terminated pursuant to Section
7.01(c) or (d) (including a conditional termination pursuant to the proviso
contained in Section 7.01(d)), then a Termination Fee of $5,000,000 shall be
payable contemporaneously with such termination.
(c) In the event that this Agreement is terminated pursuant to
Section 7.01(b)(i) and within one year of such termination definitive
documentation with respect to a Takeover Proposal has been entered into or 50%
or more of the outstanding shares of Common Stock or voting securities
representing 50% or more of the voting power of the outstanding capital stock
of the Company (giving effect to the conversion of outstanding Mandatory
Preferred Stock to Class A Common Stock if, and at the rate at which, the
Mandatory Preferred Stock is then convertible into shares of Class A Common
Stock) has been acquired pursuant to a tender offer made as a Takeover
Proposal, then the Company shall pay, or shall cause to be paid,
contemporaneously with the consummation of the acquisition pursuant to such
Takeover Proposal or acquisition pursuant to such Tender Offer, in same day
funds to Parent, or its designee, an additional amount of Termination Fee in an
amount equal to $2,500,000.
(d) In the event that this Agreement is terminated pursuant to
Section 7.01(b)(i), 7.01(c), 7.01(d) or 7.01(e), the Company shall pay upon
demand, or shall cause to be paid, in same day funds to Parent, or its
designee, such amount as may be required to reimburse Parent and its Affiliates
(the "Reimbursement Amount") for all reasonable out-of-pocket fees, costs and
expenses incurred by any of them in connection with their due diligence efforts
or the transactions contemplated hereby, including, without limitation, (i)
fees, costs and expenses of accountants, counsel, financial advisors and other
similar advisors, (ii) fees paid to any Governmental Entity, (iii) costs of all
Phase I Assessments and Phase II Assessments and (iv) fees, costs and expenses
paid or payable to third parties under any financing commitments or similar
arrangements or in connection with financing transactions or efforts,
including, without limitation, any purchaser or underwriter's discounts
relating to the sale of the debt or equity financing or (except for the
principal amount payable in connection therewith, but including all accrued
interest payable in connection therewith) the making of any repurchase offer in
respect of such financing (collectively, "Expenses"); provided however, the
Reimbursement Amount shall not exceed (x) $1,000,000 in the case of a
termination under either Section 7.01(b)(i), 7.01(c) or 7.01(d) and (y) $50,000
in the case of a termination under Section 7.01(e).
(e) The Termination Fee and Reimbursement Amount shall be paid by
the Company without reservation of rights or protests and the Company upon
making such payment shall be deemed to have released and waived any and all
rights that it may have to recover such amounts.
(f) Concurrently with the execution of this Agreement, in order
to secure Parent's and Sub's performance under this Agreement and as security
for damages that may be payable by Parent or Sub to the Company hereunder,
Parent shall place into escrow pursuant to the Deposit Escrow Agreement in the
form attached as Annex B hereto (the "Escrow Agreement") an irrevocable letter
of credit (the "Letter of Credit") in the sum of $9,000,000 substantially in
the form attached
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as Annex C hereto. The Letter of Credit will provide that the Company can draw
the amount thereof after its release to the Company from the Escrow Agreement.
(g) If this Agreement is terminated pursuant to (i) Section
7.01(b)(ii) and as of such Termination Date the conditions set forth in
Sections 6.01(b), Section 6.01(c) or both Sections 6.01(b) and 6.01(c) have not
been fulfilled other than a nonfulfillment primarily due to Acts or Changes;
(ii) Section 7.01(b)(iii) and such order, injunction, decree, ruling or other
action is entered or taken by the FCC (or any court of competent jurisdiction
and arises under the Communications Act) or any Federal Antitrust Agency and is
not primarily due to Acts or Changes; (iii) Section 7.01(b)(iv) by the Company;
(iv) Section 7.01(b)(vi); (v) Section 7.01(b)(ii) and as of such Termination
Date the condition set forth in Section 6.01(d) is not satisfied as a result of
a Mandatory Preferred Preliminary Order (as defined in Section 5.07), (vi)
Section 7.01(b)(ii) and as of such Termination Date the conditions in Section
6.01 and all conditions in Section 6.02 other than Section 6.02(d) shall have
been satisfied, then Parent and Company shall promptly instruct the escrow
agent under the Escrow Agreement to release the Escrowed Property (as defined
in the Escrow Agreement) to the Company and Parent promptly shall pay to the
Company, by wire transfer in immediately available funds to an account
designated in writing by the Company, an additional amount of $3,000,000 (the
"Cash Fee"), and the Escrowed Property and the Cash Fee (collectively, the
"Parent Fee") shall constitute liquidated damages. The parties agree that the
foregoing liquidated damages are reasonable considering all the circumstances
existing as of the date hereof and constitute the parties' good faith estimate
of the actual damages reasonably expected to result from the termination of
this Agreement as described in this Section 5.05(g). Except as contemplated by
Section 5.05(i) and Section 5.11, the Company agrees that, to the fullest
extent permitted by law, the Company's right to payment of such liquidated
damages as provided in this Section 5.05(g) shall be its sole and exclusive
remedy if the Closing does not occur because of a termination of this Agreement
as described in this Section 5.05(g) or with respect to any damages whatsoever
that the Company may suffer or allege to suffer as a result of any Claim or
cause of action asserted by the Company relating to or arising from breaches of
the representations, warranties or covenants of Parent or Sub contained in this
Agreement and to be made or performed at or prior to the Closing. If this
Agreement is terminated either by Parent or the Company pursuant to any
provision of Section 7.01 other than a termination described in clauses (i),
(ii), (iii), (iv), (v) or (vi) of this Section 5.05(g), then, Parent and the
Company shall instruct the escrow agent under the Escrow Agreement to release
the Letter of Credit to Parent. Each of clauses (i) through (vi) of this
Section 5.05(g) is independent from each other and nothing in any one clause
modifies or limits any other clause.
(h) As a condition to the release of the Escrowed Property and
the payment of the Cash Fee to the Company under Section 5.05(g), the Company
shall deliver to the Parent an agreement which irrevocably and unconditionally
releases, acquits, and forever discharges Parent and Sub and their respective
successors, assigns, officers, directors, employees, agents, stockholders,
Subsidiaries, Parent companies and other Affiliates (corporate or otherwise)
(the "Released Parties") of and from any and all Released Claims, including,
without limitation, all Released Claims arising out of, based upon, resulting
from or relating to the negotiation, execution, performance, breach or
otherwise related to or arising out of the Transaction Documents or any
agreement entered into in connection therewith or related thereto. "Released
Claims" as used herein shall mean any and all charges, complaints, claims,
causes of action, promises, agreements, rights to payment, rights to any
equitable remedy, rights to any equitable subordination, demands, debts,
liabilities, express or
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implied contracts, obligations of payment or performance, rights of offset or
recoupment, accounts, damages, costs, losses or expenses (including attorneys'
and other professional fees and expenses) held by the Company or any of its
Subsidiaries, whether known or unknown, matured or unmatured, suspected or
unsuspected, liquidated or unliquidated, absolute or contingent, direct or
derivative relating to the transactions contemplated by the Transaction
Documents, provided, however, that Released Claims shall not include claims for
unpaid expenses and interest described in Section 5.05(i) relating to the
release of the Escrowed Property, the payment of the Cash Fee or delivery of
the Escrowed Property, or for any escrow expenses unpaid by Parent and withheld
by the escrow agent from the Escrowed Property pursuant to the Escrow
Agreement.
(i) In the event that this Agreement is terminated and Parent and
the Company do not promptly agree on who is entitled to the Escrowed Property
and the Cash Fee then, upon a Final Determination (as defined in the Escrow
Agreement), which shall be binding with respect to the whole of the Parent Fee,
the non-prevailing party shall pay to the prevailing party (x) the amount of
the reasonable fees and expenses actually incurred by the prevailing party in
connection with obtaining the Final Determination and (y) if the Company is the
prevailing party, interest on the face amount of the Parent Fee at the annual
rate of 10% commencing as of the date of the termination or purported
termination of this Agreement and ending as of (A) with respect to the Escrowed
Property, the date that the Escrowed Property has been released from escrow to
the prevailing party and (B) with respect to the Cash Fee, the date the full
amount of the Cash Fee has been tendered for delivery to the Company as
provided in Section 5.05(g).
SECTION 5.06. PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand,
and the Company, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review, comment upon and
concur with, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national
securities exchange or the National Association of Securities Dealers, Inc. The
parties agree that the initial press release(s) to be issued with respect to
the transactions contemplated by this Agreement and the Stockholder Agreements
shall be in the form(s) heretofore agreed to by the parties.
SECTION 5.07. CLOSING EXTENSION.
(a) Extension. Subject to Section 1.02, Parent may extend the
initial Termination Date set forth in Section 7.01(b)(ii)(A) for up to three
calendar months, in Half-Month Intervals (as defined in Section 8.03), by
providing the Company notice of its election to do so on or prior to the then
scheduled Termination Date. In the event that Parent elects to extend the
Termination Date pursuant to the immediately preceding sentence, the Common Per
Share Price shall be increased by $.125 and the Mandatory Preferred Per Share
Price shall be increased by $1.04 for each Half-Month Interval (or portion
thereof) that the Termination Date is extended, beginning on the first day of
each such Half-Month Interval; provided, however, that no such increase shall
be paid if:
(A)(i) all conditions to the obligations of Parent and Sub
to effect the Merger set forth in Section 6.01 have been satisfied,
except for the conditions set forth in either
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Section 6.01(b), 6.01(c) or both Sections 6.01(b) and
6.01(c), as applicable, (ii) the failure to satisfy the conditions set
forth in either Section 6.01(b), 6.01(c) or both Sections 6.01(b) and
6.01(c), as applicable, is primarily the result of Acts or Changes and
(iii) all the conditions to the obligations of Parent and Sub to
effect the Merger set forth in Section 6.02 (other than Sections
6.02(c) and 6.02(d)) have been satisfied or waived by Parent and Sub;
provided, that if within ten business days after the later of the
satisfaction of the conditions in Section 6.01(b) and the satisfaction
of the conditions in Section 6.01(c) (the "Satisfaction Date"), Parent
fails to consummate the Merger, the Common Per Share Price shall be
increased by $.125 and the Mandatory Preferred Per Share Price shall
be increased by $1.04 for each Half-Month Interval beginning as of the
first Half-Month Interval which commences after the Satisfaction Date;
or
(B)(i) the Merger shall be restrained or otherwise
prohibited by a temporary or preliminary judicial order, decree,
ruling or other action arising from claims or litigation involving the
Company and its stockholders (collectively, the "Preliminary Order")
and (ii) Parent delivers to the Company on or prior to the applicable
Termination Date written notice to the effect that it shall consummate
the Merger within ten business days after the lifting or withdrawal of
the Preliminary Order; provided, that, if the Preliminary Order is
entered, issued, made or rendered in a Mandatory Preferred Proceeding
(as defined in Section 8.03) on the grounds or basis of, solely or
among other grounds or bases, the Mandatory Preferred Per Share Price
or any other treatment of the Mandatory Preferred Stock pursuant to
this Agreement (a "Mandatory Preferred Preliminary Order") and the
Mandatory Preferred Preliminary Order has not been lifted or withdrawn
by the close of business on June 15, 1999, then Parent may extend the
Termination Date until July 31, 1999, in Half-Month Intervals, but the
Common Per Share Price shall be increased by $.125 and the Mandatory
Preferred Per Share Price shall be increased by $1.04 for each
Half-Month Interval (or portion thereof) that the Termination Date is
so extended, beginning on June 16, 1999; and provided, further, that,
if, within ten business days after the date of the lifting or
withdrawal of the Preliminary Order, Parent fails to consummate the
Merger and such failure is not due to the Company's failure to fulfill
any of the conditions contained in Sections 6.01, Section 6.02 or both
Sections 6.01 and 6.02 that are to be fulfilled by it, the Common Per
Share Price shall be increased by $0.25 and the Mandatory Preferred
Per Share Price shall be increased by $2.08 for each Half-Month
Interval (or portion thereof) after the initial Termination Date
provided for herein (and the increase in the Common Per Share Price
and the Mandatory Preferred Per Share Price provided for in the
immediately preceding proviso shall not apply). In the event that the
Preliminary Order has not been lifted or withdrawn by the close of
business on July 31, 1999, then either Parent or the Company may
extend the date of the Closing for an additional 45 days by
delivering, prior to August 1, 1999, written notice to the other party
to such effect. In the event that (x) neither Parent nor the Company
elects to extend the Closing for such additional 45-day period or (y)
either Parent or the Company elects to extend the Closing for such
45-day period and the Preliminary Order has not been lifted or
withdrawn prior to the end of such 45-day period, then this Agreement
shall terminate without any liability or obligation on the part of
either party other than payment of fees and expenses pursuant to
Section 5.05(a) and the obligation to release the Letter of Credit to
Parent, unless such Preliminary Order is a Mandatory Preferred
Preliminary Order
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in which case this Agreement shall not automatically
terminate and the provisions of Section 7.01 and 5.05 shall apply; or
(C) to the extent that the Termination Date is extended
solely as a result of the operation of Section 7.01(f).
(b) Mandatory Preferred Preliminary Order. In the event any
Mandatory Preferred Preliminary Order is entered, issued, made, or rendered
that prohibits or restricts the ability of any of the parties to this Agreement
to consummate the transactions contemplated hereby, including the Stockholders
Meeting or the Merger, the Company and Parent shall cooperate and use
commercially reasonable efforts to promptly cause such prohibitions or
restrictions to be lifted, including without limitation, with respect to the
Company, taking steps necessary to appeal any such action. Subject to the
foregoing sentence, notwithstanding any other provisions of this Agreement to
the contrary, Parent and Sub acknowledge and agree that none of the treatment
of the Mandatory Preferred Stock as contemplated by this Agreement, the
bringing of any Mandatory Preferred Proceeding, or any change, effect, event or
occurrence arising therefrom or the resolution thereof that is materially
adverse to the business, properties, assets, condition (financial or
otherwise), results of operations or prospects of the Company or its
Subsidiaries shall, in any case (i) constitute a breach of any representation
or warranty made by the Company in any Transaction Document, or (ii) constitute
a default, nonsatisfaction or violation by the Company of any covenant,
condition or agreement contained in any Transaction Document.
SECTION 5.08. CITADEL JSA.
(a) Notwithstanding Section 4.01(ix), without the prior written
consent of Parent, the Company may at any time, at its option, terminate the
Joint Sales Agreement dated December 15, 1995, between Pourtales Radio
Partnership, Pourtales Holdings, Inc., Springs Radio, Inc. and KVUU/KSSS, Inc.
(collectively, the "JSA Group") and Citadel Broadcasting Company ("Citadel")
(the "Citadel JSA"); provided that in the event the termination of the Citadel
JSA results or reasonably could be expected to result in any payment becoming
due from the Company to Citadel then the Company shall not terminate the
Citadel JSA without the prior consent of Parent, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing or anything contained
herein to the contrary, Parent and Sub acknowledge and agree that the
termination of the Citadel JSA by the Company as permitted in this Section 5.08
and/or by any member of the JSA Group, the termination of the Citadel JSA as
required by an order of the United States Department of Justice to which the
Company or any member of the JSA Group is subject, the bringing of any suit,
action, proceeding or claim relating to or arising from or in connection with
the Citadel JSA or its termination, the entering, issuance or rendering of any
award, decision, injunction, judgment, order, ruling, decree, or verdict by any
court, administrative agency, or other governmental body or by any arbitrator
relating to the Citadel JSA or its termination, or any change, effect, event or
occurrence arising under the Citadel JSA or as a result of the termination of
the Citadel JSA that is materially adverse to the business, properties, assets,
condition (financial or otherwise), results of operations or prospects of the
Company and its Subsidiaries shall not, in any case, (i) constitute a breach of
any representation or warranty made by the Company in the Transaction
Documents, or (ii) constitute a default, non-satisfaction or violation by the
Company of any covenant, condition or agreement contained in the Transaction
Documents.
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(b) The Company agrees to cooperate, and to take such action
within its control to cause each member of the JSA Group to cooperate with
Parent and Sub in their efforts to reach a mutually satisfactory arrangement
with the DOJ and Citadel regarding the Citadel JSA, unless the Citadel JSA
shall have been terminated as permitted by Section 5.08(a).
SECTION 5.09. ENVIRONMENTAL ASSESSMENTS.
(a) On or prior to the date of this Agreement, Parent has
delivered to the Company a written notice identifying, with respect to the
parcels of real property for which Environmental Reports were delivered as
contemplated by Section 3.01(q) (the "ER Properties"), those parcels of the ER
Property with respect to which Parent will require additional Phase I or Phase
II environmental assessments to be prepared ("Open ER Properties").
(b) Within 15 business days after the date of this Agreement,
Parent may request, and upon such request the Company shall cause to be
performed by an environmental consultant mutually agreed to by the Company and
Parent, a Phase I environmental assessment audit (the "Phase I Assessment")
with respect to any of the Open ER Properties or any other of the Company's
real property or any facilities owned, operated or leased by the Company or any
of its Subsidiaries (other than the ER Properties with respect to which a Phase
I Assessment was delivered at least five business days prior to the date of
this Agreement and which was not designated as an Open ER Property) and the
improvements and other assets located thereon. Parent will bear the costs and
expenses of the Phase I Assessments. The Phase I Assessments are to be
conducted for the mutual benefit of the Company and Parent and shall be
performed in a manner that at a minimum satisfies the requirements of ASTM
Practice E 1527-94. The Company covenants and agrees that, upon receipt of the
notice referred to above, it shall diligently pursue the performance of the
requisite Phase I Assessments to their completion, with draft copies of the
Phase I Assessments made available to Parent by no later than 45 days after
delivery to the Company of Parent's request therefor.
(c) Parent may request a Phase II environmental assessment (a
"Phase II Assessment") within 15 business days after the date of this Agreement
with respect to any Open ER Property for which a Phase I Assessment is not
requested pursuant to Section 5.09(b), and within 15 business days after
delivery to the Company of a notice of Environmental Exceptions with respect to
any Open ER Property or other Company real property for which a Phase I
Assessment is requested pursuant to Section 5.09(b). Upon each such request,
the Company shall cause to be performed by an environmental consultant mutually
agreed to by the Company and Parent a Phase II Assessment of such property and
the improvements and other assets located thereon; provided, however, the
Company shall not be obligated to cause a Phase II Assessment to be performed
with respect to any leased real property unless the Company is able to obtain
written consent for the Phase II Assessment from the landlord, which consent
the Company shall use its best efforts to obtain. Parent will bear the costs
and expenses of the Phase II Assessment. The Company covenants and agrees that,
upon receipt of the notice referred to above, it shall diligently pursue the
performance of the requisite Phase II Assessments to their completion, with
draft copies of the Phase II Assessments made available to Parent by no later
than 60 days after delivery to the Company of Parent's request therefor. The
Phase II Assessments are to be conducted for the mutual benefit of the Company
and Parent, and each Phase II Assessment shall be performed in a manner
reasonably
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anticipated to identify (i) the presence of Hazardous Substances on or
affecting the Company property to which the Phase II Assessment relates; (ii)
any other environmental conditions existing at the property that reasonably
could be expected to (A) adversely affect the use of such real property as
currently used by the Company and its Subsidiaries, (B) to require the
Surviving Corporation to engage in remediation or corrective action to cleanup
or stabilize such conditions or (C) subject the Surviving Corporation to third
party liability or sanctions, fines, or penalties by a Governmental Entity as a
result of the existence or migration of any such environmental conditions; and
(iii) any violation of Environmental Laws upon or associated with such real
property or any improvements or assets located therein (collectively,
"Environmental Exceptions") and shall include an estimate of the total cost of
remediating or taking other actions to clean up or stabilize, to the extent
required under applicable law or as otherwise necessary to enable the Surviving
Corporation to continue its broadcast operations as presently conducted, such
Environmental Exceptions (collectively, the "Estimated Remediation Costs").
(d) If the Estimated Remediation Costs exceeds $500,000 in the
aggregate, then Parent shall have the right, exercisable by written notice
given to the Company within five (5) business days after Parent's receipt of
the final Phase II Assessment requested pursuant to this Section 5.09, to elect
to terminate this Agreement; provided, that, upon the giving by Parent of
written notice electing to terminate this Agreement pursuant to this Section,
5.09(d), Parent and the Company agree to cooperate in good faith to attempt to
determine (i) Estimated Remediation Costs related to any parcel of the
Company's real property that may be abandoned and/or the leasehold interest
with respect thereto terminated by the Company and its Subsidiaries prior to
the Effective Time without any future material liability with respect to any
Environmental Exceptions related thereto ("Abandoned Property"), (ii) the costs
of terminating any such leasehold interests or abandoning such Abandoned
Property, as applicable (including without limitation estimated future
liabilities with respect to any Environmental Exceptions related thereto), and
acquiring replacement real property (in fee or by leasehold) as reasonably
acceptable to Parent and sufficient to permit continued operation by the
Surviving Corporation as previously conducted on the Abandoned Property
("Replacement Costs") and (iii) if any real property interest may be abandoned
as contemplated in clause (i) of this Section 5.09(d), to identify and procure
replacement property as contemplated by clause (ii) of this Section 5.09(d),
and, if within 60 days after the giving of such notice, Parent and the Company
agree that (A) the Estimated Remediation Cost less (B) the Estimated
Remediation Cost related to any Abandoned Property plus (C) all Replacement
Costs do not exceed $500,000, then Parent shall not have the right to terminate
this Agreement pursuant to this Section 5.09(d). If Parent and the Company fail
to reach such agreement within the 60 day period referred to in the preceding
sentence, this Agreement shall terminate at the close of business on such 60th
day.
SECTION 5.10. CONVERSION OF CLASS D COMMON STOCK. The Company agrees
that, except as Parent and the Company may otherwise jointly determine in their
sole discretion, within ten business days after the date of this Agreement, the
Company shall file with the FCC a Form 316 application (the "Form 316
Application") for any necessary FCC authorization for the conversion of shares
of Class D Common Stock to shares of Class B Common Stock by those Persons and
in such amounts as set forth on Schedule C attached hereto. In the event that
the FCC staff formally or informally advises the Company that FCC authorization
is not needed for the stock conversion
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specified in the Form 316 Application, the Company shall within five (5)
business days thereafter (the "Dismissal Date") file a letter with the FCC
requesting dismissal of the Form 316 Application.
SECTION 5.11. ACQUISITION OF ANTELOPE CREEK PROPERTY.
(a) As soon as practicable after the execution of this Agreement,
to the extent permitted by the Credit Agreement:
(i) The Company will use commercially reasonable efforts to
negotiate and complete remaining documentation (the "Acquisition
Documents") pursuant to which a newly formed Subsidiary of the Company
or one of its Subsidiaries will purchase the parcel of real property
(and the improvements situated therein) located at 4630 Antelope Creek
Drive in Lincoln, Lancaster County, Nebraska (the "Target Property"),
provided (A) that Parent will be entitled to participate in the
negotiation of such documentation and (B) neither the Company nor any
Subsidiary will (x) enter into any Acquisition Documents until Parent
has consented thereto in writing, which consent may be withheld by
parent in its sole discretion or (y) be required to enter into any
Acquisition Documents prior to completion of the Financing Documents
as provided in Section 5.11(a)(ii) or after the termination of this
Agreement; and
(ii) Parent and the Company will negotiate in good faith to
complete definitive documentation (the "Financing Documents") in a
form reasonably acceptable to the parties pursuant to which Parent
will provide to the Company nonrecourse financing in an original
principal amount equal to the purchase price for the Target Station as
agreed to by Parent (the "Target Financing").
(b) Upon completion of the Acquisition Documents and the
Financing Documents, Parent will fund, simultaneously with the acquisition of
the Target Property pursuant to the Acquisition Documents, the Target Financing
in an amount equal to the purchase price for the Target Property, and the
Company will direct such funding to be made, on behalf of the Company, directly
to the seller of the Target Property.
(c) The Company shall engage counsel reasonably acceptable to the
Parent to represent the Company in negotiating the Acquisition Documents and
the Financing Documents. Parent will reimburse, subject to the terms of Section
5.11(d), the Company for all costs and expenses (including reasonable
attorneys' fees but excluding costs related to employees and other in-house
personnel of the Company and its Subsidiaries) incurred by the Company in
negotiating the Financing Documents and the Acquisition Documents and in
connection with the acquisition of the Target Property, whether or not
consummated ("Target Costs and Expenses").
(d) At any time prior to the consummation of the acquisition by
the Company of the Target Property pursuant to the Acquisition Documents,
Parent may suspend or terminate the obligations of Parent and the Company under
this Section 5.11 by providing written notice to the Company, in which case the
Company shall cease all efforts related to the Acquisition Documents, the
Financing Documents and the acquisition of the Target Property; provided that
any such notice shall not affect Parent's obligations under Section 5.11(c) to
pay the Target Costs and Expenses
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accrued or incurred prior to the Company's receipt of such notice; provided
further, that if the Company does not cease its efforts related to the
Acquisition Documents, the Financing Documents and the acquisition of the
Target Property notwithstanding the terms of this Section 5.11(d), the Company
shall bear the Target Costs and Expenses accrued or incurred on and after the
date of the Company's receipt of such notice.
(e) The Company shall use commercially reasonable efforts to
attempt to obtain the consent under the Credit Agreement for the transactions
contemplated by this Section 5.11.
(f) Any change, effect, event or occurrence arising under the
Acquisition Documents, the Financing Documents or otherwise in connection with
the acquisition of the Target Property that is materially adverse to the
business, properties, assets, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries shall not, in any
case, (i) constitute a breach of any representation or warranty made by the
Company in the Transaction Documents, or (ii) constitute a default,
non-satisfaction or violation by the Company of any covenant, condition or
agreement contained in the Transaction Documents.
ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVAL. The Stockholder Approval shall have
been obtained.
(b) FCC CONSENTS. The FCC shall have issued the FCC consent ("FCC
Consent") approving the applications for transfer of control of the FCC
Licenses for the operation of the Licensed Facilities in connection with the
Merger.
(c) HSR ACT. The applicable waiting period under the HSR Act
shall have expired or terminated.
(d) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced or issued by
any court of competent jurisdiction or other Governmental Entity preventing the
consummation of the Merger shall be in effect.
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger are further subject to
satisfaction or waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date, except to the extent such
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representations and warranties expressly relate to an earlier date (in which
case as of such date; provided, however, that this condition shall be deemed to
have been satisfied unless the individual or aggregate impact of all
inaccuracies of such representations and warranties (without regard to any
materiality or Material Adverse Effect qualifier(s) contained therein)
reasonably could be expected to have a Material Adverse Effect on the Company,
and except to the extent that any inaccuracies of such representations and
warranties are a result of changes in the United States financial markets
generally or are a result of matters arising after the date hereof that affect
the broadcast industry generally. Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer and the chief
financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to such
effect.
(c) FCC CONSENT. The FCC Consent shall not contain any conditions
that would be materially adverse to either the Parent, the Surviving
Corporation or their Affiliates and such conditions are primarily the result of
Acts or Changes.
(d) FINAL ORDER. The FCC Consent shall be a Final Order. A "Final
Order" shall be an action by the FCC (i) that has not been reversed, stayed,
enjoined, set aside, annulled or suspended, (ii) with respect to which no
timely request for stay or review, petition for reconsideration or appeal has
been filed by a non-party to this Agreement (or an Affiliate of Parent) or the
FCC Applications or sua sponte action of the FCC with comparable effect is
pending and (iii) as to which the normal time for filing any such request,
petition or appeal or for the taking of any such sua sponte action by the FCC
has expired.
