Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 251 1.02M
2: EX-2.1 Purchase & Exchange Agreement 03/24/00 70 252K
3: EX-2.3 Asset Purchase Agreement 02/29/00 59 215K
4: EX-2.5 Asset Purchase Agreement 01/21/99 30 106K
5: EX-2.7 Asset Purchase Agreement 08/07/98 29 100K
6: EX-10.2 Time Brokerage Agreement 01/21/00 31 60K
7: EX-21.1 Subsidiaries of the Registrant 1 5K
8: EX-23.1 Consent of Grant Thornton LLP 1 6K
9: EX-23.2 Consent of Ernst & Young LLP 1 6K
10: EX-23.3 Consent of Deloitte & Touche LLP 1 6K
11: EX-23.4 Consent of Weeks Holderbaum Huber & Degraw, LLP 1 11K
Page | (sequential) | | | | (alphabetic) | Top |
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| | |
- Alternative Formats (Word, et al.)
- Anti-takeover Effects of Provisions of Delaware law and Our Certificate of Incorporation and By-Laws
- Aurora Communications, LLC (A Limited Liability Company)
- Banc of America Securities LLC
- Business
- Capitalization
- Combined Statement of Cash Flows for the period of January 1, 1998 to May 29, 1998
- Combined Statement of Cash Flows for the year ended December 31, 1996
- Combined Statement of Cash Flows for the year ended December 31, 1997
- Combined Statement of Operations and Division Equity for the period of January 1, 1998 to May 29, 1998
- Combined Statement of Operations and Division Equity for the year ended December 31, 1996
- Combined Statement of Operations and Division Equity for the year ended December 31, 1997
- Commodore Media of Westchester, Inc
- Description of Capital Stock
- Dilution
- Dividend Policy
- Executive Compensation
- Exhibits and Financial Statement Schedules
- Experts
- Financing activities
- G. Daniel Henrickson, Jr
- Indemnification of Directors and Officers
- Index to Financial Statements
- Indirect Ownership of Stock
- Industry Overview
- Investing activities
- Legal Matters
- Management
- Management's Discussion and Analysis of Financial Condition and Results of Operations
- Market and Industry Data and Industry Terms
- Material United States Federal Tax Consequences to Non-U.S. Holders of Our Class A Common Stock
- Michael S. Libretti
- Nassau Broadcasting Partners, L.P
- New credit facility
- Notes to Combined Financial Statements
- Notes to Consolidated Financial Statements
- Notes to Financial Statements
- Offering, The
- Old credit facility
- Other Expenses of Issuance and Distribution
- Pending Acquisitions
- Principal Stockholders
- Recent Sales of Unregistered Securities
- Registration Rights
- Related Party Transactions
- Reorganization
- Risk Factors
- Selected Historical Financial Data
- Senior discount notes
- Shares Eligible for Future Sale
- Statement of Cash Flows for the period April 2, 1998 (date of inception) to December 31, 1998
- Statement of Cash Flows for the period of January 1, 1998 to April 1, 1998
- Statement of Cash Flows for the period of January 1, 1999 to October 26, 1999
- Statement of Cash Flows for the year ended December 31, 1996
- Statement of Cash Flows for the year ended December 31, 1997
- Statement of Operations and Accumulated Deficit for the year ended December 31, 1996
- Statement of Operations and Retained Earnings for the period of January 1, 1998 to April 1, 1998
- Statement of Operations and Retained Earnings for the year ended December 31, 1997
- Stock Incentive Plan
- Summary
- The offering
- Total
- Unaudited Pro Forma Consolidated Financial Data
- Undertakings
- Underwriting
- Use of Proceeds
- Wchr (Fm)
- Westchester Radio, LLC
- Where You Can Find Additional Information
- Wilt(Am)
- Wjhr (Am)
- Wsus(Fm)
- Year ended December 31, 1999
- 1999
|
1 | 1st Page - Filing Submission
|
" | Michael S. Libretti
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2 | Banc of America Securities LLC
|
4 | Summary
|
6 | Pending Acquisitions
|
7 | 1999
|
9 | The offering
|
14 | Market and Industry Data and Industry Terms
|
15 | Risk Factors
|
22 | Reorganization
|
26 | Use of Proceeds
|
" | Dividend Policy
|
27 | Capitalization
|
28 | Dilution
|
30 | Unaudited Pro Forma Consolidated Financial Data
|
31 | Year ended December 31, 1999
|
37 | Selected Historical Financial Data
|
39 | Management's Discussion and Analysis of Financial Condition and Results of Operations
|
44 | Investing activities
|
" | Financing activities
|
45 | New credit facility
|
46 | Senior discount notes
|
" | Old credit facility
|
48 | Industry Overview
|
50 | Business
|
61 | Wchr (Fm)
|
71 | Management
|
" | G. Daniel Henrickson, Jr
|
74 | Executive Compensation
|
" | Indirect Ownership of Stock
|
77 | Stock Incentive Plan
|
81 | Related Party Transactions
|
83 | Principal Stockholders
|
85 | Description of Capital Stock
|
87 | Anti-takeover Effects of Provisions of Delaware law and Our Certificate of Incorporation and By-Laws
|
89 | Registration Rights
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90 | Shares Eligible for Future Sale
|
92 | Material United States Federal Tax Consequences to Non-U.S. Holders of Our Class A Common Stock
|
94 | Underwriting
|
99 | Legal Matters
|
" | Experts
|
" | Where You Can Find Additional Information
|
100 | Index to Financial Statements
|
104 | Nassau Broadcasting Partners, L.P
|
108 | Notes to Financial Statements
|
115 | Wsus(Fm)
|
116 | Wilt(Am)
|
" | Wjhr (Am)
|
130 | Aurora Communications, LLC (A Limited Liability Company)
|
132 | Total
|
134 | Notes to Consolidated Financial Statements
|
145 | Notes to Combined Financial Statements
|
152 | Statement of Cash Flows for the period of January 1, 1999 to October 26, 1999
|
166 | Westchester Radio, LLC
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179 | Statement of Cash Flows for the period April 2, 1998 (date of inception) to December 31, 1998
|
188 | Commodore Media of Westchester, Inc
|
189 | Statement of Operations and Retained Earnings for the period of January 1, 1998 to April 1, 1998
|
190 | Statement of Cash Flows for the period of January 1, 1998 to April 1, 1998
|
197 | Statement of Operations and Retained Earnings for the year ended December 31, 1997
|
198 | Statement of Cash Flows for the year ended December 31, 1997
|
205 | Statement of Operations and Accumulated Deficit for the year ended December 31, 1996
|
206 | Statement of Cash Flows for the year ended December 31, 1996
|
213 | Combined Statement of Operations and Division Equity for the period of January 1, 1998 to May 29, 1998
|
214 | Combined Statement of Cash Flows for the period of January 1, 1998 to May 29, 1998
|
221 | Combined Statement of Operations and Division Equity for the year ended December 31, 1997
|
222 | Combined Statement of Cash Flows for the year ended December 31, 1997
|
229 | Combined Statement of Operations and Division Equity for the year ended December 31, 1996
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230 | Combined Statement of Cash Flows for the year ended December 31, 1996
|
243 | Item 13. Other Expenses of Issuance and Distribution
|
" | Item 14. Indemnification of Directors and Officers
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" | Item 15. Recent Sales of Unregistered Securities
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244 | Item 16. Exhibits and Financial Statement Schedules
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247 | Item 17. Undertakings
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As filed with the Securities and Exchange Commission on May 9, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
Nassau Broadcasting Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 4832 Applied for
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
619 Alexander Road
Princeton, New Jersey 08540
(609) 452-9696
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Michael S. Libretti
Executive Vice President and
Chief Financial Officer
Nassau Broadcasting Corporation
619 Alexander Road
Princeton, New Jersey 08540
(609) 452-9696
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Phyllis G. Korff, Esq. Michael J. Schiavone, Esq.
Skadden, Arps, Slate, Meagher & Shearman & Sterling
Flom LLP 599 Lexington Avenue
Four Times Square New York, New York 10022
New York, New York 10036-6522 Tel: (212) 848-4000
Tel: (212) 735-3000 Fax: (212) 848-7179
Fax: (212) 735-2000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
[Download Table]
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Title of Each Class of Proposed Maximum Aggregate Amount of Registration
Securities To Be Registered Offering Price(1) Fee
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Class A common stock, $.01
par value................. $190,000,000 $50,160
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(1)Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o) of the Securities Act.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated May 9, 2000
P R O S P E C T U S
Shares
Nassau Broadcasting Corporation
Class A Common Stock
-----------
This is Nassau's initial public offering. Nassau is selling all of the
shares. The U.S. underwriters are offering shares in the U.S. and
Canada and the international managers are offering shares outside the
U.S. and Canada.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "NBCR."
Investing in the class A common stock involves risks that are described in
the "Risk Factors" section beginning on page 13 of this prospectus.
-----------
[Download Table]
Per Share Total
--------- -----
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to Nassau.............. $ $
The U.S. underwriters may also purchase up to an additional shares from
Nassau at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional shares
from Nassau.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of class A common stock will be ready for delivery on or about
, 2000.
-----------
Merrill Lynch & Co. Salomon Smith Barney
-----------
Banc of America Securities LLC
-----------
The date of this prospectus is , 2000.
TABLE OF CONTENTS
[Download Table]
Page
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Summary.................................................................. 1
Risk Factors............................................................. 13
Reorganization........................................................... 20
Pending Acquisitions..................................................... 21
Use of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 26
Unaudited Pro Forma Consolidated Financial Data.......................... 28
Selected Historical Financial Data....................................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Industry Overview........................................................ 42
Business................................................................. 44
Management............................................................... 65
Related Party Transactions............................................... 74
Principal Stockholders................................................... 75
Description of Capital Stock............................................. 77
Shares Eligible for Future Sale.......................................... 82
Material United States Federal Tax Consequences to Non-U.S. Holders of
Our Class A Common Stock................................................ 84
Underwriting............................................................. 86
Legal Matters............................................................ 90
Experts.................................................................. 90
Where You Can Find Additional Information................................ 90
Index to Financial Statements............................................ F-1
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
Special note regarding forward-looking statements
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "forecast," "predict,"
"intend," "potential" or "continue" or the negative of such terms or other
comparable terminology. These forward-looking statements are based on current
expectations about future events. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. The risks set
forth under "Risk Factors" and elsewhere in this prospectus could cause our
future operating results to differ materially from those contemplated by our
forward-looking statements. In addition, factors that we are not currently
aware of could harm our future operating results.
i
SUMMARY
This is only a summary and does not contain all of the information that
may be important to you. You should read the entire prospectus, including the
risk factors section and our financial statements and related notes, before
making an investment decision.
Nassau Broadcasting Corporation
We are a radio broadcasting company focused on building local radio
station clusters in demographically attractive suburban areas surrounding major
metropolitan markets in the northeastern United States. Pro forma for pending
acquisitions, we will own and/or operate 17 FM and 15 AM stations located in
nine markets in New Jersey, Pennsylvania, New York and Connecticut. We have
assembled market-leading radio station clusters that serve highly populated
suburban areas characterized by above average affluence and retail sales per
capita. We believe that these market characteristics provide us with
significant growth potential. On a historical basis, we had net revenues of
$31.4 million and broadcast cash flow of $10.6 million for the year ended
December 31, 1999 and net revenues of $7.3 million and broadcast cash flow of
$2.0 million for the three months ended March 31, 2000. After giving effect to
a recent tower-related asset sale and our pending acquisitions, each of which
we describe more fully below, we would have had, on a pro forma basis, net
revenues of $55.9 million and broadcast cash flow of $20.6 million for the year
ended December 31, 1999 and net revenues of $12.9 million and broadcast cash
flow of $4.5 million for the three months ended March 31, 2000.
By acquiring, developing and operating radio stations in high growth
suburban markets, we have substantially increased the net revenues and
broadcast cash flow of our stations resulting in 21.0% and 33.0% two-year
compound annual same station net revenue and same station broadcast cash flow
growth, respectively. We have organized our stations into four clusters:
Northern, Northwestern, Central and Shore. We also have a division called the
Jersey Radio Network that markets all of our stations to national advertisers.
After giving effect to our pending acquisitions, our stations will cover over
6.7 million listeners.
Competitive Strengths
We believe that the following competitive strengths have been critical to
our success:
. Strengthening underperforming stations. We have a demonstrated record
of developing and strengthening underperforming radio stations into
viable, competitive local brands that produce significant revenue and
cash flow increases;
. Identifying and developing markets. We have been able to identify and
define markets that were previously underdeveloped in terms of their
total radio revenues. We seek markets that have lower radio market
revenue relative to total retail sales as compared to the national
average and/or where radio has historically captured only a small
portion of total local advertising expenditure.
. Covering contiguous suburban markets. We provide comprehensive
coverage of suburban markets surrounding the New York and Philadelphia
metropolitan areas, which we believe are demographically attractive
and have strong revenue growth potential;
. Operating stations effectively. We have generated consistent organic
growth on a same station basis at both our developing and established
stations; and
3
. Acquiring and integrating stations. We have successfully acquired and
integrated 19 stations during the past five years.
The combination of operating our stations in market clusters and having
advertising, sales and programming expertise has enabled us to achieve the
following growth:
. same station net revenues increased 25.0% from 1998 to 1999; and
. same station broadcast cash flow increased 42.0% from 1998 to 1999.
We calculated same station results for the periods presented above for
stations we operated as of January 1, 1998 and continued to operate through
December 31, 1999.
Operating Strategy
We intend to continue to grow our business, both organically and through
acquisitions, by pursuing the following strategies:
. Building station clusters. We operate multiple stations within each of
our markets and cluster them to provide coverage over a series of
geographically adjacent markets. This clustering strategy provides
beneficial operating efficiencies and delivers extensive coverage of
diverse and attractive demographic groups to advertisers in a cost-
effective manner.
. Improving station programming. We recognize the importance of radio
stations to the local markets and continue to increase the local
content of our station programming. In addition, we focus on
continually enhancing our stations programming to increase our
audience share.
. Enhancing brand awareness. We brand and market individual stations to
improve audience recognition, loyalty and ratings. We have branded our
national sales force as the Jersey Radio Network to provide radio
advertising schedules that compliment traditional metro market
schedules in New York and/or Philadelphia. We intend to re-brand our
national sales force after we complete our acquisition.
. Cultivating a broad base of advertisers. We continue to develop our
sales force to proactively service local and national advertisers.
Acquisition Strategy
We intend to continue to expand our presence in demographically
attractive suburban areas surrounding major metropolitan markets, primarily in
the Northeast. We target markets that have lower radio market revenue relative
to total retail sales as compared to the national average and/or where radio
has historically captured only a small portion of total local advertising
expenditure. We seek to acquire stations that enable us to strengthen further
our presence in existing markets or to create leadership positions in new,
complementary markets. Frequently, the suburban areas we target are markets
that have fragmented ownership of radio stations or a limited number of fully
developed local stations. We are especially attracted by the opportunity to
acquire underperforming stations with the potential for significantly increased
revenues. We have an established process to integrate new stations into our
portfolio, culture and operating philosophy. As we integrate our acquisitions,
we involve senior management in the design and execution of plans to revitalize
any underperforming stations and transform them into more profitable ones.
4
Pending Acquisitions
We have signed definitive purchase agreements in connection with the
following acquisitions:
. all of the outstanding equity interests of Aurora Communications, LLC,
which owns nine stations in the Westchester, New York, Bridgeport,
Connecticut and Danbury, Connecticut markets, for approximately $185.0
million, of which $178.0 million remains due;
. two radio stations located in Allentown, Pennsylvania from Clear
Channel Communications, Inc. for approximately $30.0 million, of which
$24.0 million remains due;
. seven radio stations that we currently operate under local marketing
agreements, for a total of approximately $46.6 million, of which $18.9
million remains due;
. all of the outstanding stock of Manahawkin Communications Corporation,
which owns a construction permit to build a new radio station, WCHR
(FM), in the New Jersey market of Monmouth and Ocean counties, for
approximately $4.7 million, of which $2.6 million remains due; and
. one radio station located in Mount Pocono, Pennsylvania from Tiab
Communications Corporation for $100.
We have not received regulatory approvals in connection with any of these
acquisitions and, with respect to some of them, we have not yet applied to the
Federal Communications Commission, or FCC, for approval. We cannot assure you
that any regulatory body will grant final orders approving these acquisitions
or that we or any other relevant party will be able to satisfy all of the other
conditions required to close these acquisitions. The completion of this
offering is not conditioned upon the consummation of any of the pending
transactions.
5
Station Portfolio
The following table sets forth information as of the date of this
prospectus with respect to stations we own, operate or have agreed to acquire:
[Enlarge/Download Table]
1999
Radio Group
1999 1999 1999 Stations Rank in
Market Radio Market Number of Radio Market --------- Market
Market Rank Revenue Rank Listeners Revenue Growth FM AM Revenue
------ ------ ------------ --------- -------------- -- ---- -----------
Northern (1)
Westchester, NY (2)..... 1 2 161,600 16.8% 2 1 N/A
Bridgeport, CT.......... 112 91 320,100 5.6% 1 1 1
Danbury, CT............. 189 190 148,600 8.0% 2 2 2
Northwestern
Sussex, NJ.............. 239 250 188,900 16.7% 3 1 1
Newburgh-Middletown,
NY..................... 141 258 18,500 9.8% 1 1 5
Wilkes Barre-Scranton,
PA..................... 64 77 64,900 11.3% 1 2 4
Allentown, PA (3)....... 67 76 235,100 6.8% 1 1 3
Central
Trenton, NJ............. 138 100 858,800 14.6% 2 4 1
Shore
Monmouth-Ocean, NJ (4).. 47 83 419,300 21.3% 4 2 1
--------- ---- ----
Total................. 2,415,800 17 15
========= ==== ====
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(1) Consists of the nine radio stations we expect to acquire through our
acquisition of Aurora Communications, LLC.
(2) Falls within the greater New York market.
(3) Consists of the two stations we expect to acquire from Clear Channel
Communications, Inc.
(4) Includes the construction permit of WCHR (FM), which we will acquire upon
the completion of our acquisition of Manahawkin Communications Corporation.
6
History, Recapitalization and Reorganization
Louis F. Mercatanti, Jr., our President and Chief Executive Officer,
acquired WPST (FM) and WHWH (AM) in Trenton, New Jersey through the purchase of
Nassau Broadcasting Company in 1986. Nassau Broadcasting Partners, L.P. was
formed in December 1995 to consolidate the radio assets that Mr. Mercatanti had
acquired through that time.