(e) RELEASE AGREEMENTS. The Release Agreement from each member of
the Executive Group as contemplated in Section 4.05 shall have been obtained.
(f) THIRD PARTY CONSENTS. All Third Party Consents, other than
with respect to the Credit Agreement and other than those the failure of which
to obtain could not reasonably be expected to have a Material Adverse Effect on
the Company, shall have been obtained.
(g) AFFILIATE TRANSACTIONS. The Company shall have terminated all
Affiliate Relationships listed on Part I of Schedule 4.06 and shall have
complied in all material respects with its covenant in Section 4.06.
(h) BROKERAGE FEE. The Company shall have obtained, and provided
a copy to Parent, of a final invoice from GSC with respect to all fees,
commissions, expenses and other amounts payable by the Company to GSC with
respect to the transactions contemplated by this Agreement and the aggregate
amount thereof (including amounts paid by the Company prior to the date of such
invoice, which amounts shall be reflected on such invoice) shall not exceed
$1,500,000.
(i) CAPITALIZATION. There shall not be outstanding:
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(i) any capital stock of the Company other than:
(A) a number of shares of Common Stock equal to or less
than the sum of (1) 4,892,789, (2) the number of shares of Class
A Common Stock issued upon the conversion of shares of Mandatory
Preferred Stock converted to Class A Common Stock prior to the
Effective Time, and (3) 509,050 less the number of shares of
Common Stock subject to then outstanding Warrants and Options;
and
(B) a number of shares of Mandatory Preferred Stock
equal to or less than 583,400 less the number of shares of
Mandatory Preferred Stock converted to Class A Common Stock prior
to the Effective Time; and
(C) a number of shares of Series B Preferred Stock
equal to 565,000; or
(ii) any Derivative Securities other than Options and
Warrants to purchase a number of shares of Class A Common Stock equal
to or less than 509,050 less the number of shares of Common Stock for
which Warrants and Options have been exercised from and after the date
of this Agreement;
(iii) capital stock of the Company and Derivative Securities
outstanding other than as set forth in (i) and (ii) above ("Excess
Equity") for which Equity Consideration of $500,000 (plus the exercise
or base price of any such Derivative Security which has been exercised
after the date hereof and received by the Company) or less (the
"Equity Limit") would be payable pursuant to Article II of this
Agreement;
provided that the condition in this Section 6.02(i) shall be deemed to be
satisfied even if the Equity Consideration to be paid pursuant to Article II of
this Agreement for such Excess Equity exceeds the Equity Limit to the extent
the amount of such excess is (i) applied to reduce by like amount the
consideration to be paid by Parent or Sub pursuant to the Transaction Documents
(other than by a decrease in the Equity Consideration) or (ii) or paid to
Parent by a third party, in each case in a manner reasonably acceptable to
Parent (including payments, in the case of payments provided for in clause
(ii), to adjust for tax liability, if any).
SECTION 6.03. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation
of the Company to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, except to the extent such representations
and warranties expressly relate to an earlier date (in which case as of such
date); provided, however, that this condition shall be deemed to have been
satisfied unless the individual or aggregate impact of all inaccuracies of such
representations and warranties (without regard to any materiality or Material
Adverse Effect qualifier(s) contained therein) reasonably could be expected to
have a material adverse effect on Parent's ability to perform its obligations
under the Transaction
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Documents. The Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent to such effect.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement may be terminated prior
to the Effective Time whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent, Sub and the Company by
mutual action of their respective Boards of Directors;
(b) by either Parent or the Company:
(i) (A) if, upon a vote at a duly held Stockholders Meeting
or any adjournment thereof at which the Stockholder Approval shall
have been voted upon, the Stockholder Approval shall not have been
obtained or (B) unless (1) prohibited by an event described in either
clause (iii), (v) or (vi) of this Section 7.01(b), (2) prohibited by
an order, injunction, decree or ruling or any other action entered,
issued, made or rendered by a Governmental Entity or (3) resulting
from any act or omission of Parent or Sub or their Affiliates, as of
11:59 p.m., central time, of the day immediately prior to the
Termination Date either (x) no Stockholders Meeting shall have been
held or (y) if held no vote shall have been taken in respect of the
Stockholder Approval;
(ii) if the Merger shall not have been consummated on or
before the Termination Date; the term "Termination Date" shall mean
11:59 p.m., central time, on (A) April 30, 1999 or (B) if such date
has been extended by Parent as provided in Section 5.07 or by the
operation of Section 7.01(f), the date as so extended;
(iii) if any Governmental Entity shall have issued an order,
injunction, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise permanently prohibiting the Merger
and such order, injunction, decree, ruling or other action shall have
become final and nonappealable (other than a judicial order, decree,
ruling or other action contemplated by Section 7.01(b)(v) or
7.01(b)(vi));
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in
this Agreement which (A) would give rise to the failure of a condition
set forth in Section 6.02(a) or (b) or Section 6.03(a) or (b), as
applicable, and (B) cannot be or has not been cured within thirty (30)
days after the giving
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of written notice to the breaching party of such breach
provided in no event shall such thirty (30) day period extend beyond
the Termination Date (a "Material Breach") (provided that the
terminating party is not then in Material Breach of any
representation, warranty, covenant or other agreement contained in
this Agreement);
(v) if the Merger shall have been permanently restrained,
enjoined or otherwise permanently prohibited by a judicial order,
decree, ruling or other action arising from Claims or litigation
involving the Company and its stockholders (other than a Mandatory
Preferred Proceeding);
(vi) if the Merger shall have been permanently restrained,
enjoined or otherwise permanently prohibited by a judicial order,
decree, ruling or other action entered, issued, made or rendered in a
Mandatory Preferred Proceeding on the ground or basis of, solely or
among other grounds or bases, the Mandatory Preferred Per Share Price
or any other treatment of the Mandatory Preferred Stock pursuant to
this Agreement;
(c) by the Company prior to obtaining the Stockholder Approval,
if (i) the Board of Directors of the Company shall have determined in good
faith, based on the advice of outside counsel, that it is necessary, in order
to comply with its fiduciary duties to the Company's stockholders under
applicable law, to terminate this Agreement to enter into an agreement with
respect to or to consummate a transaction constituting a Superior Proposal,
(ii) the Company shall have given notice to Parent advising Parent that the
Company has received a Superior Proposal from a third party, specifying the
material terms and conditions of such Superior Proposal (including the identity
of the third party) and the material terms and conditions of any agreements or
arrangements to be entered into in connection with a Superior Proposal with
respect to the Principal Stockholders and that the Company intends to terminate
this Agreement in accordance with this Section 7.01(c), and (iii) either (A)
Parent shall not have revised its takeover proposal within five business days
after the date on which such notice is deemed to have been given to Parent, or
(B) if Parent within such period shall have revised its takeover proposal, the
Board of Directors of the Company, after receiving advice from the Company's
financial advisor, shall have determined in its good faith reasonable judgment
that the third party's Takeover Proposal is superior to Parent's revised
takeover proposal; provided that the Company may not effect such termination
pursuant to this Section 7.01(c) unless the Company has contemporaneously with
such termination tendered payment to Parent, or its designee, of the
Termination Fee and the Reimbursement Amount (if and to the extent that Parent
has provided to the Company documentation reasonably acceptable to the Company
in support of the amounts claimed) that is due Parent or its designee pursuant
to Section 5.05;
(d) by Parent if (i) the Board of Directors or the Independent
Committee of the Company shall have failed in the Proxy Statement to make the
recommendation contemplated by Section 4.03, (ii) a tender offer or exchange
offer for 50% or more of the outstanding shares of Common Stock or voting
securities representing 50% or more of the voting power of the outstanding
capital stock of the Company (giving effect to the conversion of outstanding
Mandatory Preferred Stock to Class A Common Stock if, and at the rate at which,
the Mandatory Preferred Stock is then convertible into shares of Class A Common
Stock) is commenced (other than by the Company or its Affiliates) and the Board
of Directors of the Company fails to timely recommend against the stockholders
of the Company tendering their shares into such tender offer or exchange offer,
or (iii)
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a Takeover Proposal has been publicly announced by the Company and the Board of
Directors of the Company shall fail to publicly reaffirm its approval or
recommendation of the Merger and this Agreement on or before the tenth business
day following the date on which such Takeover Proposal shall have been
announced; provided that Parent in exercising its termination rights hereunder
may condition the effectiveness of such termination upon receipt of the
Termination Fee and Reimbursement Amount (if and to the extent that Parent has
provided to the Company documentation reasonably acceptable to the Company in
support of the amounts claimed) that are due Parent or its designee pursuant to
Section 5.05;
(e) by Parent if Parent has the right to terminate this Agreement
pursuant to Section 5.09;
(f) By Parent, if, at any time after the date hereof, the
condition in Section 6.02(i) would not be satisfied if the Closing were being
held at such time, upon five days written notice of termination hereunder;
provided, that, if at any time prior to the delivery by Parent of such
termination notice, the Company delivers notice to Parent that the condition in
Section 6.02(i) would not be satisfied if the Closing were being held at the
time of such notice, then Parent shall not have the right to terminate this
Agreement pursuant to this Section 7.01(f) for fifteen days. If, after such
fifteen days, the condition in Section 6.02(i) remains unsatisfied, then Parent
may terminate this Agreement within two business days. If Parent does not so
terminate this Agreement, then Parent shall no longer be entitled to terminate
this Agreement pursuant to this Section 7.01(f) unless the Equity Consideration
payable for the Excess Equity increases from the amount payable at the date
Parent was entitled to terminate the Agreement. If, prior to the effective date
of any termination by Parent under this Section 7.01(f), the condition in
Section 6.02(i) is satisfied, then Parent shall no longer have a right to
terminate this Agreement pursuant to this Section 7.01(f) unless such condition
again becomes unsatisfied.
(g) by Parent if the Saga Agreement has not been entered into as
provided in Section 4.07 on or before August 15, 1998; provided that if the
Company gives written notice to Parent at any time after this date of this
Agreement that the Company does not intend to enter into the Saga Agreement as
provided in Section 4.07, then Parent may terminate this Agreement by giving
written notice to the Company on or after the tenth day after Parent's receipt
of such notice, and if Parent does not terminate this Agreement within such
ten-day period, Parent no longer shall be entitled to terminate this Agreement
pursuant to this Section 7.01(g).
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 7.01,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Sub or the Company, (i) other
than the provisions of the last sentence of Section 5.01(a), Section 5.05,
Section 5.11, this Section 7.02 and Article 8, and (ii) except to the extent
that such termination results from the Material Breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, in which case subject to Section 5.05 the non-breaching party will
be entitled to recover damages and its Expenses.
SECTION 7.03. AMENDMENT. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by
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written agreement executed and delivered by duly authorized officers of the
respective parties; provided, however, that after the Stockholder Approval has
been obtained, no amendment shall be made which reduces the consideration
payable in the Merger or adversely affects the rights of the Company's
stockholders hereunder without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 8.02. NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Telecopy No.: (512) 340-7890
Attention: William S. Banowsky, Jr.
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Telecopy No.: (214) 220-7716
Attention: Michael D. Wortley
and
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(b) if to the Company, to
Triathlon Broadcasting Company
Symphony Towers
750 B Street, Suite 1920
San Diego, California 92101
Telecopy No.: (619) 239-4270
Attention: Norman Feuer
with a copy to:
Baker & McKenzie
Two Allen Center
1200 Smith Street, Suite 1200
Houston, Texas 77002
Telecopy No.: (713) 427-5090
Attention: Amar Budarapu
SECTION 8.03. DEFINITIONS. For purposes of this Agreement:
(a) "1996 SARs" means the stock appreciation rights granted
pursuant to Cash-Only Stock Appreciation Rights Agreements dated January 31,
1996, between the Company and each of Jeffrey Leiderman and Frank E. Barnes,
III, providing for the grant to each individual of cash-only stock appreciation
rights in respect of 2,000 shares of Class A Common Stock.
(b) "1995 SARs" means the stock appreciation rights granted
pursuant to Cash-Only Stock Appreciation Rights Agreements dated October 30,
1995, between the Company and each of Jeffrey Leiderman, Frank E. Barnes, III,
and John D. Miller, providing for the grant to each individual of cash-only
stock appreciation rights in respect of 1,000 shares, 1,000 shares and 5,000
shares, respectively, of Class A Common Stock.
(c) "Acts and Changes" has the meaning assigned thereto in
Section 5.02(a).
(d) an "Affiliate" of any Person means another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person; for purposes
of this Agreement, an Affiliate of the Company shall be deemed to include all
members of the Sillerman Group;
(e) "Affiliate Relationship" has the meaning assigned thereto in
Section 3.01(t).
(f) "Business Day" or "business day" means any day other than a
Saturday, Sunday or other day on which commercial banks in Dallas, Texas or New
York, New York are authorized or required to close by applicable law.
(g) "Claim" has the meaning assigned thereto in Section 5.04(b).
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(h) "Common Per Share Price" means $13.00, as such amount may be
increased pursuant to Section 5.07.
(i) "Company Disclosure Schedule" means the Disclosure Schedule
delivered by the Company to Parent prior to the execution of this Agreement.
(j) "Credit Agreement" means, collectively, (a) the Amended and
Restated Loan Agreement dated as of May 30, 1997, among Triathlon Broadcasting
of Wichita, Inc., Triathlon Broadcasting of Lincoln, Inc., Triathlon
Broadcasting of Omaha, Inc., Triathlon Broadcasting of Spokane, Inc., Triathlon
Broadcasting of Tri-Cities, Inc., Triathlon Broadcasting of Colorado Springs,
Inc., Triathlon Broadcasting of Little Rock, Inc. and AT&T Commercial Finance
Corporation, as administrative agent, and the other lenders named therein, as
amended, and (b) any and all guaranty, security and other agreements or
documents executed and delivered in connection therewith, as each has been
successively extended, renewed or modified.
(k) "Deposit Agreement" means the Deposit Agreement dated as of
March 8, 1996, among the Company, the holders of Depositary Shares and
ChaseMellon Shareholder Services as the depositary.
(l) "Depositary" means ChaseMellon Shareholder Services, as
depositary under the Deposit Agreement, or any successor depositary of the
Depositary Shares.
(m) "Depositary Share Merger Consideration" means an amount of
cash per Depositary Share equal to 10% of the Mandatory Preferred Per Share
Price.
(n) "Depositary Shares" means the Depositary Shares, each
representing a one-tenth interest in a share of Mandatory Preferred Stock, on
deposit with ChaseMellon Shareholder Services, as depositary.
(o) "Environmental Laws" means all applicable laws and rules of
common law pertaining to the environment and natural resources, including the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
ss. 9601 et seq.) ("CERCLA"), the Emergency Planning and Community Right to
Know Act, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act, the Hazardous and Solid Waste
Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, the Oil Pollution Act of
1990, the Hazardous Materials Transportation Act, and any similar or analogous
statutes, regulations and decisional law of any governmental authority, as each
of the foregoing may be amended and in effect on or prior to the Closing;
(p) "Equity Consideration" means the aggregate of the Merger
Consideration, the Option Consideration, the SAR Consideration and the Warrant
Consideration.
(q) "Equity Limit" has the meaning assigned thereto in Section
6.02(i);
(r) "Estimated Remediation Costs" has the meaning assigned
thereto in Section 5.09;
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(s) "Expenses" has the meaning assigned thereto in Section
5.05(d);
(t) "FCC" has the meaning assigned thereto in Section 3.01(d);
(u) "Federal Antitrust Agencies" has the meaning assigned thereto
in Section 5.02(b);
(v) "Governmental Entity" has the meaning assigned thereto in
Section 3.01(d)(iii).
(w) "Half-Month Interval" means, (x) with respect to each
extension of a Termination Date pursuant to Section 5.07, if the Termination
Date being extended is the last day of a calendar month (without regard to the
effect of Section 8.11), the period beginning on the first day of the next
succeeding calendar month occurring after the Termination Date then being
extended (giving effect to Section 8.11) and ending on the fifteenth calendar
day of such succeeding calendar month, subject to Section 8.11, or (y) if the
Termination Date being extended is the fifteenth calendar day of a calendar
month (as established by a prior extension of the Termination Date by a Half-
Month Interval and without regard to the effect of Section 8.11), the period
beginning on the first day after the later of (1) the fifteenth day of that
calendar month or (2) the Termination Date being extended (giving effect to
Section 8.11) and ending on the last day of that calendar month, subject to
Section 8.11.
(x) "Indebtedness" has the meaning assigned thereto in Section
3.01(o)(iii);
(y) "Mandatory Preferred Per Share Price" means $108.30, plus any
accrued but unpaid dividends on the Mandatory Preferred Stock accrued as of and
through the date immediately prior to the Effective Time, as such amount may be
increased pursuant to Section 5.07.
(z) "Mandatory Preferred Proceeding" means any action, suit or
proceeding commenced after the date hereof against the Company or any director,
officer, employee, agent, representative or consultant of the Company by any
holder of the Mandatory Preferred Stock that requests an order, injunction,
decree or ruling or any other action enjoining, restraining or otherwise
prohibiting the Merger on the grounds or basis of, solely or among other
grounds or bases, the Mandatory Preferred Per Share Price or any other
treatment of the Mandatory Preferred Stock pursuant to this Agreement.
(aa) "Material Adverse Change" or "Material Adverse Effect"
means, when used in connection with the Company or Parent, any change, effect,
event or occurrence that is materially adverse to the business, properties,
assets, condition (financial or otherwise) or results of operations of such
party and its Subsidiaries taken as a whole, other than any change, effect,
event or occurrence relating to the United States economy in general or to the
United States radio broadcasting industry in general, and, as applicable, not
specifically relating to the Company or Parent or their respective
Subsidiaries.
(bb) "Option Consideration" means the aggregate consideration
payable pursuant to Section 2.03(b) with respect to Options outstanding as of
the Effective Time.
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(cc) "Option Plans" means the Company's 1995 Stock Option Plan
and the Company's 1996 Stock Option Plan.
(dd) "Permitted Liens" has the meaning assigned thereto in
Section 3.01(s)(iv);
(ee) "Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity;
(ff) "Preferred Stock" means the Series B Preferred Stock and the
Mandatory Preferred Stock.
(gg) "Saga Agreement" has the meaning assigned thereto in Section
4.06.
(hh) "SAR Consideration" means the aggregate consideration
payable pursuant to Section 2.03(c) with respect to SARs outstanding as of the
Effective Time.
(ii) "Sillerman Group" means Robert F. X. Sillerman, Sillerman
Communications Management Corporation, Sillerman Communications Corporation and
all other Affiliates of Robert F. X. Sillerman.
(jj) "Stockholder Approval" has the meaning assigned thereto in
Section 3.01(k).
(kk) a "Subsidiary" of any Person means another Person, an amount
of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly
by such first Person.
(ll) "Superior Proposal" means (x) a bona fide Takeover Proposal
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the shares and/or voting power of Common Stock
then outstanding, voting securities representing 50% or more of the voting
power of the outstanding capital stock of the Company (giving effect to the
conversion of outstanding Mandatory Preferred Stock to Class A Common Stock if,
and at the rate at which, the Mandatory Preferred Stock is then convertible
into shares of Class A Common Stock), or all or substantially all the assets of
the Company, and (y) otherwise on terms which the Board of Directors of the
Company determines in its good faith reasonable judgment to be more favorable
to the Company's stockholders than the Merger (based on the opinion of the
Company's independent financial advisor that the value of the consideration
provided for in such proposal is superior to the value of the consideration
provided for in the Merger), for which financing, to the extent required, is
then committed or which, in the good faith reasonable judgment of the Board of
Directors of the Company, based on advice from the Company's independent
financial advisor, is reasonably capable of being financed by such third party
and for which the Board of Directors of the Company determines, in its good
faith reasonable judgment, that such proposed transaction is reasonably likely
to be consummated without undue delay.
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(mm) "Takeover Proposal" means any proposal for a merger,
consolidation or other business combination involving the Company or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in, more than 25% of the voting power (giving effect to the conversion
of outstanding Mandatory Preferred Stock to Class A Common Stock if, and at the
rate at which, the Mandatory Preferred Stock is then convertible into shares of
Class A Common Stock) of, or a substantial portion of the assets of, the
Company and its Subsidiaries, taken as a whole; provided, however, that such
term does not include the transactions contemplated by the Transaction
Documents.
(nn) "Taxes" has the meaning assigned thereto in Section
3.01(j)(ix).
(oo) "Termination Date" has the meaning assigned thereto in
Section 7.01(b)(ii).
(pp) "Transaction Documents" means this Agreement, the Escrow
Agreement, the Stockholders Agreements, the Release Agreements, the Series B
Agreements and the Termination Agreement.
(qq) "Voting securities" or "voting power" means, with respect to
any Person, all outstanding securities entitled to vote generally on the
election of directors of that Person.
(rr) "Warrant Consideration" means the aggregate consideration
payable pursuant to Section 2.03(a) with respect to Warrants outstanding as of
the Effective Time.
SECTION 8.04. INTERPRETATION. When a reference is made in this
Agreement to an Article, Section or Annex, such reference shall be to an
Article or Section of, or an Annex to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns and, in
the case of an individual, to his heirs and estate, as applicable.
SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
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SECTION 8.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein) (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article 2
and Section 5.04 are not intended to confer upon any Person other than the
parties any rights or remedies.
SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 8.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto, whether by operation of law or otherwise; provided, however,
that (i) upon notice to the Company and without releasing Parent or Sub from
any of their obligations or liabilities hereunder, Parent or Sub may assign or
delegate any or all of their rights or obligations under this Agreement to any
Affiliate thereof, to any purchaser of all or substantially all of the assets
of Parent or Sub, or any Person with or into which Parent, Sub or Capstar
Broadcasting Corporation merges or consolidates, and (ii) nothing in this
Agreement shall limit Parent's or Sub's ability to make a collateral assignment
of its rights under this Agreement to any institutional lender that provides
funds to Parent or Sub without the consent of the Company. The Company shall
execute an acknowledgment of such assignment(s) and collateral assignments in
such forms as Parent or its institutional lenders may from time to time
reasonably request; provided, however, that unless written notice is given to
the Company that any such collateral assignment has been foreclosed upon, the
Company shall be entitled to deal exclusively with Parent as to any matters
arising under this Agreement or any of the other agreements delivered pursuant
hereto. In the event of such an assignment, the provisions of this Agreement
shall inure to the benefit of and be binding on such successors and assignees.
SECTION 8.09. ENFORCEMENT. The Company agrees that irreparable damage
would occur and that Parent would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which it is entitled at law or in equity. In addition, each of
the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 8.10. DIRECTOR AND OFFICER LIABILITY. The directors, officers,
and stockholders of Parent and its Affiliates shall not have any personal
liability or obligation arising under this Agreement (including any Claims that
the Company may assert) other than as an assignee of this Agreement or as
otherwise provided herein. Except to the extent that a person is a party
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signatory thereto in his personal capacity, the directors, officers and
stockholders of the Company and their respective Affiliates shall not have any
personal liability or obligation arising under this Agreement (including any
Claims that Parent or Sub may assert).
SECTION 8.11. TERMINATION DATE. Notwithstanding any provision of this
Agreement to the contrary, in the event that any Termination Date provided for
hereunder (including any Termination Date occurring at the end of any
Half-Month Interval) shall fall on a non-Business Day, then such Termination
Date automatically shall be extended to the first Business Day following such
scheduled Termination Date.
SECTION 8.12. BINDING EFFECT. This Agreement is binding upon and will
inure to the benefit of the parties and their respective successors and
permitted assigns.
[The rest of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
CAPSTAR RADIO BROADCASTING
PARTNERS, INC.
By: /s/ William S. Banowsky, Jr.
-------------------------------------
Name: William S. Banowsky, Jr.
Title: Vice President
TBC RADIO ACQUISITION CORP.
By: /s/ William S. Banowsky, Jr.
-------------------------------------
Name: William S. Banowsky, Jr.
Title: Vice President
TRIATHLON BROADCASTING COMPANY
By: /s/ Norman Feuer
-------------------------------------
Name: Norman Feuer
Title: President
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ANNEX B
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
- -------------------------
July 23, 1998
Board of Directors
Triathlon Broadcasting Company
Symphony Towers
750 B Street, Suite 1920
San Diego, California 92101
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Class A Common Stock, par
value $.01 per share, Class B Common Stock, par value $.01 per share, Class C
Common Stock, par value $.01 per share, and Class D Common Stock, par value
$.01 per share (collectively, the "Shares"), of Triathlon Broadcasting Company
(the "Company") of the $13.00 per Share in cash to be received by such holders
pursuant to the Agreement and Plan of Merger, dated as of July 23, 1998, among
Capstar Radio Broadcasting Partners, Inc. ("Buyer"), TBC Radio Acquisition
Corp., a wholly-owned subsidiary of Buyer, and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. In addition, we have provided certain investment banking services to
Buyer, including acting as (i) an agent in the syndication of its $1.4 billion
senior secured credit facility in April 1998 and (ii) an underwriter of its
approximately $590 million initial public offering of Class A Common Stock, par
value $.01 per share, in May 1998. We are also familiar with Hicks, Muse, Tate
and Furst, Inc. ("Hicks Muse"), which has a controlling equity interest in
Buyer, acting recently as (i) a co-manager of an approximately $2.0 billion
bank financing for Hicks Muse in February 1998, (ii) joint book-running manager
of a $1.0 billion issuance of common stock of a company in which Hicks Muse has
an equity interest in March 1998, and (iii) an advisor on the recent sales of
two companies in which Hicks Muse had a controlling equity interest. Goldman,
Sachs & Co. may provide investment banking services to Buyer and its
subsidiaries and Hicks Muse and its affiliates in the future.
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Triathlon Broadcasting Company
July 23, 1998
Page 2
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement of the Company on Form S-1, dated
September 7, 1995, relating to its initial public offering of Class A Common
Stock, par value $.01 per share; Annual Reports to Stockholders and Annual
Reports on Form 10-K of the Company for the two years ended December 31, 1997;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company; the Certificate of Designation relating to the 9% Mandatory
Convertible Preferred Stock, par value $.01 per share (the "Mandatory
Preferred"), of the Company; certain other communications from the Company to
its stockholders; and certain internal financial analyses and forecasts for the
Company prepared by its management. We also have held discussions with members
of the senior management of the Company regarding its past and current business
operations, financial condition and future prospects. In addition, we have
reviewed the reported price and trading activity for the Shares, compared
certain financial and stock market information for the Company with similar
information for certain other companies, the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the broadcasting industry specifically and performed such other studies and
analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or any of its subsidiaries and we have not been furnished with any
such evaluation or appraisal. Furthermore, we have not been asked to consider,
and our opinion does not address, the fairness of any amounts to be received by
holders of the Mandatory Preferred and Series B Convertible Preferred Stock,
par value $.01 per share, of the Company pursuant to the Agreement. Our
advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the $13.00
per Share in cash to be received by the holders of Shares pursuant to the
Agreement is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
B-2
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K ANNEX C
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------
Commission file number 0-26530
TRIATHLON BROADCASTING COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 33-0668235
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Symphony Towers
750 B Street, Suite 1920
San Diego, California 92101
(619) 239-4242
(Address of principal executive offices and Registrant's telephone number)
---------------
Securities registered pursuant 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)
---------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock (one vote per
share) held by non-affiliates, computed by reference to the average closing bid
and asked price of the Class A Common Stock on March 17, 1998, was $31,761,104.