In May 2000, we undertook a recapitalization in which, among other
things, we:
. entered into a new credit facility that provides for borrowings of up
to $144.0 million;
. issued and sold units consisting of senior discount notes and limited
partnership units for gross proceeds of $60.0 million. The limited
partnership units were converted into shares of our class A common
stock as of the date of this offering;
. repaid all outstanding obligations under our old credit facility and
all $42.4 million of our outstanding subordinated discount notes which
had been issued to our existing stockholders; and
. redeemed $2.5 million of equity interests of, and paid a $2.9 million
preferred distribution to, Mr. Mercatanti, one of our stockholders.
Until immediately prior to this offering, we were a limited partnership
whose principal subsidiaries were single-member limited liability companies. In
connection with this offering, we have terminated our limited partnership
status and have become a corporation. Before giving effect to this offering,
each of our stockholders owns an amount of our common stock representing its
previous economic interest in Nassau Broadcasting Partners, L.P. Most of our
existing stockholders own class B common stock, which has 10 votes per share
and provides them with majority voting control of the corporation.
In February 2000, we completed the sale of our tower-related assets to
affiliated entities controlled by Mr. Mercatanti for $10.0 million. These
affiliated entities then immediately transferred the bulk of these assets to
Pinnacle Towers Inc., which has in turn leased tower space back to us. In
addition, these affiliates have leased some assets to us.
Our principal executive offices are located at 619 Alexander Road,
Princeton, New Jersey 08540, our telephone number is (609) 452-9696, and the
address of our website is www.nassaubroadcasting.com. The information on our
website is not part of this prospectus.
7
The Offering
Class A common stock offered by us:
[Download Table]
U.S. offering....................... shares
International offering.............. shares
----------------
Total........................... shares
Shares outstanding after the offering.. shares of class A common stock
shares of class B common stock
shares of class C common stock
Voting rights.......................... Class A common stockholders have one
vote for each share, class B common
stockholders have ten votes for each
share and class C common stockholders
have no votes.
Conversion rights...................... Class B common stockholders may at any
time convert their shares into shares
of class A common stock on a one-for-
one basis. In addition, the shares of
class B common stock convert
automatically into shares of class A
common stock on a one-for-one basis
upon their transfer to someone other
than a permitted transferee. Class C
common stockholders may only convert
their shares into shares of class A or
class B common stock at the option of
the holders upon satisfying conditions
specified in our certificate of
incorporation.
Use of proceeds........................ We estimate that our net proceeds from
this offering without exercise of the
underwriters' over-allotment options
will be approximately $ million. We
intend to use these net proceeds:
. to redeem all of our outstanding
senior discount notes;
.to finance a portion of the
acquisition of Aurora Communications;
. to finance most of the acquisition
of two Allentown, Pennsylvania
radio stations; and
. to pay transaction costs and
provide for general corporate
purposes.
Risk factors........................... See "Risk Factors" and other
information included in this
prospectus for a discussion of factors
you should carefully consider before
deciding to invest in shares of our
class A common stock.
Nasdaq National Market symbol.......... NBCR
The number of shares of class A common stock outstanding after the
offering excludes:
. shares of class A common stock we have reserved for issuance under
our stock incentive plan, of which options to acquire shares have
already been issued under this plan at a weighted average option price
of $ ; and
. up to additional shares of class A common stock issuable upon
exercise of the underwriters' over-allotment options.
8
Summary Pro Forma Consolidated Financial Data
In the table below, we provide you with our summary unaudited pro forma
consolidated financial data as of the dates and for the periods indicated. Our
unaudited pro forma consolidated statement of operations data for the year
ended December 31, 1999 and for the three months ended March 31, 2000 give
effect to the following transactions as though they had occurred on January 1,
1999 and January 1, 2000, respectively:
. our recapitalization and reorganization;
. the completion of this offering and the application of the net
proceeds as described in this prospectus;
. the completion of our acquisition of Aurora Communications;
. the completion of our acquisition of two radio stations in Allentown,
Pennsylvania;
. the completion of our acquisitions of WILT (AM) and WCHR (FM);
. the completion of our acquisitions of seven stations that we currently
operate under local marketing agreements; and
. our tower-related asset sale.
Our unaudited pro forma consolidated balance sheet data as of March 31,
2000 gives effect to those of the transactions listed above that are expected
to occur after March 31, 2000, as if they had occurred on March 31, 2000. We
have included all adjustments, consisting only of normal recurring adjustments,
which, in the opinion of management, are necessary for a fair presentation of
this data. We based the pro forma adjustments on available information and on
assumptions that we believe are reasonable under the circumstances.
We provide you with our summary unaudited pro forma consolidated
financial data for illustrative purposes only and not to indicate what our
results of operations or financial position would have been if the transactions
described above had been consummated on the date indicated or to indicate
future results of operations or financial positions. The summary unaudited pro
forma consolidated financial data are based on assumptions and adjustments
described in the notes to the unaudited pro forma consolidated financial data
included elsewhere in this prospectus.
You should read the following data in conjunction with the historical
financial statements and related notes, the unaudited pro forma consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
9
Summary Pro Forma Consolidated Financial Data
[Download Table]
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- --------------------
(unaudited)
(dollars in thousands, except per
share data)
Statement of Operations Data:
Gross revenues......................... $ 60,868 $14,153
Less agency and outside commissions.... 4,990 1,239
-------- -------
Net revenues......................... 55,878 12,914
-------- -------
Operating expenses..................... 35,230 8,427
Depreciation and amortization.......... 14,649 3,862
Corporate general and administrative
expenses.............................. 2,280 587
Local marketing agreement fees......... 700 175
-------- -------
Total operating expenses............. 52,859 13,051
-------- -------
Operating income (loss)............ 3,019 (137)
-------- -------
Other income (expense)
Investment income.................... 2,562 453
Gain on sale of assets............... 567 1,633
Interest expense..................... (12,711) (3,228)
Total other expense.................. (9,582) (1,142)
-------- -------
Loss before extraordinary items...... $ (6,563) $(1,279)
======== =======
Basic and diluted net loss per common
share................................. $ $
======== =======
Weighted average shares used in
determining net loss per share........
======== =======
Other Data:
Broadcast cash flow (1)................ $ 20,648 $ 4,487
EBITDA (1)............................. 18,368 3,900
After-tax cash flow (1)................ 7,519 950
As of March 31, 2000
--------------------
(unaudited)
(in thousands)
Balance Sheet Data:
Cash and cash equivalents.............. $ 2,001
Working capital........................ 5,932
Total assets........................... 305,950
Total indebtedness..................... 130,714
Stockholders' equity................... 68,473
--------
(1) The term "broadcast cash flow" means operating income (loss) before
depreciation and amortization expense, corporate general and administrative
expenses and local marketing agreement fees. The term "EBITDA" means
operating income (loss) before depreciation and amortization expense and
local marketing agreement fees. The term "after-tax cash flow" means income
(loss) before extraordinary items, minus net gain on sale of assets, plus
depreciation and amortization expense. Although broadcast cash flow, EBITDA
and after-tax cash flow are not measures of performance calculated in
accordance with GAAP, we believe that they are useful to an investor in
evaluating our performance because they are measures widely used in the
broadcasting industry to evaluate a radio company's operating performance.
However, you should not consider broadcast cash flow, EBITDA and after-tax
cash flow in isolation or as substitutes for net income, cash flow from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as measures of liquidity or profitability.
Broadcast cash flow, EBITDA and after-tax cash flow, as we define these
terms, may not be comparable to similarly titled measures used by other
companies.
10
Summary Historical Financial Data
In the table below, we provide you with our summary historical financial
data as of the dates and for the periods indicated. The historical financial
data that appear below are those of Nassau Broadcasting Partners, L.P. We have
derived the statement of operations data for each of the years in the three-
year period ended December 31, 1999 from the financial statements of Nassau
Broadcasting Partners, L.P. included elsewhere in this prospectus. We have
derived the statement of operations data for the three months ended March 31,
1999 and 2000 and the balance sheet data as of March 31, 2000 from the
unaudited financial statements of Nassau Broadcasting Partners, L.P. which have
been prepared on the same basis as the audited financial statements and reflect
all adjustments, consisting only of normal recurring adjustments, which, in the
opinion of management, are necessary for a fair presentation of this data.
Results for the three-month period ended March 31, 2000 are not necessarily
indicative of results that may be expected for the entire year or for any
future period. You should read the following data in conjunction with the
historical financial statements and related notes, the unaudited pro forma
consolidated financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
[Download Table]
Three Months
Year Ended December 31, Ended March 31,
-------------------------- -----------------
1997 1998 1999 1999 2000
-------- ------- ------- ------- --------
(unaudited)
(in thousands)
Statement of Operations Data:
Gross revenues................. $ 20,891 $27,349 $34,295 $ 6,811 $ 7,893
Less agency and outside
commissions................... 1,812 2,353 2,893 544 612
-------- ------- ------- ------- --------
Net revenues.................. 19,079 24,996 31,402 6,267 7,281
-------- ------- ------- ------- --------
Operating expenses............. 13,437 17,227 20,794 4,570 5,318
Depreciation and amortization.. 2,139 2,364 2,634 603 822
Corporate general and
administrative expenses....... 1,995 1,825 2,280 500 587
Local marketing agreement
fees.......................... 1,666 2,271 2,517 725 640
-------- ------- ------- ------- --------
Total operating expenses...... 19,237 23,687 28,225 6,398 7,367
-------- ------- ------- ------- --------
Operating income (loss)...... (158) 1,309 3,177 (131) (86)
-------- ------- ------- ------- --------
Other income (expense)
Investment income............. 530 992 2,562 154 453
Gain on sale of assets........ -- 3,176 567 142 1,633
Interest expense.............. (6,367) (8,781) (10,946) (2,718) (3,024)
Special management fee........ (744) -- -- -- --
-------- ------- ------- ------- --------
Total other expense.......... (6,581) (4,613) (7,817) (2,423) (938)
-------- ------- ------- ------- --------
Income (loss) before
extraordinary item.......... (6,739) (3,304) (4,640) (2,554) (1,024)
Extraordinary loss on early
retirement of debt............ -- (677) -- -- --
-------- ------- ------- ------- --------
Net loss..................... $ (6,739) $(3,980) $(4,640) $(2,554) $(1,024)
======== ======= ======= ======= ========
Other Data:
Broadcast cash flow (1)........ $ 5,642 $ 7,769 $10,608 $ 1,697 $ 1,963
EBITDA (1) 3,647 ,944 8,328 1,197 1,376
After-tax cash flow (1)........ (4,600) (4,116) (2,573) (2,093) (1,835)
Net cash provided by (used in)
Operating activities.......... (3,393) (1,408) (165) 104 117
Investing activities.......... (18,541) 3,90 (8,68) (6,892) (4,577)
Financing activities.......... 17,172 3,847 2,071 (536) 6,269
footnote on following page
11
[Download Table]
As of March 31, 2000
--------------------
(unaudited)
(in thousands)
Balance Sheet Data:
Cash and cash equivalents.................................. $ 2,397
Working capital............................................ 8,428
Total assets............................................... 82,686
Total indebtedness......................................... 97,412
Stockholders equity........................................ (21,489)
--------
(1) The term "broadcast cash flow" means operating income (loss) before
depreciation and amortization expense, corporate general and administrative
expenses and local marketing agreement fees. The term "EBITDA" means
operating income (loss) before depreciation and amortization expense and
local marketing agreement fees. The term "after-tax cash flow" means income
(loss) before extraordinary items, minus net gain on sale of assets, plus
depreciation and amortization expense. Although broadcast cash flow, EBITDA
and after-tax cash flow are not measures of performance calculated in
accordance with GAAP, we believe that they are useful to an investor in
evaluating our performance because they are measures widely used in the
broadcasting industry to evaluate a radio company's operating performance.
However, you should not consider broadcast cash flow, EBITDA and after-tax
cash flow in isolation or as substitutes for net income, cash flow from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as measures of liquidity or profitability.
Broadcast cash flow, EBITDA and after-tax cash flow, as we define these
terms, may not be comparable to similarly titled measures used by other
companies.
11--1
Market and Industry Data and Industry Terms
Local Marketing Agreements. We use the term local marketing agreement in
various places in this prospectus. A typical local marketing agreement is an
agreement under which a FCC licensee of a radio station makes available, for a
fee, air time on its station to another person. This person provides
programming to be broadcast during this air time, collects revenues from
advertising it sells for broadcast during this programming and pays related
expenses.
Statistics. Unless otherwise indicated:
. we based metropolitan statistical areas on the Arbitron Radio Metro
and Television Market Population Estimates 1999;
. we obtained radio market rankings, radio market revenue rankings,
radio market revenue growth and other radio market data from BIA
Research, Inc., or BIA, a recognized broadcasting research firm;
. we calculated our revenue rankings in each radio market by aggregating
radio revenues of all radio stations in that market, as derived from
BIA, and calculating each radio station's percentage share of this
aggregate revenue. The radio station with the highest percentage share
is ranked first in the market, the radio station with the second
highest percentage share is ranked second, and so forth;
. we obtained total industry listener and revenue levels from the Radio
Advertising Bureau, a national trade organization;
. we derived number of listeners data from the Fall 1999 Arbitron Market
Report;
. we derived all audience share data and audience rankings, including
ranking by population, from surveys of people 12 years of age and
older, listening Monday through Sunday, 6 a.m. to 12 midnight, and
based on the Fall 1999 Arbitron Market Report pertaining to each
market, as reported by BIA; and
. we obtained all county-wide retail sales information from the 1999
edition of Sales and Marketing Management, a recognized publication
containing market and economic research data.
Information About Financial Data
As you review the financial information contained in this prospectus, you
should note the following:
. the term "net revenues" means gross revenues less agency and outside
commissions incurred for selling air time;
. the term "broadcast cash flow" means operating income (loss) before
depreciation and amortization expense, corporate general and
administrative expenses and local marketing agreement fees;
. the term "EBITDA" means operating income (loss) before depreciation
and amortization expense and local marketing agreement fees; and
. the term "after-tax cash flow" means income (loss) before
extraordinary items, minus net gain on sale of assets, plus
depreciation and amortization expense.
12
RISK FACTORS
You should consider the risks described below before making an investment
decision. We believe that the risks and uncertainties described below are the
principal material risks facing us as of the date of this prospectus. In the
future, we may become subject to additional risks that are not currently known
to us. If any of the following risks occur, our business, financial condition
or results of operations could be materially adversely affected. The trading
price of our class A common stock could decline due to any of the following
risks, and you might lose all or part of your investment.
Risks relating to our business
We have a history of losses that if continued could adversely affect the market
price of our class A common stock and our ability to raise capital.
Since our inception, we have incurred substantial net losses and have
never generated positive cash flow from operations. We believe that we will
continue to incur losses while we pursue our strategy of acquiring radio
stations and developing our network. We will also incur losses during the
initial reformatting and assimilation process with respect to the radio
stations that we acquire. We cannot be certain that we will become profitable
or generate positive cash flow. Our inability to become profitable may
adversely affect the market price of our class A common stock, which in turn
may adversely affect our ability to raise additional capital through debt or
equity issuances.
Our substantial level of debt could limit our ability to grow and compete.
As of March 31, 2000, after giving pro forma effect to our pending
acquisitions, our recapitalization and reorganization and this offering, we
would have had outstanding long-term debt (inclusive of current portion) of
approximately $130.7 million.
Our substantial level of debt could have adverse consequences to holders
of our class A common stock, including the following:
. it may be difficult for us to obtain additional financing in the
future for working capital, capital expenditures, acquisitions,
general corporate or other purposes;
. we may have to dedicate a substantial portion of cash flow from our
operations to make interest and principal payments on our debt;
. if we are unable to service our debt, we may be forced to sell some
of our assets because our credit facility is secured by substantially
all of our assets; and
. we may be more vulnerable to economic downturns, limited in our
ability to withstand competitive pressures and less flexible in
adjusting rapidly to changing business and economic conditions.
Our ability to satisfy all of our debt obligations depends upon our
future operating performance, which will be affected by general economic
conditions and financial, business and other factors, many of which are beyond
our control.
13
Our acquisition strategy may not yield the results that we anticipate.
We have experienced rapid growth and intend to continue to grow by
acquiring radio stations in suburban areas surrounding major metropolitan
markets, primarily in the Northeast. This strategy is subject to a variety of
risks, including:
. a reduction in the number of suitable acquisition targets resulting
from continued industry consolidation;
. increases in prices for radio stations due to increased competition
for acquisition opportunities;
. an inability to negotiate definitive purchase agreements on
satisfactory terms;
. our failure to complete, or unanticipated delays in completing,
acquisitions due to difficulties in obtaining regulatory approval;
. difficulty in integrating the operations, systems and management of
our acquired stations and absorbing the increased demands on our
administrative, operational and financial resources;
. the diversion of management's attention from their other business
concerns;
. the loss of key employees of acquired stations; and
. an inability to strengthen underperforming stations.
If we are not able to address successfully these risks, it could
materially harm our business and impair the value of our class A common stock.
We may not be able to close our pending acquisitions.
Our pending acquisitions will not close unless we and the other relevant
parties satisfy or waive all the conditions to closing. In addition, we cannot
waive legal and regulatory requirements, such as FCC approval. To date, we have
not received final orders from the FCC approving any of our pending
acquisitions. As a result, we cannot assure you that we will be able to close
any of these acquisitions within the expected time frame or at all. In
addition, we may be subject to further examination by the Department of Justice
or the Federal Trade Commission pursuant to federal antitrust laws. Any
decision by the Department of Justice or the Federal Trade Commission to
challenge any proposed acquisition could affect our ability to close our
pending acquisitions. Depending on the size of the acquisition, a failure to
close, or a substantial delay in closing, could have a material adverse effect
upon our business prospects, financial condition and results of operations. The
completion of this offering is not conditional upon the consummation of any of
our pending acquisitions.
Our inability to manage effectively our rapid growth could adversely affect our
operations.
We have experienced rapid growth in a relatively short period of time and
expect to continue to experience rapid growth in the future. The management of
this growth will require, among other things, continued development of our
financial and management controls and management information systems, stringent
cost controls, increased marketing activities, the ability to attract and
retain qualified management personnel and the training of new personnel. We
intend to hire additional personnel in order to manage our expected growth and
expansion. Failure to successfully manage our rapid growth or difficulties in
managing a larger number of radio stations could have a material adverse effect
on our business and the value of our class A common stock.
Our ability to raise additional financing for future growth may be limited.
We may require financing in excess of that provided under our new credit
facility. We cannot assure you that our new credit facility or any other
agreements to which we are a party will permit additional financing or that
additional financing will be available to us or, if available, that the
financing would be on terms acceptable to us. If we are unable to finance our
growth strategy, we may be unable to compete successfully with other
broadcasters and as a result we may lose audience share and advertisers which
would lead to a decline in our revenues.
14
Our operations are concentrated in a limited number of markets. A downturn in
any of our markets could adversely affect our revenue and cash flow.
Our stations are located in a limited number of markets in the
northeastern United States. Upon completion of our pending acquisitions, we
will own and/or operate stations in nine markets. A significant decline in net
broadcasting revenue from our stations in any one of these markets, and
particularly in our two largest existing markets, the Trenton, New Jersey and
the Monmouth-Ocean, New Jersey markets, could have a material adverse effect on
our operations and financial condition.
The loss of key personnel and on-air radio talent could disrupt our business
and result in a loss of advertising revenue.
Our business depends on the continued efforts, abilities and expertise of
our senior officers, key employees and on-air radio talent. The loss of our key
personnel or talent could result in a loss of our listening audience and
consequently a loss of advertising revenue. We believe that our future success
will depend on our ability to:
. attract and retain highly skilled and qualified management personnel;
. expand, train and manage our employee base; and
. develop, attract and retain on-air radio talent.
The terms of our debt restrict the decisions we can make about our business.
Our new credit facility contains covenants that restrict our ability to:
. incur additional indebtedness, contingent liabilities and liens;
. redeem or repurchase capital stock and redeem, repurchase or prepay
subordinated debt;
. pay cash dividends or make other distributions on our capital stock;
. enter into specified investments or joint ventures;
. consolidate, merge or effect asset sales;
. make capital expenditures;
. enter into sale and leaseback transactions;
. sell or discount accounts receivable;
. enter into transactions with stockholders and affiliates; and
. change the nature of our business.
In addition, our new credit facility requires us to maintain financial
ratios with respect to interest coverage, fixed charge coverage and senior and
total debt. A breach of any of these covenants could result in a default under
our new credit facility. Upon the occurrence of an event of default under our
new credit facility, the lenders could elect to declare this debt to be due and
payable immediately and could terminate their commitments to make further
extensions of credit. If the debt under our new credit facility were
accelerated, we cannot assure you that our assets would be sufficient to repay
in full this debt and our other debt.
Our quarterly results are subject to seasonal fluctuations; these fluctuations
could cause volatility in the market price of our class A common stock.
Typically, our revenues are lowest in the first quarter and highest in
the fourth quarter. This seasonality could cause fluctuations in the market
price of our class A common stock, including a drop in the market price of our
class A common stock in response to our first quarter earnings.
15
Risks relating to our industry
If we are unable to compete effectively against other radio stations and other
media companies, we may suffer a decrease in advertising revenue.
Radio broadcasting is a highly competitive business. The
Telecommunications Act of 1996 facilitates the entry of other radio
broadcasting companies into the markets in which we operate or may operate in
the future. The financial success of each of our radio stations will depend, to
a significant degree, upon our audience ratings, our share of the overall radio
advertising revenue within each geographic market and the economic health of
that market. In addition, our advertising revenues depend upon the
attractiveness to advertisers of our audience demographic groups. Our radio
stations compete for audience share and advertising revenue directly with other
FM and AM radio stations as well as with other advertising media within their
respective markets, including the following:
. newspapers;
. billboard advertising and mass transit;
. broadcast and cable television;
. magazines;
. direct mail; and
. the Internet.
Some of these radio stations have the same broadcasting formats as our
radio stations and compete for the same audience demographic groups in the same
market. In addition, many of these entities are larger and have significantly
greater resources than we do and as a result we may be unable to compete
successfully with them. If we are unable to compete successfully, we will lose
audience share and advertisers and our revenues will decline.
We must be able to respond to rapidly changing technology, services and
standards which characterize our industry in order to remain competitive.
The radio broadcasting industry is subject to rapidly changing
technology, services and standards. The FCC has authorized the satellite
delivery of digital audio broadcasting and is considering ways to introduce new
technologies to the radio broadcast industry, including terrestrial delivery of
digital audio broadcasting and the standardization of available technologies
which significantly enhance the sound quality of AM and FM broadcasts. We
cannot predict the effect that new technology will have on our industry,
financial condition and results of operations. Several new media technologies
are currently being developed. For example:
. cable television operators have introduced a service commonly
referred to as "cable radio" which provides cable television
subscribers with several high-quality music, news and other
information channels;
. direct satellite broadcast television companies are supplying
subscribers with several high-quality music channels;
. the Internet offers new and diverse forms of audio content
distribution;
. satellite digital audio radio technology, initially developed for
automotive applications, could result in new satellite radio
services; and
. the introduction of in-band on-channel digital radio and new low-
power FM radio could result in additional radio services being
broadcast on the frequencies currently occupied by traditional FM and
AM radio services.
16
We cannot assure you that we will be able to adopt new technologies on a
timely basis, or at all, in order to compete effectively with other
participants in the radio broadcast industry.
We may not receive regulatory approval for transfers of licenses related to
pending and future acquisitions.
The Communications Act of 1934 and FCC rules and regulations limit the
number of stations that one individual or entity can own, directly or by
attribution, in a market, and requires FCC approval for transfers of control of
FCC licensees and assignments of FCC licenses. The filing of petitions or
complaints against us or any FCC licensee from which we propose to acquire a
station could result in the FCC delaying the grant of, refusing to grant, or
imposing conditions on its consent to the assignment or transfer of control of
FCC licenses.
The Federal Trade Commission and the Department of Justice evaluate
acquisitions to determine whether they serve the public interest and whether
they should be challenged under federal antitrust laws. After the passage of
the Telecommunications Act of 1996, the Department of Justice has become more
aggressive in reviewing proposed acquisitions of radio stations and radio
networks. The Department of Justice is particularly concerned when the proposed
buyer already owns one or more radio stations in the market of the station it
is seeking to buy. Recently, the Department of Justice has challenged a number
of radio broadcasting transactions. Some of those challenges ultimately
resulted in consent decrees requiring, among other things, divestitures of
certain stations by the proposed buyer. In general, the Department of Justice
has more closely scrutinized radio broadcasting acquisitions that result in
market shares in excess of 40% of local radio advertising revenue in a given
market. Similarly, the FCC has announced new procedures to review proposed
radio broadcasting transactions even if the proposed acquisition otherwise
complies with the FCC's ownership limitations. In particular, the FCC, as part
of its initial analysis, may invite interested parties to submit comments
regarding ownership concentration concerns in a particular local radio market.
Because our operations are concentrated in the northeastern suburban markets,
we cannot assure you that our activities will not be reviewed or that the FCC
will grant us the necessary approvals to implement our acquisition strategy. If
we are unable to obtain these approvals, we may have to alter our business
plan.
If we fail to maintain our licenses, the FCC could terminate our ability to own
and operate our radio network.
In order to operate, radio broadcasters must maintain radio broadcasting
licenses issued by the FCC. These licenses are ordinarily issued for a maximum
term of eight years and may be renewed. Although we may apply to renew these
licenses, third parties may challenge our renewal applications. We cannot
assure you that our licenses will be renewed. In addition, if we or any of our
officers, directors or significant stockholders violates the FCC's rules and
regulations or the Communications Act, is convicted of a felony, or is
otherwise found to be disqualified from being a party to a FCC license, the FCC
may commence a proceeding to impose sanctions against us.
The broadcasting industry is subject to extensive and changing federal
regulation.
The Communications Act requires prior approval from the FCC for the
issuance, renewal, modification, transfer of control or assignment of
broadcasting station operating licenses. The Telecommunications Act and FCC
rules limit the number of broadcasting properties that we may acquire in any
market, and regulate operating practices of radio stations. Additionally, the
Communications Act and FCC rules and regulations impose limitations on non-U.S.
ownership and voting of our capital stock. The Telecommunications Act creates
significant new opportunities for broadcasting companies, but also creates
uncertainties as to how the FCC and the courts will enforce and interpret the
Telecommunications Act.
The number of radio stations we may acquire or operate pursuant to local
marketing agreements in any market, overall and in each of the AM and FM
services is limited by the Telecommunications Act and FCC rules and
regulations. That number may vary depending upon whether the interests in other
radio stations or certain other media properties of certain of our affiliates
are attributable to those affiliates under FCC rules. The
17
FCC generally applies its ownership limits to "attributable" broadcast
interests held by an individual, corporation, partnership or other association.
The interests of our officers, directors and stockholders with five percent or
greater voting power are generally attributable to us. Certain of our officers
and directors, and at least one of our stockholders, have attributable
broadcast interests outside of their involvement with us. These attributable
interests may limit the number of radio stations that we may acquire or own in
any market in which these officers or directors (or stockholders) hold or
acquire outside attributable broadcast interests.
Governmental regulations and policies may change over time and such
changes could have a material adverse impact upon our business, results of
operations or financial condition. For example, the FCC has recently indicated
it may propose new rules to define a "market" for purposes of the local radio
station ownership limits in the Telecommunications Act and the FCC's multiple
ownership rules, which if adopted could reduce the number of stations that we
would be allowed to acquire in some markets.
Risks relating to our ownership structure
Our class B common stockholders will continue to control our company, which
could adversely affect you.
The holders of our class B common stock, which has 10 votes per share,
will own % of the outstanding voting power of our common stock, will be able
to exercise a controlling influence over us and generally will be able to
determine the outcome of all corporate actions requiring stockholder approval.
As a result, these holders will be in a position to continue to control all
matters affecting us, including:
. composition of our board of directors and, through it, our direction
and policies, including the appointment and removal of officers;
. mergers or other business combinations involving us;
. acquisition or disposition of assets;
. future issuances of common stock or other securities;
. incurrence of debt;
. amendments, waivers and modifications to our agreements; and
. the payment of dividends on our common stock.
The interests of our class B common stockholders may conflict with your
interests.
The extra voting rights of the class B common stockholders and our
ability to issue additional shares of class B common stock could adversely
affect the value of the class A common stock. Additional shares of class B
common stock can be authorized by the majority vote of voting stockholders
acting together as one class. As a result, class A common stockholders
generally will not be able to prevent the authorization of additional shares of
class B common stock.
18
Risks relating to our class A common stock
Sales of class A common stock after this offering could cause the market price
of our class A common stock to decline.
If our stockholders sell substantial amounts of our class A common stock
in the public market following this offering, including shares issued upon the
exercise of outstanding options, the market price of our class A common stock
could decline. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. The shares sold in this offering will be freely tradeable
immediately upon completion of this offering. In addition, no later than the
181st day after completion of this offering, our existing stockholders will be
able to sell their shares of our common stock, and have the right to
require us to register those shares for sale to the public. Our existing
stockholders would be able to sell their shares before the 181st day if the
underwriters waive contractual lockup restrictions. Sales of these shares could
cause the market price of our class A common stock to decline.
In addition, following the completion of this offering, we intend to
register under the Securities Act the shares of class A common stock
reserved for issuance under our stock incentive plan. Options to acquire
shares of class A common stock have already been issued under this plan at a
weighted average exercise price of $ . Once the stock incentive plan shares
are registered, the class A common stock issued upon exercise of the options
will be freely tradeable beginning on the 181st day after completion of this
offering or earlier if the underwriters waive contractual lockup restrictions.
Provisions of our organizational documents, Delaware law and federal law may
have anti-takeover effects that could prevent a change in control, even if this
would be beneficial to stockholders.
Provisions of our organizational documents and Delaware law could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. Provisions in our organizational documents
include:
. a classified board of directors, in which our board is divided into
three classes with three-year terms with only one class elected at
each annual meeting of stockholders, which means that a holder of a
majority interest in our common stock will need two annual meetings
of stockholders to gain control of the board;
. a provision which prohibits our stockholders from acting by written
consent without a meeting;
. a provision which permits only the board of directors, the president
or the chairman to call special meetings of stockholders; and
. a provision which requires advance notice to the company of items of
business to be brought before stockholders' meetings.
19
REORGANIZATION
Immediately prior to this offering, we effected a reorganization in which
all equity holders of Nassau Broadcasting Partners, L.P. contributed their
equity interests in the limited partnership to Nassau Broadcasting Corporation,
a newly formed corporation, in exchange for common stock of Nassau Broadcasting
Corporation. As a result of the reorganization, Nassau Broadcasting Partners,
L.P. is terminated, all of the assets previously held by Nassau Broadcasting
Partners, L.P. are now held by Nassau Broadcasting Corporation and the limited
liability companies which were wholly owned subsidiaries of Nassau Broadcasting
Partners, L.P. are now wholly owned subsidiaries of Nassau Broadcasting
Corporation.
Before giving effect to this offering, each of our stockholders owns an
amount of our common stock representing its previous economic interest in
Nassau Broadcasting Partners, L.P. The following table shows the common stock
issued in the reorganization.
[Download Table]
Pre-offering
Economic Number Of Shares Of Class A,
Interest In Our Common Class B
Limited Stock Issued In The Or Class C
Partnership (1) Reorganization Common Stock
--------------- ------------------- ------------
Spectrum Equity Investors,
L.P......................... 30.0%
Spectrum Equity Investors II,
L.P......................... 17.0
Grotech Partners IV, L.P..... 12.7
Toronto Dominion Capital
(U.S.A.), Inc............... 12.7
Louis F. Mercatanti, Jr...... 20.3
Others (2)................... 7.3
----- ----- -----
Total...................... 100.0%
===== ===== =====
(1) On May 4, 2000, we redeemed $2.5 million of equity interests in Nassau
Broadcasting Partners, L.P. which were held by Louis F. Mercatanti, Jr. Mr.
Mercatanti also has a right to require Nassau Broadcasting Partners to
redeem a further $5.0 million of his equity interests at any time, provided
there is no existing event of default under our new credit facility, and no
new event of default would result. We calculated these percentages assuming
that as of the date of our reorganization, we have redeemed $7.5 million of
Mr. Mercatanti's equity interests.
(2) Includes shares of our class A common stock issued upon conversion of
limited partnership units which we issued to Merrill Lynch Capital
Corporation, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on May 4, 2000.
20
PENDING ACQUISITIONS
We have several acqusitions currently pending which, if completed, will
result in the purchase by us of ten FM and ten AM radio stations. Consummation
of these pending acquisitions is subject to receipt of final regulatory
approvals.
The table below sets forth information regarding each of the pending
acquisitions.
[Enlarge/Download Table]
No. of Call Purchase
Seller Market Stations Letters Price
------ ------ -------- ------- -------------
(in millions)
Owners of Aurora Westchester, NY 3 WFAS (FM) $185.0 (1)
Communications, LLC ... WFAF (FM)
WFAS (AM)
Bridgeport, CT 2 WEBE (FM)
WICC (AM)
Danbury, CT 4 WAXB (FM)
WRKI (FM)
WINE (AM)
WPUT (AM)
Clear Channel Allentown, PA 2 WODE (FM) 30.0
Communications, Inc. .. WEEX (AM)
Owners of Manahawkin
Communications
Corporation............ Monmouth-Ocean, NJ 1 WCHR (FM) (2) 4.7
Tiab Communications
Corporation............ Wilkes Barre-Scranton 1 WILT (AM) --
Multicultural Radio Trenton, NJ 1 WJHR (AM) 2.5
Broadcasting, Inc......
Port Jervis Broadcasting Newburgh-Middletown, NY 2 WTSX (FM) 2.7
Co., Inc............... WDLC (AM)
Great Scott Broadcasting Trenton, NJ 2 WNJO (FM) 20.0
Ltd.................... WCHR (AM)
Owners of North Shore
Broadcasting Corp. and Monmouth-Ocean, NJ 2 WOBM (FM) 21.4
Seashore Broadcasting WOBM (AM)
Corp. .................
--------
(1) Purchase price is subject to a working capital adjustment.
(2) Construction permit.
Regulatory Filings
We filed an application for consent to acquire WNJO (FM) and WCHR (AM)
with the FCC on September 10, 1998. The FCC issued a letter of inquiry dated
March 1, 1999 seeking additional information on the radio market concentration
in Trenton, New Jersey, which we subsequently provided. The application remains
pending before the FCC.
We filed an application for consent to acquire control of Manahawkin
Communications Corporation, which holds the construction permit for WCHR (FM),
with the FCC on September 13, 1999. New Jersey Broadcasting Partners, L.P. and
Jersey Shore Broadcasting Corp. challenged this transfer of control application
before the FCC on the grounds of premature transfer of control and undue market
concentration. We filed a response to this challenge but the transfer
application remains pending before the FCC. In addition, on June 23, 1999, New
Jersey Broadcasting Partners, L.P. filed a complaint against this acquisition
with the Merger Task Force, Antitrust Division, U.S. Department of Justice. To
date, the Department of Justice has taken no action on this complaint.
21
On March 10, 2000, we filed an application with the FCC to acquire two
radio stations from Clear Channel Communications, Inc. The FCC placed this
assignment application on public notice on April 4, 2000. Interested parties
had until May 4, 2000 to challenge our acquisition of these stations. To date,
no party has challenged this application. In addition, we filed an application
with the Department of Justice for approval of the acquisition under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976. The Department of Justice has
not yet given this approval.
On April 3, 2000, we filed applications with the FCC to acquire nine
stations from Aurora Communications, LLC. The FCC placed these applications on
public notice on April 25, 2000. Interested parties have until May 25, 2000 to
challenge our acquisition of these stations. In addition, we filed an
application with the Department of Justice for approval of the acquisition
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Department
of Justice has not yet given this approval.
On April 18, 2000, we filed an application with the FCC to acquire WILT
(AM) in Mount Pocono, Pennsylvania from Tiab Communications Corporation. The
FCC has not yet placed the application on public notice.
All of these assignment applications remain pending before the FCC. We
expect the FCC will approve all of these acquisitions, but we cannot assure
you that we will obtain any or all of the regulatory approvals we seek.
We have not yet applied for FCC approval of our acquisitions of the
seven radio stations that we currently operate under local marketing
agreements. We intend to file our applications to acquire these stations
shortly after we complete this offering. Once we file our applications, third
parties may file petitions to deny or a request for reconsideration or
judicial review or the FCC may reject our applications.
In addition, other factors beyond our control may delay or prevent the
closing of these acquisitions.