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, Class D Common Stock, $.01 par value, and Depositary Shares, each
representing a one-tenth interest in a share of 9% Mandatory Convertible
Preferred Stock, outstanding as of March 17, 1998, was 3,172,533, 244,890,
31,000, 1,444,366, and 5,834,000, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. 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 currently
owns and operates, sells advertising on behalf of or provides programming to 22
FM and 10 AM radio stations in six markets. The Company also owns Pinnacle
Sports Productions LLC, a regional sports radio network (the "Sports Network"),
which broadcasts all of the games of the men's football, basketball and
baseball and women's basketball and volleyball teams of the University of
Nebraska over a network of approximately 61 radio stations located in the
western United States.
The following chart sets forth certain information with respect to the
Company's radio stations:
<TABLE>
<CAPTION>
NUMBER OF STATIONS BREAKDOWN OF STATIONS
MARKET MARKET RANK(1) CURRENTLY OPERATED CURRENTLY OPERATED
- ------------------------------------ -------------- ------------------ -------------------
AM FM
----- ----
<S> <C> <C> <C> <C>
Omaha, Nebraska (2)................. 72 4 1 3
Spokane, Washington................. 87 8(3)(4) 3 5
Wichita, Kansas..................... 89 6 2 4
Colorado Springs, Colorado.......... 94 4(5) 2 2
Lincoln, Nebraska (2)............... 171 4 -- 4
Tri-Cities, Washington (6).......... 202 6(7) 2 4
------- ---- ----
Total 32 10 22
</TABLE>
(1) Market rankings as determined by The Arbitron Company for the Fall 1997
Radio Market Report.
(2) The Company also acquired the Sports Network pursuant to the Pinnacle
Acquisition.
(3) Includes four stations 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) Consists of four stations owned by the Company for which Citadel
Broadcasting Company sells advertising pursuant to a joint sales
agreement.
(6) The Tri-Cities, Washington market consists of the cities of Richland,
Kennewick and Pasco in the State of Washington.
(7) Includes two stations that are not owned by the Company but on which it
provides services and sells advertising pursuant to local marketing
agreements.
STRATEGY
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 the broadcast
cash flow, defined as net revenues less station operating expenses ("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
1
<PAGE>
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, which may include instituting 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 Adult Contemporary, Current Hits, 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 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 to advertisers a broader range of creative advertising packages, as well
as greater overall coverage of the market. As a result, the Company believes
that it can strengthen its competitive position with respect to television and
other media and improve advertising inventory control.
Acquisitions. The Company's strategy includes the expansion of its
operations by acquiring multiple radio stations in medium and small markets and
the enhancement of the financial performance of the stations that 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. 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 that one entity may own nationally and (ii) increase
the number of radio stations that 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 to increase the total number
of stations that 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, although prices have escalated as a result
of consolidation in the radio industry, there are still radio stations
available for acquisition at prices that reflect relatively attractive
multiples of Broadcast Cash Flow due to the limited number of well capitalized
competitors in the Company's market segment. However, the Company's ability to
implement its acquisition strategy is dependent upon the availability of
financing. On May 30, 1997 the Company entered into a definitive credit
agreement (the "Amended Credit Agreement") with AT&T Commercial Finance
Corporation ("AT&T-CFC") and Union Bank of California, N.A.("Union Bank")
(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 received approximately
$20.0 million from the Little Rock Disposition (as defined herein) during the
fourth quarter of 1997, which amount the Company used to repay a portion of the
amount outstanding under the Amended Credit Agreement. The Company currently
has the ability to borrow approximately $20.0 million to continue its
acquisition strategy, provided that certain financial ratios and other
covenants under the Amended Credit Agreement are met which would, in turn,
depend largely upon the cash flow available from acquisition targets. 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.
It is management's present intention not to issue additional equity except to
finance acquisitions at prices representing lower multiples of Broadcast Cash
Flow than the multiple at which equity in the Company is sold. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
2
<PAGE>
RADIO STATION 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. Since its inception on June 29, 1995 (the "Company's Inception")
through the date hereof, the Company (i) has purchased a total of 34 radio
stations, including certain stations on which the Company already sold
advertising or provided programming, (ii) has disposed of a total of five radio
stations, (iii) has continued one local marketing agreement ("LMA") and one
joint sales agreement ("JSA"), and (iv) has added one LMA.
ACQUISITIONS COMPLETED DURING 1996
For the year ended December 31, 1996 ("Fiscal Year 1996"), the Company
purchased a total of 23 radio stations, including certain stations on which the
Company already sold advertising or provided programming, as follows:
On January 24, 1996, the Company entered the Lincoln, Nebraska market
when it purchased radio stations KZKX-FM and KTGL-FM from Pourtales Radio
Partnership ("Pourtales") for an aggregate of approximately $9.7 million. On
January 29, 1996, the Company entered into a JSA with, and on June 13, 1996
purchased, radio stations KIBZ-FM, KKNB-FM and KHAT-AM, also operating in the
Lincoln, Nebraska market, from Rock Steady, Inc. for approximately $3.3
million.
KHAT-AM was not broadcasting at the time of purchase and the Company
subsequently allowed its license to expire.
In the Colorado Springs, Colorado and Spokane, Washington markets, the
Company has provided programming since January 16, 1996 pursuant to an LMA with
Pourtales for radio stations KSPZ-FM, KVUU-FM, KVOR-AM and KTWK-AM
(collectively, the "Colorado Stations"), and KKZX-FM, KEYF-FM, KEYF-AM and
KUDY-AM (collectively, the "Spokane Stations"). At the same time, to take
advantage of certain sales synergies in these markets, the Company entered into
a JSA with Citadel Broadcasting Company with respect to the Colorado Stations
and the Spokane Stations (the "Citadel JSA.")
On February 1, 1996 the Company began providing programming and
selling advertising pursuant to an LMA with Silverado Broadcasting Company in
the Spokane, Washington market for radio stations KISC-FM, KNFR-FM and KAQQ-AM
(collectively, the "Silverado Stations") and assumed the rights and obligations
under a JSA for an additional radio station, KCDA-FM. The Company acquired the
Silverado Stations on May 15, 1996 for an aggregate of $8,750,000.
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 radio station KRRK-FM (subsequently renamed KTNP-FM) from 93.3, Inc.
and radio station KXKT-FM from Valley Broadcasting Company for approximately
$2.7 million and $8.1 million, respectively.
On April 19, 1996, the Company entered the Tri-Cities, Washington
market, which consists of the cities of Richland, Kennewick and Pasco in the
State of Washington, by acquiring radio stations KIOK-FM and KALE-AM from
Sterling Realty Organization for an aggregate of approximately $1.2 million.
On July 1, 1996, the Company also began providing programming and
selling advertising in the Tri-Cities, Washington market pursuant to an LMA
with Pourtales with respect to radio stations KEGX-FM and KTCR-AM
(collectively, the "Tri-Cities Stations"), and assumed the rights and
obligations under an LMA with respect to radio station KNLT-FM.
On November 22, 1996, the Company acquired the Colorado Stations, the
Spokane Stations, the Tri-Cities Stations, and radio station KEYN-FM in the
Wichita, Kansas market (which the Company has been operating pursuant to a JSA
with Pourtales since September 13, 1995). The aggregate purchase price for
these radio stations was approximately $22.9 million.
ACQUISITIONS COMPLETED DURING 1997
For the year ended December 31, 1997 ("Fiscal Year 1997"), the Company
purchased a total of seven radio stations, including certain stations on which
the Company already sold advertising or provided programming, as follows:
3
<PAGE>
On January 9, 1997 the Company purchased radio stations KZSN-FM and
KZSN-AM, both operating in the Wichita, Kansas market (collectively, the
"Wichita Southern Skies Acquisition"), and on April 25, 1997, the Company
purchased radio stations KSSN-FM and KMVK-FM, both operating in the Little Rock,
Arkansas market, from Southern Skies Corporation for an aggregate of (i) $22.6
million and (ii) 46,189 shares of the Company's Class A Common Stock, $.01 par
value (the "Class A Common Stock"), valued at approximately $486,000. In
addition, the Company is obligated to 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 its affiliate SFX
Broadcasting, Inc. ("SFX") for $4.1 million. The Company had provided
programming and sold advertising for KOLL-FM pursuant to an LMA since March 15,
1996. See "Item 13. Certain Relationships and Related Transactions--The Little
Rock Acquisition."
On May 15, 1997, the Company purchased the Sports Network for
approximately $3.3 million, which 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. While renewal of the contract with
the University of Nebraska cannot be assured, based on discussions the Company
has had with the University of Nebraska, the Company presently knows of no
reason why the contract would not be renewed.
On June 2, 1997, the Company added to its presence in the Omaha,
Nebraska market by purchasing radio stations KFAB-AM and KGOR-FM and the
exclusive Muzak franchise for the Lincoln, Nebraska and Omaha, Nebraska markets
from American Radio Systems Corporation for an aggregate purchase price of
$38.0 million.
Since the Company's Inception, the Company's acquisitions have been
accounted for using the purchase method of accounting. The operating results of
the acquired stations are included in the Company's consolidated statements of
operations from their respective dates of acquisition or from the dates on
which the respective LMA or JSA began.
DISPOSITIONS
On October 1, 1997, the Company completed the disposition of radio
stations KOLL-FM, KSSN-FM and KMVK-FM, each operating in the Little Rock,
Arkansas market (collectively, the "Little Rock Disposition"), pursuant to an
agreement with Clear Channel Radio, Inc. The aggregate sale price was $20.0
million. The Company did not recognize a gain or loss on the Little Rock
Disposition. During the period from the date of acquisition through date of
sale, the Company capitalized a loss of approximately $235,000, principally
resulting from interest expense, related to the stations sold pursuant to the
Little Rock Disposition.
RETENTION OF GOLDMAN, SACHS & CO.
The Company is aware that its current group of radio stations combined
with the trend towards consolidation in the industry may present an attractive
opportunity to maximize stockholder value through a sale of the Company's
assets or by the combination of the Company's business with that of a larger
broadcasting company. The Company will continue to consider all available
opportunities and has engaged Goldman, Sachs & Co. to actively explore
alternatives to maximize stockholder value.
CITADEL JSA
The Department of Justice, Antitrust Division ("DOJ") is investigating
the Citadel JSA in connection with the concentration of radio station ownership
in the Colorado Springs, Colorado and Spokane, Washington markets. See "Item 3.
Legal Proceedings." The DOJ is increasingly scrutinizing the radio broadcasting
industry, and has 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 area, control over more
than 60% of radio advertising revenue in the area.
The Citadel JSA currently may be deemed to provide Citadel with
control over approximately 52.7% and 55.2% of the radio advertising revenue in
the Spokane, Washington market and the Colorado Springs,
4
<PAGE>
Colorado market, respectively. The Citadel JSA provided approximately 15.1% of
the Company's net revenues during Fiscal Year 1997. In the event that the DOJ
requires the termination or modification of the Citadel JSA, the Company
believes that such termination or modification will not have a long-term
material adverse effect on the Company because the Company believes that it can
provide more efficiently the services currently performed by Citadel given the
fee structure of the Citadel JSA. The Company has begun preparations for an
orderly transition in the event that the DOJ requires the termination of the
Citadel JSA.
During the period that the Company operated the Colorado Stations and
the Spokane Stations pursuant to an LMA, the Company recognized the Citadel JSA
fee as net revenue. As of November 22, 1996, when the Company purchased the
Colorado Stations and the Spokane Stations, the Company included the related
stations' operating expenses in its consolidated statements 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 "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operation."
THE STATIONS AND THE MARKETS
The following table summarizes certain information with respect to the
radio stations that the Company owns and operates, provides programming to or
sells advertising on behalf of:
<TABLE>
<CAPTION>
1997 TOTAL
STATION RANK 1997 AUDIENCE STATION NUMBER 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 4 8.8% 3 2/1/05
KGOR-FM Oldies Adults 25-54 5 6.8% 5 6/1/05
KTNP-FM Pop Alternative Adults 18-34 4 8.5% 10 6/1/05
KFAB-AM Talk/News/Sports Adults 25-54 8 5.0% 4 6/1/05
SPOKANE MARKET 87 22
KKZX-FM(4) Classic Rock Adults 25-54 1 16.2% 1 2/1/98(3)
KISC-FM Adult Contemporary Adults 25-54 4 6.6% 2 2/1/06
KNFR-FM Country Adults 25-54 7 5.9% 4 2/1/98(3)
KEYF-FM(4) Oldies Adults 25-54 8 5.6% 6 2/1/06
KAQQ-AM Middle-of-the-Road Adults 35-64 13* 3.2% 11 2/1/06
KCDA-FM(5) Country Adults 25-54 13* 2.9% 12 10/1/05
KEYF-AM(4) Oldies Adults 25-54 21 .3% N/A 2/1/06
KUDY-AM(4) Religion Adults 25-64 -- -- N/A 2/1/06
WICHITA MARKET 89 20
KZSN-FM Country Adults 25-54 2 10.6% 2 6/1/05
KRBB-FM Adult Contemporary Adults 25-54 3 8.7% 3 6/1/05
KEYN-FM Oldies Adults 25-54 5 7.0% 7 6/1/05
KWSJ-FM New Age Adults 25-54 9 4.5% 12 6/1/05
Contemporary
KFH-AM Talk/News/Sports Adults 35-64 8 4.7% 13 6/1/05
KQAM-AM Talk/News/Sports Adults 35-64 18 1.0% 15 6/1/05
COLORADO SPRINGS 94 17
MARKET
KSPZ-FM(4) Oldies Adults 25-54 6* 5.6% 5 4/1/05
KVUU-FM(4) Adult Contemporary Adults 25-54 6* 5.6% 7 4/1/05
KVOR-AM(4) News/Talk Adults 25-54 9 4.8% 10 4/1/05
KTWK-AM(4) Nostalgia Adults 35-64 13* 1.4% N/A 4/1/05
LINCOLN MARKET 171 16
KZKX-FM Country Adults 25-54 2 9.8% 1 6/1/05
KTGL-FM Classic Rock Adults 25-54 1 11.0% 2 6/1/05
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
1997 TOTAL
STATION RANK 1997 AUDIENCE STATION NUMBER 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>
KIBZ-FM Album-Orientated Adults 18-34 2* 9.3% 7 6/1/05
Rock
KKNB-FM Pop Alternative Adults 18-34 6 5.6% 10 6/1/05
TRI-CITIES 202 15
MARKET(6)
KEGX-FM Classic Hits Adults 25-54 2* 7.8% 2 2/1/98(3)
KIOK-FM Country Adults 25-54 2* 7.8% 3 2/1/98(3)
KNLT-FM(7) Oldies Adults 25-54 10 3.1% 7 2/1/98(3)
KTCR-AM News/Talk/Sports Adults 35-64 3* 7.1% 11 2/1/98(3)
KALE-AM News/Talk Adults 35-64 12 2.0% 12 2/1/98(3)
KUJ-FM(7) Current Hit Adults 18-34 7 5.9% 2/1/98(3)
</TABLE>
- -------------
* Tied in rank with other stations in the market.
(1) Some stations are licensed to a different community located within the
market they serve.
(2) Based upon The Arbitron Company's Fall 1997 Radio Market Report for the
respective markets and BIA's MasterAccess database for the first
quarter of 1998.
(3) Renewal application pending. The licenses for these stations will continue
in effect by operation of law until FCC action on such renewal
application.
(4) Citadel Broadcasting Company sells advertising on these stations pursuant
to the Citadel JSA.
(5) The Company sells advertising on these stations pursuant to a JSA.
(6) The Tri-Cities market consists of the cities of Richland, Kennewick and
Pasco in the State of Washington.
(7) The Company provides programming to and sells advertising on this station
pursuant to an LMA.
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 81% 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 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, because 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
(i) 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),
(ii) the supply of and demand for radio advertising time and (iii) 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
6
<PAGE>
advertising revenue within its geographic market. The Company's stations compete
for audience share and advertising revenues 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 adverse effect on the Company's business, financial
condition and results of operations. Although the Company competes with other
radio stations with comparable programming formats in most of its markets, the
Company's stations could suffer a reduction in ratings or advertising revenue
and could require increased promotional and other expenses 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. 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 also is subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems 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 adversely
affect the radio broadcasting industry generally or the Company in particular.
SEASONALITY
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first quarter generally produces the
lowest revenues for the year and the fourth 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.
EMPLOYEES
As of December 31, 1997, the Company had approximately 316 full-time
and 120 part-time employees, none of whom were represented by unions. The
Company believes that its relations with its employees are good.
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 President and Chief
Executive Officer. See "Item 11. Executive Compensation--Employment Agreement."
7
<PAGE>
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 Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended. The DOJ also has 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 adversely impact the
Company's operations (including existing stations or markets) or its expansion
strategy.
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.
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.
8
<PAGE>
As a result of 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 is 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; and 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 also has
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 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 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
9
<PAGE>
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
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
10
<PAGE>
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 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 the outcome of its investigation of the Citadel
JSA. See "--Citadel JSA." The Company has terminated its JSA in the Wichita,
Kansas market.
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.
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
11
<PAGE>
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, financial condition or results of operations.
FORWARD-LOOKING INFORMATION
Except for the historical information contained in this Report,
certain items herein, including, without limitation, certain matters discussed
under "Item 3. Legal Proceedings" and under "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation," 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, risks and uncertainties relating to leverage,
the ability to obtain financing, the level and volatility of interest rates,
integration of the acquisitions completed during Fiscal Year 1997, 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, changing consumer
tastes, the effect of economic and market conditions, the impact of current or
pending legislation and regulation and the other risks and uncertainties
detailed in "--Competition" and "--Federal Regulation of Radio Broadcasting" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation." 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.
ITEM 2. PROPERTIES
The types of properties required to support each of the Company's
radio stations include offices, studios and tower sites. A station's studios
are generally housed with its offices in downtown or business districts. Tower
sites are generally located so as to provide maximum market coverage.
The Company's corporate headquarters are leased and located at 750 B
Street, Suite 1920, San Diego, California. The lease for this location will
expire in January, 2000. The Company's radio station office, studio and
transmitter sites are leased principally 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. The Company owns
substantially all of the equipment used in its radio broadcasting business.
There has been speculation within the broadcasting industry that the
adoption and implementation of digital television standards may create a tower
capacity shortage which would most likely affect FM radio broadcasters,
particularly those who lease FM broadcasting sites on television towers.
Although the Company leases FM broadcasting sites on television towers, the
Company presently believes that in the event that a tower capacity shortage
develops, it would not have a material adverse effect on the Company's
business, financial condition or results of operations.
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.
ITEM 3. LEGAL PROCEEDINGS
In October 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, but the DOJ has not yet indicated its regulatory decision.
In the event that the DOJ requires the termination or modification of the
Citadel JSA, the Company believes that such termination or modification would
have a favorable long-term impact on the
12
<PAGE>
Company's operations, although the Company may suffer a short-term disruption in
sales efforts caused by the transition, because the Company's income from the
Citadel JSA, which is a share of the combined profits of the stations involved
in the Citadel JSA, currently is negatively impacted by a disproportionate share
of the combined operating expenses. The Company has begun preparations for an
orderly transition in the event that the DOJ requires the termination of the
Citadel JSA. See "Item I. Business--Citadel JSA."
Management is not currently aware of any other material threatened or
pending legal proceedings against the Company, that if adversely decided, would
have a material adverse effect on the business, financial condition or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S 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 ("Nasdaq") under the symbols TBCOA and TBCOL,
respectively. The high and low bid prices for the Class A Common Stock and the
Depositary Shares for the quarters indicated below are as reported by Nasdaq
and reflect interdealer prices, without retail markup, markdown or commissions
and may not represent actual transactions.
CLASS A COMMON STOCK (1)
1996 1997
------------ ------------ ------------ -----------
QUARTER ENDED HIGH LOW HIGH LOW
- ---------------------------- ------------ ------------ ------------ -----------
March 31................ 11 3/8 10 1/4 8 3/4 7
June 30................. 10 3/4 7 7/8 8 5 1/2
September 30............ 9 1/8 6 3/4 9 3/16 6 7/8
December 31............. 10 1/8 8 11 1/2 8 3/16
DEPOSITARY SHARES (2)
- -------------------------------------------------------------------------------
1996 1997
------------------------- ------------------------
QUARTER ENDED HIGH LOW HIGH LOW
- ---------------------------- ------------ ------------ ------------ -----------
March 31................ 11 1/8 10 1/4 10 1/4 8
June 30................. 11 1/4 9 5/8 9 1/4 7 1/2
September 30............ 11 8 3/4 10 1/4 8 1/2
December 31............. 11 8 12 8 5/8
- ----------
(1) The Class A Common Stock was first quoted on September 8, 1995.
(2) The Depositary Shares were first quoted on March 5, 1996.
As of March 17, 1998, there were 42 and 0 holders of record of the
outstanding shares of the Class A Common Stock and the Depositary Shares,
respectively. This information does not include beneficial owners of the Class A
Common Stock or the Depositary Shares held in the name of a broker, dealer,
bank,
13
<PAGE>
voting trustee or other nominee. The Company's Class B Common Stock, Class C
Common Stock and Class D Common Stock are held of record by one holder, four
holders and two holders, respectively. There is no public trading market for the
Company's Class B Common Stock, Class C Common Stock or Class D Common Stock.
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 Company's
Board of Directors (the "Board") 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 of
March 31, June 30, September 30, and December 31. Accumulated, unpaid dividends
bear interest at a rate of 10.5% per annum. The Company has announced that it
will pay a regular quarterly dividend to preferred stockholders of record as of
March 20, 1998. The payment will be $2.36 per preferred share or $0.236 per
Depositary Share. 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 in
light of conditions then existing, including the Company's results of
operations, financial condition and requirements, business conditions and other
factors.
RECENT SALES OF UNREGISTERED SECURITIES
In January and April 1997, the Company issued 22,464 and 23,725 shares
of Class A Common Stock, respectively, 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 on Form S-3 which
included 22,464 shares of Class A Common Stock issued in January 1997 was
declared effective by the Securities and Exchange Commission ("SEC") on
February 6, 1997.
The Company issued 5,000 shares of Class A Common Stock to the owners
of KCDA-FM effective July, 1997, as an inducement to extend the JSA with
respect to KCDA-FM in the Spokane, Washington market.
No options granted under the Company's 1995 Stock Option Plan and 1996
Stock Option Plan have been exercised as of March 17, 1998. Although the 1997
Stock Option Plan was approved by the Board of Directors, no options have been
granted.
14
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data are derived from the
Consolidated Financial Statements of the Company. The selected financial data
should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and Notes thereto.
<TABLE>
<CAPTION>
PREDECESSOR(3)
------------------------------------ JUNE 29,
YEAR ENDED 1995 YEAR ENDED
DECEMBER 31, NINE (COMPANY'S DECEMBER 31,
------------------- MONTHS ENDED INCEPTION TO ----------------------
SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995(4) 1996 1997
--------- -------- ---------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
NET REVENUES $ 2,651 $ 2,750 $ 1,756 $ 1,108 $ 18,963 $ 33,641
STATION OPERATING EXPENSES 3,098 2,814 1,900 1,015 13,678 23,415
DEPRECIATION AND AMORTIZATION 323 395 420 145 1,427 4,134
CORPORATE EXPENSES -- 72 132 234 1,719 2,068
DEFERRED COMPENSATION -- -- 81 227 366 390
DOJ INFORMATION REQUEST COSTS -- -- -- -- 300 --
---------- --------- ----------------- ---------- ----------- -----------
OPERATING (LOSS) INCOME (770) (531) (777) (513) 1,473 3,634
INTEREST (EXPENSE) INCOME - NET (151) (170) (143) 60 (1,852) (4,365)
OTHER INCOME (EXPENSE) 8 7 12 -- (60) (138)
---------- --------- ----------------- ---------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM AND INCOME TAX
(BENEFIT) (913) (694) (908) (453) (439) (869)
INCOME TAX (BENEFIT) (336) (101) -- -- -- --
---------- --------- ----------------- ---------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (577) (593) (908) (453) (439) (869)
EXTRAORDINARY ITEM -- -- -- -- (320) (958)
---------- --------- ----------------- ---------- ----------- -----------
NET LOSS (577) (593) (908) (453) (759) (1,827)
PREFERRED STOCK DIVIDEND REQUIREMENT -- -- -- -- (4,414) (5,507)
---------- --------- ----------------- ---------- ----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK $ (577) $ (593) $ (908) $ (463) $ (5,173) $ (7,334)
========== ========= ================= ========== =========== ===========
LOSS PER COMMON SHARE - BASIC:
LOSS BEFORE EXTRAORDINARY ITEM $ (0.21) $ (0.97) $ (1.30)
EXTRAORDINARY ITEM -- 0.10 $ (0.20)
========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.21) $ (1.07) $ (1.50)
========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - 2,154 4,842 4,882
BASIC
========== =========== ===========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(3)
------------------------------------- JUNE 29,
YEAR ENDED 1995 YEAR ENDED
DECEMBER 31, NINE (COMPANY'S DECEMBER 31,
------------------- MONTHS ENDED INCEPTION) TO ----------------------
SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995(4) 1996 1997
--------- -------- ---------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA
BROADCAST CASH FLOW (1) $ (447) $ (64) $ (144) $ 93 $ 5,285 $ 10,226
CASH CAPITAL EXPENDITURES 10 6 83 55 1,555 869
NET CASH (USED IN) PROVIDED BY OPERATING (231) (70) (183) (682) 1,330 3,482
ACTIVITIES
NET CASH PROVIDED BY (USED IN) INVESTING (2) 2,091 (83) (7,377) (65,273) (45,525)
ACTIVITIES
NET CASH PROVIDED BY (USED IN) FINANCING 204 (2,036) 285 13,105 61,980 40,732
ACTIVITIES
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(3)
------------------------------------- JUNE 29,
YEAR ENDED 1995 YEAR ENDED
DECEMBER 31, NINE (COMPANY'S DECEMBER 31,
------------------- MONTHS ENDED INCEPTION) TO ----------------------
SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995(4) 1996 1997
--------- -------- ---------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AS OF THE END OF THE
PERIOD)
CASH AND CASH EQUIVALENTS $ 32 $ 16 $ 35 $ 5,046 $ 3,083 $ 1,771
WORKING CAPITAL (1,316) (1,426) (1,470) 5,122 4,492 3,032
INTANGIBLE ASSETS, NET 3,282 2,891 2,823 5,603 65,159 111,674
TOTAL ASSETS 5,114 4,857 4,599 13,735 88,394 132,741
LONG TERM DEBT (2) 9,896 4,129 4,304 -- 13,000 60,333
STOCKHOLDERS' EQUITY (5,003) 406 (363) 12,879 64,382 57,896
(1) ALTHOUGH BROADCAST CASH FLOW, DEFINED AS EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION, AMORTIZATION AND CORPORATE EXPENSES, IS NOT A MEASURE OF
PERFORMANCE CALCULATED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPALS, 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.
(2) LONG TERM DEBT INCLUDES CURRENT PORTION OF LONG TERM DEBT INCLUDED IN
CURRENT LIABILITIES.