Acquisition Agreements
Aurora Communications, LLC. On March 24, 2000, we entered into a
purchase and exchange agreement with the owners of Aurora Communications to
purchase all of their equity interests, and thereby acquire its nine stations,
for total consideration of $185.0 million, consisting of $35.0 million in our
equity, $85.0 million in cash and $65.0 million in assumed debt. The cash
amount is subject to a working capital adjustment. We have irrevocably
deposited $7.0 million toward the purchase of Aurora Communications.
WODE (FM) and WEEX (AM), Allentown, Pennsylvania. On February 29, 2000,
we entered into an asset purchase agreement with Clear Channel to purchase
these stations for total cash consideration of $30.0 million. We have
irrevocably deposited $6.0 million toward the purchase of these stations.
WCHR (FM), Manahawkin, New Jersey. On August 25, 1999, we entered into a
stock purchase agreement with the owners of all the outstanding stock of
Manahawkin Communications Corporation, the holder of a construction permit in
the Monmouth-Ocean market, for total cash consideration of $4.7 million, of
which $2.1 million has been paid. This permit allows the holder to construct
and operate a radio station on a temporary basis. Once the radio station has
begun operating, the holder can apply to the FCC for a broadcast license.
WILT (AM), Mount Pocono, Pennsylvania. On January 31, 1999, we entered
into an agreement with Nassau Broadcasting Holdings, Inc. to acquire WILT (AM)
for total consideration of $100, as well as approximately $130,000 paid to
Nassau Broadcasting Holdings Inc. to fund the restructuring plan of WILT (AM),
which we have paid in full.
WJHR (AM), Flemington, New Jersey. On January 21, 1999, we entered into
an asset purchase agreement with Multicultural Radio Broadcasting, Inc. to
purchase this radio station for total cash consideration of $2.5 million. We
have irrevocably deposited $130,000 toward the purchase of this station.
22
WTSX (FM) and WDLC (AM), Newburgh-Middletown, New York. On August 7,
1998, we entered into an asset purchase agreement with Port Jervis Broadcasting
Co., Inc., to acquire these radio stations for total cash consideration of
approximately $2.7 million. We have irrevocably deposited $600,000 toward the
purchase of these stations.
WCHR (AM) and WNJO (FM), Trenton, New Jersey. On August 30, 1996, we
entered into an asset purchase agreement with Great Scott Broadcasting Ltd. to
acquire these radio stations for total cash consideration of $20.0 million. We
have either paid or placed in escrow the full acquisition price of these
stations.
WOBM (FM) and WOBM (AM), Toms River, New Jersey and Lakewood, New
Jersey. On July 1, 1996, we entered into a stock purchase agreement to purchase
all of the outstanding stock of North Shore Broadcasting Corp. and Seashore
Broadcasting Corp., the owners of these stations, for total consideration of
$21.4 million. We have irrevocably deposited $2.0 million and paid a total of
$5.0 million in scheduled monthly payments toward the purchase of these
stations.
23
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of our
class A common stock, after deducting the underwriting discount and estimated
offering expenses, will be approximately $ million, assuming an initial
offering price of $ per share, the midpoint of the range set forth on the
cover page of this prospectus. If the underwriters exercise their over-
allotment options in full, we estimate that the net proceeds we will receive
will be approximately $ million.
We will use the net proceeds in the following manner:
. $60.0 million plus approximately $2.0 million of accretion to redeem
all of our outstanding senior discount notes issued to repay
subordinated discount notes held by some of our existing stockholders
and to repay a portion of the borrowings under our old credit
facility;
. $78.0 million to finance a portion of the acquisition of Aurora
Communications;
. $24.0 million to finance a portion of the acquisition of the
Allentown, Pennsylvania radio stations; and
. the remainder to pay transaction costs and provide for general
corporate purposes.
The following table illustrates how we intend to finance the acquisitions
of Aurora Communications and the Allentown, Pennsylvania radio stations:
[Download Table]
Sources of Funds
----------------
New credit facility:
Term loan A-1........... $ 33,000,000
Term loan A-2........... 5,000,000
Term loan C............. 25,000,000
------------
63,000,000
This class A common stock
offering................ 102,000,000(1)
Cash on hand............. 2,000,000
------------
Total.................... $167,000,000
============
[Download Table]
Uses of Funds
-------------
Aurora Communications acquisition:
Cash.................. $ 78,000,000(1)
Assumption and
repayment of
liabilities........... 65,000,000
------------
143,000,000(2)
Acquisition of
Allentown,
Pennsylvania radio
stations:
Cash.................. 24,000,000(3)
------------
Total.................. $167,000,000
============
--------
(1) These amounts are subject to a working capital adjustment.
(2) Does not include $7.0 million irrevocably deposited toward the Aurora
Communications purchase price and $35.0 million of such purchase price that
we expect to pay for in shares of our class C common stock.
(3) Does not include $6.0 million irrevocably deposited toward the purchase
price of these stations.
If the Aurora Communications or the Allentown, Pennsylvania stations
acquisitions do not close, then we will use the proceeds intended for these
transactions to pay down additional debt, possibly to finance other
acquisitions, to provide for general corporate purposes or for any combination
of these proposed uses. Other than the pending acquisitions described elsewhere
in this prospectus, we have not entered into any agreements, arrangements or
understandings to proceed with any acquisitions.
We intend to invest the net proceeds in U.S. government securities or
other interest bearing short-term investment grade securities until the
proceeds are used for the purposes described above.
DIVIDEND POLICY
We do not expect to pay any cash dividends or distributions on our
capital stock for the foreseeable future. We currently intend to retain future
earnings, if any, to finance the expansion of our business. Our credit facility
restricts our ability to pay cash dividends.
24
CAPITALIZATION
The following table sets forth our actual capitalization as of March 31,
2000, our capitalization as adjusted to give effect to the offering but not the
application of the proceeds from this offering as contemplated, and our pro
forma capitalization, as adjusted, as of March 31, 2000 as if the following
events that occurred or will occur after March 31, 2000 occurred on March 31,
2000:
. our recapitalization and reorganization;
. the completion of this offering and the application of the net
proceeds as contemplated;
. the completion of our acquisition of Aurora Communications;
. the completion of our acquisition of two radio stations in Allentown,
Pennsylvania;
. the completion of our acquisitions of WILT (AM) and WCHR (FM); and
. the completion of our acquisitions of seven stations that we
currently operate under local marketing agreements.
You should read this table together with the sections of this prospectus
entitled "Unaudited Pro Forma Consolidated Financial Data," "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and related notes and the unaudited pro forma consolidated financial
statements and related notes included elsewhere in this prospectus.
[Download Table]
As of March 31, 2000
---------------------------
(unaudited)
(in thousands)
Pro
Forma,
As As
Actual Adjusted Adjusted
-------- -------- --------
Old credit facility................................ $ 56,139 $ $
New credit facility................................ --
Senior discount notes.............................. --
Subordinated discount notes........................ 40,159
Other debt......................................... 1,114
-------- ----- -----
Total long-term debt........................... 97,412
Partners' deficit.................................. (21,489)
Stockholders' equity (1):
Preferred stock, $.01 par value; shares
authorized; none issued and outstanding......... --
Class A common stock, $.01 par value; shares
authorized; shares issued and outstanding as
adjusted; shares issued and outstanding pro
forma as adjusted............................... --
Class B common stock, $.01 par value; shares
authorized; shares issued and outstanding as
adjusted; shares issued and outstanding pro
forma as adjusted............................... --
Class C common stock, $.01 par value; shares
authorized; shares issued and outstanding as
adjusted; shares issued and outstanding pro
forma as adjusted............................... --
Paid-in capital.................................. --
-------- ----- -----
Total stockholders' equity..................... --
-------- ----- -----
Total capitalization........................... $ 75,923 $ $
======== ===== =====
--------
(1) Does not include (i) shares of class A common stock issuable upon
exercise of options granted or which may be granted under our stock
incentive plan, and (ii) up to shares of class A common stock issuable
upon the exercise of the underwriters' over-allotment options.
25
DILUTION
Purchasers of the shares of class A common stock offered by this
prospectus will experience an immediate and substantial dilution in net
tangible book value per share. Dilution is the amount by which the initial
public offering price paid by the purchasers of the shares of our class A
common stock will exceed the net tangible book value per share of our common
stock after the offering. The net tangible book value per share of our common
stock is determined by subtracting total liabilities from the total book value
of the tangible assets and dividing the difference by the number of shares of
our common stock deemed to be outstanding on the date the book value is
determined.
As of March 31, 2000, we had a deficit in pro forma net tangible book
value of approximately $(222.0) million, or $ per share, after giving effect
to the following, but excluding this offering:
. our recapitalization and reorganization;
. the completion of our acquisition of Aurora Communications;
. the completion of our acquisition of two radio stations in Allentown,
Pennsylvania;
. the completion of our acquisitions of WILT (AM) and WCHR (FM); and
. the completion of our acquisitions of seven stations that we
currently operate under local marketing agreements.
Assuming the sale of shares of our class A common stock at the
initial public offering price of $ per share and, the conversion of all
outstanding shares of class B and class C common stock into shares of class
A common stock, and deducting the underwriting discount and estimated offering
expenses, our pro forma net tangible book value as of March 31, 2000 would have
been a deficit of $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value to existing stockholders of $
per share and an immediate dilution to new investors of $ per share.
The following table illustrates the per share dilution:
[Download Table]
Assumed initial public offering price per share...................... $
Pro forma net tangible book value deficiency per share as of March
31, 2000.......................................................... $
Increase in pro forma net tangible book value per share
attributable to new investors purchasing shares in the offering...
----
Pro forma net tangible book value deficiency per share after the of-
fering..............................................................
----
Pro forma dilution per share to new investors........................ $
====
26
The following table summarizes, on a pro forma basis as of March 31,
2000, the differences between existing common stockholders immediately prior to
this offering and new investors purchasing class A common stock in connection
with this offering, with respect to the number of shares of our common stock
purchased, the total consideration paid and the average price per share paid.
The table assumes no exercise of the underwriters' over-allotment options.
[Download Table]
Shares
Purchased Consideration
-------------- ------------- Average Price
Number Percent Paid Percent Per Share
------ ------- ----- ------- -------------
Existing stockholders................ % $ % $
New investors........................
---- ----- ----- -----
Total.............................. 100.0% $ 100.0%
==== ===== ===== =====
The foregoing discussion and tables assume no exercise of any stock
options outstanding. There are options outstanding to purchase shares of
our class A common stock at a weighted average exercise price of $ per
share. To the extent that any of these options are exercised, there will be
further dilution to the new investors.
27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Our historical financial statements and the historical audited financial
statements of some of the businesses we plan to acquire are included elsewhere
in this prospectus. The unaudited pro forma consolidated financial data
presented here should be read together with those financial statements and
related notes.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 1999 and for the three months ended March 31, 2000 give
effect to the following transactions as if they had occurred on January 1, 1999
and January 1, 2000, respectively:
. our recapitalization and reorganization;
. the completion of this offering and the application of the net
proceeds as described in this prospectus;
. the completion of our acquisition of Aurora Communications;
. the completion of our acquisition of two radio stations in Allentown,
Pennsylvania;
. the completion of our acquisitions of WILT (AM) and WCHR (FM);
. the completion of our acquisitions of seven stations that we
currently operate under local marketing agreements; and
. our tower-related asset sale.
The unaudited pro forma consolidated balance sheet as of March 31, 2000
gives effect to those of the transactions listed above that are expected to
occur after March 31, 2000, as if they had occurred on March 31, 2000. We have
included all adjustments, consisting of normal recurring adjustments, which, in
the opinion of management, are necessary for a fair presentation of this data.
We based the pro forma adjustments on available information and on assumptions
that we believe are reasonable under the circumstances.
The pro forma consolidated financial data are not necessarily indicative
of the results of operations or financial position that we would have achieved
had the transactions described above occurred on the dates indicated, and
should not be construed as being representative of future results of
operations. Our results of operations for the three months ended March 31, 2000
and for any future quarters are not necessarily indicative of results that may
be expected over the entire year or for any future period.
28
NASSAU BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(dollars in thousands, except per share data)
[Enlarge/Download Table]
Nassau Aurora Allentown Pro Forma Consolidated
Broadcasting Stations(1) Stations Adjustments Pro Forma
------------ ----------- --------- ----------- ------------
Gross revenues.......... $ 34,295 $ 23,245 $ 4,135 $ (807)(2) $ 60,868
Less agency and outside
commissions............ 2,893 1,729 368 -- 4,990
-------- -------- ------- ------- --------
Net revenues........ 31,402 21,516 3,767 (807) 55,878
-------- -------- ------- ------- --------
Operating expenses...... 20,794 12,250 2,282 (96) 35,230
Depreciation and
amortization........... 2,634 2,324 705 8,985 (3) 14,649
Corporate general and
administrative
expenses............... 2,280 2,863 -- (2,863)(4) 2,280
Local marketing
agreement fees......... 2,517 -- -- (1,817)(5) 700
-------- -------- ------- ------- --------
Total operating
expenses........... 28,226 17,437 2,987 4,209 52,859
-------- -------- ------- ------- --------
Operating income
(loss)............. 3,176 4,079 780 (5,016) 3,019
-------- -------- ------- ------- --------
Other income and
(expenses):
Investment income..... 2,562 1,157 29 (1,186)(6) 2,562
Gain on sale of
assets............... 567 -- -- -- 567
Interest expense...... (10,946) (6,618) -- 4,853 (7) (12,711)
Loss on impairment of
intangibles.......... (13,250) 13,250 (8) --
-------- -------- ------- ------- --------
Total other income
(expenses)......... (7,817) (18,711) 29 16,917 (9,582)
-------- -------- ------- ------- --------
Net income (loss)... $ (4,641) $(14,632) $ 809 $11,901 $ (6,563)
======== ======== ======= ======= ========
Net earnings per common
share--basic and
diluted................
======== ========
Weighted average shares
outstanding--basic and
diluted................
======== ========
--------
(1) The financial information shown for Aurora Communications is based on the
historical audited financial statements of the seller and the seller's
predecessor entities as follows: Westchester Radio LLC; Capstar Trust;
WEBE/WICC (Division of Media Partners, L.P.).
(2) We have eliminated tower revenues (807) and expenses (96) to give effect to
the sale of the tower-related assets.
(3) We have adjusted depreciation and amortization to (i) eliminate the
depreciation and depreciation expense recorded by Aurora Communications and
the Allentown, Pennsylvania stations (3029); (ii) eliminate the
depreciation of tower-related assets (43); (iii) eliminate our amortization
of deferred finance costs on our old credit facility (560); (iv) record
depreciation and amortization expense on the acquisitions (12,000); and (v)
record amortization of the financing costs incurred for our new credit
facility (617).
(4) We have eliminated the corporate general and administrative expenses
recorded by Aurora Communications (2863).
(5) We have eliminated all local marketing agreement fees, except those
relating to WSBG (FM) and WVPO (AM), as there is no agreement to purchase
those stations (1817).
(6) We have eliminated investment income recorded by Aurora Communications and
the Allentown, Pennsylvania stations (1186).
29
(7) We adjusted interest expense to (i) eliminate interest related to the tower
assets (181); (ii) eliminate interest recorded by Aurora Communications
(6618); (iii) eliminate interest for the debt that has been fully paid off
in connection with our recapitalization (10,404), and (v) to record
interest on our new credit facility assuming $130 million outstanding
(12,350).
(8) We have eliminated loss on the impairment of intangibles recorded by
Westchester Radio LLC, the predecessor of Aurora Communications (13,250).
(9) The Aurora purchase agreement requires a termination payment to one of its
senior executives in the approximate amount of $1,000. We have not included
this amount in the accompanying unaudited pro forma consolidated financial
statements.
(10) We incurred financing costs in the approximate amount of $3,000 in
connection with our new credit facility. Since the subordinated discount
notes were paid off from the proceeds of the offering, we did not reflect
these expenses in the accompanying unaudited pro forma consolidated
financial statements.
(11) Prior to the offering, we intend to convert to a corporation which will be
subject to income tax at the corporate level. For pro forma purposes, we
have established a valuation allowance to the extent of the net deferred
tax asset, which primarily relates to net operating losses.
29--1
NASSAU BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
Three Months Ended March 31, 2000
(dollars in thousands, except per share data)
[Enlarge/Download Table]
Nassau Aurora Allentown Pro Forma Consolidated
Broadcasting Stations(1) Stations Adjustments Pro Forma
------------ ----------- --------- ----------- ------------
Gross revenues.......... $ 7,893 $ 5,511 $ 875 $ (126)(2) $14,153
Less agency and outside
commissions............ 612 551 76 1,239
------- ------- ----- ------ -------
Net revenues........ 7,281 4,960 799 (126) 12,914
------- ------- ----- ------ -------
Operating expenses...... 5,318 2,639 487 (17)(3) 8,427
Depreciation and
amortization........... 822 756 177 2,107 3,862
Corporate general and
administrative
expenses............... 587 568 -- (568)(4) 587
Local marketing
agreement fees......... 640 -- -- (465)(5) 175
------- ------- ----- ------ -------
Total operating
expenses........... 7,367 3,963 664 1,057 13,051
------- ------- ----- ------ -------
Operating income
(loss)............. (86) 997 135 (1,183) (137)
------- ------- ----- ------ -------
Other income and
(expenses):
Investment income..... 453 5 -- (5)(6) 453
Gain on sale of
assets............... 1,633 -- -- -- 1,633
Interest expense...... (3,024) (1,977) -- 1,773 (7) (3,228)
------- ------- ----- ------ -------
Total other income
(expenses)......... (938) (1,972) -- 1,768 (1,142)
------- ------- ----- ------ -------
Net income (loss)... $(1,024) $ (975) $ 135 $ 585 (8) $(1,279)
======= ======= ===== ====== =======
Net earnings per common
share--basic and
diluted................ $ $
======= =======
Weighted average shares
outstanding--basic and
diluted................
======= =======
--------
(1) The financial information shown for Aurora stations is based on the
historical audited financial statements of the seller and the seller's
predecessor entities as follows: Westchester Radio LLC; Capstar Trust;
WEBE/WICC (Division of Media Partners, L.P.).
(2) We have eliminated tower revenues (126) and expenses (17) to give effect to
the sale of the tower-related assets.
(3) We have adjusted depreciation and amortization expense to (i) eliminate the
depreciation recorded by Aurora Communications and the Allentown,
Pennsylvania stations (933); (ii) eliminate our amortization of deferred
finance costs on our old credit facility (114); (iii) record depreciation
and amortization expense on the acquisitions (3,000); and (iv) record
amortization of the financing costs incurred for our new credit facility
(154).
(4) We have eliminated the corporate general and administrative expenses
recorded by Aurora Communications (568).
(5) We have eliminated all local marketing agreement fees, except those
relating to WSBG (FM) and WVPO (AM), as there is no agreement to purchase
those stations (465).
(6) We have eliminated investment income recorded by Aurora Communications (5).
(7) We have adjusted interest expense to (i) eliminate interest related to the
tower assets (29); (ii) eliminate interest recorded by Aurora
Communications (1,977); (iii) eliminate interest for the debt that has been
fully paid off in connection with our recapitalization (2,599); (iv)
eliminate the expense of our subordinated discount notes associated with
our old credit facility (225) and (v) record interest on our new credit
facility assuming $130 million outstanding (3,057).
30
(8) The Aurora purchase agreement requires a termination payment to one of its
senior executives in the approximate amount of $1,000. We have not included
this amount in the accompanying unaudited pro forma consolidated financial
statements.
(9) We incurred financing costs in the approximate amount of $3,000 in
connection with our new credit facility. Since the subordinated discount
notes were paid off from the proceeds of the offering, we did not reflect
these expenses in the accompanying unaudited pro forma consolidated
financial statements.
(10) Prior to the offering, we intend to convert to a corporation which will be
subject to income tax at the corporate level. For pro forma purposes, we
have established a valuation allowance to the extent of the net deferred
tax asset, which primarily relates to net operating losses.
30--1
NASSAU BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
As of March 31, 2000
(dollars in thousands)
[Enlarge/Download Table]
Pro Forma Pro Forma Pro Forma
Adjustments Pro Forma Adjustments Adjustments
Nassau For The For The For The For The Consolidated
Historical Recapitalization Recapitalization Offering(5) Acquisitions(8) Pro Forma
---------- ---------------- ---------------- ----------- --------------- ------------
ASSETS
CURRENT ASSETS:
Cash....................... $ 2,397 $ (996)(1) $ 1,401 $108,700 $(108,100) $ 2,001
Marketable securities...... 2,100 (2,100)(1) -- -- -- --
Accounts receivable, net... 5,456 -- 5,456 -- -- 5,456
Prepaid and other current
assets.................... 652 -- 652 -- -- 652
-------- ------- -------- -------- --------- --------
Total Currents Assets.... 10,605 (3,096) 7,509 108,700 (108,100) 8,109
Property and Equipment, net.. 5,672 -- 5,672 -- 16,500 22,172
OTHER ASSETS:
Deferred costs, net........ 1,040 5,660 (2) 6,700 (3,000) -- 3,700
Intangibles, net........... 26,317 -- 26,317 -- 245,502 271,819
Deposits................... 38,902 -- 38,902 -- (38,902) --
Other assets............... 150 -- 150 -- -- 150
-------- ------- -------- -------- --------- --------
Total Assets............. $ 82,686 $ 2,564 $ 85,250 $105,700 $ 115,000 $305,950
======== ======= ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses.......... $ 1,705 $ -- $ 1,705 $ -- $ -- $ 1,705
Capitalized lease
obligations, current...... 472 -- 472 -- -- 472
-------- ------- -------- -------- --------- --------
Total Current Liabilities.. 2,177 -- 2,177 -- -- 2,177
Senior Debt.................. 56,139 (6,539)(3) 49,600 -- 80,000 129,600
Subordinated Debt............ 40,159 17,219 (3) 57,378 (57,378) -- --
Capitalized Lease
Obligations, Long Term...... 642 -- 642 -- -- 642
Deferred Income.............. 5,058 -- 5,058 -- -- 5,058
-------- ------- -------- -------- --------- --------
Total Liabilities........ 104,175 10,680 114,855 (57,378) 80,000 137,477
-------- ------- -------- -------- --------- --------
EQUITY:
Stockholders' Equity....... -- 133,473 (7) 35,000 168,473
Partners' deficit.......... (21,489) (8,116)(4) (29,605) 29,605 (6) -- --
-------- ------- -------- -------- --------- --------
Total Equity............. (21,489) (8,116) (29,605) 163,078 35,000 168,473
-------- ------- -------- -------- --------- --------
Total Liabilities And
Equity.................. $ 82,686 $ 2,564 $ 85,250 $105,700 $ 115,000 $305,950
======== ======= ======== ======== ========= ========
--------
(1) Cash used in the recapitalization resulted from (i) the proceeds of our
senior discount notes and our new credit facility (109,600); (ii) payoff of
our old credit facility and our subordinated discount notes (100,538);
(iii) the payment of a redemption of some equity interests and a preferred
distribution to Louis F. Mercatanti, Jr. (5,458) and (iv) the financing
costs incurred in the recapitalization (6,700).
30--2
(2) We expensed previously deferred finance costs on our old credit facility
(1,040) and deferred financing costs incurred in our recapitalization
(6,700).
(3) We paid off our old credit facility (56,139) and our subordinated discount
notes (40,158) from the proceeds of our senior discount notes (49,600) and
our new credit facility (57,378).
(4) The increase in partners' deficit resulting from the recapitalization was
due to the distributions to the equity holder (5,458); the accretion and
other costs on the new credit facility (5,280) and the proceeds allocated
to limited partnership units issued in connection with the new credit
facility (2,622).
(5) The offering was recorded as follows:
[Download Table]
Gross proceeds.................................................. 190,000
Costs of offering............................................... (14,300)
Repayment of subordinated discount notes........................ (62,000)
Redemption of some equity interests............................. (5,000)
--------
Net proceeds.................................................... $108,700
========
(6) We converted to a corporation immediately prior to this offering.
(7) The financing costs associated with our new credit facility were written
off when our old credit facility was repaid (3,000). The accretion on the
repayment of subordinated debt (4,622) was also charged to accumulated
deficit.
(8) We financed and recorded the acquisitions as follows:
[Download Table]
Other Stations
Including those
Under Local
Aurora Allentown Marketing
Stations Stations Agreements Total
-------- --------- --------------- --------
Cash payments...................... $ 83,000 $24,000 $ 1,100 $108,100
Reduction of deposits.............. 7,000 6,000 25,902 38,902
Increase in debt................... 60,000 -- 20,000 80,000
Issuance of common stock........... 35,000 -- -- 35,000
-------- ------- ------- --------
Total............................ $185,000 $30,000 $47,002 $262,002
======== ======= ======= ========
Professional fees associated primarily with the stations under local
marketing agreements, in the approximate amount of $1,100, are included as
deposits in the table above.
30--3
SELECTED HISTORICAL FINANCIAL DATA
The table below sets forth selected historical financial data of Nassau
Broadcasting Partners, L.P. and its predecessors, Nassau Broadcasting Company,
Inc. and Nassau Broadcasting Holdings, Inc., as of the dates and for the
periods indicated. The selected combined statement of operations data for the
year ended December 31, 1995 are derived from audited financial statements of
Nassau Broadcasting Company, Inc. and Nassau Broadcasting Holdings, Inc. which
are not included in this prospectus. The selected consolidated statement of
operations data for the year ended December 31, 1996 and the consolidated
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
audited financial statements of Nassau Broadcasting Partners, L.P. which are
not included in this prospectus. The statement of operations data for the years
ended December 31, 1997, 1998 and 1999 and the balance sheet data as of
December 31, 1998 and 1999 have been derived from audited financial statements
of Nassau Broadcasting Partners, L.P. and are included elsewhere in this
prospectus. The statement of operations data for the three months ended March
31, 1999 and 2000 and the balance sheet data as of March 31, 2000 have been
derived from the unaudited financial statements of Nassau Broadcasting
Partners, L.P. which, in the opinion of management, have been prepared on the
same basis as the audited financial statements and reflect all adjustments,
consisting of normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of this data. Results for the
three-month period ended March 31, 2000 are not necessarily indicative of
results that may be expected for the entire year or for any future period.
You should read the following data in conjunction with the historical
financial statements and related notes, the unaudited pro forma consolidated
financial statements and related notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
[Enlarge/Download Table]
Three Months
Year Ended December 31, Ended March 31,
-------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------------- -------- ------- --------
(unaudited)
(in thousands)
Statement of Operations
Data:
Gross revenues.............. $ 5,999 $12,906 $20,891 $27,349 $ 34,295 $ 6,811 $ 7,893
Less agency and outside
commissions................ 487 1,082 1,812 2,353 2,893 544 612
------- ------- ------- ------- -------- ------- --------
Net revenues.............. 5,512 11,824 19,079 24,996 31,402 6,267 7,281
------- ------- ------- ------- -------- ------- --------
Operating expenses.......... 3,916 7,001 13,437 17,227 20,794 4,570 5,318
Depreciation and
amortization............... 274 851 2,139 2,364 2,634 603 822
Corporate general and
administrative expenses.... 370 1,583 1,995 1,825 2,280 500 587
Local marketing agreement
fees....................... -- 1,307 1,666 2,271 2,517 725 640
------- ------- ------- ------- -------- ------- --------
Total operating expenses.. 4,560 10,742 19,237 23,687 28,225 6,398 7,367
------- ------- ------- ------- -------- ------- --------
Operating income........ 952 1,082 (158) 1,309 3,177 (131) (86)
------- ------- ------- ------- -------- ------- --------
Other income (expenses)
Investment income......... -- -- 530 992 2,562 154 453
Gain on sale of assets.... -- -- -- 3,176 567 142 1,633
Interest expense.......... (2,042) (2,334) (6,367) (8,781) (10,946) (2,718) (3,024)
Write-off of debt offering
costs.................... -- (851) -- -- -- -- --
Special management fee.... -- -- (744) -- -- -- --
------- ------- ------- ------- -------- ------- --------
Total other income
(expenses)............. (2,042) (3,185) (6,581) (4,613) (7,817) (2,423) (938)
------- ------- ------- ------- -------- ------- --------
Income (loss) before
extraordinary item..... (1,090) (2,103) (6,739) (3,304) (4,640) (2,554) (1,024)
Extraordinary loss on early
retirement of debt......... -- -- -- (677) -- -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss)....... $(1,090) $(2,103) $(6,739) $(3,981) $ (4,640) $(2,554) $ (1,024)
======= ======= ======= ======= ======== ======= ========
31
[Enlarge/Download Table]
Three Months
Ended March
Year Ended December 31, 31,
------------------------------------------- ---------------
1995 1996 1997 1998 1999 1999 2000
------ -------- -------- ------ ------- ------- ------
(unaudited)
(in thousands)
Other Data:
Broadcast cash flow
(1).................... $1,596 $ 4,823 $ 5,642 $7,769 $10,608 $ 1,697 $1,963
EBITDA (1).............. 1,225 3,240 3,647 5,944 8,328 1,197 1,376
After-tax cash flow
(1).................... (817) (1,252) (4,600) (4,116) (2,573) (2,093) (1,835)
Net cash provided by
(used in)
Operating activities.. (897) (1,362) (3,393) (1,408) (165) (281) (754)
Investing activities.. (3,480) (28,061) (18,541) 3,902 (8,368) (6,429) (6,082)
Financing activities.. (4,341) (33,893) 17,172 3,847 2,071 (104) (7,060)
[Download Table]
As of
As of December 31, March 31,
--------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
------- ------- ------- -------- -------- -----------
(unaudited)
(in thousands)
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,000 $ 5,471 $ 747 $ 7,090 $ 587 $ 2,397
Working capital......... 612 7,018 6,046 12,897 7,278 8,546
Total assets............ 9,599 44,503 57,445 69,835 74,768 82,686
Total indebtedness...... 14,597 50,113 65,299 82,808 90,445 97,412
Partners' deficit....... (5,789) (7,793) (9,032) (15,595) (19,510) (21,489)
--------
(1) Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance calculated in accordance with GAAP, management
believes that they are useful to an investor in evaluating our performance
because they are measures widely used in the broadcasting industry to
evaluate a radio company's operating performance. However, you should not
consider broadcast cash flow, EBITDA and after-tax cash flow in isolation
or as substitutes for net income, cash flow from operating activities and
other income or cash flow statement data prepared in accordance with GAAP,
or as measures of liquidity or profitability. Broadcast cash flow, EBITDA
and after-tax cash flow, as we define these terms, may not be comparable to
similarly titled measures used by other companies.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Financial Data" and the financial statements and the related notes included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. The statements are based on
current expectations and actual results could differ materially from those
discussed here. Factors that could cause or contribute to such difference
include, but are not limited to, those discussed below and elsewhere in this
prospectus, particularly in the "Risk Factors" section.
Overview
We were founded in December 1986 with the purchase of WPST (FM) and WHWH
(AM) in Trenton, New Jersey by Louis F. Mercatanti, Jr., our President and
Chief Executive Officer. With the enactment of the Telecommunications Act of
1996, industry deregulation has allowed us to create a unified regional radio
broadcasting group with 21 clustered radio stations. Today, we are a radio
broadcasting company focused on building local radio station clusters in
demographically attractive suburban areas surrounding major metropolitan
markets in the northeastern United States. We currently own and/or operate
11 FM and 10 AM stations in five markets. We are currently in the process of
acquiring Aurora Communications, LLC, which operates nine stations in three
markets, and two Allentown, Pennsylvania stations from Clear Channel
Communications, Inc. Following these and other pending acquisitions, we will
own and/or operate 17 FM and 15 AM stations in nine markets.
We have increased the net revenues and broadcast cash flow of our
stations resulting in 21.0% and 33.0% two-year compound annual same station
broadcast cash flow growth, respectively. For the year ended December 31, 1999,
giving pro forma effect to our recent tower-related asset sale, our
recapitalization and reorganization and our pending acquisitions, as if we had
completed these transactions as of January 1, 1999, we would have had net
revenues of $55.9 million, broadcast cash flow of $20.6 million and a net loss
of $6.6 million. For the three months ended March 31, 2000, giving pro forma
effect to our recent tower-related asset sale, our recapitalization and
reorganization and our pending acquisitions, as if we had completed these
transactions as of January 1, 2000, we would have had net revenues of $12.9
million, broadcast cash flow of $4.5 million and a net loss before
extraordinary items of $1.3 million.
In May 2000, we undertook a recapitalization in which we:
. entered into a new credit facility that provides for borrowings of up
to $144.0 million;
. issued and sold units consisting of senior discount notes and limited
partnership units for gross proceeds of $60.0 million. The limited
partnership units were converted into shares of our class A common
stock as of the date of this offering;
. repaid all outstanding obligations under our old credit facility and
all our $42.4 million of outstanding subordinated discount notes
which had been issued to our existing stockholders; and
. redeemed $2.5 million of equity interests of, and paid a $2.9 million
preferred distribution to, Mr. Mercatanti, one of our stockholders.
Until immediately prior to this offering, we were a limited partnership
whose principal subsidiaries were single-member limited liability companies.
The limited partnership, Nassau Broadcasting Partners, L.P., was a flow-through
entity for federal and some state and local income tax purposes, and the
limited liability companies were disregarded for federal and some state and
local tax purposes. As a result, our net income (loss) for
33
federal and some state and local income tax purposes had been reported by, and
taxed directly to, our equity holders, rather than by and to us. In connection
with this offering, we have terminated our limited partnership status and have
become subject to federal and applicable state and local corporate income tax
as a subchapter C corporation.
Our principal source of revenue is the sale of broadcasting time on our
radio stations for advertising. As a result, our revenue is affected primarily
by the advertising rates our radio stations charge. Advertising rates charged
by a radio station are based primarily on the station's ability to attract
listeners in a given market and on the attractiveness to advertisers of the
station's listener demographics. Rates vary depending upon a program's
popularity among the listeners an advertiser is seeking to attract, the number
of advertisers vying for available air time and the availability of advertising
time on other radio stations and alternative media in the market. Radio
advertising rates generally are highest during the morning and afternoon drive-
time hours which are the peak hours for radio listening. The number of
advertisements that a radio station can broadcast within any given time period
without jeopardizing listener levels, and the resulting ratings, are limited in
part by the format of that station. Each of our stations has a general
predetermined level of on-air inventory that it makes available for
advertising. Available inventory may vary at different times of the day but
tends to remain stable over time. Much of our selling activity is based on
demand for our radio stations' on-air inventory and, in general, we respond to
this demand by varying prices rather than by changing the available inventory.
Radio stations often utilize trade or barter agreements to exchange
advertising time for goods or services, such as other media advertising, travel
or lodging, in lieu of cash. In order to preserve most of our on-air inventory
for cash advertising, we generally enter into trade agreements only if we will
use the goods or services bartered to us in our business. We have minimized our
use of trade agreements and in 1999 we sold over 96% of our advertising time
for cash. In addition, we generally do not preempt advertising spots paid for
in cash with advertising spots paid for in trade.
Historically, our broadcast revenues have varied through the year. As is
typical in the radio broadcasting industry, we expect our first calendar
quarter to produce the lowest revenues for the year, and we expect the fourth
calendar quarter to produce the highest revenues for the year. Our operating
results in any period may be affected by the incurrence of advertising and
promotion expenses that do not necessarily produce commensurate revenues until
the impact of the advertising and promotion is realized in future periods.
In 1999, we derived approximately 75% of our gross revenues from the sale
of local advertising, and approximately 25% from the sale of national
advertising. Local advertising, which is sold primarily by each station's sales
staff, is important to us because it represents a stable revenue source which
is less affected by economic downturns. We receive higher rates for national
advertising and consequently we also focus on obtaining national advertisers.
However, we believe that the volume of national advertising revenue is more
susceptible to changes in the economic environment and a less reliable source
over the long-term. To generate national advertising sales, we engage Katz
Communications, Inc., a national advertising representation firm. In addition,
we have created a division called Jersey Radio Network to market to national
advertisers the importance of utilizing our radio stations to complement any
New York-Philadelphia radio schedule. In 1999, no single advertiser accounted
for 1% of our gross revenue.
Our operating expenses are primarily sales commissions and programming,
engineering, advertising and promotional expenses. We aim to control these
expenses by working closely with local station management. We also have
incurred and will continue to incur significant depreciation and amortization
expense as a result of completed and future acquisitions of stations.
We typically collect our advertising revenue within 120 days of the date
on which we air the related advertisement. Most accrued expenses, however, are
paid within 45 to 60 days. As a result of this time lag, working capital
requirements have increased as we have grown and are likely to increase in the
future.