(3) PREDECESSOR REPRESENTS THE COMBINED HISTORICAL FINANCIAL INFORMATION OF
THE INITIAL WICHITA STATIONS (CONSISTING OF KFH-AM, KWSJ-FM, KQAM-AM AND
KRBB-FM) FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1995.
(4) THE COMPANY COMMENCED RADIO STATION OPERATIONS ON SEPTEMBER 13, 1995.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS 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, the level and volatility of interest rates,
integration of the acquisitions completed during Fiscal Year 1997, 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, changing consumer
tastes, the effect of economic and market conditions, and the impact of current
or pending legislation and regulation. 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 22 FM
and 10 AM radio stations in six markets. The Company also owns the Sports
Network.
16
<PAGE>
MARKET AM FM
---------------------------------------------------- ------------ ------------
Omaha, Nebraska(1)................................ 1 3
Spokane, Washington(2)(3)......................... 3 5
Wichita, Kansas................................... 2 4
Colorado Springs, Colorado(4)..................... 2 2
Lincoln, Nebraska(1).............................. -- 4
Tri-Cities, Washington(5)(6)...................... 2 4
------------ ------------
Total........................................ 10 22
============ ============
(1) The Company also acquired the Sports Network pursuant to the Pinnacle
Acquisition.
(2) Includes four stations for which Citadel Broadcasting Company sells
advertising pursuant to a joint sales agreement.
(3) Includes one station that is not owned by the Company but on which it
sells advertising pursuant to a joint sales agreement.
(4) Consists of four stations owned by the Company for which Citadel
Broadcasting Company sells advertising pursuant to a joint sales
agreement.
(5) The Tri-Cities, Washington market consists of the cities of Richland,
Kennewick and Pasco in the State of Washington.
(6) Includes two stations that are not owned by the Company but on which it
provides services and sells advertising pursuant to local marketing
agreements.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. 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
that 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 targeted by its advertisers, as measured principally by The Arbitron
Company (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 as a means 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. During Fiscal Year 1997, approximately
81% 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.
17
<PAGE>
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 "Item 1. 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. See
"Item 1. Business--Seasonality."
Following the passage of the Telecom Act, the DOJ indicated its
intention to investigate certain existing industry practices that had not been
previously subject to anti-trust review. The DOJ is investigating the Citadel
JSA in connection with the concentration of radio station ownership in the
Colorado Springs, Colorado and Spokane, Washington markets. In a recent case
unrelated to the Company, 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 provided approximately 15% of the Company's
net revenues in Fiscal Year 1997. In the event that the DOJ requires the
termination or modification of the Citadel JSA, the Company believes that such
termination or modification would have a favorable long term impact on the
Company's operations, although the Company may suffer a short-term disruption in
sales efforts caused by the transition, because the Company's income from the
Citadel JSA, which is a share of the combined profits of the stations involved
in the Citadel JSA, currently is negatively impacted by a disproportionate share
of the combined operating expenses. The Company has begun preparations for an
orderly transition in the event that the DOJ requires the termination of the
Citadel JSA.
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 on which the
Company commenced radio station operations, through December 31, 1997, have all
been accounted for using the purchase method of accounting. These acquisitions
were as follows:
1995 Acquisitions and Operating Agreements
o 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:
o In January 1996, the Company acquired KTGL-FM and KZKX-FM,
both operating in the Lincoln, Nebraska market.
o 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.
o 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, on March 1, 1996, the
Company assumed the rights and obligations under two JSAs
related to KCDA-FM and KNJY-FM, both operating in the
Spokane, Washington market. The JSA related to KNJY-FM
terminated on December 31, 1996.
o In June 1996, the Company acquired KIBZ-FM and KKNB-FM, both
operating in the Lincoln, Nebraska market. The Company had
sold advertising on KIBZ-FM and KKNB-FM pursuant to a JSA
since January 1996.
18
<PAGE>
o 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.
o 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.
1997 Acquisitions and Operating Agreements
o In January 1997 the Company purchased radio stations KZSN-FM
and KZSN-AM, both operating in the Wichita, Kansas market.
o In April 1997, the Company purchased radio stations KSSN-FM
and KMVK-FM, both operating in the Little Rock, Arkansas
market.
o In April 1997, the Company purchased radio station KOLL-FM,
operating in the Little Rock, Arkansas market. Since March
1996, the Company had provided programming and sold
advertising for radio station KOLL-FM pursuant to a LMA.
o In May 1997, the Company purchased the Sports Network, which
broadcasts all of the men's football, basketball and baseball
games and women's basketball and volleyball games of the
University of Nebraska.
o In June 1997, the Company purchased radio stations KFAB-AM
and KGOR-FM, each operating in the Omaha, Nebraska market,
and the exclusive Muzak franchise for the Lincoln and Omaha,
Nebraska markets.
o In October 1997, the Company completed the disposition of
radio stations KOLL-FM, KSSN-FM and KMVK-FM, each operating
in the Little Rock, Arkansas market.
On February 12, 1997, the Company changed its fiscal year end from
March 31st to December 31st, effective December 31, 1996. For comparative
purposes, the Company's operating results for the fiscal periods ending March
31 have been restated as of December 31 for the affected years. Accordingly,
the following compares Fiscal Year 1997 to Fiscal Year 1996, and Fiscal Year
1996 to the period from the Company's Inception until December 31, 1995
("Partial Year 1995").
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net revenues increased approximately $14.7 million or 77% to
approximately $33.6 million for Fiscal Year 1997 from approximately $19.0
million for Fiscal Year 1996 as a result of acquisitions consummated during
Fiscal Year 1997 and the growth at continuously owned and operated stations. On
a same station basis for the radio stations owned and operated as of December
31, 1997, net revenues increased to $37.1 million for Fiscal Year 1997 from
approximately $32.4 million for Fiscal Year 1996 which represented a 15%
increase. Despite the growth in net revenues, the Company's revenues were
adversely impacted by disruptions in sales efforts as a result of the pending
sales of radio stations to the Company prior to the Company's ownership and the
restructuring of sales management and turnover of sales staff during the
periods after the acquisitions of stations. Revenues increased during Fiscal
Year 1997 due to the inclusion in net revenues of the reimbursement for
operating expenses under the Citadel JSA, beginning November 22, 1996, the date
of acquisition of the stations involved in the Citadel JSA. No reimbursement
was recorded during the period when the Company operated those radio stations
pursuant to an LMA.
19
<PAGE>
Station operating expenses increased by approximately $9.7 million or
71% in Fiscal Year 1997 to approximately $23.4 million from approximately $13.7
million for Fiscal Year 1996 primarily due to the inclusion of expenses related
to the acquisitions consummated during Fiscal Year 1997. On a same station
basis for the radio stations owned and operated by the Company as of December
31, 1997, operating expenses for Fiscal Year 1997 increased to approximately
$26.1 million from $23.3 million for Fiscal Year 1996, which represented a 12%
increase. Station operating expenses during the period prior to the Company's
operation and/or ownership lack comparability in some instances as a result of
the absence of certain costs including salaries for owner-management. The
benefits of continuing implementation of the Company's cost reduction programs
and efficiencies of combined operations in the markets served during Fiscal
Year 1997 did not fully offset the impact of the additional required costs not
incurred in the prior year by the former owners such as the addition of a
General Manager to a station that was managed personally by the prior owner.
Further, station operating expenses during Fiscal Year 1997 include amounts
expended for radio stations subject to the Citadel JSA, beginning November 22,
1996, the date of acquisition of the stations involved in the Citadel JSA. No
expenses were recorded during the period when the Company operated these
stations pursuant to an LMA.
Broadcast Cash Flow for Fiscal Year 1997 increased to approximately
$10.2 million from approximately $5.3 million for Fiscal Year 1996, an increase
of 92%. Broadcast Cash Flow Margin for Fiscal Year 1997 increased to 30%, an
increase over the Broadcast Cash Flow Margin of 28% for Fiscal Year 1996, due
to increases in net revenues exceeding increases in operating expenses as
described above. On a same station basis, Broadcast Cash Flow for Fiscal Year
1997 increased approximately 22% as compared to Fiscal Year 1996, primarily due
to increased revenue in all markets and the cost reduction program implemented
by the Company. Broadcast Cash Flow Margin in Fiscal Year 1997 was reduced by
approximately three percentage points by the impact of recording as revenues
the reimbursement of expenses under the Citadel JSA and including the related
expenses in station operating expenses.
Depreciation and amortization expense for Fiscal Year 1997 was
approximately $4.1 million versus approximately $1.4 million for Fiscal Year
1996. The increase was attributable to the additional depreciation of fixed
assets and amortization of intangible assets resulting from acquisitions
consummated during Fiscal Year 1997.
Corporate expenses consisted primarily of officer's salary, financial
consulting and professional fees and expenses. Corporate expenses for Fiscal
Year 1997 were approximately $2.1 million as compared to approximately $1.7
million for Fiscal Year 1996. The increase is due to the loss of reimbursement
of expenses by Pourtales pursuant to the Shared Expense Agreement (as defined
herein) as a result of the Company's acquisition of the Pourtales owned stations
and increased expenses related to acquisitions completed in Fiscal Year 1997.
Included in corporate expense are fees paid to SFX for services rendered by The
Sillerman Companies ("TSC") under the Amended and Restated SCMC Agreement (as
defined herein) of approximately $554,000 and $359,000 for Fiscal Year 1997 and
Fiscal Year 1996, respectively.
The Company recorded deferred compensation expense of approximately
$390,000 for Fiscal Year 1997 and approximately $366,000 for Fiscal Year 1996.
This recurring expense is related to stock, stock options and stock
appreciation rights granted to officers, directors and advisors in prior
periods, but is not currently affecting cash flow.
Operating income for Fiscal Year 1997 was approximately $3.6 million
as compared to approximately $1.5 million for Fiscal Year 1996. The increase in
operating income results principally from the inclusion of results of
operations for stations acquired during Fiscal Year 1997.
Net interest expense for Fiscal Year 1997 was approximately $4.4
million as compared to $1.9 million for Fiscal Year 1996. The net increase in
expense was principally due to the associated interest expense incurred as a
result of the increased borrowings to complete the Company's acquisition of
radio stations during Fiscal Year 1997.
Net loss before extraordinary item and income taxes for Fiscal Year
1997 was approximately $869,000 versus a loss of approximately $439,000 for
Fiscal Year 1996. The Company incurred extraordinary losses of $958,080 and
$320,000 in Fiscal Year 1997 and Fiscal Year 1996, respectively, in connection
with the
20
<PAGE>
early extinguishment of debt. Net loss for Fiscal Year 1997 and Fiscal Year 1996
was approximately $1.8 million and approximately $759,000, respectively. Net
loss applicable to common stock was approximately $7.3 million for Fiscal Year
1997 as compared to approximately $5.2 million for Fiscal Year 1996. The
increase in the net loss applicable to common stock was principally due to
increased depreciation, amortization and interest expense related to
acquisitions consummated and the increased provision for dividends in Fiscal
Year 1997 on the Depositary Shares.
FISCAL YEAR 1996 COMPARED TO PARTIAL YEAR 1995
Net revenues increased approximately $17.9 million to approximately
$19.0 million for Fiscal Year 1996 from approximately $1.1 million for Partial
Year 1995, as a result of acquisitions, LMAs and JSAs entered into during
Fiscal Year 1996 and the growth at continuously owned and operated stations. On
a same station basis for the radio stations owned and operated as of December
31, 1996, excluding the Wichita JSA, net revenues were approximately $21.4
million for Fiscal Year 1996 which is comparable on a same station basis for
the year ended December 31, 1995. The Company was impacted by anticipated
temporary declines in revenue related to format changes on three radio stations
and disruptions in sales efforts as a result of the pending sales of radio
stations to the Company prior to the Company's ownership and the restructuring
of sales management and turnover of sales staff during the periods after the
acquisitions of stations.
Station operating expenses increased by approximately $12.7 million in
Fiscal Year 1996 to approximately $13.7 million from approximately $1.0 million
for Partial Year 1995 primarily due to the inclusion of expenses related to the
acquisitions and operating agreements entered into during Fiscal Year 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 Fiscal
Year 1996 decreased to approximately $16.1 million from $17.0 million which
represented a 5% decrease in operating expenses from the year ended December 31,
1995. The benefits of the Company's cost reduction programs and efficiencies of
combined operations in the markets served were partially offset by increased
promotional expense principally related to station format changes in three of
its markets.
Broadcast Cash Flow for Fiscal Year 1996 was approximately $5.3
million with Broadcast Cash Flow Margin of 28% versus Broadcast Cash Flow of
approximately $93,000 and Broadcast Cash Flow Margin of 8% for Partial Year
1995. On a same station basis for the radio stations owned and operated by the
Company as of December 31, 1996, excluding the Wichita JSA, Broadcast Cash Flow
for Fiscal Year 1996 increased approximately 19% as compared to the year ended
December 31, 1995, principally due to increased revenue in all markets and the
cost reduction program implemented by the Company.
Depreciation and amortization expense for Fiscal Year 1996 was
approximately $1.4 million versus approximately $145,000 for Partial Year 1995.
The increase was attributable to the additional depreciation of fixed assets
and amortization of intangible assets resulting from acquisitions consummated
during Fiscal Year 1996.
Corporate expenses consisted primarily of officer's salary, financial
consulting and professional fees and expenses. Corporate expenses for Fiscal
Year 1996 were approximately $1.7 million as compared to approximately $234,000
for Partial Year 1995. The increase is principally due to increased expenses
related to acquisitions consummated in Fiscal Year 1996. Included in corporate
expense are fees paid to SFX for services rendered by TSC under the Amended and
Restated SCMC Agreement (as defined herein) of approximately $359,000 and
$20,000 for Fiscal Year 1996 and Partial Year 1995, respectively.
The Company recorded deferred compensation expense of approximately
$366,000 for Fiscal Year 1996 and approximately $227,000 for Partial Year 1995.
This recurring expense is related to stock, stock options and stock
appreciation rights granted to officers, directors and advisors in prior
periods, but is not currently affecting cash flow.
Operating income for Fiscal Year 1996 was approximately $1.5 million
as compared to a loss of approximately $513,000 for Partial Year 1995. The
increase in operating income results principally from the inclusion of results
of operations for stations acquired during Fiscal Year 1996.
21
<PAGE>
Net interest expense for Fiscal Year 1996 was approximately $1.9
million as compared to net interest income of approximately $60,000 for Partial
Year 1995. The net increase in expense was principally due to the associated
interest expense incurred in connection with the borrowings to complete the
Company's acquisition of radio stations during Fiscal Year 1996.
Net loss before extraordinary item for Fiscal Year 1996 was
approximately $439,000 versus a loss of approximately $453,000 for Partial Year
1995. The Company incurred extraordinary losses of $320,000 in Fiscal Year 1996
in connection with the early extinguishment of debt. Net loss for Fiscal Year
1996 and Partial Year 1995 was approximately $759,000 and $453,000,
respectively. Net loss applicable to common stock for Fiscal Year 1996 was
approximately $5.2 million as compared to approximately $453,000 million for
Partial Year 1995. The increase in the net loss applicable to common stock was
principally due to increased depreciation, amortization and interest expense
related to acquisitions consummated and the provision for dividends in Fiscal
Year 1996 on the Depositary Shares.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's 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 from AT&T-CFC to complete the
acquisition of two stations in Lincoln, Nebraska in January 1996 (the "Initial
Credit Agreement"), net proceeds of approximately $56.4 million from the
Preferred Stock Offering (as defined herein), the borrowing of $40.0 million
under the Credit Agreement, and the borrowing of $78.5 million under the
Amended Credit Agreement. The cost of the acquisitions completed through
December 31, 1997, including the stations subject to the Little Rock
Disposition, of approximately $130.9 million were financed with the proceeds
from the Initial Public Offering, the Initial Credit Agreement, the Preferred
Stock Offering (as defined herein), the Credit Agreement and the Amended
Credit Agreement. In addition, the Company received $20 million from the
consummation of the Little Rock Disposition which was used to pay down debt
from the Amended Credit Agreement.
Cash flow provided by operating activities for Fiscal Year 1997 was
approximately $3.5 million as compared to cash flow provided by operating
activities for Fiscal Year 1996 of approximately $1.3 million, which increase
resulted primarily from the increased income from operations. Cash used in
investing activities was approximately $45.5 million for Fiscal Year 1997 and
approximately $65.3 million for Fiscal Year 1996. 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 $40.7 million during Fiscal Year 1997 and
approximately $62.0 million during Fiscal Year 1996, and principally related to
borrowings under the Amended Credit Agreement, the Credit Agreement and net
proceeds from the Preferred Stock Offering (as defined herein).
During 1997, the Company completed a refinancing of its credit
facility with AT&T-CFC by entering into the Amended Credit Agreement with
AT&T-CFC and Union Bank in an aggregate amount of $80.0 million. Giving effect
to the Little Rock Disposition, as of December 31, 1997 the Company had
borrowed $58.5 million under the Amended Credit Agreement, had $1.5 million
available to finance operations and $20.0 million available to finance
additional acquisitions. The Company's ability to borrow funds under the
Amended Credit Agreement is conditioned on meeting certain financial ratios as
well as those imposed by provisions of the Depositary Shares. Therefore, the
maximum amounts which might become available under the facility, and the
maximum amounts actually available to the Company at any particular time may be
less. The Amended 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 Amended Credit Agreement consists
of four senior secured credit facilities.
The first facility is a revolver in the maximum amount of $35.0
million (the "Initial Revolver"). The Initial Revolver bears 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 + 0.50% (or the alternative base rate + 1.50%) to LIBOR + 2.75% (or
the alternative base rate + 1.50%), based upon the Company's consolidated
leverage ratio. The amount available under the Initial Revolver
22
<PAGE>
decreases on a quarterly basis, in amounts ranging from $350,000 per quarter
beginning July 1, 1998 to approximately $1.8 million per quarter beginning in
2003. Currently, with the Company's borrowings under the Initial Revolver at
$33.5 million, the first principal payment will be due on July 1, 1999. The
final maturity of the Initial Revolver is April 1, 2004.
The second facility is a term loan in the maximum amount of $25.0
million (the "Term Loan"). The Term Loan will bear interest at LIBOR + 3.50%
(or the alternative base rate + 2.50%). The principal of the Term Loan must be
reduced by $31,250 per quarter beginning July 1, 1998, until the final maturity
on July 1, 2004.
The third facility was a term loan in the amount of $20.0 million (the
"Little Rock Facility") which was repaid from the proceeds of the Little Rock
Disposition.
The fourth facility (the "Acquisition Revolver") will be made
available to the Company to fund future acquisitions in an aggregate amount of
up to $20 million. The amount available may be reduced pursuant to total debt
limitations specified in the Amended Credit Agreement. The Acquisition Revolver
will bear interest at LIBOR + 3.50% (or the alternative base rate + 2.50%). The
principal of the Acquisition Revolver must be reduced by $125,000 per year
(paid on a quarterly basis) until the final maturity on July 1, 2004.
The Amended Credit Agreement contains financial leverage and coverage
ratios, and restriction on capital expenditures and other payments. As of
December 31, 1997, the Company did not meet certain financial covenants. The
Company's lenders have granted it waivers as of December 31, 1997 with respect
to these covenants. Management believes that it is probable that it will not
comply with one of these covenants in its quarterly tests during 1998 and the
lenders have indicated that they are only willing to grant waivers on a quarter
by quarter basis. Accordingly, the entire debt outstanding under the Amended
Credit Agreement has been reclassified as a current liability on its balance
sheet for the year ended December 31, 1997. Based on discussions with its
lenders, management is confident that, if required, it will be able to obtain
the appropriate waivers in the future. However, in the event that such waivers
are not granted, management, after consultation with its regular financing
sources, believes that the Company would be able to refinance the Amended
Credit Agreement on acceptable terms.
The Company has incurred additional indebtedness pursuant to the
Pinnacle Acquisition consisting of a note in the amount of $525,000 to Havelock
Bank of Lincoln, Nebraska, which the Company assumed from the prior owners and
which was repaid in November 1997, and notes to the prior owners which require
a payment of $1.0 million on each of May 15, 1998 and 1999. The purchase price
of the Pinnacle Acquisition 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 and the payment of such would be required at the
time the renewal is obtained. While renewal of the contract with the University
of Nebraska cannot be assured, based on discussions the Company has had with
the University of Nebraska, the Company presently knows of no reason why the
contract would not be renewed. Additionally, under the Company's broadcast
rights agreement with the University of Nebraska, annual rights fee payments of
approximately $1.7 million during the year ended December 31, 1999 and
approximately $1.8 million during the year ended December 31, 2000 are due on
October 1 of each year, or, at the option of the Company each year, may be paid
in seven equal principal installments plus interest at the prime rate.
During the year ended December 31, 1998, it is anticipated that the
Company will be able to meet its capital needs, including interest expense,
dividends, corporate expense, capital expenditures and other commitments, from
cash on hand, cash provided from operations which assumes continued substantial
improvement in the operating results of the Company's radio stations, and
additional borrowings which may be available under the Amended Credit
Agreement. There can be no assurance, however, that the stations will achieve
the cash flow levels required to meet its capital needs. 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 to fund its operations in the event that its
operations do not improve and in connection with possible
23
<PAGE>
future acquisitions of radio properties and is likely to need to incur or raise
such additional financing when the balloon payments are due in 2004 under the
Amended 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, if at all. Without such sources of funding, it is
unlikely that the Company will be able to continue to implement its acquisition
strategy.
The Company is aware that its current group of radio stations combined
with the trend towards consolidation in the industry may present an attractive
opportunity to maximize stockholder value through a sale of the Company's
assets or by the combination of the Company's business with that of a larger
broadcasting company. The Company will continue to consider all available
opportunities and has engaged Goldman, Sachs & Co. to actively explore
alternatives to maximize stockholder value.
POTENTIAL "YEAR 2000" PROBLEMS
It is possible that the Company's currently installed computer
systems, software products or other business systems will not always accept
input of, store, manipulate or output dates in the year 2000 or thereafter
without error or interruption (the "Year 2000 Issue"). The Company is
conducting a review of its computer systems to attempt to identify ways in
which its systems could be affected by problems in correctly processing date
information. At this time, the Company does not expect the Year 2000 Issue to
have a material adverse effect on its operations. However, there can be no
assurance that the Company will identify all date-handling problems in its
computer systems in advance of their occurrence or that the Company will be
able to successfully remedy problems that are discovered. The expenses of the
Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, though unlikely, could have a material adverse effect on the
Company's business, results of operations and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), which is effective for years beginning after December 15,
1997. FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. FAS 130 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore,
the Company will adopt the new requirements in 1998. Management has not
completed its review of FAS 130, but does not anticipate that its adoption will
have a material effect on the consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of An Enterprise and Related Information"
("FAS 131"), which is effective for years beginning after December 15, 1997.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. FAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the new
requirements in 1998. Management has not completed its review of FAS 131,
but does not anticipate that its adoption will have a material effect on the
consolidated financial statements.
In February 1998, FASB issued Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pensions and Other
Post-Retirement Benefits" ("FAS 132"), which is effective for years beginning
after December 15, 1997. FAS 132 standardizes the disclosure requirements for
pension and other post-retirement benefits to the extent practicable, requires
additional information on charges in the benefit obligations and fair value of
plan assets that will facilitate financial analysis, and eliminates certain
disclosure. FAS 132 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the new
requirements in 1998. Management has not completed its review of FAS 132 but
does not anticipate that its adoption will have a material effect on the
consolidated financial statements.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by Item 8 of Part II is incorporated herein
by reference to the Consolidated Financial Statements filed with this report.
See "Item 14. Exhibits, Financial Statement Schedules, Lists and Reports on
Form 8-K."
ITEM 9. 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---------------------------- ----------------- ---------------------------
John D. Miller 53 Chairman of the Board
Norman Feuer 60 Chief Executive Officer,
President and Director
William G. Thompson 37 Chief Financial Officer
Kraig G. Fox 29 Secretary
Dennis R. Ciapura 52 Director
Frank E. Barnes III 48 Director
Jeffrey W. Leiderman 51 Director
- ---------------------------- ----------------- ---------------------------
The Amended and Restated Certificate of Incorporation of the Company
authorizes the Board to fix the number of directors from time to time, but at
no less than two directors. The Board 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"). 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 and serve at
the discretion of the Board. In the event that dividends on the Depositary
Shares are in arrears and unpaid for six consecutive 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 the Company
since June 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
1993, Mr. Miller served in various capacities with The Equitable Companies
Incorporated (the "Equitable"), a full service insurance and investment
company. Immediately prior to his retirement from The Equitable in 1993,
Mr. Miller served as the President and Chief Executive Officer of Equitable
Capital Management Corp., an investment and advisory subsidiary of The
Equitable.
Norman Feuer has served as President, Chief Executive Officer and a
Director of the Company since June 1995. In addition, Mr. Feuer served as
acting Chief Financial Officer and Treasurer from June 1996
25
<PAGE>
until November 1996. From September 1992 to September 1995, Mr. Feuer served 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.
William G. Thompson has served as Chief Financial Officer of the
Company since September 1997 after serving as Corporate Controller for the
Company since October 1995. Mr. Thompson served as the Corporate Controller for
Pourtales from October 1995 until November 1996, and served in other accounting
management positions with Pourtales since 1992. From 1986 to 1992, Mr. Thompson
held various accounting management positions including Chief Financial Officer
of Unicom Broadcasting, Inc. from 1991 to 1992.
Kraig G. Fox has served as the Secretary of the Company since June
1996. Since December 1993, Mr. Fox has been Manager--Business and Legal Affairs
for TSC. Since July 1995, Mr. Fox has been Secretary of The Marquee Group, Inc.
("Marquee"), a publicly-traded company engaged in various aspects of
sports-related media, 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.
Dennis R. Ciapura has served as a Director of the Company since
October 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.
Frank E. Barnes III has served as a Director of the Company since
October 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.
Jeffrey W. Leiderman has served as a Director of the Company since
October 1995. Since 1970, he has been the President of Leiderman Associates,
which provides insurance and financial consulting services. From 1982 to 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.
PRINCIPAL EXECUTIVE OFFICERS OF THE SILLERMAN COMPANIES
Information is set forth below with respect to Messrs. Robert F. X.
Sillerman and Howard J. 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 Sillerman
Communications Management Corporation ("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, have
assisted, and will continue to assist, the Company in planning and negotiating
acquisitions of radio stations as well as obtaining financing and maintaining
the Company's ongoing relationships with financial institutions. See "Item 13.
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."
26
<PAGE>
Robert F. X. Sillerman, 49, has been the Executive Chairman of the
Board of SFX since July 1995; and from 1992 through June 1995, he served as the
Chairman of the Board and Chief Executive Officer of SFX. Mr. Sillerman has
been the 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 the 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 that 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, 51, 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.
There are no family relationships among the Company's executive
officers and directors.