34
We have generated net losses primarily as a result of significant charges
for depreciation and amortization relating to the acquisition of radio stations
and interest charges on outstanding debt. We amortize FCC licenses and goodwill
attributable to the acquisition of radio stations over a period ranging from 25
to 40 years. Based upon the large number of acquisitions we expect to
consummate within the next six months, we anticipate that depreciation and
amortization charges will continue to be significant for several years. To the
extent that we complete additional acquisitions, our interest expense and
depreciation and amortization charges are likely to increase. If this occurs,
we would expect to continue to incur net losses.
The performance of a radio broadcasting company, such as ours, is
customarily measured by its ability to generate broadcast cash flow and EBITDA.
Broadcast cash flow consists of operating income (loss) before depreciation and
amortization, corporate general and administrative expenses, and local
marketing agreement fees. "EBITDA" consists of operating income (loss) before
depreciation and amortization expense and local marketing agreement fees.
Broadcast cash flow and EBITDA, as we define them, may not be comparable to
similarly titled measures used by other companies. Although broadcast cash flow
and EBITDA are not measures of performance calculated in accordance with
generally accepted accounting principles, we believe that they are accepted by
the broadcasting industry as generally recognized measures of performance and
are used by analysts who report publicly on the operating performance of radio
broadcasting companies. Nevertheless, you should not consider these measures in
isolation or as a substitute for operating income, net income, net cash
provided by operating activities or any other measure for determining our
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles.
Our financial results are dependent on a number of factors, including the
general strength of the local and national economies, population growth, the
ability to provide popular programming, local market competition, the relative
efficiency of radio broadcasting compared to other media, signal strength and
government regulation and policies.
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31, 1999
Net revenues for the three months ended March 31, 2000 were $7.3 million
compared to $6.3 million for the three months ended March 31, 1999, an increase
of 16.2%. This increase was due primarily to the increased focus of our sales
force in growing the sale of commercial time to local and national advertisers.
Operating expenses for the three months ended March 31, 2000 were $5.3
million compared to $4.6 million for the three months ended March 31, 1999, an
increase of 16.4%. The increase was attributable primarily to continuing
investments in our programming and sales personnel at the station level.
As a result of the factors described above, broadcast cash flow was $2.0
million for the three months ended March 31, 2000 compared to $1.7 million for
the three months ended March 31, 1999, an increase of 15.7%.
Corporate general and administrative expenses for the three months ended
March 31, 2000 was $587,000 compared to $500,000 for the three months ended
March 31, 1999, an increase of 17.4%. This increase was attributable primarily
to additional professional fees and investment in additional personnel
necessary to manage our growing radio station portfolio.
As a result of the factors described above, EBITDA was $1.4 million for
the three months ended March 31, 2000 compared to $1.2 million for the three
months ended March 31, 1999, an increase of 15.0%.
Depreciation and amortization expense for the three months ended March
31, 2000 was $822,000 compared to $603,000 for the three months ended March 31,
1999, an increase of 36.3%. This increase reflected the amortization of
goodwill associated with the acquisition of WNJO (FM) and WCHR (AM) recorded in
the quarter ended March 31, 2000.
35
Local marketing agreement fees for the three months ended March 31, 2000
were $640,000 compared to $725,000 for the three months ended March 31, 1999, a
decrease of 11.7%. The decrease reflected a reduction in the amount of local
marketing agreement fees paid under existing agreements.
As a result of the factors described above, our operating loss for the
three months ended March 31, 2000 was $86,000 compared to $131,000 for the
three months ended March 31, 1999, a decrease of 34.4%.
Other expenses for the three months ended March 31, 2000 was $938,000
compared to $2.4 million for the three months ended March 31, 1999. The change
is attributable primarily to the gain recognized in the sale of tower-related
assets.
As a result of the factors described above, our net loss for the three
months ended March 31, 2000 was $1.0 million compared to a net loss of $2.5
million for the three months ended March 31, 1999.
Year ended December 31, 1999 compared to year ended December 31, 1998
Net revenues for the year ended December 31, 1999 were $31.4 million
compared to $25.0 million for the year ended December 31, 1998, an increase of
25.6%. This increase in revenues was driven primarily by the underlying
economics of the markets we operated in, improved selling efforts and the
overall strong performance of our established stations as well as the
maturation of our developing stations.
Operating expenses for 1999 were $20.8 million compared to $17.2 million
for 1998, an increase of 20.7%. The increase was due to increased investments
in programming talent, increased advertising and promotion expenditures and
sales expenses associated with higher revenues.
As a result of the factors described above, broadcast cash flow was $10.6
million for 1999 compared to $7.8 million for 1998, an increase of 36.5%.
Corporate general and administrative expenses for 1999 totaled $2.3
million compared to $1.8 million for 1998, an increase of 24.9%. The increase
was attributable primarily to the addition of a corporate controller, increased
legal fees as we continually examine new opportunities for growth and
performance based compensation increases.
As a result of the factors described above, EBITDA was $8.3 million for
1999 compared to $5.9 million for 1998, an increase of 40.1%.
Depreciation and amortization expense for 1999 was $2.6 million compared
to $2.4 million for 1998, an increase of 11.5%. This increase reflected the
write-off of deferred financing costs associated with our old credit facility
and amortization of goodwill associated with the acquisitions of WNJO (FM) and
WCHR (AM).
Local marketing agreement fees for 1999 were $2.5 million compared to
$2.3 million in 1998, an increase of 10.8%. The increase was due to the local
marketing agreement initiated in November 1998 for WSBG (FM) and WVPO (AM) in
Stroudsburg, Pennsylvania.
Operating income for 1999 was $3.2 million compared to $1.3 million in
1998, an increase of 142.6%. This increase was primarily attributable to the
strong revenue growth coupled with management's control of expenses.
Other expenses for 1999 was $7.8 million compared to $4.6 million in
1998. This increase was attributable to the gain recognized on the sale of WSBG
(FM) and WVPO (AM) in 1998.
As a result of the factors described above, our net loss for 1999 was
$4.6 million compared to $4.0 million in 1998.
36
Year ended December 31, 1998 compared to year ended December 31, 1997
Net revenues for the year ended December 31, 1998 were $25.0 million
compared to $19.1 million for the year ended December 31, 1997, an increase of
31.0%. The increase was due to management's continued focus on station by
station growth. 1998 also included a full twelve months of operating results
for WBBO (FM) which went on the air in May 1997. WNJO (FM) and WCHR (AM) were
successfully switched to new formats in mid-1998.
Operating expenses for 1998 were $17.2 million compared to $13.4 million
in 1997, an increase of 28.2%. The increase was primarily attributable to the
commencement of operation of WNJO (FM), WCHR (AM), WBBO (FM) in 1998 as well
as expenses associated with higher revenues.
As a result of the factors described above, broadcast cash flow was $7.8
million in 1998 compared to $5.6 million in 1997, an increase of 37.7%.
Corporate general and administrative expenses were $1.8 million in 1998
compared to $2.0 million in 1997, a decrease of 8.5%. This decrease was
attributable primarily to a reduction in fees paid under a management
consulting agreement which terminated in 1997.
As a result of the factors described above, EBITDA was $5.9 million for
1998 compared to $3.6 million for 1997, an increase of 63.0%.
Depreciation and amortization expense for 1998 was $2.4 million compared
to $2.1 million for 1997, an increase of 10.5%. The increase was attributable
primarily to the full year of depreciation and amortization expense associated
with the radio stations acquired in 1997.
Local marketing agreement fees were $2.3 million in 1998 compared to
$1.7 million in 1997, an increase of 36.3%. New local marketing agreements
were initiated in 1998 for WTSX (FM) and WDLC (AM) in Port Jervis, New York,
and WSBG (FM) and WVPO (AM) in Stroudsburg, Pennsylvania.
As a result of the factors described above, operating income for 1998
was $1.3 million compared to a loss of $158,000 in 1997.
Other expense for 1999 was $4.6 million in 1998 and $6.6 million in
1997. The decrease was attributable to the gain recognized on the sale of WSBG
(FM) and WVPO (AM) in 1998.
As a result of the factors described above, our net loss for 1998 was
$4.0 million compared to $6.7 million in 1997.
Liquidity and Capital Resources
Overview. We have financed our acquisitions from one or a combination of
the following sources:
. our credit facilities;
. borrowings from our equity investors and others;
. additional equity issuance;
. asset sales; and
. internally generated broadcast cash flow.
37
Our other liquidity needs have been for working capital, debt service,
capital expenditures and other general corporate purposes. In the future, we
expect that our principal liquidity requirements will be for acquisitions of
additional radio stations, working capital, debt service and other general
corporate purposes. We expect to finance future acquisitions through a
combination of bank borrowings and internally generated funds.
We will use the net proceeds from this offering in the following manner:
. $60.0 million plus approximately $2.0 million of accretion to redeem
all of our outstanding senior discount notes incurred to repay
subordinated discount notes held by some of our existing stockholders
and to repay a portion of the borrowings under our old credit
facility;
. $78.0 million to finance a portion of the acquisition of Aurora
Communications;
. $24.0 million to finance the acquisition of the two Allentown,
Pennsylvania radio stations; and
. the remainder to pay transaction costs and provide for general
corporate purposes.
As of March 31, 2000, we held $2.4 million in cash and cash equivalents,
held $2.1 million in marketable securities available for sale, and had $1.0
million available under our old credit facility. Our pending acquisitions have
an aggregate purchase price of $266.3 million with a remaining cash requirement
of $188.5 million. Based on our current debt obligations, we anticipate that
our debt service costs for the twelve months ending March 31, 2001 will be
$12.0 million. Under our new credit facility, we can currently borrow up to
$144.0 million, subject to compliance with financial ratios and covenants. We
believe that the net proceeds from this offering, together with the
availability under our new credit facility and cash on hand should be
sufficient to permit us to meet our financial obligations for at least the next
twelve months.
We had working capital of $7.3 million at December 31, 1999, $12.9
million at December 31, 1998 and $6.0 million at December 31, 1997.
Operating Activities. Our operating activities used $165,083 in 1999
compared to $1.4 million used in 1998. The change relates primarily to improved
working capital management in 1999.
Investing Activities. Our investing activities used $8.4 million in 1999,
primarily for payments due under the purchase agreement for WNJO (FM) and WCHR
(AM).
Financing Activities. Cash provided by financing activities totaled $2.1
million in 1999. In 1999, we drew against our old credit facility to make
payments under existing asset purchase agreements.
As of March 31, 2000, we had an outstanding balance under our old credit
facility of approximately $56.0 million and availability under our old credit
facility of $1.0 million for future acquisitions and other corporate purposes.
Giving pro forma effect to the following transactions as of March 31, 2000, we
would have had an outstanding balance under our new credit facility of
approximately $129.6 million and availability under our new credit facility of
$14.4 million for future acquisitions and other corporate purposes:
. our recapitalization and reorganization;
. the completion of this offering and the application of the net
proceeds as contemplated;
. the completion of our acquisition of Aurora Communications;
. the completion of our acquisition of two radio stations in Allentown,
Pennsylvania;
. the completion of our acquisitions of seven radio stations that we
currently operate under local marketing agreements;
. the completion of our acquisition of Manahawkin Communications
Corporation, the owner of a construction permit to build a new radio
station, WCHR (FM), in the New Jersey market of Monmouth and Ocean
counties; and
. the completion of our acquisition of one radio station in Mount
Pocono, Pennsylvania.
38
New Credit Facility. Our new credit facility is secured by substantially
all our assets, including our ownership interests in each of our subsidiaries.
Our principal operating subsidiary, Nassau Broadcasting I, LLC, is the borrower
under our new credit facility. However, we have, and each of our other
subsidiaries has, fully and unconditionally guaranteed all of our obligations
under this facility. The terms we use below have the meaning given to them in
our new credit facility.
The new credit facility consists of the following:
. $20.0 million revolving credit facility, approximately $4.6 million
of which we have drawn in connection with our recapitalization and
which we use to provide for general corporate purposes. The revolving
credit facility bears interest at the following annual rates:
(1) during the periods that the loan is an Alternative Base Rate
Loan, the Alternative Base Rate, plus the Applicable Margin, and
(2) during the periods that the loan is a LIBOR Loan, for each
related Interest Period, the LIBO Rate for the loan for that
Interest Period, plus the Applicable Margin.
This loan matures in June, 2006.
. $33.0 million term loan A1, which we will use to finance a portion of
the purchase price of Aurora Communications in the form of repayment
of debt of Aurora Communications. This loan bears interest at the
following annual rates:
(1) during the periods that the loan is an Alternative Base Rate
Loan, the Alternative Base Rate, plus the Applicable Margin, and
(2) during the periods that the loan is a LIBOR Loan, for each
related Interest Period, the LIBO Rate for the loan for that
Interest Period, plus the Applicable Margin.
This loan will amortize on a quarterly basis and matures in June,
2006.
. $26.0 million term loan A2, $5 million of which we have drawn in
connection with our recapitalization and the remainder of which we
will use to finance a portion of the purchase price of stations we
currently operate under local marketing agreements. This loan bears
interest at the following annual rates:
(1) during the periods that the loan is an Alternative Base Rate
Loan, the Alternative Base Rate, plus the Applicable Margin, and
(2) during the periods that the loan is a LIBOR Loan, for each
related Interest Period, the LIBO Rate for the loan for that
Interest Period, plus the Applicable Margin.
This loan will amortize on a quarterly basis and matures in June,
2006.
. $40.0 million term loan B, which we have drawn in connection with our
recapitalization and to fund an equity redemption. This loan bears
interest at the following annual rates:
(1) during the periods that the loan is an Alternative Base Rate
Loan, the Alternative Base Rate, plus the Applicable Margin, and
(2) during the periods that the loan is a LIBOR Loan, for each
related Interest Period, the LIBO Rate for the loan for that
Interest Period, plus the Applicable Margin.
This loan will have minimal amortization over its life and matures in
June, 2007, at which time a balloon payment will be due.
. $25.0 million term loan C, which we will use to finance a portion of
the purchase price of Aurora Communications in the form of repayment
of debt of Aurora Communications. This loan bears interest at the
following annual rates:
(1) during the periods that the loan is an Alternative Base Rate
Loan, the Alternative Base Rate, plus the Applicable Margin, and
39
(2) during the periods that the loan is a LIBOR Loan, for each
related Interest Period, the LIBO Rate for the loan for that
Interest Period, plus the Applicable Margin.
This loan will have minimal amortization over its life and matures in
June, 2008, at which time a balloon payment will be due.
Our new credit facility prohibits us from paying cash dividends and
restricts our ability to make other distributions with respect to our capital
stock. Our new credit facility also contains other customary restrictive
covenants. Among other things, these covenants limit our ability to:
. incur additional indebtedness, contingent liabilities and liens;
. redeem or repurchase capital stock and redeem, repurchase or prepay
subordinated debt;
. enter into certain investments or joint ventures;
. consolidate, merge or effect asset sales;
. make capital expenditures;
. enter sale and leaseback transactions;
. sell or discount accounts receivable;
. enter into transactions with stockholders and affiliates; or
. change the nature of our business.
We are also required to satisfy financial covenants, which require us to
maintain specified financial ratios and to comply with financial tests, such as
ratios for interest coverage, fixed charge coverage and senior and total debt.
Our new credit facility contains events of default typical for this type
of facility (subject in each case to certain grace periods and materiality
thresholds), including, without limitation, (1) non-payment of amounts due
under the credit facility, (2) material misrepresentations, (3) covenant
defaults, (4) cross-defaults to other indebtedness, (5) judgment defaults, (6)
bankruptcy, and (7) a change of control of the principal operating company,
Nassau Broadcasting I, LLC or its successors.
Senior Discount Notes. On May 4, 2000, we issued and sold units
consisting of senior discount notes and limited partnership units for gross
proceeds of $60.0 million. The limited partnership units were converted into
shares of class A common stock as of the date of this offering. These
senior discount notes will be fully repaid from the proceeds of this offering.
The proceeds from these senior discount notes were used to repay the
subordinated discount notes held by some of our equity holders.
Old Credit Facility. On May 4, 2000, we repaid approximately $58.1
million in then-outstanding borrowings under our old credit facility from
borrowings under our new credit facility and from proceeds of our senior
discount notes.
Subordinated Discount Notes, Preferred Distribution and Equity
Redemption. On May 4, 2000, we repaid all outstanding subordinated discount
notes that we had issued to our existing stockholders in an amount of $42.4
million and made a preferred distribution to Louis F. Mercatanti, Jr. under the
Nassau Broadcasting partnership agreement, in an amount of $2.9 million. In
addition, Nassau Broadcasting, L.P. redeemed $2.5 million of equity interests
held by Mr. Mercatanti, who also has the right to require us to redeem a
further $5.0 million of equity interests at any time provided there is no
existing event of default under our new credit facility and no new event of
default would result.
Pending Acquisitions. We expect that the total cash required to fund our
pending acquisitions is approximately $231.3 million, with a remaining cash
requirement of $188.5 million. The consummation of our pending acquisitions is
subject to conditions, including approval of the FCC. Although we believe the
closing conditions are customary for transactions of this type, these
conditions may not be satisfied. We believe that the FCC ultimately will
approve the proposed acquisitions, but we cannot be certain of this. Therefore,
we do not know when these acquisitions will close, if at all.
40
Qualitative and Quantitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices such as interest rates, foreign currency exchange rate and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our new credit facility. Amounts borrowed under the new credit
facility incur interest at the Alternate Base Rate or the LIBO Rate plus the
then Applicable Margin depending on the outstanding principal balance under our
new credit facility. We are required to fix the interest rate of, or enter into
interest rate hedging arrangements for, approximately 50% of the aggregate
principal amount then outstanding under our new credit facility.
Historically, we believe that we have not been exposed to market risk
which has had a material adverse effect on our operations.
Year 2000 Compliance
We have experienced no material problems as a result of the year 2000
issue. We do not anticipate experiencing any latent material problems. Costs to
ensure that our systems are year 2000 compliant have not been, and are not
expected to be, material.
Inflation
To date, our results of operations have not been impacted materially by
inflation.
Recent Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured as fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged and specifies detailed criteria to be met to qualify for hedge
accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
years beginning after June 15, 2000. We are evaluating the impact that this
statement will have on our results of operations and financial position.
In January 2000, the Emerging Issues Task Force reached a consensus on
Issue No. 99-17, "Accounting for Advertising Barter Transactions," to be
effective for transactions entered into after January 20, 2000. The consensus
states that advertising barter transactions should be accounted for at fair
value and that the fair value recognized be disclosed in the financial
statements, if there is verifiable objective evidence provided by sufficient
cash transactions received by the seller of the advertising or similar
advertising. We do not expect EITF No. 99-17 to have a material effect on our
financial statements.
41
INDUSTRY OVERVIEW
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio gives advertisers an economy of scale with regard to
targeting demographic groups in specific geographic locations compared to other
forms of media advertising. As a result, radio broadcasting is affordable to
both large and small advertisers, although it serves primarily as a medium for
local advertising. According to the Radio Advertising Bureau's Radio and
Marketing Guide & Fact Book for Advertisers: Fall 1999 to Spring 2000, from
1990 to 1999, local advertising revenue as a percentage of total radio
advertising revenue in the United States has ranged from approximately 77% to
80%. The growth in total radio advertising revenue has been fairly stable in
the past six years, growing between approximately 8% and 15% annually. Total
radio advertising in 1999 reached an estimated $17.7 billion, which represents
almost 15% growth over the prior year.
Radio is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified
by their on-air format such as country, adult contemporary, oldies or
news/talk. A station's format and style of presentation enable it to target
particular segments of listeners sharing certain demographic features. By
capturing a specific share of a market's radio listening audience, with
particular concentration in a targeted demographic group, a station is able to
market its broadcasting time to advertisers seeking to reach a defined
audience. Advertisers and stations use data published by audience measuring
services, such as Arbitron, to estimate how many people within particular
geographical markets and demographic groups listen to each station in those
markets. In addition, rates vary depending upon a program's popularity among
the listeners an advertiser is seeking to attract, the number of advertisers
vying for available air time and the availability of alternative advertising
media in the market. Radio advertising rates generally are highest during the
morning and afternoon drive-time hours which are the peak hours for radio
audience listening.
The number of advertisements that can be broadcast without jeopardizing
listening levels and the resulting ratings is limited in part by the format of
a particular station and the local competitive environment. Although the number
of advertisements that are broadcast during any given time period may vary, the
total number of advertisements broadcast on a particular station generally does
not vary significantly from year to year.
A station's local sales staff generates the majority of its local
advertising sales through direct solicitations of local advertising agencies
and businesses. To generate national advertising sales, a station usually will
engage a firm that specializes in soliciting radio-advertising sales on a
national level. National sales representatives obtain advertising principally
from advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising they obtain.
Consumer Reach
Radio is a powerful medium through which to reach consumers. Radio is
able to reach consumers more frequently than television or cable because it can
be listened to outside the home, in cars and in the workplace. According to the
Radio Advertising Bureau's Radio and Marketing Guide & Fact Book for
Advertisers: Fall 1999 to Spring 2000, radio reaches 75% of consumers 12 years
of age and older everyday and with more radio listening occurring outside the
home, radio advertising is confronted with less competition in attracting
consumers than other mediums of advertising. Every week, radio reaches 95% of
all consumers 12 years of age and older. Radio is also the number one medium
close to the point of purchase as it reaches 63% of adults 25 to 54 years old
within one hour of making their largest purchase of the day.
More than 60% of all radio listening is done outside the home, and radio
reaches four out of five adults travelling in vehicles each week. The average
listener spends approximately three hours and 12 minutes every weekday
listening to radio. The highest portion of radio listenership occurs during the
morning, particularly between the time a listener wakes up and the time the
listener reaches work. Each week, this "morning drive time" period reaches more
than 80% of people 12 years of age and older and, as a result, radio
advertising sold during this period achieves premium advertising rates.
42
Radio listeners have gradually shifted over the years from AM (amplitude
modulation) to FM (frequency modulation) stations. FM reception is generally
clearer and provides greater tonal range and higher fidelity than AM reception.
FM's listener share is now in excess of 75%, despite the fact that the number
of AM and FM commercial stations in the United States is approximately equal.
The area served by AM stations is determined by a combination of
frequency, transmitter power and antenna orientation. Power, operating
frequency, antenna patterns and day/night operating modes are required to
determine the effective service area of an AM station. The area served by FM
stations is determined by a combination of transmitter power and antenna
height, with stations divided into classes according to their anticipated
service area.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial
FM stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C. Class C FM stations operate at 100
kilowatts of power with up to 1,968 feet of antenna elevation above average
terrain. They are the most powerful FM stations, providing service to a large
area, typically a substantial portion of a state. Class B FM stations operate
at up to 50 kilowatts of power with up to 500 feet of antenna elevation. These
stations typically serve large metropolitan areas as well as their associated
suburbs. Class A FM stations operate at 6 kilowatts with up to 328 feet of
antenna elevation, and serve smaller cities and towns or suburbs of larger
cities.
License Grant and Renewal
Radio broadcast licenses are granted and renewed for maximum terms of
eight years. Licenses may be renewed through an application to the FCC.
Petitions to deny license renewal applications can be filed by interested
parties, including members of the public.
43
BUSINESS
We focus on building local radio station clusters in demographically
attractive suburban areas surrounding major metropolitan markets in the
Northeast. Our primary strategy is to capture leadership positions in the
markets in which we currently operate and, while growing those markets, also
expand to other attractive suburban markets with strong growth opportunities.
We attribute our broadcast cash flow growth on a same station basis of 33% over
the past two years to our ability to identify and define underdeveloped markets
and transform radio stations into competitive local brands.
Operating Strategy
We intend to grow our business, both organically and through
acquisitions, by pursuing the following strategies:
Build station clusters and operate multiple stations within new markets
We operate stations in clusters to provide coverage over a series of
adjacent markets. Clustering enables us to realize operational efficiencies
through a combined sales force and shared support functions for each cluster.
Joint promotions among our stations enable us to create larger marketing
programs than an individual radio station could otherwise economically afford.
Each radio cluster presents advertisers with multiple opportunities to
reach their target audiences and achieve their marketing objectives. Synergies
derived from clustering enable us to present cost efficient solutions to
advertisers. If an advertiser desires airtime on several stations, we provide
it with one point of contact within our organization and request only one order
form.
Improve station programming to increase audience share
We recognize the importance of focusing on the local community to ensure
that our radio stations address the public interest. In many of our markets,
improving the coverage of local stories has filled a void in the community and
created audience loyalty. For example, last year we recognized the growing
desire for sports coverage in Trenton, New Jersey with the introduction of
professional hockey and baseball teams. To respond to this community interest,
we established WTTM (AM) in May 1999 as the first all sports station and the
exclusive radio broadcaster of ESPN in this market. In addition to focusing on
local interests, we also actively participate in community events and
charities.
We invest in our on-air talent and program directors who monitor the
content and advertising on our stations to ensure each station is operating
under its designed format. We continually search for ways to improve our
programming as we evolve with our listeners. Our goal is to retain or improve
station ratings, which we believe is essential to achieve consistent growth. We
attempt to do this by creating distinct, highly visible profiles for our on-air
personalities, particularly those broadcasting during "morning drive-time,"
which is traditionally between 6:00 am and 10:00 am, weekdays. We recently
detected an opportunity to grow the audience for the hot adult contemporary
format during the evening hours, a typically weaker time period. We designed an
original interactive show built around the radio personality, Roberta, that we
believe will captivate a significant number of listeners. Based on the current
success in syndicating this program on several of our stations, we intend to
syndicate Roberta nationally later this year.
44
Enhance brand awareness
We believe brand awareness and brand loyalty are essential to achieving a
sizable audience, which attracts advertising revenue. To maintain or improve
audience ratings, we brand and market individual stations. Creating a brand for
a station facilitates the ability of people in the local community to identify
with the station. For example, in 1997, we branded WJLK (FM) in the Monmouth-
Ocean market as "The POINT." The POINT's concept and design is intended to
reflect the lifestyle of its target audience. The station ranks first in its
target demographic audience, women 25-54 years old, among all local and New
York stations in the Monmouth-Ocean market.
Cultivate a broad base of advertisers
We focus on the needs of both local and national advertisers by
developing a sales force trained to proactively service local and national
advertisers in creative ways. We have an ongoing training program which
includes seminars offered by the Radio Advertising Bureau and other industry
groups as well as in-house training organized by management. Our sales force
seeks to design advertising packages which include those stations in a cluster
that best fit an advertiser's needs. We utilize Katz Communications, Inc., or
Katz, a national advertising representation firm, to obtain national
advertising for our stations. We also use Jersey Radio Network, our own
national sales force, to locate additional national advertisers.
Acquisition Strategy
Identification of target stations
We seek to expand our presence by acquiring additional stations in
demographically attractive suburban areas surrounding major metropolitan
markets, primarily in the Northeast. We target radio markets that are
underdeveloped and have lower radio market revenue relative to total retail
sales as compared to the national average and/or where radio has historically
captured only a small portion of total local advertising for all media. We
identify and seek to acquire stations that we believe will enable us to create
leadership positions in ratings and format in our existing markets or new,
complementary markets and provide us with the opportunity to increase revenues
and broadcast cash flow. In executing this strategy, we focus on properties
which:
. provide a regional fit with our overall portfolio;
. provide proximity to larger markets that may lead to increased
economic expansion into our markets;
. are situated in previously unconsolidated markets with fragmented
individual ownership of stations; and
. provide the opportunity to assemble a group of stations that have
competitive signal strength and that are diversified in format to
provide a wide range of target audiences for advertisers.
Integration of acquired stations
Since 1995, we have acquired or signed local marketing agreements to
operate 19 radio stations. We have developed an efficient process to integrate
new stations into our portfolio, culture and operating philosophy. Our
integration process consists of the following key elements:
. improving local presence of stations through top-quality on-air
talent and programming personnel;
. building an experienced sales force through continued recruitment and
on-going training; and
. designing marketing efforts to build brand awareness for each
station.
We intend to transform stations in our portfolio that currently
contribute minimal broadcast cash flow into profitable stations. After
identifying an underperforming station, senior management carefully analyzes
the
45
characteristics of the station, including the current programming and the
audience's perception of the station, and uses market studies to determine
market receptivity for change. In designing a plan to revitalize the station,
senior management examines how the station profile fits with our existing
portfolio in terms of station reach, format and audience. We then focus on
hiring and retaining strong on-air talent and programming personnel to create a
dynamic station and garner new listeners.
By implementing our acquisition strategy, we have quickly achieved
success in many of our markets, such as:
WJLK (FM)--Monmouth-Ocean, NJ. After acquiring WJLK (FM) and WQNJ (FM) in
October 1996, we began the process of disconnecting the simulcast of WJLK (FM)
and WQNJ (FM), while at the same time adjusting the format on WJLK (FM) to hot
adult contemporary. In May 1997, we relaunched WQNJ (FM) as WBBO (FM) in a
contemporary hit radio format and have since increased combined net revenues of
these stations from $3.6 million in 1996 to $7.8 million in 1999.
WNNJ (FM)--Sussex, NJ. After acquiring WNNJ (FM) in August 1996, we
determined the listeners targeted by the station's hot adult contemporary
format were more receptive to our two other adult contemporary stations in the
area, WSUS (FM) and WSBG (FM). In 1997, we changed the station's format to
classic hits and increased the signal power to 25,000 watts. WNNJ (FM) now
shares the number one market position with WSUS (FM) in the 25-54 year old
target demographic audience.
WNJO (FM)--Trenton, NJ. When we acquired WNJO (FM) in May 1997, the
station was broadcasting a religious format. Given the high signal power of
50,000 watts, we believed we could move the religious format to an AM station
without losing significant revenue and implement a more popular format on the
FM station. In March 1998, we placed the religious format on WCHR (AM) and
implemented an oldies format on WNJO (FM). With the addition of this signal, we
had two 50,000-watt FM stations in the Trenton market and also a very strong FM
presence in the Philadelphia metropolitan market. After the format change, the
combined net revenues of WNJO (FM) and WCHR (AM) increased by 322% over the
next two years.
Advertising
All of our revenue is derived from advertising. Similar to other radio
stations, we have a sales force that solicits local advertising and we employ
Katz as our national sales representative. Further, we believe that some
national advertisers represent opportunities for additional, directly-generated
revenue. These advertisers are primarily national businesses that do not have a
direct presence in our markets. We created a division called Jersey Radio
Network to target these advertisers. Jersey Radio Network is a sales force that
focuses on conveying to advertisers the importance of utilizing our radio
stations to complement a New York or Philadelphia radio advertising schedule.
Through Jersey Radio Network, we offer a simple process with flexibility and
creativity to adapt to an advertiser's desire to target our affluent suburban
markets. With our expansion throughout the Northeast, we intend to expand this
concept to supplement any major metropolitan market in which we operate.
We believe that through direct advertiser relationships we can better
understand the advertiser's business needs and more effectively design an
advertising campaign to help the advertiser sell its product. As a result, we
pay a higher commission rate to both our local sales staff and Jersey Radio
Network sales staff than our national representative for generating sales. Our
employees work with our advertisers in each of our markets to produce
commercials in our technologically advanced facilities.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract listeners in a given market and on the
attractiveness to advertisers of the station's listener demographics. We
believe that having multiple stations in a market enables us to offer a variety
of rates to advertisers. We believe
46
we will be able to increase our rates and fully sell our advertising time as
new and existing advertisers recognize the desirability of our stations'
diverse formats.
Each station broadcasts a predetermined number of advertisements each
hour with the actual number depending upon the format of a particular station.
We determine the number of advertisements broadcast hourly that can maximize
each of our station's available revenue dollars without jeopardizing its
listener levels.
Our revenue mix between local and national advertising varies
significantly by market. Currently, approximately 75% of our advertising is
local and approximately 25% is national. We believe that local revenues are
important as they represent a stable revenue source which is less affected by
economic downturns. However, we also view national advertising as important
because it generally commands a higher dollar rate for each advertising spot
than local advertising.
Station Portfolio
Our stations are clustered in demographically attractive mid-size
suburban areas, particularly those surrounding the New York and Philadelphia
metropolitan areas. This enables us to co-ordinate our sales effort and realize
operating efficiencies in our sales, programming, engineering and accounting
divisions. The following table sets forth information about our stations and
the markets we serve and will serve upon completion of the acquisition of
Aurora Communications, the acquisition of the Allentown, Pennsylvania radio
stations and our other pending acquisitions. The sources for this information
are described under "Summary-- Market and Industry Data and Industry Terms."
[Enlarge/Download Table]
1993-1998 1999
1999 1999 Radio Market 1999 Stations Radio Group
Market Radio Market Average Annual Radio Market --------- Rank in
Market Rank Revenue Rank Revenue Growth Revenue Growth FM AM Market Revenue
------------------------ ------ ------------ -------------- -------------- ---- ---- --------------
Northern(1)
Westchester, NY(2)...... 1 2 10.8% 16.8% 2 1 N/A
Bridgeport, CT.......... 112 91 8.9% 5.6% 1 1 1
Danbury, CT............. 189 190 5.3% 8.0% 2 2 2
Northwestern
Sussex, NJ.............. 239 250 N/A 16.7% 3 1 1
Newburgh-Middletown,
NY..................... 141 258 0% 9.8% 1 1 5
Wilkes Barre-Scranton,
PA..................... 64 77 6.5% 11.3% 1 2 4
Allentown, PA(3)........ 67 76 7.5% 6.8% 1 1 3
Central
Trenton, NJ............. 138 100 11.5% 14.6% 2 4 1
Shore
Monmouth-Ocean, NJ(4)... 47 83 5.6% 21.3% 4 2 1
---- ----
Total stations........ 17 15
==== ====
--------
(1) Consists of the nine radio stations we expect to acquire through our
acquisition of Aurora Communications, LLC.
(2) Falls within the greater New York market.
(3) Consists of two stations we expect to acquire from Clear Channel
Communications, Inc.
(4) Includes the construction permit of WCHR (FM), which we will acquire upon
the completion of our acquisition of Manahawkin Communications Corporation.
The following is a general description of each of our markets and our
radio stations within these markets. Information relating to radio market
revenue rank, radio market revenue and revenue growth of stations is derived
from BIA.
47
WESTCHESTER, NEW YORK
1999 Radio Market Revenue Rank: 2
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Acquired Format Audience Demographic(1) Demographic(1)
------------------------ -------- ------------------ ----------- -------------- --------------
WFAS (FM)............... pending Adult contemporary 25-54W 5.8 3
WFAF (FM)............... pending Adult contemporary 25-54W N/A N/A
WFAS (AM)............... pending News/talk/sports 40-64 N/A N/A
--------
(1) Westchester County only.
Market Overview
Currently radio stations in Westchester County are listed under the New
York, New York market. Arbitron is in the process of designating Westchester as
a recognized market. Based on 1999 population estimates, it would be the 58th
largest radio market in the United States.
Westchester Stations
Upon receiving final approval from the FCC, we will acquire Aurora
Communications which owns the following three radio stations in Westchester
County.
WFAS (FM), known to its listeners by its branded name "Westchester
Radio," broadcasts on two frequencies--103.9, covering southern Westchester
county and 106.3, covering northern Westchester County which is licensed as
WFAF (FM). WFAS (FM) targets the 25-54 year old demographic audience with an
adult contemporary format and includes local news, Westchester traffic updates,
weather, and other local information. We promote the station throughout the
year by sponsoring numerous charity events and expositions, which we believe
emphasizes our community orientation.
WFAF (FM) began simulcasting WFAS (FM) in an adult contemporary format at
the end of 1999 in an effort to reduce expenses. We believe that the signal is
very viable in the Westchester market and intend to relaunch the station with a
new format by the end of 2001.
WFAS (AM) broadcasts a news/talk/sports format for Westchester County.
Established over 60 years ago, WFAS (AM) was Westchester's first radio station.
We position this station as "News/Talk 1230" with local news, traffic and
weather information, local and national talk shows, block programming and
sports news. In addition, we include daily appearances by local civic, service,
and business leaders and spot news coverage, and we participate in community
events to promote WFAS (AM) as Westchester's favorite local radio station.
BRIDGEPORT, CONNECTICUT
1999 Radio Market Revenue Rank: 91
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Acquired Format Audience Demographic Demographic
------------------------ -------- ------------------ ----------- -------------- -------------
WEBE(FM)................ pending Adult contemporary 25-54W 10.8% 2
WICC(AM)................ pending Full service 35-64 7.5% 2
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Market Overview
The Bridgeport radio market ranks 91st in the United States based on 1999
radio market revenue. Radio market revenues in Bridgeport have grown from
approximately $12.8 million in 1993 to approximately $20.7 million in 1999,
representing a compound average annual revenue growth rate of 8.3%. Radio
market revenue grew 5.6% during the year ended December 31, 1999, as compared
to the prior year.