SECTION 16(a) BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (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 Stockholders"), to file
with the SEC initial reports of ownership and reports of changes of ownership
of certain equity securities of the Company. The Covered Stockholders are
required by the SEC'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 Stockholders to return to the Company any profit resulting from the
purchase and sale or the sale and purchase 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 Fiscal Year 1997, the Covered Stockholders
complied with all of the filing requirements applicable to them as indicated in
the above paragraph.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth all reportable compensation awarded to,
earned by or paid to the Chief Executive Officer for services rendered in all
capacities to the Company and its subsidiaries. No other individual officer
received annual compensation in excess of $100,000 for Fiscal Year 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------------- --------------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------------- --------------------------------------
NAME AND YEAR SALARY ($) BONUS ($) RESTRICTED STOCK SECURITIES
PRINCIPAL OTHER ANNUAL AWARD(S) ($) UNDERLYING
POSITION COMPENSATION ($)(3) OPTIONS/SARS (#)
- -------------------- ------- ---------- ---------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Norman Feuer, 1997 154,675 50,000 (1) -- -- --
Chief
Executive
Officer
1996 150,900 70,000 (2) -- -- 15,000 (5)
1995 43,750 -- -- 60,000 (4) --
Period
</TABLE>
- --------------
(1) On April 30, 1997, the Board approved a bonus for Mr. Feuer in the
amount of $50,000 in recognition of the Company's performance during
Fiscal Year 1996 and pursuant to the bonus clauses in Mr. Feuer's
employment agreement. The bonus was offset against loans granted to
Mr. Feuer on March 31, 1997. See "--Employment Agreement."
(2) On April 30, 1996, the Board approved a bonus for Mr. Feuer in the
amount of $70,000 in recognition of the Company's performance during
Fiscal Year 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 on March 31, 1997. See "--Employment Agreement."
(3) 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 Chief Executive Officer during Fiscal Year 1997, Fiscal Year 1996,
and Partial Year 1995.
(4) 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 February 27, 1998, this
award would have had a value of approximately $634,000.
(5) These options were granted on October 30, 1995 and vested 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 $11.50 (the closing price of the Class A
Common Stock on October 30, 1995) multiplied by 15,000. The bonus
vested in two equal installments on October 30, 1996 and October 30,
1997 and will be paid upon exercise of Mr. Feuer's options. Mr. Feuer
has not exercised any options.
28
<PAGE>
The following table provides information with respect to stock options
held by the Chief Executive Officer as of December 31, 1997. The Chief Executive
Officer was not granted any options during Fiscal Year 1997 nor did the Chief
Executive Officer exercise any options during Fiscal Year 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTION/SARS AS OF OPTIONS/SARS AS OF
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------- --------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Norman Feuer __ __ 15,000/0 0/0
</TABLE>
- -------------------
(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 February 27, 1998. However, on that date the exercise of vested
options would have entitled the Chief Executive Officer to a bonus
payment of approximately $76,000. See footnote (6) to the Summary
Compensation Table above.
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's 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, then Mr. Feuer will receive one-half of such bonus and shall receive
the remaining one-half at the sole discretion of the 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 the Discretionary Bonus is less than
$50,000 in any year, then the Company will loan to Mr. Feuer an amount equal to
$50,000 less the Discretionary Bonus. If Mr. Feuer remains employed by the
Company for the full term of his five year employment agreement, then such loan
amounts will be forgiven. The Company loaned to 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 to Mr. Feuer $25,000 in each of May, July and October 1996, and in
January 1997. The loans granted in May and July 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 to 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 such loans do not bear interest and mature at September 13, 2000,
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, 2000, unless extended, these loans
will be forgiven. Additionally, the Company loaned to Mr. Feuer $25,000 in each
of April, July and October 1997 as advance payments on his future bonus. See
"Item 13. Certain Relationships and Related Transactions--Loans to Chief
Executive Officer and Director."
The Employment Agreement provides that in the event that 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
29
<PAGE>
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 of the Company, 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 that 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, then 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, then he must surrender 50%, 25% and
20%, respectively, of his shares of Class B Common Stock.
DIRECTORS' COMPENSATION
Each of Messrs. Miller, Barnes and Leiderman receive $1,000 for each
meeting of the Board that he attends. In addition, each of Messrs. Barnes and
Leiderman receive $750 for any committee meeting that he attends which is not
held in conjunction with a meeting of the Board. Each of Messrs. Miller,
Leiderman and Barnes also received a one-time cash payment of $20,000, which
was paid in February 1998, in connection with their membership in a special
committee of the Board created to oversee the efforts of Goldman, Sachs & Co.
to explore alternatives to maximize stockholder value. No other compensation is
paid to directors for attending meetings of the Board meetings or its
committees.
30
<PAGE>
ITEM 12. 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 February 27, 1998 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 Chief Executive
Officer and each of the directors and (iii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Class A Class B Class D Depositary
Common Stock Common Stock (2) Common Stock (2) Shares (3)
Name and --------------------- -------------------- ----------------------- ----------------------
Address of Percentage
Beneficial Number of Percent Number of Percent Number of Percent Number Percent of Total
Owner (1) Shares of Class Shares of Class Shares of Class of Shares of Class Voting Power
- ---------------- ----------- ---------- ----------- --------- ------------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Miller 25,000(4) * -- -- -- -- -- -- *
Norman Feuer 15,000(5) * 244,890(6) 100% -- -- -- -- 23.9%
William G. 2,500(7) * -- -- -- -- -- -- *
Thompson
Dennis R. 5,000(8) * -- -- -- -- -- -- *
Ciapura
Jeffrey W. 1,000 * -- -- -- -- -- -- *
Leiderman
Robert F.X. 60,200(9) 1.8% -- -- 1,136,852 78.7% -- -- --(10)
Sillerman
C. Terry 10,000(11) * -- -- 122,445 8.5% -- -- --(12)
Robinson
Howard J. Tytel 9,800(13) * -- -- 185,069 12.8% -- -- --(14)
Wellington 690,806 21.8% -- -- -- -- 829,000 14.2% 13.2%
Management
Company, LLP
(15)
Putnam 379,156 12.0% -- -- -- -- -- -- 3.7%
Investments,
Inc. (16)
General Motors 362,855 11.4% -- -- -- -- -- -- 3.5%
Employees
Domestic Group
Pension Trust
(17)
Wellington 335,820 10.6% -- -- -- -- 403,000 6.9% 6.4%
Trust Company,
NA (18)
Morgan 325,703 10.3% -- -- -- -- -- -- 3.2%
Stanley, Dean
Witter,
Discover & Co.
(19)
Wynnefield 295,500 9.3% -- -- -- -- -- -- 2.9%
Partners Small
Cap Value,
L.P. (20)
Lawrence M. 205,000 6.5% -- -- -- -- -- -- 2.0%
Blau and Mark
Metzger (21)
State 199,992 6.3% -- -- -- -- 240,000 4.1% 3.8%
Retirement and
Pension System
of Maryland(22)
Third Point 182,400 5.7% -- -- -- -- -- -- 1.8%
Management
Company L.L.C.
&Daniel S. Loeb
(23)
All Directors 48,500(24) 1.5% 244,890 100% -- -- -- -- 24.3%(25)
and Executive
Officers as a
Group
(6 persons)
</TABLE>
- -------------------
* Less than 1%
(1) Except as otherwise noted, the address of each of the persons named is
c/o 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 March 17, 1998 to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days of
March 17, 1998. 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 convertible
into Class A Common Stock upon transfer. There were 31,000 shares of
Class C Common Stock outstanding on February 27, 1998. 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 that the market price of
the Class A Common Stock exceeds certain levels.
(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
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Class A Common Stock at the option of the holder (subject to FCC
approval) provided that 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 shares of Class B Common Stock, Messrs. Feuer and Sillerman
would beneficially own 68% of the voting power of the Company.
(4) Does not include 3,000 shares of Series B Convertible Preferred Stock,
of which 50% become convertible into 1,500 shares of Class A Common
Stock once the price of Class A Common Stock has been greater than $14
for 20 consecutive days, and the remaining 50% of which become
convertible into 1,500 shares of Class A Common Stock once the price
of Class A Common Stock has been greater than $15 for 20 consecutive
days.
(5) Consists of options to purchase 15,000 shares of Class A Common Stock
granted pursuant to the Company's 1995 Stock Option Plan, which are
exercisable within 60 days of March 17, 1998. 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 vested 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.
(6) Includes 86,000 shares of Class B Common Stock owned by Mr. Sillerman
and 14,000 shares of Class B Common Stock owned by Mr. Tytel. Mr.
Feuer may be deemed to beneficially own such 100,000 shares of Class B
Common Stock because he retains power to vote such 100,000 shares
pursuant to a voting trust agreement. Mr. Feuer had previously pledged
such shares to Messrs. Sillerman and Tytel to secure Mr. Feuer's
obligation to deliver 40.835% of the consideration received from the
sale of all or a portion of the 244,890 shares of Class B Common Stock
owned by Mr. Feuer. On March 12, 1998, the 100,000 shares of Class B
Common Stock were transferred to Messrs. Sillerman and Tytel subject
to a voting trust. At the same time, Mr. Feuer's pledge to Messrs.
Sillerman and Tytel was terminated. In the event that Messrs.
Sillerman and Tytel exercise their right of first refusal to purchase
all 244,890 shares owned by Mr. Feuer (which may require prior FCC
approval), Mr. Sillerman will hold approximately 9.9% 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 that he voluntarily
terminates his employment prior to the expiration of the term of his
employment agreement. Does not include 60,000 shares of Series B
Convertible Preferred Stock, of which 50% become convertible into
30,000 shares of Class A Common Stock once the price of Class A Common
Stock has been greater than $14 for 20 consecutive days, and the
remaining 50% of which become convertible into 30,000 shares of Class
A Common Stock once the price of Class A Common Stock has been greater
than $15 for 20 consecutive days. See "Item 11. Executive
Compensation--Employment Agreement" and "Item 13. Certain
Relationships and Related Transactions--Agreement between Mr. Feuer
and Radio Investors."
(7) 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 of March 17, 1998.
(8) Consists of options to purchase 5,000 shares of Class A Common Stock
granted pursuant to the Company's 1995 Stock Option Plan, which are
exercisable within 60 days of March 17, 1998. In addition to the
options, on October 30, 1995, Mr. Ciapura received the right to a cash
bonus in the amount of $30,000, 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 5,000. The bonus vested in two equal
installments on October 30, 1996 and October 30, 1997 and will be paid
on the exercise of Mr. Ciapura's options. Mr. Ciapura has not
exercised any options. Does not include 2,000 shares of Series B
Convertible Preferred Stock, of which 50% become convertible into
1,000 shares of Class A Common Stock once the price of Class A Common
Stock has been greater than $14 for 20 consecutive
days, and the remaining 50% of which become convertible into 1,000
shares of Class A Common Stock once the price of Class A Common Stock
has been greater than $15 for 20 consecutive days.
(9) Consists of options to purchase 60,200 shares of Class A Common Stock
granted pursuant to the Company's 1995 Stock Option Plan, which are
exercisable within 60 days of March 17, 1998. Does not include 404,200
shares of Series B Convertible Preferred Stock, of which 50% become
convertible into 202,100 shares of Class A Common Stock once the price
of Class A Common Stock has been greater than $14 for 20 consecutive
days, and the remaining 50% of which become convertible into 202,100
shares of Class A Common Stock once the price of Class A Common Stock
has been greater than $15 for 20 consecutive days.
(10) If the shares of Class D Common Stock are converted into shares of
Class B Common Stock, Mr. Sillerman would beneficially hold 46.0% of
the total voting power of the Company. If the shares of Class D Common
Stock are converted into shares of Class A Common Stock, Mr. Sillerman
would beneficially hold 9.7% of the total voting power of the Company.
(11) Consists of 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 of March 17, 1998. Does not include 30,000
shares of Series B Convertible Preferred Stock, of which 50% become
convertible into 15,000 shares of Class A Common Stock once the price
of Class A Common Stock has been greater than $14 for 20 consecutive
days, and the remaining 50% of which become convertible into 15,000
shares of Class A Common Stock once the price of Class A Common Stock
has been greater than $15 for 20 consecutive days.
(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. If the shares of Class D Common
Stock are converted into shares of Class A Common Stock, Mr. Robinson
would beneficially hold 1.0% of the total voting power of the Company.
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(13) Consists of options to purchase 9,800 shares of Class A Common Stock
granted pursuant to the Company's 1995 Stock Option Plan, which are
exercisable within 60 days of March 17, 1998. Does not include 65,800
shares of Series B Convertible Preferred Stock, of which 50% become
convertible into 32,900 shares of Class A Common Stock once the price
of Class A Common Stock has been greater than $14 for 20 consecutive
days, and the remaining 50% of which become convertible into 32,900
shares of Class A Common Stock once the price of Class A Common Stock
has been greater than $15 for 20 consecutive days.
(14) If the shares of Class D Common Stock are converted into shares of
Class B Common Stock, Mr. Tytel would beneficially hold 7.5% of the
total voting power of the Company. If the shares of Class D Common
Stock are converted into shares of Class A Common Stock, Mr. Tytel
would beneficially hold 1.6% of the total voting power of the Company.
(15) Includes 335,820 shares of Class A Common Stock (through the potential
conversion of 403,000 Depositary Shares) beneficially owned by
Wellington Trust Company, NA, which number includes 199,962 shares of
Class A Common Stock (through the potential conversion of 240,000
Depositary Shares) owned by the State Retirement and Pension System of
Maryland. Data based on information contained in a Schedule 13G/A
filed with the SEC on February 10, 1998. The address of Wellington
Management Company, LLP ("Wellington Management") is 75 State Street,
Boston, Massachusetts 02109. Wellington Management, in its capacity as
investment advisor, may be deemed to own 690,806 shares of Class A
Common Stock through the potential conversion of 829,000 Depositary
Shares which are held of record by clients of Wellington Management.
Wellington Management has shared power to vote with respect to 274,156
shares of Class A Common Stock and 329,000 Depositary Shares and
shared power to dispose of 690,806 shares of Class A Common Stock and
829,000 Depositary Shares.
(16) Data based on information contained in a Schedule 13G filed with the
SEC on January 28, 1998. The address of Putnam Investments, Inc.
("Putnam") is One Post Office Square, Boston, Massachusetts 02109.
Putnam, a wholly-owned subsidiary of Marsh & McLennan Companies, Inc.,
may be deemed to beneficially own 379,156 shares of Class A Common
Stock. Putnam has shared voting power over 84,337 shares of Class A
Common Stock and shared dispositive power over 379,156 shares of Class
A Common Stock. Putnam Investment Management, Inc., a wholly-owned
subsidiary of Putnam, is the investment adviser to the Putnam family
of mutual funds and has shared dispositive power over 257,826 shares
of Class A Common Stock. The Putnam Advisory Company, Inc., a
wholly-owned subsidiary of Putnam, is the investment advisor to
Putnam's institutional clients and has shared voting and dispositive
power over 121,330 shares of Class A Common Stock. Shares of Class A
Common Stock referenced in this footnote are beneficially owned by
clients of Putnam Investment Management, Inc. and Putnam Advisory
Company, Inc.
(17) Data based on information contained in a Schedule 13G filed with the
SEC on February 13, 1998. The address of General Motors Employees
Domestic Group Pension Trust ("GM Trust") is 767 Fifth Avenue, New
York, New York 10153. GM Trust, a trust formed under and for the
benefit of one or more employee benefit plans of General Motors
Corporation and its subsidiaries, may be deemed to beneficially own
362,855 shares of Class A Common Stock. GM Trust has shared voting and
dispositive power over 362,855 shares of Class A Common Stock. General
Motors Investment Management Corporation is the investment adviser to
GM Trust. It may be deemed to beneficially own 362,855 shares of Class
A Common Stock, and has shared voting and dispositive power over
362,855 shares of Class A Common Stock.
(18) Includes 199,962 shares of Class A Common Stock (through the potential
conversion of 240,000 Depositary Shares) owned by the State Retirement
and Pension System of Maryland. Data based on information contained in
a Schedule 13G/A filed with the SEC on February 11, 1998. The address
of the Wellington Trust Company, NA ("Wellington Trust") is 75 State
Street, Boston, Massachusetts 02109. Wellington Trust, in its capacity
as investment adviser, may be deemed to beneficially own 335,820
shares of Class A Common Stock and 403,000 Depositary Shares, which
are held of record by its clients. Wellington Trust has shared voting
power over 135,828 shares of Class A Common Stock and over 163,000
Depositary Shares, and has shared dispositive power over 335,820
shares of Class A Common Stock and 403,000 Depositary Shares.
(19) Data based on information contained in a Schedule 13G filed with the
SEC on February 17, 1998 on behalf of Morgan Stanley, Dean Witter,
Discover & Co. ("Morgan"), Dean Witter Intercapital, Inc. ("DWI"),
Dean Witter Convertible Securities Fund ("DWCS"), and Van Kampen
American Capital Asset Management, Inc ("Van Kampen"). The address of
Morgan is 1585 Broadway, New York, New York, 10036. Morgan may be
deemed to beneficially own 325,703 shares of Class A Common Stock.
Morgan has shared voting power over 325,703 shares of Class A Common
Stock and shared dispositive power over 325,703 shares of Class A
Common Stock. DWI, a wholly owned subsidiary of Morgan and the
investment advisor for DWCS, may be deemed to beneficially own 325,703
shares of Class A Common Stock. Morgan has shared voting power over
325,703 shares of Class A Common Stock and shared dispositive power
over 325,703 shares of Class A Common Stock. DCWS may be deemed to
beneficially own 242,000 shares of Class A Common Stock. Morgan has
shared voting power over 242,000 shares of Class A Common Stock and
shared dispositive power over 242,000 shares of Class A Common Stock.
As of the date the Schedule 13G was filed, Van Kampen had ceased to be
the beneficial owner of more than 5% of the Company's Class A Common
Stock.
(20) Data based on information contained in Amendment No. 2 to a Schedule
13D/A filed with the SEC on May 2, 1997. The address of Wynnefield
Partners Small Cap Value, L.P. ("Wynnefield Partnership") is One Penn
Plaza, Suite 4720, New York, New York, 10119. 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. Both Wynnefield Partnership and Wynnefield
Offshore have sole voting and dispositive power over their respective
shares. Nelson Obus and Joshua Landes are the general partners of
Wynnefield Partnership and President and Executive Vice President,
respectively, of the investment manager of Wynnefield Offshore.
(21) Data based on information contained in a Schedule 13D filed with the
SEC on January 30, 1998. The business address of Messrs. Blau and
Metzger is 520 Madison Avenue, New York, New York 10022. Messrs. Blau
and Metzger are the managing
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partners of BEM Partners, L.P. ("BEM"), and the chairman and
vice-chairman, respectively, of BEM International Management Ltd. ("BEM
International"). Messrs. Blau and Metzger may be deemed to beneficially
own 205,000 shares of Class A Common Stock because they are primarily
responsible for managing the assets of BEM and BEM International, which
hold 154,000 and 51,000 shares of Class A Common Stock, respectively.
Messrs. Blau and Metzger have shared voting and dispositive power over
205,000 shares of Class A Common Stock.
(22) Data based on information contained in a Schedule 13G filed with the
SEC on February 17, 1998. The address of the State Retirement and
Pension System of Maryland ("SRPS") is 301 West Preston Street,
Baltimore, Maryland 21201-2363. SRPS may be deemed to beneficially own
199,992 shares of Class A Common Stock through the potential
conversion of 240,000 Depositary Shares. SRPS has shared voting and
dispositive power over 199,992 shares of Class A Common Stock through
the potential conversion of 240,000 Depositary Shares.
(23) Data based on information contained in a Schedule 13D filed with the
SEC on February 5, 1998. The address of Third Point Management Company
L.L.C. ("Third Point") is 277 Park Avenue, 26th Floor, New York, New
York 10172. Third Point, in its capacity as discretionary investment
manager, and Daniel S. Loeb, as sole managing member of Third Point,
may be deemed to beneficially own 182,400 shares of Class A Common
Stock, which are held of record by its clients. Third Point and Mr.
Loeb have shared voting and dispositive power over 182,400 shares of
Class A Common Stock.
(24) Includes options to purchase 22,500 shares of Class A Common Stock
granted pursuant to the Company's 1995 Stock Option Plan which are
exercisable within 60 days of March 17, 1998.
(25) 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO CHIEF EXECUTIVE OFFICER AND DIRECTOR
In September 1997, the Company loaned $150,000 to Mr. Feuer, a
director of the Company and its President and Chief Executive Officer. This
loan accrues interest at a rate of 7.25%, for which Mr. Feuer pledged 35,294
shares of Class B Common Stock. All interest and principal are due in
September, 2002.
In addition, the Company loaned to Mr. Feuer $25,000 in each of May,
July and October 1996 and January 1997. The loans granted in May and July 1996
were offset against a bonus in the amount of $50,000 which was approved by the
Board on April 30, 1997. On that date, the Board also granted to Mr. Feuer the
Additional Loan (in the amount of $50,000). The loans granted in October 1996
and January 1997 have been restated to provide, and the Additional Loan
provides, that such loans do not bear interest and mature at September 13,
2000, 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, 2000, unless extended,
these loans will be forgiven. Additionally, the Company loaned to Mr. Feuer
$25,000 in each of April, July and October 1997 as advance payments on his
future bonus.
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 included the sale of radio station
KOLL-FM.
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 the Company's 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 (as defined
herein), 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 "Item 8. Financial Statements--Note 10--
Related Party Transactions."
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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 approximately $944,000 in
advisory fees for the period from the Company's Inception through December 31,
1997. Additionally, the Company paid to SCMC fees in connection with radio
station acquisitions completed, the Preferred Stock Offering, arrangement of
borrowing facilities and the Little Rock Disposition which totaled
approximately $163,000, $2.5 million and $1.9 million for the period from the
Company's Inception to December 31, 1995, Fiscal Year 1996 and Fiscal Year 1997
respectively.
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 to 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.
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 (as defined herein), $300,000 per year; and (iii) from the date
the Company has used the net proceeds of the Preferred Stock Offering (as
defined herein) 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
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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 that 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 is obligated 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 the Company 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 the years
ended December 31, 1997. SCMC (or SFX) earned $570,000 in connection with the
Omaha Acquisition, $49,500 in connection with the Pinnacle Acquisition,
$600,000 in connection with the Amended 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.
SCMC has agreed to defer the payment of fees if such payment would
cause a default under the Amended Credit Agreement unless a waiver is obtained
from the Lenders. 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 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 to SFX $2,500 per month as compensation for services
provided to the Company by TSC for the functions of Secretary, accounting and
investor relations. In addition, Kraig G. Fox, the
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Company's Secretary, is an employee of SFX and does not receive any compensation
directly from the Company. SFX compensates Mr. Fox for services rendered on
behalf of the Company. SCMC provided these services to the Company prior to
April 15, 1996, the date when the SCMC Termination Agreement was entered into.
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. On March 12, 1998, 100,000 shares of Class B
Common Stock, the number of shares owned by Mr. Feuer represented by the Agreed
Percentage, were issued to Messrs. Sillerman and Tytel subject to a voting
trust whereby Mr. Feuer retains the voting power over the shares. At the time
of such transfer, the pledge agreement between Mr. Feuer and Radio Investors
was terminated. 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 the remaining 144,890 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. The conveyance of shares of Class B Common
Stock to Radio Investors may require the prior approval of the FCC. See "Item
12. Security Ownership of Certain Beneficial Owners and Management."
RELATIONSHIP WITH RADIO ANALYSIS ASSOCIATES
Radio Analysis Associates ("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 which 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 12. Security Ownership of Certain Beneficial Owners and
Management."
ISSUANCES OF SECURITIES
None.
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.
37
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, LISTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. See Index to Consolidated Financial Statements
and Schedule which appears on Page F-1 herein.
(2) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 (2) -- Amended and Restated Certificate of Incorporation of
Triathlon Broadcasting Company
3.2 (6) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Triathlon Broadcasting
Company
3.3 (1) -- By-laws of the Company
4.1 (2) -- IPO Underwriters' Warrant
4.2 (1) -- Specimen Stock Certificate for Class A Common Stock
4.3 (2) -- Certificate of Designations of the Series B Convertible
Preferred Stock
4.4 (2) -- Form of Certificate of Designations of the 9% Mandatory
Convertible Preferred Stock
4.5 (2) -- Form of Deposit Agreement relating to the 9% Mandatory
Convertible Preferred Stock
4.6 (2) -- Form of Stock Certificate for 9% Mandatory Convertible
Preferred Stock
4.7 (2) -- Form of Depositary Receipt Evidencing Depositary Shares
10.1 (1) -- Purchase and Sale Agreement dated March 23, 1995 by and
between the Triathlon Broadcasting Company and
Pourtales Radio Partnership
10.2 (1) -- Asset Purchase Agreement dated February 9, 1995 by and
between Wichita Acquisition Corp. and Marathon
Broadcasting Corporation
10.3 (1) -- Amendment to Purchase and Sale Agreement dated June 30,
1995 by and between Triathlon Broadcasting Company and
Pourtales Radio Partnership
10.4 (1) -- Advertising Brokerage Agreement for Radio Station
KEYN-FM by and between Triathlon Broadcasting Company
and Pourtales Radio Partnership
10.5 (1) -- Purchase and Sale Agreement among Triathlon
Broadcasting Company, Pourtales Radio Partnership,
Pourtales Holdings, Inc. and KVUU/KSSS, Inc.
10.6 (2) -- Subscription Agreements dated June 30, 1995, effective
as of May 1, 1995
10.7 (1) -- Office Lease by and between Knightsbridge Associates
and Force II Communications
10.8 (2) -- First Amendment to Office Lease by and between
Knightsbridge Associates and Force II Communications
10.9 (2) -- Assignment of Office Lease among Knightsbridge
Associates, Force II Communications and the Triathlon
Broadcasting Company
10.10 (2) -- Shared Expense Agreement dated September 13, 1995 by
and between Triathlon Broadcasting Company and
Pourtales Radio Partnership
10.11 (1) -- Financial Consulting Agreement dated June 30, 1995 by
and between Triathlon Broadcasting Company and SCMC
10.12 (1)(9) -- Triathlon Broadcasting Company 1995 Stock Option Plan
10.13 (1)(9) -- Employment Agreement by and between Triathlon
Broadcasting Company and Norman Feuer
10.14 (1) -- Promissory Note dated June 15, 1995, issued to Radio
Investors, Inc.
10.15 (1) -- Agreement by and between Norman Feuer and Radio
Investors, Inc.
10.16 (1) -- Pledge Agreement by and between Norman Feuer and Radio
Investors, Inc.
10.17 (1) -- Form of Consulting Agreement among Triathlon
Broadcasting Company and the IPO Underwriters
38
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.18 (1) -- Amendment to Purchase and Sale Agreement dated August
4, 1995 by and between the Triathlon Broadcasting
Company and Pourtales Radio Partnership
10.19 (1) -- Amendment to Asset Purchase Agreement dated May 3, 1995
by and between Wichita Acquisition Corp. and Marathon
Broadcasting Corporation
10.20 (1) -- Amendment and Extension Agreement dated August 15, 1995
by and between Wichita Acquisition Corp. and Marathon
Broadcasting Corporation
10.21 (1) -- Amendment to Purchase and Sale Agreement dated March
23, 1995 by and between Triathlon Broadcasting Company
and Pourtales Radio Partnership
10.22 (1) -- Second Amendment and Extension Agreement dated August
28, 1995 by and between Wichita Acquisition Corp. and
Marathon Broadcasting Corporation
10.23 (2) -- 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 (2) -- 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 (2) -- 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 (2) -- 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 (2) -- Programming Affiliation Agreement dated as of April 14,
1993 by and between KOTY-FM, Inc. and KUJ Limited
Partnership
10.28 (2) -- Asset Purchase Agreement dated as of December 8, 1995
among Valley Broadcasting, Inc., Meridien Wireless,
Inc. and Triathlon Broadcasting Company
10.29 (2) -- Asset Purchase Agreement dated as of December 8, 1995
by and between 93.3, Inc. and Triathlon Broadcasting
Company
10.30 (2) -- Asset Purchase Agreement dated as of September 5, 1995
by and between Rock Steady, Inc. and Lincoln Radio
Acquisition Corp.
10.31 (2) -- Joint Selling Agreement dated as of January 29, 1996 by
and between Rock Steady, Inc. and Lincoln Radio
Acquisition Corp.
10.32 (2) -- Asset Purchase Agreement dated as of February 8, 1996
by and between Sterling Realty Organization Co. and
Triathlon Broadcasting Company
10.33 (2) -- Asset Purchase Agreement dated as of February 21, 1996
by and between Silverado Broadcasting Company and
Triathlon Broadcasting Company
10.34 (2) -- Sales Representation Agreement dated June 9, 1993 by
and between Silverado Broadcasting Company and Lance
International, Inc.
10.35 (2) -- Sales Representation Agreement dated as of October 1,
1993 by and between Silverado Broadcasting Company and
Rook Broadcasting of Idaho, Inc.
10.36 (2) -- 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 (2) -- Letter agreement with respect to KOLL-FM dated January
17, 1996 by and between Triathlon Broadcasting Company
and Multi-Market Radio, Inc.
10.38 (2) -- 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 (2) -- 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.
39
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.40 (2) -- Letter from AT&T Commercial Finance Corporation dated
February 6, 1996
10.41 (2) -- 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 (2) -- Security Agreement dated as of January 23, 1996 between
Triathlon Broadcasting Company and AT&T Commercial
Finance Corporation
10.43 (2) -- 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 (2) -- 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 (2) -- Pledge Agreement dated January 23, 1996 from Triathlon
Broadcasting Company to AT&T Commercial Finance
Corporation
10.46 (2) -- Stock Purchase Warrant dated as of September 15, 1993
between Rook Broadcasting of Idaho, Inc. and Silverado
Broadcasting Company
10.47 (2) -- Put and Call Agreement effective as of September 15,
1993 between Silverado Broadcasting Company and Rook
Broadcasting of Idaho, Inc.
10.48 (2) -- Time Brokerage Agreement dated as of February 21, 1996
by and between Triathlon Broadcasting Company and
Silverado Broadcasting Company
10.49 (2) -- 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 (2) -- Form of Cash-only Stock Appreciation Rights Agreement
dated October 30, 1995 by and between Triathlon
Broadcasting Company and Jeffrey Leiderman
10.51 (2) -- 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 (2) -- 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 (2) -- Form of Cash-only Stock Appreciation Rights Agreements
dated January 31, 1996 by and between Triathlon
Broadcasting Company and Jeffrey Leiderman
10.54 (2) -- 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 (2) -- Assignment dated February 21, 1996 from Silverado
Broadcasting Company to Triathlon Broadcasting Company
10.56 (3) -- 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 (4) -- Asset Purchase Agreement dated as of October 17, 1996
between Triathlon Broadcasting of Omaha, Inc. and
American Radio Systems Corporation
10.58 (4) -- Asset Purchase Agreement dated as of July 15, 1996
between Triathlon Broadcasting of Little Rock, Inc. and
Southern Starr of Arkansas, Inc.
10.59 (3) -- Loan Agreement dated November 19, 1996 among AT&T
Commercial Finance Corporation and Triathlon
Broadcasting of Wichita, Inc., Triathlon Broadcasting
of Lincoln, Inc., Triathlon 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.
40
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.60 (5) -- Letter agreement dated May 21, 1996 between Sillerman
Communications Management Corporation and Triathlon
Broadcasting Company
10.61 (6) -- Letter agreement dated April 3, 1997 between Sillerman
Communications Management Corporation and Triathlon
Broadcasting Company
10.62 (6) -- 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 (6) -- Purchase and Sale Agreement dated as of April 23, 1997
by and between Paul R. Aaron, Triathlon Sports
Programming and TSPN, Inc.
10.64 (6) -- Purchase and Sale Agreement dated as of April 23, 1997
by and between Dale M. Jensen and Triathlon Sports
Programming, Inc.
10.65 (7) -- Sales Representation Agreement dated as of April 1,
1997 by and between Triathlon Broadcasting of Spokane,
Inc. and Rook Broadcasting of Idaho, Inc.
10.66 (8) -- Amended and Restated Loan Agreement dated May 30, 1997
among AT&T Commercial Finance Corporation and Union
Bank of California, N.A. and Triathlon Broadcasting of
Wichita, Inc., Triathlon Broadcasting of Lincoln, Inc.,
Triathlon 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.
10.67 -- Local Marketing Agreement dated February 11, 1998 by
and between Triathlon Broadcasting of Tri-Cities, Inc.
and Mark Jacky Broadcasting
21 -- List of subsidiaries of the Company
23 -- Consent of Ernst & Young LLP
24 -- Power of Attorney (included on the signature page to
this Report)
27 -- Financial Data Schedule for year ended December 31, 1997
- -----------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 (File No. 33-94316), as amended, originally filed with
the SEC on July 6, 1995.
(2) Incorporated by reference to the Registrant's Registration statement
on Form SB-2 (File No. 333-1186), as amended, originally filed with
the SEC on February 9, 1996.
(3) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the SEC on December 9, 1996.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the nine months ended on September 30, 1996 filed with the
SEC on November 14, 1996.
(5) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended on March 31, 1996 filed with the SEC on June
24, 1996.
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the transition period from April 1, 1996 to December 31,
1996, filed with the Securities and Exchange Commission on May 13,
1997.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the six months ended on June 30, 1997 filed with the SEC on
August 14, 1997.
(8) Incorporated by reference to the Registrant's Report on Form 8-K filed
with the SEC on June 17, 1997.
(9) Identifies a management contract or compensatory plan or arrangement
of the Registrant.
(b) The following reports on Form 8-K were filed during the fourth quarter
ended December 31, 1997.
Form 8-K filed with Securities and Exchange Commission on October 16,
1997 reporting the completion of the disposition of radio stations
KSSN-FM, KMVK-FM and KOLL-FM operating in the Little Rock, Arkansas
market.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1998 TRIATHLON BROADCASTING COMPANY
By: /s/ NORMAN FEUER
--------------------------------------
Norman Feuer
President and Chief Executive Officer
By: /s/ WILLIAM G. THOMPSON
--------------------------------------
William G. Thompson
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Norman Feuer and William G. Thompson,
jointly and severally, as his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report and to file the same, with exhibits thereto and other documents
in connection therewith, with the SEC, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
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>
/s/ John D. Miller Chairman of the Board of Directors March 31, 1998
- ----------------------------------------
John D. Miller
/s/ Norman Feuer President, Chief Executive Officer and March 31, 1998
- ---------------------------------------- Director (Principal Executive Officer)
Norman Feuer
/s/ William G. Thompson Chief Financial Officer (Principal Financial March 31, 1998
- ---------------------------------------- and Accounting Officer)
William G. Thompson
/s/ Kraig G. Fox Secretary March 31, 1998
- ----------------------------------------
Kraig G. Fox
/s/ Frank E. Barnes III Director March 31, 1998
- ----------------------------------------
Frank E. Barnes III
/s/ Dennis R. Ciapura Director March 31, 1998
- ----------------------------------------
Dennis R. Ciapura
/s/ Jeffrey Leiderman Director March 31, 1998
- ----------------------------------------
Jeffrey Leiderman
</TABLE>
42
<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 December 31, 1996 and 1997............................... F-3
Consolidated Statements of Operations for the period from June 29, 1995
(Company's Inception) to December 31, 1995 and the years ended
December 31, 1996 and 1997............................................................ F-4
Consolidated Statements of Cash Flows for the period from June 29, 1995
(Company's Inception) to December 31, 1995 and the years ended
December 31, 1996 and 1997............................................................ F-5
Consolidated Statement of Stockholders' Equity for the period from June 29,
1995 (Company's Inception) to December 31, 1995 and for the
years ended December 31, 1996 and 1997................................................ F-6
Notes to Consolidated Financial Statements................................................. F-8
Schedule II Valuation and Qualifying Accounts................................................ S-1
</TABLE>
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
consolidated financial statements or the notes thereto.
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 December
31, 1996 and 1997, and the consolidated statements of operations, cash flows
and stockholders' equity for the period from June 29, 1995 (Company's
Inception) to December 31, 1995 and the years ended December 31, 1996 and 1997.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a) These financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Triathlon Broadcasting Company and Subsidiaries at December 31,
1996 and 1997, and the consolidated results of their operations and their cash
flows for the period from June 29, 1995 (Company's Inception) to December 31,
1995 and the years ended December 31, 1996 and 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 20, 1998, except for
Note 7 as to which the
date is March 31, 1998
F-2
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $3,082,521 $1,771,409
Accounts receivable, net of allowance for doubtful accounts
of $405,400 in 1996 and $589,860 in 1997 4,522,957 7,510,020
Notes receivable from officer 75,000 75,000
Other current assets 289,772 874,678
----------- ------------
Total current assets 7,970,250 10,231,107
Property and equipment, net of accumulated depreciation
and amortization 7,534,248 10,279,780
Intangible assets, net of accumulated amortization 65,159,423 111,673,866
Notes receivable from officer - 250,000
Long term note receivable - 266,333
Other assets, principally deposits for station acquisitions 7,730,192 40,258
------------- -----------------
$88,394,113 $132,741,344
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,962,969 $ 6,055,947
Due to affiliates 335,452 40,195
Amended Credit Agreement - 58,500,000
Current portion of other long-term debt 179,400 889,996
Current portion of non-compete payable - 150,000
------------------ ------------
Total current liabilities 3,477,821 65,636,138
Other long-term debt, less current portion 12,820,600 943,396
Non-compete payable, less current portion - 481,250
Deferred compensation 84,575 155,000
Deferred taxes 7,629,550 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; 583,400
shares issued and outstanding 5,834 5,834
Class A Common Stock, par value $.01; 30,000,000 shares authorized;
3,102,344 and 3,172,533 shares issued and outstanding in 1996
and 1997, respectively 31,023 31,725
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; 50,000 and 31,000 shares issued and outstanding
in 1996 and 1997, respectively 500 310
Class D Convertible Common Stock, par value $.01; 1,444,366 shares
authorized, issued and outstanding 14,444 14,444
Additional paid-in capital 66,215,109 61,236,312
Deferred compensation (682,000) (362,667)
Accumulated deficit (1,211,442) (3,038,047)
-------------- ---------------
Total stockholders' equity 64,381,567 57,896,010
------------- --------------
$ 88,394,113 $132,741,344
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 29, 1995
(COMPANY'S INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Broadcast revenues $ 1,210,291 $21,199,549 $37,173,722
Less: agency commissions (102,380) (2,236,448) (3,532,530)
----------- ----------- -----------
Net revenues 1,107,911 18,963,101 33,641,192
Operating expenses:
Station operating expenses 1,015,106 13,678,117 23,414,919
Depreciation and amortization 145,258 1,426,759 4,134,523
Corporate expenses including
$359,000 and $554,000 of related
party advisory fees in 1996 and
1997 respectively 234,112 1,719,283 2,068,085
Deferred compensation 226,583 365,992 389,759
DOJ information request costs - 300,000 -
----------- ----------- -----------
Total operating expenses 1,621,059 17,490,151 30,007,286
----------- ----------- -----------
(Loss) income from operations (513,148) 1,472,950 3,633,906
Interest expense - (2,581,423) (4,766,153)
Interest income 59,900 729,403 401,294
Other income (expense) 642 (59,766) (137,572)
----------- ----------- -----------
Loss before extraordinary item (452,606) (438,836) (868,525)
Extraordinary item - (320,000) (958,080)
----------- ----------- -----------
Net loss (452,606) (758,836) (1,826,605)
Preferred stock dividend requirement - 4,414,523 5,507,296
----------- ----------- -----------
Net loss applicable to common stock $(452,606) $(5,173,359) $(7,333,901)
========= =========== ============
Loss per common share-basic:
Loss before extraordinary item $ (0.21) $ (0.97) $ (1.30)
Extraordinary item $ - $ (0.10) $ (0.20)
--------- --------- ---------
Net loss per common share-basic $ (0.21) $ (1.07) $ (1.50)
========= ========= =========
Weighted average common shares outstanding-basic 2,154,367 4,841,600 4,882,000
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 29, 1995
(COMPANY'S INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (452,606) $ (758,836) $(1,826,605)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 145,258 1,426,759 4,134,523
Deferred compensation 226,583 365,992 389,759
Loss on early extinguishment of debt - 320,000 958,080
Imputed interest expense - 1,705,556 -
Other non cash expense - - 42,761
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable (629,964) (3,367,449) (2,987,063)
Other current assets (150,731) 9,378 (190,000)
Notes receivable from officer (25,000) (50,000) (250,000)
Other assets (104,720) - -
Accounts payable and accrued expenses 79,896 1,885,213 3,092,978
Due to affiliates 129,415 (207,088) 117,868
Other current liabilities 99,705 - -
---------- --------- ----------
Net cash (used in) provided by operating activities (682,164) 1,329,525 3,482,301
---------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisitions and dispositions of radio stations, net
of cash acquired (7,321,827) (59,920,836) (44,243,045)
Due to affiliates - (3,797,517) (413,125)
Capital expenditures (55,097) (1,554,614) (868,781)
---------- ----------- ------------
Net cash used in investing activities (7,376,924) (65,272,967) (45,524,951)
---------- ----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Deferred financing costs - (2,994,308) (1,725,809)
Borrowings - 22,000,000 108,608,393
Debt repayment - (9,000,000) (60,643,750)
Net proceeds from sale of preferred stock - 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) (5,507,296)
---------- ---------- -----------
Net cash provided by financing activities 13,105,270 61,979,781 40,731,538
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 5,046,182 (1,963,661) (1,311,112)
Cash and cash equivalents at beginning of period - 5,046,182 3,082,521
---------- ---------- ------------
Cash and cash equivalents at end of period $5,046,182 $ 3,082,521 $ 1,771,409
========== =========== ============
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 $ 13,000 $ 371,210 $ 4,377,029
=========== ============ =============
Issuance of Class A Common Stock in connection
with acquisitions $ - $ - $ 486,250
=========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 29, 1995 (COMPANY'S INCEPTION) TO DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
Series B Mandatory
Convertible Convertible Class B Class C
Preferred Preferred Class A Convertible Convertible
Stock Stock Common Stock Common Stock Common Stock
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of 244,890 share of Class B
Common Stock $ - $ - $ - $ 2,449 $ -
Issuance of 367,344 shares of Class C
Common Stock - - - - 3,673
Issuance of 1,444,366 shares of Class D
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 - - - - -
Deferred compensation - - - - -
Net loss - - - - -
----------- ------------ ------------ ------------ -------------
Balances at December 31, 1995 - - 27,850 2,449 3,673
Issuance of 565,000 shares of Series B
Convertible Preferred Stock 5,650 - - - -
Issuance of 583,400 shares of Mandatory
Convertible Preferred Stock ($0.06 per - 5,834 - - -
share)
Conversion of 317,344 shares of Class C
Common Stock into Class A Common Stock - - 3,173 - (3,173)
Grant of Stock Options to certain
officers, directors and advisors - - - - -
Deferred compensation - - - - -
Dividends on Mandatory Convertible
Preferred Stock ($0.77 per share) - - - - -
Net loss - - - - -
----------- ------------ ------------ ------------ -------------
Balances at December 31, 1996 5,650 5,834 31,023 2,449 500
Issuance of 46,189 shares of Common Stock
upon acquisition of stations - - 462 - -
Issuance of 5,000 shares of Class A
Common Stock pursuant to JSA - - 50 - -
Conversion of 19,000 shares of Class C
Common Stock into Class A Common Stock - - 190 - (190)
Deferred compensation - - - - -
Dividends on Mandatory Convertible
Preferred Stock ($0.945 per share) - - - - -
Net loss - - - - -
----------- ------------ ------------ ------------ -------------
Balances at December 31, 1997 $ 5,650 $ 5,834 $ 31,725 $ 2,449 $ 310
----------- ------------ ------------ ------------ -------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 29, 1995 (COMPANY'S INCEPTION) TO DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
Class D
Convertible Additional Total
Common Stock Paid-In-Capital Deferred Accumulated Stockholders'
Compensation Deficit Equity
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of 244,890 shares of Class B
Common Stock $ - $ - $ - $ - $ 2,449
Issuance of 367,344 shares of Class C
Common Stock - - - - 3,673
Issuance of 1,444,366 shares of Class D
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
Deferred compensation - - 226,583 226,583
Net loss - - - (452,606) (452,606)
----------- ------------ ------------ ------------ -------------
Balances at December 31, 1995 14,444 13,056,854 226,583 (452,606) 12,879,247
Issuance of 565,000 shares of Series B
Convertible Preferred Stock - - - - 5,650
Issuance of 583,400 shares of Mandatory
Convertible Preferred Stock ($0.06 per - 56,382,778 - - 56,388,612
share)
Conversion of 317,344 shares of Class C
Common Stock into Class A Common Stock - - - - -
Grant of Stock Options to certain
officers, directors and advisors - 1,190,000 (1,190,000) - -
Deferred compensation - - 281,417 - 281,417
Dividends on Mandatory Convertible
Preferred Stock ($0.77 per share) - (4,414,523) - - (4,414,523)
Net loss - - - (758,836) (758,836)
----------- ------------ ------------ ------------ -------------
Balances at December 31, 1996 14,444 66,215,109 (682,000) (1,211,442) 64,381,567
Issuance of 46,189 shares of Common Stock
upon acquisition of stations - 485,788 - - 486,250
Issuance of 5,000 shares of Class A
Common Stock pursuant to JSA - 42,711 - - 42,761
Conversion of 19,000 shares of Class C
Common Stock into Class A Common Stock
- - - - -
Deferred compensation - - 319,333 319,333
Dividends on Mandatory Convertible
Preferred Stock ($0.945 per share) - (5,507,296) - - (5,507,296)
Net loss - - - (1,826,605) (1,826,605)
----------- ------------- ------------ ------------- -------------
Balances at December 31, 1997 $ 14,444 $ 61,236,312 $ (362,667) $(3,038,047) $57,896,010
=========== ============= ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31 1997
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 March 12, 1998, the Company owns and operates, sells advertising
pursuant to Joint Sales Agreements ("JSAs") or provided programming pursuant to
Local Marketing Agreements ("LMAs") on 22 FM and 10 AM radio stations in six
markets: Wichita, Kansas; Lincoln, Nebraska; Omaha, Nebraska; Colorado Springs,
Colorado; Tri-Cities, Washington and Spokane, Washington. In addition, the
Company owns a network which broadcasts all of the men's football, basketball
and baseball games and women's basketball and volleyball games of the
University of Nebraska.
On February 12, 1997, the Company changed its year-end from March 31st
to December 31st effective December 31, 1996. Additionally, during 1997 the
Company no longer met the requirements of Regulation S-B which is the source of
reporting requirements of a small business issuer. Accordingly, the
accompanying consolidated financial statements present the financial position
of the Company as of December 31, 1996 and 1997, and the results of its
operations, stockholders' equity and cash flows for the period from June 29,
1995 (Company's Inception) to December 31, 1995 and the years ended December
31, 1996 and 1997.
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. 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 December 31, 1996 include approximately $1.4 million in
certificates of deposit and as of December 31, 1996 and 1997 include
approximately $1.3 and $1.2 million, respectively, in money market funds. The
carrying amounts of cash and cash equivalents reported in the consolidated
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 27.5 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 consisted of the following:
F-8
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
December 31,
1996 1997
---- ----
<S> <C> <C>
Land $ 271,893 $678,767
Building and improvements, including assets under a capital
lease of $148,684 as of December 31, 1996 and 1997 1,313,139 1,879,041
Towers and technical equipment 4,929,156 7,231,611
Furniture and other equipment, including assets under capital leases of
$146,955 and $195,444 as of December 31, 1996
and 1997, respectively 930,859 1,489,253
Vehicles 102,815 195,193
Construction in progress 564,295 544,738
------------ ----------
8,112,157 12,018,603
Less accumulated depreciation (577,909) (1,738,823)
------------ -----------
$ 7,534,248 $10,279,780
=========== ===========
</TABLE>
INTANGIBLE ASSETS
Intangible assets include the portion of the purchase price allocable
to radio broadcasting licenses granted by the Federal Communications Commission
("FCC") and goodwill which is amortized on a straight line basis over 40 years,
except for the goodwill associated with the Pinnacle Acquisition which is being
amortized over a 10 year period due to the nature and life of the University
contract; 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 under
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
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 their 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 transactions charged to operations
were as follows:
June 29, 1995
(Company's Inception) Year Ended
to December 31, December 31,
1995 1996 1997
---- ---- ----
Barter revenues $ 55,084 $ 886,778 $ 1,322,777
Barter expense (63,273) (890,134) (1,476,840)
--------- --------- -----------
Net barter transaction $ (8,189) $ (3,356) $ (154,083)
========= ========= ===========
F-9
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
ADVERTISING COSTS
The Company expenses advertising costs related to its radio station
operations as they are incurred. Advertising expenses for the period from the
Company's Inception to December 31, 1995, and the years ended December 31, 1996
and 1997 amounted to approximately $15,000, $373,000 and $1.0 million,
respectively.
LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("FAS 128"). FAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to FAS 128.
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.
The Company has entered into LMAs and JSAs with respect to radio
stations owned by third parties and, from time to time, radio stations which it
intends to acquire. Terms of the agreements generally require the Company to
pay a monthly fee in exchange for the right to provide stations programming and
sell related advertising time in the case of an LMA or sell advertising in the
case of a JSA. The fees are expensed as incurred. The Company classifies the
fees as interest expense to the extent that the fees paid include debt service
payments of the station owners.
RISKS AND UNCERTAINTIES
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of bank and mutual fund money
market accounts 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.
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
antitrust review. In 1996, the Company 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.
F-10
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
RECLASSIFICATIONS
Certain amounts for the period from June 29, 1995 (Company's
Inception) to December 31, 1995 and for the year ended December 31, 1996 have
been reclassified to conform with the current period presentation.
3. 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 for $3,428,500
(the "KRBB Acquisition"), and radio stations, KFH-AM, KWSJ-FM (formerly KXLK-FM)
and KQAM-AM 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, also operating in the Wichita, Kansas
market. On November 22, 1996, the Company acquired KEYN-FM as part of the
Pourtales Acquisition (see Note 5).
Sillerman Communications Management Corporation ("SCMC"), a related
party, 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 KRBB Acquisition and the Initial Wichita
Acquisition, respectively, in lieu of nonrefundable cash deposits. 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 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. 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 KRBB Acquisition. All amounts were repaid
to SCMC with proceeds from the Initial Public Offering.
4. 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") (See Note 8). 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 an
existing $9,000,000 credit agreement with AT&T Commercial Finance Corporation
("AT&T-CFC") and finance a portion of the other acquisitions as described in
Note 5.
5. 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.
F-11
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
This acquisition was financed principally from the net proceeds of a $9.0
million credit agreement with AT&T-CFC. 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. ("Rock Steady"), each operating in the Lincoln,
Nebraska market, for an aggregate purchase price of approximately $3,275,000.
The Rock Steady acquisition was financed from the proceeds of the Preferred
Stock Offering. 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. The acquisitions were financed from the proceeds
of the Preferred Stock Offering.
On June 2, 1997, the Company purchased radio stations KFAB-AM and
KGOR-FM, operating in the Omaha, Nebraska market, and the exclusive Muzak
franchise for the Lincoln and Omaha, Nebraska markets, from American Radio
Systems Corporation for an aggregate purchase price of $38.0 million (the
"KFAB/KGOR Acquisition"). The KFAB/KGOR Acquisition was financed through
borrowings available under the Amended Credit Agreement (See Note 7).
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. The
acquisition was financed from the proceeds of the Preferred Stock Offering.
On February 1, 1998, the Company entered into a five year LMA with
Mark Jacky Broadcasting ("Mark Jacky"), with respect to KUJ-FM, operating in
the Tri-Cities, Washington market. Pursuant to the LMA, the Company provides
programming and sells advertising with respect to KUJ-FM and pays Mark Jacky a
monthly fee of $5,500.
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 Silverado acquisition was financed from the
proceeds of the Preferred Stock Offering. The Company had been providing
programming and selling advertising on these stations since March 1, 1996
pursuant to an LMA. In connection with the acquisition, the Company received
the right to purchase a controlling interest in KCDA-FM, also in Spokane, at a
nominal price while the current licensee 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 July 17, 1997, the Company agreed to
the redemption of the right by the current licensee of KCDA-FM in exchange for
$50,000 in cash and a note receivable for $350,000 which is secured by the
original right. The note receivable does not bear interest, therefore the
Company has recorded the note at its net present value
F-12
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
and is accruing interest income. The Company will receive equal quarterly
installments commencing July 1, 1998 and ending January 1, 2002. The Company did
not incur a gain or a loss on the redemption except that expense was recorded by
recording the note at the current net present value with such expense being
recovered as interest income in future periods.
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, which was due to
expire on October 1, 1998 was extended to December 31, 2001. As an inducement
to extend the JSA, the Company issued 5,000 shares of the Company's Class A
Common Stock valued at approximately $43,000 to the owners of KCDA-FM. The JSA
relating to KNJY-FM was terminated on December 29, 1996. Pursuant to these
JSAs, the Company paid/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 (collectively, the "Colorado Springs and Spokane Stations");
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 Pourtales Acquisition was financed from the
proceeds of the Preferred Stock Offering and $13 million in borrowings
available under the Credit Agreement (See Note 7).
The Company has a JSA agreement with Citadel Broadcasting Corporation
("Citadel") under which Citadel sells advertising on behalf of the Colorado
Springs and Spokane Stations acquired from Pourtales (the "Citadel 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 became 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-13
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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 on December 31, 1996.
WICHITA AND LITTLE ROCK ACQUISITIONS
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 ("Southern
Skies") for an aggregate purchase price of $22.6 million, 46,189 shares of the
Company's Class A Common Stock valued at approximately $486,000 and a
non-competition agreement with one of the principals of Southern Skies under
which it will pay $750,000 over a 5 year period which commenced on February 1,
1997 (collectively the "Southern Skies Acquisition"). Also on April 25, 1997,
the Company purchased radio station KOLL-FM, operating in the Little Rock
market, from SFX, an affiliate, for an aggregate purchase price of $4.1 million
(the "KOLL Acquisition"). The Company had provided services for radio station
KOLL-FM pursuant to a LMA since March 15, 1996. The acquisition was financed
through borrowings available under the Credit Agreement (See Note 7).
PINNACLE SPORTS PRODUCTIONS ACQUISITION
On May 15, 1997, the Company purchased Pinnacle Sports Productions,
LLC (the "Pinnacle Acquisition") which operates the Sports Network to broadcast
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 (the "University") renews its contract with the Company in 2001 for
a minimum of an additional three year term. While renewal of the contract with
the University cannot be assured, based on discussions the Company has had with
the University, the Company knows of no reason why the contract would not be
renewed. The Pinnacle Acquisition was financed through available borrowings
under the Credit Agreement and notes payable to the sellers in the amount of
$1,833,392 (See Note 7). Additionally, the Company assumed a note payable in
the amount of $525,000 which was repaid in November, 1997.
LITTLE ROCK DISPOSITION
On October 1, 1997, the Company completed the disposition of radio
stations KOLL-FM, KSSN-FM and KMVK-FM, each operating in the Little Rock,
Arkansas market (the "Little Rock Disposition") pursuant to an agreement with
Clear Channel Radio, Inc. The aggregate sale price was $20.0 million. The
Company did not recognize a gain or loss on the Little Rock Disposition. During
the period from the date of acquisition through date of sale, the Company
capitalized a loss of approximately $235,000, including interest expense,
related to the stations sold pursuant to the Little Rock Disposition. The
Company used the proceeds of the disposition to repay outstanding indebtedness
under the Amended Credit Agreement (See Note 7).
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 their respective dates of acquisition
or from the date the respective LMA or JSA began, as appropriate. The following
unaudited supplemental pro forma information is presented as if the Company had
completed
F-14
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
all of the acquisitions and related financings consummated as of December 31,
1997, as if they had occurred on January 1, 1996, and had not entered into the
Wichita JSA:
Year ended
December 31,
1996(1) 1997
------- ----
Net revenue $32,397,000 $37,145,000
Operating income 950,000 2,984,000
Net loss applicable to common stock (10,412,000) (8,378,000)
Net loss per common share - basic (2.13) (1.72)
Common shares outstanding - basic 4,877,000 4,882,000
- ------------
(1) Includes a charge of $300,000, or $0.06 per share for DOJ information
request costs.
RETENTION OF GOLDMAN, SACHS & CO.
In pursuing the Company's acquisition strategy, management is aware
that the Company's current group of stations combined with the aggressive
thrust towards consolidation in the industry may present an attractive
opportunity to maximize shareholder 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 Goldman, Sachs & Co. to actively
explore alternatives to maximize shareholder value and will continue to
consider all available opportunities.
6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1997
---- ----
<S> <C> <C>
FCC licenses $57,216,577 $102,601,420
Organization costs 478,644 478,644
Deferred financing costs 826,948 1,699,809
Goodwill 7,629,550 10,797,238
------------- --------------
66,151,719 115,577,111
Less accumulated amortization (992,296) (3,903,245)
------------- --------------
$65,159,423 $111,673,866
============= ==============
7. LONG TERM DEBT
Long term debt consisted of the following:
December 31,
1996 1997
---- ----
Credit Agreement $13,000,000 $ -
Amended Credit Agreement - 58,500,000
Pinnacle Acquisition - 1,833,392
------------- -------------
Total debt 13,000,000 60,333,392
Less current portion (179,400) (59,389,996)
------------- -----------
$12,820,600 $ 943,396
============= ===========
</TABLE>
F-15
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
In May 1997, the Company amended and restated its existing $40 million
credit facility ("Credit Agreement") with a $80 million credit facility (the
"Amended Credit Agreement") obtained from AT&T-CFC and Union Bank of California,
N.A. ("UBOC") (collectively the "Lenders"). The Amended Credit Agreement is
comprised of four tranches. The first tranche, in the amount of $35.0 million,
is a reducing revolver with principal payments due commencing on July 1, 1998
with a maturity of April 1, 2004. As of December 31, 1997, the Company owes less
than the maximum amount under this tranche, therefore, the first principal
payment would be due July 1, 1999. Future advances under this tranche would
accelerate the due date of the first principal payment. The second tranche, in
the amount of $25.0 million, is a term loan, with quarterly principal payments
due commencing July 1, 1998 with a maturity of July 1, 2004. The third tranche,
in the amount of $20.0 million, was a bridge loan which was fully repaid on
October 1, 1997 in connection with the Little Rock Disposition. The fourth
tranche, in the amount of $20.0 million, is an acquisition loan with the same
terms as the second tranche.
Loans under the Amended Credit Agreement bear interest at a floating
rate equal to either, at the option of the Company, a base rate which
approximates prime plus an applicable margin, or the LIBOR rate plus an
applicable margin. As of December 31, 1997, the applicable margin for (i) the
first tranche was 1.75% for base rate loans and 2.75% for LIBOR rate loans and
(ii) the second and fourth tranches was 2.50% for base rate loans and 3.50% for
LIBOR rate loans. The applicable margin for the third tranche, which was repaid
in full on October 1, 1997, was 2.25% for base rate loans and 3.25% for LIBOR
rate loans.
In connection with the Amended Credit Agreement, the Company wrote off
all deferred financing costs related to the Credit Agreement resulting in an
extraordinary loss of $958,080 being recorded in the accompanying consolidated
statements of operations.
The obligations of the Company's subsidiaries under the Amended 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 Amended Credit Agreement is guaranteed by the Company.
The Amended Credit Agreement also contains financial leverage and coverage
ratios, and restrictions on capital expenditures and other payments. As of
December 31, 1997, the Company did not meet certain financial covenants. The
Company's lenders have granted it waivers as of December 31, 1997 with respect
to these covenants. Management believes that it is probable that it will not
comply with one of these covenants in its quarterly tests during 1998 and
the lenders have indicated that they are only willing to grant waivers on a
quarter by quarter basis. Accordingly, the entire debt outstanding under the
Amended Credit Agreement has been reclassified as a current liability on its
balance sheet for the year ended December 31, 1997. Based on discussions
with its lenders, management is confident that, if required, it will be able
to obtain the appropriate waivers in the future. However, in the event that
such waivers are not granted, management, after consultation with its
regular financing sources, believes that the Company would be able to
refinance the Amended Credit Agreement on acceptable terms.
Pursuant to the terms of the Amended Credit Agreement, the Company's
subsidiaries pay a fee of 1/2 of 1% quarterly related to the unused portion of
the $80 million facility commitment. For the period beginning May 31, 1997 to
December 31, 1997, approximately $30,000 was recorded as interest expense in
the accompanying consolidated statements of operations in connection with the
unused facility fee.
In connection with the Pinnacle Acquisition, the Company delivered to
the sellers, at the time of acquisition, promissory notes which accrue interest
at 6% per annum and are payable in two installments in May, 1998 and 1999.
Additionally, the Company assumed a note payable to a bank in the amount of
$525,000 which bore interest at a rate 1/2 of 1% under prime. This note payable
was subsequently repaid in November, 1997.
F-16
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
After reclassification aggregate maturities of long-term debt due
within the next five years ending December 31, and thereafter are as follows:
1998 $ 59,389,996
1999 943,396
-------------
$ 60,333,392
=============
8. STOCKHOLDERS' EQUITY
The Company recorded compensation expense, in the accounting period in
which the Initial Public Offering was consummated, 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 incurs 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
period from June 29, 1995 (Company's Inception) to December 31, 1995, and the
years ended December 31, 1996 and 1997, the Company recorded deferred
compensation expense of approximately $45,000, $136,000, and $136,000,
respectively, in connection with the shares issued to Mr. Feuer.
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. During
the years ended December 31, 1996 and 1997, receptively, 317,344 and 19,000
shares of Class C Common Stock were converted to Class A Common Stock.
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 to certain officers, directors
and advisors (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 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. 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.
F-17
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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. The Preferred
Stock, at the option of the holder, is convertible, subject to a conversion
rate, to the Company's Class A Common Stock, after June 30, 1996. 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. 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 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.
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 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, 1997, 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.
F-18
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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, 1996 and 1997, the
Company made loans to Mr. Feuer which have been partially offset by bonuses
earned (See Note 10).
The Company has a financial consulting agreement with The Sillerman
Companies ("TSC"), a related party, by assignment from SCMC, pursuant to which
TSC provides financial and advisory services. The TSC agreement, as amended in
November 1996, provides for annual advisory fees of $500,000 per year. The
Company also pays $2,500 per month as compensation for services provided by TSC
for the Corporate Secretary and investor relations functions. Payments for
services under these arrangements aggregated approximately $20,000, $414,000
and $510,000 for the period from June 29, 1995 (Company's Inception) to
December 31, 1995 and the years ended December 31, 1996 and 1997, 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 $563,000, $2,259,000 and $797,000 for the period from June
29, 1995 (Company's Inception) to December 31, 1995 and the years ended
December 31, 1996 and 1997, 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.
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 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 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. In addition, Pourtales
F-19
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
reimbursed the Company approximately $5,000 per month, during the Shared Expense
Period, for the use of certain services of Triathlon's Corporate Controller. 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, 1997
are as follows:
OPERATING CAPITAL
LEASES LEASES
1998 $ 891,129 $ 64,734
1999 737,532 42,836
2000 558,449 35,962
2001 431,349 23,857
2002 392,117 -
Thereafter 2,509,938 -
--------- --------
Total minimum lease payments 5,520,514 167,389
Less imputed interest - (33,164)
----------- --------
Present value of minimum lease payments $5,520,514 $134,225
========== ========
Rent expense for the period from the Company's Inception to December
31, 1995 and the years ended December 31, 1996 and 1997, was approximately
$15,600, $416,000 and $795,000, respectively. The present value of minimum
capital lease payments is included in accounts payable and accrued expenses in
the accompanying consolidated balance sheets.
The Company has entered into various sub-leases to generate income
from surplus tower and office space. Future minimum rental income receipts the
Company will receive under sub-leases with terms greater than one year as of
December 31, 1997 are as follows:
OPERATING
LEASES
-----------
1998 $ 45,946
1999 42,919
2000 43,411
2001 27,920
2002 20,774
Thereafter -
-----------
Future minimum rental income receipts $ 180,970
=========
10. RELATED PARTY TRANSACTIONS
Liabilities to affiliates for the period from June 29, 1995 (Company's
Inception) to December 31, 1995 include $10,000 to SCMC under the SCMC
Agreement and approximately $134,000 to Pourtales for amounts due under the
KEYN-FM JSA, for the year ended December 31, 1996 include approximately
$270,000 payable to SCMC and SFX related to the TSC Agreement and approximately
$65,000 payable to SFX related to the KOLL-FM LMA and for the year ended
December 31, 1997 include approximately $40,000 relating to the financial
consulting agreement with TSC.
F-20
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
During 1997, the Company loaned Mr. Feuer (Company's President and
Chief Executive Officer), $150,000 which accrues interest at a rate of 7.25%,
for which he pledged 35,294 shares of Class B Common Stock. All interest and
principal are due September 9, 2002. The loan has been recorded as a notes
receivable from officer in the accompanying consolidated balance sheets. In
addition, the Company loaned to Mr. Feuer $25,000 in each of May, July and
October 1996, and January 1997. The loans granted in May and July 1996 were
offset against a bonus in the amount of $50,000 which was approved by the Board
on April 30, 1997. On that date, the Board also granted to 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, 2000, 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, 2000,
unless extended, these loans will be forgiven. The loans have been recorded as
a long term notes receivable from officer in the accompanying consolidated
balance sheets. Additionally, the Company loaned to Mr. Feuer $25,000 in each
of April, July and October 1997 as advance payments of his future bonus. These
loans to Mr. Feuer have been classified as a notes receivable from officer.
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. Under the
1995 Plan, options with respect to 111,500 shares of Class A Common Stock were
granted on October 30, 1995 comprised of (i) options to purchase 31,500 shares
of Class A Common Stock granted to certain officers, directors and employees
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.
Under the 1996 Plan, options with respect to 136,950 shares of Class A
Common Stock were granted on August 7, 1996 and 2,000 options were granted on
July 30, 1997 to certain officers, directors and employees. The options are
exercisable from $7.50 to $7.63 and vest gradually over various period in
accordance with the terms of the individual awards.
The 1997 Stock Option Plan was approved by the Company's Board of
Directors. However, the Company has not granted any options under that plan.
In 1996, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock Based Compensation"("FAS 123") which established
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
elected to continue accounting for stock based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
The Company has adopted the disclosure-only provisions of FAS 123.
Accordingly, no compensation cost has been recognized for the Plans. Had
compensation cost for the Company's Plans been determined based on the fair
market value at the date of grant for the awards in 1995, 1996 and 1997,
consistent with
F-21
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
the provisions of FAS 123, the Company's net loss and net loss per common share
would have been as follows:
<TABLE>
<CAPTION>
June 29, 1995
(Company's Inception) Year ended
to December 31, December 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders $ (494,000) $(5,453,000) $(7,612,000)
Pro forma loss per basic common share $ (0.23) $ (1.13) $ (1.56)
</TABLE>
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period and additional amounts may be granted in future
years. The fair value of the options was estimated at the date of grant using
the Black Sholes model with the following weighted average assumptions:
June 29, 1995
(Company's Inception) Year ended
to December 31, December 31,
1995 1996 1997
---- ---- ----
Expected dividend yield - - -
Expected stock price volatility 48.2% 48.2% 44.7%
Risk free interest rate 5.12% 6.43% 6.04%
Expected life of options 3.41 years 7 years 7 years
A summary of the Company's stock option activity, and related
information is as follows:
December 31,
1995 1996 1997
---- ---- ----
Options outstanding at beginning of year - 111,500 248,450
Weighted average option exercise price - $7.20 $7.43
Options granted 111,500 136,950 2,000
Weighted average option exercise price $7.20 $7.63 $7.50
Options expired or canceled - - (13,100)
Options outstanding at end of year 111,500 248,450 237,350
Weighted average option exercise price $7.20 $7.43 $7.38
Options exercisable at end of year - 55,750 110,400
At December 31, 1997, options outstanding had a weighted average
exercise price of $7.38 and expiration dates of October 30, 2005, August 7,
2006 and July 30, 2007.
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 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 vested 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
vested over the two year period ending October 30, 1997 and will be paid on
October 30, 2000.
F-22
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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 period from June 29, 1995 (Company's Inception) to December
31, 1995 and the years ended December 31, 1996 and 1997, non cash compensation
charges relating to the issuance of options, Series B Convertible Preferred
Stock and cash only rights aggregated approximately $227,000, $366,000 and
$390,000, 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.
For the years ended December 31, 1997 and 1996, the Company generated
tax losses. Accordingly, no provision for income taxes was recorded.
The Pourtales Acquisition which occurred during 1996 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 FCC
Licenses. In connection with the Pourtales Acquisition, the Company succeeded
to approximately $3,955,000 of net operating loss ("NOL") carryforwards, the
utilization of which are subject to various limitations.
As of December 31, 1997, the Company has approximately $9.9 million of
total remaining NOL carryforwards. Some or all of the Company's NOL
carryforwards may be subject to an annual limitation on future utilization
resulting from historical changes in the Company's ownership. Management
believes that the imposition of such limitations would not have a material
effect on its financial position or results of operations. Future changes in
the Company's ownership could have the effect of imposing a further limitation
on the future utilization of the NOLs. The Company's NOL carryforwards expire
at various dates during the six year period beginning in 2006.
The principal components of the Company's deferred tax assets and
liabilities at:
December 31,
1996 1997
---- ----
Deferred tax assets:
Deferred compensation $ 126,500 $ 226,959
Net operating loss 1,487,400 3,870,144
Allowance for doubtful accounts 174,600 230,045
Fixed assets 76,600 -
------------------------------
1,865,100 4,327,148
Valuation allowance (1,498,900) (1,951,391)
---------- -----------
Total deferred tax asset 366,200 2,375,757
F-23
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
December 31,
1996 1997
---- ----
Deferred tax liabilities:
Fixed Assets - 610,520
Intangible assets 7,995,750 9,394,787
----------- -----------
Total deferred tax liabilities 7,995,750 10,005,307
----------- ----------
Net deferred tax liability $7,629,550 $7,629,550
========== ==========
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>
Company's
Inception to Year Ended
December 31, December 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Provision (benefit) at statutory rate of 35% $ (464,900) $ (248,100) $ (639,312)
Valuation allowance adjustments 462,400 135,400 452,491
Deferred compensation - 104,130 68,449
Goodwill amortization - - 49,920
Meals, entertainment and other 2,500 8,570 68,402
----------- ----------- -----------
$ - $ - $ -
=========== =========== ===========
</TABLE>
13. 401(k) PLAN
During 1995, the Company established a 401(k) Plan (the "Plan") for
the benefit of all eligible employees. Eligible participants under the Plan are
defined as all full-time employees with 90 days of service. All eligible
participants may elect to contribute a portion of their compensation to the
Plan subject to Internal Revenue Service limitations. The Company may make
discretionary matching contributions to the Plan, subject to Board of Director
approval. No contributions were made during the Plan years ended December 31,
1996 and 1997.
F-24
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS FOR THE PERIOD FROM JUNE 29, 1995 (COMPANY'S
INCEPTION) TO DECEMBER 31, 1995
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Year Expenses Deductions Acquisitions Year
- ----------- ---- -------- ---------- ------------ ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Company's Inception to
December 31, 1995 $ - $ 21,841 $ - $ 85,000 $ 106,841
Year ended December 31, 1996 106,841 298,591 124,026 123,994 405,400
Year ended December 31, 1997 405,400 561,409 376,949 - 589,860
</TABLE>
S-1
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q ANNEX D
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-26530
TRIATHLON BROADCASTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 33-0668235
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Symphony Towers
750 B Street, Suite 1920
San Diego, CA 92101
(Address of principal executive offices)
(619) 239-4242
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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, Class D Common Stock, $.01 par value, and Depositary Shares, each
representing a one-tenth interest in a share of 9% Mandatory Convertible
Preferred Stock, $.01 par value, outstanding as of November 10, 1998, was
3,175,645, 886,811, 31,000, 802,445, and 5,834,000, respectively.
<PAGE>
TRIATHLON BROADCASTING COMPANY
FORM 10-Q
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed consolidated balance sheets - September 30, 1998 (unaudited)
and December 31, 1997 3
Condensed consolidated statements of operations - Three and nine months
ended September 30, 1998 and 1997 (unaudited) 4
Condensed consolidated statements of cash flows - Nine months
ended September 30, 1998 and 1997 (unaudited) 5
Condensed consolidated statement of stockholders' equity - Nine months
ended September 30, 1998 (unaudited) 6
Notes to condensed consolidated financial statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997(1)
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 366 $ 1,771
Accounts receivable, net of allowance
for doubtful accounts 7,199 7,510
Notes receivable from officer 200 75
Prepaid expenses 1,792 858
Other current assets 169 17
--------- ---------
Total current assets 9,726 10,231
Property and equipment - less accumulated
depreciation and amortization 10,314 10,280
Intangible assets, net of accumulated amortization 109,130 111,674
Notes receivable from officer 250 250
Long term note receivable 217 266
Other assets 40 40
--------- ---------
$ 129,677 $ 132,741
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 7,532 $ 6,056
Due to affiliates 352 40
Amended Credit Agreement 59,469 58,500
Current portion of long term debt 1,593 890
Non-compete payable - current portion 150 150
--------- ---------
Total current liabilities 69,096 65,636
Long term debt, less current portion -- 943
Non-compete payable, less current portion 369 481
Deferred compensation 151 155
Deferred taxes 7,630 7,630
Stockholders' equity
Preferred stock 12 12
Common stock 49 49
Paid-in-capital 57,105 61,236
Deferred compensation (261) (363)
Accumulated deficit (4,474) (3,038)
--------- ---------
Total stockholders' equity 52,431 57,896
--------- ---------
$ 129,677 $ 132,741
========= =========
</TABLE>
(1) The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited consolidated financial statements at that date
but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 10,238 $ 9,382 $ 28,703 $ 22,996
Operating expenses
Station operating expenses 6,289 5,983 19,412 16,194
Depreciation and amortization 1,198 1,165 3,573 2,723
Corporate expenses 559 467 1,589 1,481
Deferred compensation 29 94 99 292
-------- -------- -------- --------
Total operating expenses 8,075 7,709 24,673 20,690
-------- -------- -------- --------
Operating income 2,163 1,673 4,030 2,306
Other expense (732) -- (934) --
Interest expense - net (1,474) (1,348) (4,532) (2,860)
-------- -------- -------- --------
(Loss)/income before extraordinary item (43) 325 (1,436) (554)
Extraordinary item - loss on early
extinguishment of debt -- -- -- (958)
-------- -------- -------- --------
Net (loss)/income (43) 325 (1,436) (1,512)
Preferred stock dividend requirement (1,377) (1,377) (4,131) (4,131)
-------- -------- -------- --------
Net loss applicable to common stock $ (1,420) $ (1,052) $ (5,567) $ (5,643)
======== ======== ======== ========
Loss per basic and fully diluted common share:
Loss before extraordinary item $ (0.29) $ (0.22) $ (1.14) $ (0.96)
Extraordinary item $ -- $ -- $ -- $ (0.20)
-------- -------- -------- --------
Net loss per basic and fully diluted
common share $ (0.29) $ (0.22) $ (1.14) $ (1.16)
======== ======== ======== ========
Weighted average basic and fully diluted
common shares outstanding 4,894 4,888 4,893 4,877
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flow from operating activities $ 3,147 $ 837
Cash flow from investing activities
Acquisition of net assets of radio stations -- (63,459)
Sale of property and equipment 140 --
Capital expenditures (1,290) (582)
Due to affiliate -- 11
Net cash used in investing activities (1,150) (64,030)
Cash flow from financing activities
Borrowings 1,650 108,279
Debt repayments (921) (40,072)
Financing costs -- (1,651)
Payment of preferred stock dividends (4,131) (4,131)
--------- ---------
Net cash (used in) provided by financing activities (3,402) 62,425
Decrease in cash and cash equivalents (1,405) (768)
Cash and cash equivalents at beginning of period 1,771 3,083
--------- ---------
Cash and cash equivalents at end of period $ 366 $ 2,315
========= =========
Supplemental cash flow information:
Interest paid $ 4,619 $ 3,351
Issuance of Class A Common Stock in connection
with acquisitions $ -- $ 487
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Series B Mandatory
Convertible Convertible Class A Class B Class C Class D
Preferred Preferred Common Common Common Common Paid-In
Stock Stock Stock Stock Stock Stock Capital
----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 $ 6 $ 6 $ 32 $ 2 $ 1 $ 14 $ 61,236
Conversion of 641,921 shares of
Class D Common Stock to
Class B Common Stock -- -- -- 6 -- (6) --
Exercise of Warrants for 3,112 shares
of Class A Common Stock -- -- * -- -- -- *
Deferred compensation -- -- -- -- -- -- --
Dividends on Mandatory Convertible
Preferred Stock ($0.708 per share) -- -- -- -- -- -- (4,131)
Net loss -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balances at September 30, 1998 $ 6 $ 6 $ 32 $ 8 $ 1 $ 8 $ 57,105
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
------------ ------- ------
<S> <C> <C> <C>
Balances at January 1, 1998 $ (363) $ (3,038) $ 57,896
Conversion of 641,921 shares of
Class D Common Stock to
Class B Common Stock -- -- --
Exercise of Warrants for 3,112 shares
of Class A Common Stock -- -- --
Deferred compensation 102 -- 102
Dividends on Mandatory Convertible
Preferred Stock ($0.708 per share) -- -- (4,131)
Net loss -- (1,436) (1,436)
-------- -------- --------
Balances at September 30, 1998 $ (261) $ (4,474) $ 52,431
======== ======== ========
</TABLE>
*Amount rounds to less than $1.
See accompanying notes to condensed consolidated financial statements.
-6-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(unaudited)
NOTE 1 - MERGER WITH CAPSTAR; STOCK CONVERSION
On July 23, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Capstar Radio Broadcasting Partners, Inc.
("Capstar") and TBC Radio Acquisition Corp., a wholly-owned subsidiary of
Capstar ("Sub"), pursuant to which Sub would merge with and into the Company
and the Company would become a wholly-owned subsidiary of Capstar (the
"Merger"). Pursuant to the Merger Agreement, upon the consummation of the
Merger, each outstanding share of each class of Common Stock of the Company
shall be converted into the right to receive $13.00, subject to adjustment,
each outstanding depositary share of the Company, representing one-tenth
interest in a share of 9% Mandatory Convertible Preferred Stock, par value $.01
per share, of the Company ("Depositary Shares") shall be converted into the
right to receive $10.83, subject to adjustment, and each outstanding share of
the Series B Convertible Preferred Stock, par value $.01 per share, of the
Company shall be converted into the right to receive $.01.
As a condition precedent to the execution of the Merger Agreement,
Capstar, Sub, the Company and certain stockholders of the Company have entered
into stockholder agreements (the "Stockholder Agreements"), whereby each of
such stockholders have agreed to vote all shares of the capital stock of the
Company beneficially owned by each in favor of the Merger and against any
competing transaction. In order to facilitate the Merger and pursuant to the
Stockholder Agreements, on August 5, 1998, such stockholders converted an
aggregate of 641,921 shares of Class D Common Stock into Class B Common Stock
based on the existence of certain covenant defaults under the Amended Credit
Agreement (as defined) at the time of the conversion. As a result of the
conversion of the Class D Common Stock into Class B Common Stock and the terms
of the Stockholder Agreements, such stockholders have agreed to vote the
majority of the voting power of the outstanding voting capital stock of the
Company in favor of the Merger and against any competing transaction.
Accordingly, passage of the proposal to approve the Merger Agreement and the
Merger is assured.
The consummation of the Merger is subject to the satisfaction of a
number of conditions set forth in the Merger Agreement, including, but not
limited to, the approval by the stockholders of the Company of the transactions
contemplated thereby, the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the receipt of all applicable consents to the Merger from the
Federal Communications Commission. The Merger is currently expected to be
consummated in the second quarter of 1999.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for an interim period are not
necessarily indicative of the results that may be expected for a full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the Securities and Exchange Commission
on March 31, 1998.
The accompanying unaudited condensed 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.
-7-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1998
(unaudited)
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first quarter generally produces the
lowest revenues for the year and the fourth 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.
NOTE 3 - INDEBTEDNESS
On May 30, 1997, the Company entered into an Amended Credit Agreement
with AT&T Commercial Finance Corporation and Union Bank of California, N.A.
(collectively the "Lenders"), in an aggregate amount of $80 million. The
purpose of the Amended Credit Agreement was to refinance existing debt, finance
acquisitions and support working capital needs.
On May 28, 1998, the Company issued a secured promissory note to
Havelock Bank ("Havelock") in the amount of $1.725 million as security for an
irrevocable letter of credit, in the face amount of $1.725 million, issued by
Havelock to the University of Nebraska pursuant to the Broadcast Rights
Agreement (as defined) between the University of Nebraska and the Company. As
of September 30, 1998, there are no amounts outstanding to Havelock.
On June 30, 1998, the Company entered into the First Amendment to
Amended and Restated Loan Agreement ("First Amendment") with the Lenders. The
purpose of the First Amendment was to enable the Lenders to fund an acquisition
loan of $1.0 million which was used by the Company to refinance a portion of
the indebtedness related to the acquisition of Pinnacle Sports Productions, LLC
in 1997. The First Amendment also included modifications to certain financial
covenants. The Acquisition Loan is a term loan bearing interest at LIBOR +
3.50% (or the alternative base rate + 2.50%). The principal balance of the
Acquisition Loan must be reduced by $6,250 per year (paid on a quarterly basis)
until the final maturity of July 1, 2004.
On September 15, 1998, the Company borrowed $650,000 from Capstar for
the purpose of acquiring certain real property in Lincoln, Nebraska. The loan
is secured by the acquired real property. The Company occupied a substantial
portion of the property as a tenant prior to September 15, 1998 and continues
to occupy the property. The loan accrues interest at the rate of 12% per annum
which is payable, along with the principal, on the earlier of the consummation
of the Merger, which is expected during the second quarter of 1999, or the
termination of the Merger Agreement.
The Amended Credit Agreement and First Amendment contain covenants
relating to financial leverage and coverage ratios and restrictions on capital
expenditures and other payments. Additionally, the Merger Agreement places
certain restrictions on the conduct of business by the Company, including a
restriction on the incurrence of indebtedness and the making of capital
expenditures. As of September 30, 1998, the Company did not meet certain
financial covenants under the Amended Credit Agreement and First Amendment and
management believes that it may not comply with certain covenants in its year
end tests. Accordingly, the entire debt outstanding under the Amended Credit
Agreement and First Amendment have been reclassified as a current liability on
its condensed consolidated balance sheet as of September 30, 1998. Based on
discussions with the Lenders, management believes that it will be able to obtain
the appropriate waivers in the future. However, in the event that such waivers
are not granted, management, after consultation with its regular financing
sources, believes that the Company would be able to refinance the Amended Credit
Agreement and First Amendment on acceptable terms. However, there can be no
assurance that the Company will be successful in obtaining the appropriate
waivers by the Lenders or that the Company will be able to refinance the Amended
Credit Agreement and First Amendment. The failure by the Company to obtain such
waivers or refinance the Amended Credit Agreement and First Amendment would have
a material adverse effect on the Company's financial condition and results of
operations. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
-8-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1998
(unaudited)
NOTE 4 - DOJ INFORMATION REQUEST
Following the passage of the Telecommunications Act of 1996, the
Department of Justice, Antitrust Division ("DOJ") indicated its intention to
investigate certain existing industry practices that had not been previously
subject to antitrust review. The Company has received information requests from
the DOJ regarding the joint selling agreement ("JSA") the Company had from
September 1 to December 31, 1996 in the Wichita, Kansas market and the JSA the
Company has in the Colorado Springs, Colorado and Spokane, Washington markets
(the "Citadel JSA"). These information requests also cover another JSA which
the Company has in Spokane, Washington. The Citadel JSA provided approximately
15% of the Company's net revenues during the nine months ended September 30,
1998. 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 given the fee
structure of the Citadel JSA. However, the Company may suffer a short term
disruption in sales efforts caused by the transition. The Company has begun
preparations for an orderly transition in the event that the DOJ requires the
termination of the Citadel JSA.
NOTE 5 - LOSS PER BASIC COMMON SHARE
Loss per basic common share is based upon the net loss applicable to
basic common shares, which is net of preferred stock dividends and upon the
weighted average number 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 basic common
share because the effect would be antidilutive.
NOTE 6 - LEGAL PROCEEDING
On July 24, 1998, a lawsuit was commenced against the Company and its
directors in the Court of Chancery of the State of Delaware (New Castle
County). The plaintiff in the lawsuit purports to have filed the action on
behalf of a class consisting of all holders of Depositary Shares. The complaint
alleges that the consideration to be paid as a result of the Merger to the
holders of the Depositary Shares is unfair and that the individual defendants
have breached their fiduciary duties. The complaint seeks to have the action
certified as a class action and seeks to enjoin the Merger, or, in the
alternative, seeks monetary damages. The Company intends to defend the lawsuit
vigorously.
NOTE 7 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("FAS 131"), which is
effective for years beginning after December 15, 1997. FAS 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosure about products and services, geographic areas and major
customers. FAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore, the Company will adopt the
new requirements in 1998. Management has not yet completed its review of the
effect of FAS 131 on its financial reporting.
-9-
<PAGE>
TRIATHLON BROADCASTING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1998
(unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the condensed
consolidated financial statements and related notes thereto. The following
discussion, as well as discussions elsewhere herein, contain certain forward
looking statements that involve risks and uncertainties that could cause actual
results to differ materially from those discussed in such forward looking
statements. Generally, forward-looking statements include words or phrases such
as "management anticipates," "management believes," "the Company anticipates,"
"the Company believes," "the Company expects" and words and phrases of similar
impact, and include, but are not limited to, statements regarding future
operations and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. 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, the level and volatility of interest rates,
integration of the acquisitions completed during the year ended December 31,
1997, 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, changing consumer tastes, the effect of economic and market
conditions, the impact of current or pending legislation and regulation and
other factors, including those discussed in this document and in prior SEC
filings, press releases and other public filings of the Company. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward looking statements that may be made to reflect any future events
or circumstances.
RECENT DEVELOPMENT; MERGER
On July 23, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"), with Capstar Radio Broadcasting Partners, Inc.
("Capstar") and TBC Radio Acquisition Corp., a wholly-owned subsidiary of
Capstar ("Sub"), pursuant to which Sub would merge with and into the Company
and the Company would become a wholly-owned subsidiary of Capstar (the
"Merger"). Pursuant to the Merger Agreement, upon the consummation of the
Merger, each outstanding share of each class of Common Stock of the Company
shall be converted into the right to receive $13.00, subject to adjustment, and
each outstanding depositary share of the Company, representing one-tenth
interest in a share of 9% Mandatory Convertible Preferred Stock, par value $.01
per share, of the Company ("Depositary Shares"), shall be converted into the
right to receive $10.83, subject to adjustment, and each outstanding share of
the Series B Convertible Preferred Stock, par value $.01 per share, of the
Company shall be converted into the right to receive $.01.
As a condition precedent to the execution of the Merger Agreement,
Capstar, Sub, the Company and certain stockholders of the Company have entered
into stockholder agreements (the "Stockholder Agreements"), whereby each of such
stockholders have agreed to vote all shares of the capital stock of the Company
beneficially owned by each in favor of the Merger and against any competing
transaction. In order to facilitate the Merger and pursuant to the Stockholder
Agreements, on August 5, 1998, such stockholders converted an aggregate of
641,921 shares of Class D Common Stock into Class B Common Stock based on the
existence of certain covenant defaults under the Amended Credit Agreement at the
time of the conversion. As a result of the conversion of the Class D Common
Stock into Class B Common Stock and the terms of the Stockholder Agreements,
such stockholders have agreed to vote the majority of the voting power of the
outstanding voting capital stock of the Company in favor of the Merger and
against any competing transaction. Accordingly, passage of the proposal to
approve the Merger Agreement and the Merger is assured.
The consummation of the Merger is subject to the satisfaction of a
number of conditions set forth in the Merger Agreement, including, but not
limited to, the approval by the stockholders of the Company of the transactions
contemplated thereby, the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the receipt of all applicable consents to the Merger from the
Federal Communications Commission. The Merger is currently expected to be
consummated in the second quarter of 1999. For additional information, see
-10-
<PAGE>
"Item 5--Other Events," of the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on July 31, 1998 and "General" below.
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 10 AM and 22 FM radio stations in six markets and owns Pinnacle
Sports Productions, LLC, a regional sports radio network (the "Sports Network")
as set forth in the following chart:
AM FM
---- ----
Omaha, Nebraska(1) 1 3
Spokane, Washington(2) 3 5
Wichita, Kansas 2 4
Colorado Springs, Colorado(3) 2 2
Lincoln, Nebraska(1) 0 4
Tri-Cities, Washington(4) 2 4
--- ---
Total 10 22
- ------------------
(1) The Company owns the Sports Network operating in Nebraska in addition
to the stations in Omaha and Lincoln, Nebraska.
(2) Includes four stations for which Citadel Broadcasting Company sells
advertising pursuant to a JSA and one station that is not owned by the
Company but on which the Company sells advertising pursuant to a JSA.
(3) Consists of four stations owned by the Company for which Citadel
Broadcasting Company sells advertising pursuant to a JSA.
(4) Includes two stations not owned by the Company on which the Company
provides programming services and sells advertising pursuant to local
marketing agreements. The Tri-Cities, Washington market consists of
the cities of Richland, Kennewick and Pasco in the State of
Washington.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow ("BCF")
which is net revenues less station operating expenses. Although BCF is not a
measure of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), the Company believes that BCF 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
that 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 targeted by its advertisers, as measured principally by The Arbitron
Company (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 as a means to insulate it from the
effects of changes in the
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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. To generate national advertising sales,
the Company engages independent advertising sales representatives that
specialize in national sales for each of its stations.
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.
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.
Following the passage of the Telecommunications Act of 1996, the
Department of Justice, Antitrust Division ("DOJ") indicated its intention to
investigate certain existing industry practices that had not been previously
subject to antitrust review. The DOJ is investigating the Citadel JSA in
connection with the concentration of radio station ownership in the Colorado
Springs, Colorado and Spokane, Washington markets. The DOJ has, in the past,
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
ownership of other radio stations in the area, control over the majority of
radio advertising revenue in the area. The Citadel JSA provided approximately
15% of the Company's net revenues during the nine months ended September 30,
1998. 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 given the fee
structure of the Citadel JSA. The Company, however, may suffer a short term
disruption in sales efforts caused by the transition. The Company has begun
preparations for an orderly transition in the event that the DOJ requires the
termination of the Citadel JSA.
The FCC indicated in a public notice that it intends to analyze
ownership concentration in the Wichita market in connection with its review of
the transfer of control of the Company's Wichita stations to Capstar pursuant
to the Merger, and it invited responses specifically addressing the issue of
concentration and its effect on competition and diversity in the market. The
DOJ responded by filing a Comment and Petition to Hearing with the FCC claiming
that Capstar's proposed acquisition of the Wichita stations, together with the
stations Capstar currently owns in the market, raises serious issues as to
whether sufficient competition will exist after the acquisition and suggesting
that the FCC should hold a hearing to determine whether the transfers would
serve the public interest. The DOJ also indicated that it would continue its
investigation into the potential anti-competitive nature of the proposed
acquisition and may bring action in United States District Court irrespective
of any action the FCC may take. The Company cannot predict what action the FCC
of DOJ may take, if any, or what effect any action may have on the Company or
the Merger.
RESULTS OF OPERATIONS
The Company's condensed consolidated financial statements are not
directly comparable from period to period due to acquisition and disposition
activity for the nine months ended September 30, 1997. For more information
regarding dispositions and acquisitions, see "Item 1 -- Business" of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 filed
with the Securities and Exchange Commission on March 31, 1998.
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net revenues increased approximately $856,000 or 9% to approximately
$10.2 million for the three months ended September 30, 1998 (the "1998
Quarter") from approximately $9.4 million for the three months ended September
30, 1997 (the "1997 Quarter") due to a higher volume of business despite being
negatively impacted by changes in direct competitive forces in certain markets
resulting from increased competition.
Station operating expenses increased by approximately $306,000 or 5%
to approximately $6.3 million for the 1998 Quarter from approximately $6.0
million for the 1997 Quarter primarily related to a larger volume of business
during the 1998 Quarter.
BCF increased by approximately $550,000 or 16% to approximately $3.9
million for the 1998 Quarter from approximately $3.4 million for the 1997
Quarter principally due to the factors described above. BCF as a percentage of
net revenues increased to 39% for the 1998 Quarter versus 36% for the 1997
Quarter.
Depreciation and amortization expense increased by 3% to approximately
$1.2 million for the 1998 Quarter versus approximately $1.1 million for the
1997 Quarter. The increase was principally attributable to fixed asset
additions.
Corporate expenses consisting primarily of officer's salary, financial
consulting and professional fees and expenses, and corporate office expenses
were approximately $559,000 for the 1998 Quarter as compared to approximately
$467,000 for the 1997 Quarter primarily due to increases in salaries and state
franchise taxes. Included in corporate expenses are fees of approximately
$133,000 and approximately $139,000 for the 1998 Quarter and the 1997 Quarter,
respectively, payable to SFX Entertainment, Inc. ("SFX Entertainment"), an
affiliate, for financial, legal and advisory services rendered by The Sillerman
Companies, an affiliate, under the Amended and Restated Financial Consulting
Agreement between the Company and SFX Entertainment. The interests of SFX
Broadcasting, Inc. ("SFX Broadcasting") under that agreement were assigned to
SFX Entertainment in connection with the spin-off of SFX Entertainment from SFX
Broadcasting in April 1998.
The Company recorded deferred compensation expense of approximately
$29,000 for the 1998 Quarter and approximately $94,000 for the 1997 Quarter.
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 prior periods.
Operating income (net revenues less total operating expenses) for the
1998 Quarter was approximately $2.2 million and approximately $1.7 million for
the 1997 Quarter. This increase results principally from increased revenue and
other factors described above.
Other expenses for the 1998 Quarter consists of approximately $732,000
of costs related to the Merger.
Net interest expense for the 1998 quarter was approximately
$1.5 million as compared to approximately $1.3 million for the 1997 quarter.
The net increase in interest expense was principally attributable to the
increased borrowings as described under "Liquidity and Capital Resources" below
and reduced interest income.
Net loss for the 1998 Quarter was approximately $43,000 as compared to
income of approximately $325,000 for the 1997 Quarter. Net loss applicable to
common stock for the 1998 Quarter was approximately $1.4 million as compared to
approximately $1.1 million for the 1997 Quarter. The increased net loss and net
loss applicable to common stock resulted from the factors described above.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net revenues increased approximately $5.7 million or 25% to
approximately $28.7 million for the nine months ended September 30, 1998 (the
"1998 Period") from approximately $23.0 million for the nine months ended
September 30, 1997 (the "1997 Period") as a result of acquisitions consummated
during the 1997 Period as well as growth at continuously owned and operated
stations. On a same station basis for the radio stations owned and operated as
of September 30, 1998, net revenues increased by 8% to
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approximately $28.7 million for the 1998 Period from approximately $26.5 million
for the 1997 Period. Despite the growth in net revenues, the Company experienced
disruptions in sales efforts as a result of restructuring of sales management
and turnover of sales staff of acquisitions consummated during the prior fiscal
year as well as changes in direct competitive forces in selected markets
resulting in increased competition.
Station operating expenses increased by approximately $3.2 million or
20% to approximately $19.4 million for the 1998 Period from approximately $16.2
million for the 1997 Period primarily due to the inclusion of expenses related
to the stations acquired during the 1997 Period. On a same station basis for
the radio stations owned and operated by the Company as of September 30, 1998,
operating expenses for the 1998 Period increased by 3% to approximately $19.4
million from approximately $18.8 million for the 1997 Period. The increase in
operating expenses related principally to a larger volume of business during
the 1998 Period reduced by the improved cost structure of stations acquired
during the 1997 Period and continuing implementation of the Company's cost
reduction programs and efficiencies of combined operations.
BCF increased by approximately $2.5 million or 37% to approximately
$9.3 million for the 1998 Period from approximately $6.8 million for the 1997
Period. BCF as a percentage of net revenues increased to 32% for the 1998
Period versus 30% for the 1997 Period principally due to increases in net
revenues exceeding increases in operating expenses. On a same station basis for
radio stations owned and operated by the Company as of September 30, 1998, BCF
of approximately $9.3 million for the 1998 Period represented an increase of
approximately 21% as compared to the BCF of approximately $7.7 million for the
1997 Period principally as a result of increased net revenues, improved cost
structure of the newly acquired stations and the effects of the Company's cost
reduction programs.
Depreciation and amortization expense increased by 31% to
approximately $3.6 million for the 1998 Period versus approximately $2.7
million for the 1997 Period. The increase was principally attributable to the
amortization of intangible assets resulting from acquisitions consummated
during the 1997 Period.
Corporate expenses consisting primarily of officer's salary, financial
consulting and professional fees and expenses, and corporate office expenses
were approximately $1.6 million for both the 1998 Period as compared to
approximately $1.5 million for the 1997 Period. Included in corporate expenses
are fees of approximately $398,000 and approximately $421,000 for the 1998
Period and the 1997 Period, respectively, paid and or payable to SFX
Entertainment.
The Company recorded deferred compensation expense of approximately
$99,000 for the 1998 Period and approximately $292,000 for the 1997 Period.
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 prior periods.
Operating income (net revenues less total operating expenses) for the
1998 Period was approximately $4.0 million as compared to approximately $2.3
million for the 1997 Period. This increase results principally from the
inclusion of nine full months of operations in the 1998 Period for stations
acquired during the 1997 Period and the factors described above.
Other expenses for the 1998 Period include approximately $91,000 of
loss on the sale of property and equipment and approximately $843,000 of costs
related to the Merger.
Net interest expense for the 1998 Period was approximately $4.5
million as compared to approximately $2.9 million for the 1997 Period due to
factors described above. The net increase in interest expense was principally
attributable to the increased borrowings to complete the acquisitions of radio
stations acquired during the 1997 Period and a decrease in interest income.
Loss before extraordinary item for the 1998 Period was approximately
$1.4 million as compared to approximately $554,000 for the 1997 Period due to
factors described above. During the 1997 Period, the Company incurred an
extraordinary loss in connection with the write off of deferred financing costs
of $958,000 associated with the early extinguishment of debt.
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Net loss for the 1998 Period was approximately $1.4 million as
compared to approximately $1.5 million for the 1997 Period. Net loss applicable
to common stock was approximately $5.6 million for both the 1998 Period and the
1997 Period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's principal sources of funds have been the
proceeds from the Company's initial public offering on September 5, 1995 (the
"Initial Public Offering") of approximately $12.9 million, net proceeds of
approximately $56.4 million from the sale of preferred stock (the "Preferred
Stock Offering") and borrowings of $78.5 million under the Amended Credit
Agreement, which borrowings were used to refinance the Company's borrowings of
$40 million under the Company's loan agreement with AT&T Commercial Finance
Corporation, finance acquisitions and support working capital needs. The cost of
the acquisitions completed were financed with the proceeds from the Initial
Public Offering, the Preferred Stock Offering and the borrowings mentioned
above. In October, 1997, the Company reduced its outstanding indebtedness to the
Lenders by $20.0 million with the proceeds of the disposition of radio stations
KOLL-FM, KSSN-FM and KMVK-FM, each operating in the Little Rock, Arkansas
market. In June 1998, the Company refinanced a portion of the indebtedness
relating to the 1997 acquisition of Pinnacle Sports Productions, LLC as
described below.
Cash flow provided from operating activities for the 1998 Period was
approximately $3.1 million as compared to approximately $837,000 for the 1997
Period. The increase in cash flow from operating activities was principally due
to growth in net revenues as compared to the 1997 Period. Cash used in
investing activities was approximately $1.2 million during the 1998 Period and
approximately $64.0 million for the 1997 Period. The decrease is related to the
absence of radio station acquisition activity during the 1998 Period. Cash flow
used for financing activities of approximately $3.4 million during the 1998
Period related primarily to the payment of dividends to the preferred
stockholders while the cash flow provided from financing activities during the
1997 Period of approximately $62.0 million principally related to additional
borrowings related to acquisitions.
On September 15, 1998, the Company borrowed $650,000 from Capstar for
the purpose of acquiring certain real property in Lincoln, Nebraska. The loan
is secured by the acquired real property. The Company had occupied a
substantial portion of the property as a tenant prior to September 15, 1998 and
continues to occupy the property. The loan accrues interest at the rate of 12%
per annum which is payable, along with the principal, on the earlier of the
consummation of the Merger, which is expected during the second quarter of
1999, or the termination of the Merger Agreement.
On August 12, 1998, the Company entered into an agreement with Saga
Communications of Iowa, Inc. ("Saga"), as required by the Merger Agreement,
whereby, subject to FCC approval, Saga has agreed to decrease the broadcast
power of KIOA-FM which operates in the Des Moines, Iowa market, allowing the
Company to increase the broadcast power of KTNP-FM, which operates in the
Omaha, Nebraska market. In accordance with the agreement, the Company is
required to deposit $500,000 with an escrow agent ("Escrow Deposit") by
November 27, 1998. In the event the FCC approves the power changes, the Escrow
Deposit shall be remitted to Saga as compensation. In the event the FCC fails
to approve the power changes, the Escrow Deposit will be returned to the
Company.
On June 30, 1998, the Company entered into the First Amendment to
Amended and Restated Loan Agreement ("First Amendment") with the Lenders. The
purpose of the First Amendment was to, among other things, enable the Lenders
to fund an acquisition loan of $1.0 million (the "Acquisition Loan") under the
$20.0 million acquisition loan facility of the Amended Credit Agreement. The
Acquisition Loan was used by the Company to refinance a portion of the
indebtedness related to the acquisition of Pinnacle Sports Productions, LLC in
1997. The Acquisition Loan is a term loan bearing interest at LIBOR + 3.50% (or
the alternative base rate + 2.50%). The principal balance of the Acquisition
Loan must be reduced by $6,250 per year (paid on a quarterly basis) until the
final maturity of July 1, 2004.
The Amended Credit Agreement and First Amendment contain covenants
relating to financial leverage and coverage ratios, and restrictions on capital
expenditures and other payments. Additionally, the Merger Agreement places
certain restrictions on the conduct of business by the Company, including
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a restriction on the incurrence of indebtedness and the making of capital
expenditures. As of September 30, 1998, the Company did not meet certain
financial covenants under the Amended Credit Agreement and First Amendment and
management believes that it may not comply with certain covenants in its year
end tests. Accordingly, the entire debt outstanding under the Amended Credit
Agreement and First Amendment has been reclassified as a current liability on
its condensed consolidated balance sheet as of September 30, 1998. Based on
discussions with the Lenders, management believes that it will be able to obtain
the appropriate waivers in the future. However, in the event that such waivers
are not granted, management, after consultation with its regular financing
sources, believes that the Company would be able to refinance the Amended Credit
Agreement and First Amendment on acceptable terms. However, there can be no
assurance that the Company will be successful in obtaining the appropriate
waivers by the Lenders or that the Company will be able to refinance the Amended
Credit Agreement and First Amendment. The failure by the Company to obtain such
waivers or refinance the Amended Credit Agreement and First Amendment would have
a material adverse affect on the Company's financial condition and results of
operations.
For the remainder of 1998, the Company expects its capital needs,
including interest expense, dividends, corporate expenses, capital expenditures
and other commitments, including the commitment to Saga, to be approximately
$4.0 million. It is anticipated the Company will be able to meet these
obligations for the remainder of 1998 from cash on hand and cash provided from
operations, which assumes an improvement in the operating results of the
Company's radio stations. The Company anticipates that future debt service,
dividends, and other commitments payable after 1998 will be met from cash on
hand and cash provided from operations, which assumes a substantial improvement
in the operating results of the Company's radio stations and borrowing which
may be available under the Amended Credit Agreement or other sources. There can
be no assurance that the Company will be able to make these improvements which
are subject to prevailing economic conditions and to legal, financial,
business, regulatory, industry and other factors, many of which are beyond the
Company's control, or that the Company will have availability under the Amended
Credit Agreement or access to other sources of financing sufficient to meet
such commitments. The failure by the Company to obtain such financing or make
sufficient improvements in its operating results could have a material adverse
effect on the Company.
YEAR 2000
The Year 2000 problem is the result of computer software and hardware,
as well as chips and processors embedded in various products, (collectively
referred to as "Computer Applications") using two digits rather than four
digits to define the applicable year. Any of the Company's Computer
Applications may recognize a date using "00" as the Year 1900 rather than the
Year 2000, which could result in miscalculations or system failures.
The Company's critical information technology ("IT") systems using
Computer Applications consist of sales, scheduling, accounting and broadcast
automation systems. These IT systems rely heavily on specialized software
provided by third parties. The Company is in the process of examining and
testing its IT systems and letters of compliance are being obtained from all
vendors of standard systems. The majority of these systems have been or are in
the process of being upgraded through routine scheduled software and hardware
upgrades. Based on internal assessments completed to date and upon third party
representations, the Company believes that its critical IT systems will be Year
2000 compliant by March 1999.
The Company's non-IT systems consist of telephone systems and any
other equipment which contain embedded computer chips or processors. The
Company has not begun an examination of its non-IT systems. The Company plans
to conduct and complete its assessment of its non-IT systems that operate at
its facilities by mid-year 1999.
In addition to its internal systems, the Company also relies, directly
and indirectly, on the systems of third parties, such as its banks, for the
accurate exchange of data and for financial processing capabilities. The
Company's primary financial institution has indicated that it is actively
working to resolve its Year 2000 compatibility issues.
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The Company has not incurred any costs to date that are specifically
attributable to resolving Year 2000 compliance issues. The Company cannot
accurately estimate its future costs relating to readying its Computer
Applications until it has completed examinations of all systems containing
Computer Applications which will occur by June 1999.
Although the Company believes that it will be able to discover and
correct all its Year 2000 compatibility problems, there can be no guarantee
that the Company will not experience any adverse impact. Additionally, with
respect to third parties, there can be no assurance that their systems will be
rendered Year 2000 compliant on a timely basis or that any resulting Year 2000
issues would not have an adverse effect on the results of operations of the
Company. The most likely negative impact, if any, could include delays in
receipt of payments from customers and delays in future advertising commitments
from customers experiencing compatibility problems.
The Company believes that the Year 2000 compliance of its IT and
non-IT systems should minimize the business difficulties encountered as a
result of the Year 2000 issue. Consequently, the Company does not anticipate
the need to formulate contingency plans to deal with Year 2000 issues and has
not formulated such plans. If this assessment changes, the Company will develop
contingency plans as deemed necessary.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 24, 1998, a lawsuit was commenced against the Company and its
directors in the Court of Chancery of the State of Delaware (New Castle
County). The plaintiff in the lawsuit purports to have filed the action on
behalf of a class consisting of all holders of Depositary Shares. The complaint
alleges that the consideration to be paid as a result of the Merger to the
holders of the Depositary Shares is unfair and that the individual defendants
have breached their fiduciary duties. The complaint seeks to have the action
certified as a class action and seeks to enjoin the Merger, or, in the
alternative, seeks monetary damages. The Company intends to defend the lawsuit
vigorously. To date, with respect to this litigation, no discovery has been
conducted and no hearing has either been held or scheduled.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.76 Termination Agreement, dated as of July 23, 1998, among
Norman Feuer, Capstar Radio Broadcast Partners, Inc. and
Triathlon Broadcasting Company.
10.77 Promissory Note dated September 15, 1998 executed by 4630
Realty, Inc., a wholly owned subsidiary of Triathlon
Broadcasting Company, and payable to the order of Capstar
Radio Broadcasting Partners, Inc.
10.78 Security Agreement dated September 15, 1998 between 4630
Realty, Inc., a wholly owned subsidiary of Triathlon
Broadcasting Company, and Capstar Radio Broadcasting
Partners, Inc.
10.79 Deed of Trust, Assignment, Security Agreement and Financing
Statement, dated as of September 15, 1998, executed by 4630
Realty, Inc., a wholly owned subsidiary of Triathlon
Broadcasting Company in favor of Capstar Radio Broadcasting
Partners, Inc.
10.80 Station Reimbursement and Compensation Agreement dated August
1998, between Saga Communications of Iowa, Inc. and Triathlon
Broadcasting of Omaha, Inc.
10.81 Escrow Agreement dated August 1998, among Saga Communications
of Iowa, Inc., Triathlon Broadcasting of Omaha, Inc. and
James K. Edmondson
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed with Securities and Exchange Commission on July 31,
1998 reporting under Item 5 the Merger Agreement entered into by the Company
and a lawsuit which was commenced against the Company and its directors
alleging that the consideration to be paid as a result of the Merger is unfair
to the holders of the Depositary Shares and that the individual defendants have
breached their fiduciary duties.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRIATHLON BROADCASTING COMPANY
By: /s/ Norman Feuer
------------------------------
Chief Executive Officer
By: /s/ William G. Thompson
------------------------------
Chief Financial Officer
Dated: November 16, 1998
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ANNEX E
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264
of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
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b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b.
of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of
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or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss.228 or ss. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the
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merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the date of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who having complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may
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participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded such stockholder's appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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