Bridgeport Stations
Upon receiving final approval from the FCC, we will purchase two radio
stations in Bridgeport from Aurora Communications.
WEBE (FM) broadcasts an adult contemporary format that we believe has a
strong listener following in Fairfield County. Founded in 1982, WEBE (FM) is a
Class B FM station, broadcasting at 50,000 watts. As of the Fall 1999 Arbitron
Market Report, WEBE (FM) ranked number two in its target demographic audience
group of women 25-54 years old. WEBE (FM)'s primary competition is WEZN (FM),
which broadcasts an adult contemporary format.
WICC (AM), established in 1926, was Bridgeport's first radio station.
WICC (AM) has ranked number one among listeners 12 years of age and older in
the Bridgeport metropolitan area in six of the last ten Arbitron Market
Reports. The station's full-service format includes news and information, long
term radio personalities, evening talk shows and weekend specialty shows. Our
"Family Breakfast Show" on WICC (AM) ranks number one among listeners 12 years
of age and older in all of Fairfield County.
DANBURY, CONNECTICUT
1999 Radio Market Revenue Rank: 190
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Acquired Format Audience Demographic Demographic
------------------------ -------- ------------------- ----------- -------------- -------------
WRKI(FM)................ pending Album oriented rock 25-54 8.8% 2
WAXB(FM)................ pending Oldies 35-64 3.6% 7
WINE(AM)................ pending Adult standards 50+ 0.8% N/A
WPUT(AM)................ pending Adult standards 50+ N/A N/A
Market Overview
The Danbury market ranks 190th in the United States based on 1999 radio
market revenue. Radio market revenues in Danbury have grown from approximately
$5.8 million in 1993 to approximately $8.1 million in 1999, representing a
compound average annual revenue growth rate of 5.7%. Radio market revenue grew
8.0% during the year ended December 31, 1999, as compared to the prior year.
Danbury Stations
Upon receiving final approval from the FCC, we will acquire Aurora
Communications, which owns four radio stations in Danbury.
WRKI (FM) is known to listeners by its brandname "I-95." Established in
1957, this station has operated under an album oriented rock format since the
1970s. WRKI (FM) is a Class B FM station, broadcasting at 50,000 watts and
covering Fairfield and New Haven Counties, Connecticut, and parts of New York
State. The station currently ranks second in its target demographic audience in
the Danbury market with an 8.8% share. Overall in Fairfield County, WRKI (FM)
has a 10.0% revenue share.
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WAXB (FM), founded in 1964, currently broadcasts an oldies format and
ranks seventh in its target demographic audience in Danbury with a 3.6%
audience share. We believe that the station is underperforming and intend to
improve its performance by instituting programming changes.
WINE (AM) switched from an unsuccessful satellite country format to
adult standards in the beginning of this year and is presently the only
station broadcasting this format in its market. This format is simulcast on
WPUT (AM) to reach a greater audience. We believe that the success of this
format on similar signals in similar markets has been proven.
WPUT (AM), which was founded in 1958, simulcasts the WINE (AM) adult
standards format.
SUSSEX, NEW JERSEY
1999 Radio Market Revenue Rank: 250
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Acquired Format Audience Demographic Demographic
------------------------ -------- ------------------ ----------- -------------- -------------
WNNJ(FM)................ 8/96 Classic hits 25-54 13.8% 1
WSUS(FM)................ 4/97 Adult contemporary 25-54 13.8% 1
WHCY(FM)................ 3/96 Country 18-49 3.5% 8
WNNJ(AM)................ 8/96 Adult standards 50+ N/A N/A
Market Overview
The Sussex market ranks 250th in the United States based on 1999 radio
market revenue. Radio market revenues in Sussex have grown from approximately
$2.4 million in 1995 to approximately $4.9 million in 1999, representing a
compound average annual revenue growth rate of 19.5%. Radio market revenue
grew 16.7% during the year ended December 31, 1999, as compared to the prior
year.
Sussex Stations
We own and operate four radio stations, one AM and three FM, in the
Sussex market. We requested Arbitron make Sussex a recognized market in 1997.
The addition of WHCY (FM) has allowed our sales force to market four stations
with different formats and listener bases to advertisers in this market. Of
our four stations, two ranked first in 1999 in their respective target
demographic audiences.
WNNJ (FM) broadcasts a classic hits format. WNNJ (FM)'s signal reaches
all of Northwestern New Jersey, the Poconos in Pennsylvania and Orange County
in New York. After acquiring WNNJ (FM) in August 1996, we changed the
station's format from hot adult contemporary to classic hits and increased the
signal power to 25,000 watts. In 1999, WNNJ (FM) shared the number one market
position with its sister station, WSUS (FM), in the 25-54 year old target
demographic audience, with a market share of 13.8%.
WSUS (FM) began operations in 1972. We acquired the station in 1997 and
reprogrammed its format to adult contemporary with a focus on local news and
issues. With this programming focus, the station now ranks number one in the
market, based on the Fall 1999 Arbitron Market Report for listeners 12 years
of age and older. WSUS (FM) also ranks first in the 25-54 year old target
demographic audience. The station's signal reaches Sussex, Morris and Warren
Counties in New Jersey, along with Orange County in New York and Pike County
in Pennsylvania.
WHCY (FM) broadcasts country music and focuses on events in the country
music world. In addition, WHCY (FM) provides local news, weather and traffic
reports to its listeners. Based on the Fall 1999 Arbitron Market Report, WHCY
(FM) has an overall market share of 3.4% for listeners 12 years of age and
older, an increase of 90.0% since we acquired the station. WHCY (FM) currently
ranks eighth in the market.
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WNNJ (AM) programs an adult standards format, targeting listeners 50
years of age and older by featuring musical hits of the past five decades from
big band classics to soft contemporary.
NEWBURGH-MIDDLETOWN, NEW YORK
1999 Radio Market Revenue Rank: 258
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Operated Format Audience Demographic Demographic
------------------------ -------- --------------- ----------- -------------- -------------
WTSX(FM)................ 8/98 Oldies 35-64 N/A N/A
WDLC(AM)................ 8/98 Adult standards 50+ N/A N/A
Market Overview
The Newburgh-Middletown market ranks 258th in the United States based on
1999 radio market revenue. Radio market revenues in Newburgh-Middletown did not
change from 1993 to 1998. However, radio market revenue grew 9.8% during the
year ended December 31, 1999, as compared to the prior year.
Newburgh-Middletown Stations
We currently operate two radio stations pursuant to a local marketing
agreement, in what Arbitron designates as the Newburgh-Middletown market. We do
not subscribe to Arbitron in respect of this market due to signal limitations
of our stations. We entered into a local marketing agreement for the stations
to increase our listener base in the Sussex, Pike, Sullivan and Orange counties
which are not reflected in the Newburgh-Middletown market. Therefore, we
believe the ratings for this market are not meaningful.
WTSX (FM) changed to an oldies format after we began operating the
station in August 1998. As part of our branding strategy to increase listener
recognition, we branded WTSX (FM) as "Fox 96.7." This brand consists of a
carefully designed play list of the most popular songs from the 1960s,
promotions, specialty weekends, local personalities, and an emphasis on local
news and community information.
WDLC (AM) changed to an adult standards format after we began operating
the station and targets listeners of 50 years of age and older. Its format
features musical hits of the past five decades from big classics to soft
contemporary and provides news and information for the local community.
WILKES BARRE-SCRANTON, PENNSYLVANIA
1999 Radio Market Revenue Rank: 77
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Operated Format Audience Demographic(1) Demographic(1)
------------------------ -------- ---------------------- ----------- -------------- --------------
WSBG(FM)................ 3/95 Hot adult contemporary 18-34W 15.5% 1
WVPO(AM)................ 3/95 Adult standards 50+ N/A N/A
WILT(AM)................ 11/99 ESPN sports 25-54M N/A N/A
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(1) Monroe County only.
Market Overview
Wilkes Barre-Scranton is the 77th largest radio market in the United
States based on 1999 radio market revenue. Radio market revenues in the Wilkes
Barre-Scranton market have grown from approximately $17.4 million in 1993 to
approximately $26.5 million in 1999, representing a compound average annual
revenue growth rate of 7.3%. Radio market revenue grew 11.3% during the year
ended December 31, 1999, as
51
compared to the prior year. Although our stations are listed in the greater
Wilkes Barre-Scranton market, due to the mountainous terrain, our stations
primarily serve Monroe County, which is a part of the Wilkes Barre-Scranton
market and do not compete in the remainder of the market.
Wilkes Barre-Scranton Stations
We operate WILT (AM) in Mount Pocono and operate WSBG (FM) and WVPO (AM)
under a local marketing agreement with Multicultural Radio Broadcasting, Inc.,
the owner of the stations.
WSBG (FM) is currently ranked as Monroe County's number one radio
station, with a hot adult contemporary format. WSBG (FM) shares group
promotions, imaging and content with its sister station WJLK (FM), "The POINT".
We emphasize the station's commitment to the community and raise brand
awareness through a variety of charity and promotional events.
WVPO (AM) targets potential listeners 50 years of age and older. Its
adult standard format features musical hits of the past five decades from big
band classics to soft contemporary. In 1999, the Associated Press and
Pennsylvania Broadcasters Association recognized WVPO (AM) for its outstanding
news and public service.
WILT (AM), a soon-to-be acquired station which started programming in
March 2000, broadcasts the ESPN sports format for the area.
ALLENTOWN, PENNSYLVANIA
1999 Radio Market Revenue Rank: 76
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Acquired Format Audience Demographic Demographic
------------------------ -------- ---------------- ----------- -------------- -------------
WODE(FM)................ pending Oldies 35-64W 14.8% 2
WEEX(AM)................ pending News/talk/sports 25-54 N/A N/A
Market Overview
Allentown is the 76th largest radio market in the United States based on
1999 radio market revenue. Radio market revenues in the Allentown market have
grown from approximately $17.4 million in 1993 to approximately $26.7 million
in 1998, representing a compound average annual revenue growth rate of 7.4%.
Radio market revenue grew 6.8% during the year ended December 31, 1999, as
compared to the prior year.
Allentown Stations
Upon receiving final approval from the FCC, we will purchase two radio
stations in Allentown for $30.0 million from Clear Channel, further
strengthening our northwestern cluster.
WODE (FM) broadcasts heritage oldies and consistently ranks in the top
five stations in the market for the demographic audience 12 years of age and
older. WODE (FM) utilizes a carefully designed play list of Allentown's most
popular songs from the 1960s, offers promotions, and emphasizes a strong
community commitment by providing local content, traffic and weather. We intend
to improve the programming to further maximize market opportunities.
WEEX (AM) currently programs a news/talk/sports format. We intend to
review the programming on the station and seek to make improvements.
52
TRENTON, NEW JERSEY
1999 Radio Market Revenue Rank: 100
[Download Table]
Station Target Audience Share Audience Rank
Call Date Demographic in Target in Target
Letters Operated Format Audience Demographic Demographic
------- -------- ---------------------- ----------- -------------- -------------
WPST
(FM).. 12/86 Contemporary hit radio 18-34 13.1% 1
WNJO
(FM).. 5/97 Oldies 35-64 9.0% 1
WHWH
(AM).. 12/86 Financial news 25-54 -- N/A
WJHR
(AM)
(1)... 2/99 Financial news 25-54 -- N/A
WTTM
(AM).. 5/99 ESPN sports 18-54 -- N/A
WCHR
(AM).. 5/97 Religion N/A N/A
--------
(1) WJHR (AM) is licensed to Flemington, NJ
Market Overview
Trenton is the 100th largest radio market in the United States based on
1999 radio market revenue. Radio market revenues in the Trenton market have
grown from approximately $9.5 million in 1993 to approximately $18.8 million in
1999, representing a compound average annual revenue growth rate of 12.0%.
Radio market revenue grew 14.6% during the year ended December 31, 1999, as
compared to the prior year.
Trenton Stations
We own the radio stations WHWH (AM), WTTM (AM) and WPST (FM) in the
Trenton market. We currently operate three additional radio stations, WCHR
(AM), WNJO (FM) and WJHR (AM), under local marketing agreements. We expect to
close our acquisition of WCHR (AM) and WNJO (FM) upon receiving final approval
from the FCC for the transfer of these licenses. We have paid or escrowed all
of the purchase price for the stations. We expect to file for the transfer of
the license of WJHR (AM) after the consummation of this offering.
WPST (FM) broadcasts a contemporary hit radio format. We believe it is
the market's most popular station. Its Class B FM 50,000-watt signal covers
Central New Jersey and Philadelphia. WPST (FM) is programmed as a mass appeal
pop culture radio station, playing today's hit music, offering promotions,
featuring interesting on-air personalities, and focusing on local issues.
WPST (FM) and its programming team have won numerous industry awards from
Billboard, Gavin, The Friday Morning Quarterback and Bobby Poe. WPST (FM) has
also been named "Best Radio Station in Philadelphia" by Philadelphia magazine.
Based on the Fall 1999 Arbitron Market Report, WPST (FM) had an audience share
of 13.1% for its target demographic audience, the largest in the Trenton
market. Although WPST (FM) targets the 18-34 year old demographic audience, the
station ranks number one in every demographic audience from 12-54 years old.
WNJO (FM) is an oldies radio station. The station programmed a religious
format before we began operating the station in May 1997 and moved the
religious format to WCHR (AM). With the addition of this signal, we have two
Class B 50,000-watt FM stations in the Trenton market and also a strong FM
presence in the Philadelphia metropolitan market. The WNJO (FM) brand consists
of a play list of the most popular songs from the 1960s, promotions, specialty
weekends and local personalities. In 1999, the station had an audience share of
9.0% in the 35-64 year old target demographic audience, the largest in the
Trenton market. Before we began operating the station, it had a 0.5% market
share of this demographic audience.
WHWH (AM), Trenton's financial news station, provides live news covering
Wall Street to Main Street, the Associated Press, Bloomberg News and business
talk 24 hours a day. The station broadcasts its 5,000 watt signal to listeners
in Central New Jersey and Bucks County, Pennsylvania. In January 2000, we
expanded the coverage of its format to include WJHR (AM) in Hunterdon County,
New Jersey.
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WJHR (AM) changed its format to financial news in January 2000. Except
for local news and traffic, the station builds off the format of WHWH (AM).
WTTM (AM) is a 24-hour sports and sports talk station. The station was
launched in May 1999 and was strategically designed to coincide with the
market's increased interest in sports, including minor league ice hockey and
baseball, which resulted from the introduction of new sports facilities in the
area. We believed this interest was not being addressed in the market and used
this opportunity to target sports fans. In addition, the station is the
market's exclusive radio broadcaster of ESPN. The station features some of
America's most popular sports personalities, inside information and breaking
news in the world of sports. The station also focuses on local New Jersey
sports teams. WTTM (AM) is the only signal that offers the market total sports
content in the morning.
WCHR (AM) is Trenton's religious and inspirational talk station. The
station provides syndicated programming featuring introspective talk and
inspirational music.
MONMOUTH-OCEAN, NEW JERSEY
1999 Radio Market Revenue Rank: 83
[Enlarge/Download Table]
Target Audience Share Audience Rank
Date Demographic in Target in Target
Station Call Letters Operated Format Audience Demographic Demographic
------------------------ -------- ---------------------- ----------- -------------- -------------
WBBO (FM)............... 5/96 Contemporary hit radio 18-34W 6.0% 5
WJLK (FM)............... 5/96 Hot adult contemporary 25-54W 7.7% 1
WOBM (FM)............... 7/96 Adult contemporary 35-64W 7.7% 2
WCHR (FM) (1)........... TBD TBD TBD N/A N/A
WADB (AM)............... 5/96 Adult standards/news 55+ 3.9% 9
WOBM (AM)............... 7/96 Adult standards/news 55+ 11.3% 1
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(1) We are acquiring Manahawkin Communications Corporation, the owner of a
construction permit to build this station.
Market Overview
Monmouth-Ocean is the 83rd largest radio market in the United States
based on 1999 radio market revenue. Radio market revenues in the Monmouth-Ocean
market have grown from approximately $13.5 million in 1993 to approximately
$21.6 million in 1999, representing a compound average annual revenue growth
rate of 8.1%. Radio market revenue grew 21.3% during the year ended December
31, 1999, as compared to the prior year.
Monmouth-Ocean Stations
We own and operate the radio stations WBBO (FM), WJLK (FM) and WADB (AM)
in the Monmouth-Ocean market. Additionally, we currently operate two Monmouth-
Ocean radio stations, WOBM (AM) and WOBM (FM), under a local marketing
agreement with North Shore Broadcasting Corporation and Seashore Broadcasting
Corporation respectively, the owners of the stations. We have entered into an
agreement to purchase these two stations, which is subject to final approval
from the FCC.
WBBO (FM) was acquired with WJLK (FM) and WADB (AM) in November 1996. The
station was originally a simulcast of WJLK (FM). We relaunched the station in
May 1997 with a contemporary hit radio format in the Jersey Shore market. Based
on the Fall 1999 Arbitron Market Report, the station had 6.0% of the Monmouth-
Ocean market, ranking fifth in the 18-34 year old women target demographic
audience.
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WJLK (FM) is a hot adult contemporary station. We have operated the
station since May 1996 and have developed a new programming strategy and
brand. We designed "The POINT" as a new style of hot adult contemporary for
the 25-54 year old demographic audience. Based on the Fall 1999 Arbitron
Market Report, The POINT had an audience share of 7.7% in its target
demographic audience of women 25-54 years old, ranking first among all local
and New York stations in the Monmouth-Ocean market.
WOBM (FM) plays adult contemporary music and offers local news. The
station has a strong community commitment. WOBM (FM)'s signal covers the Ocean
County portion of the Monmouth-Ocean market. We repositioned the station to a
"soft rock" concept which we believe has resulted in a more focused product
and stronger brand image. Based on the Fall 1999 Arbitron Market Report, WOBM
(FM) had an audience share of 7.0% in its target demographic audience of women
25-54 years old, ranking second among all local and New York stations in the
Monmouth-Ocean market.
WCHR (FM). Upon receiving final approval from the FCC of our purchase of
Manahawkin Communications Corporation, the owner of the construction permit,
currently constructing the radio station, we will commence operations and
receive a license from the FCC. WCHR (FM) will have the largest signal
covering the Monmouth-Ocean market.
WADB (AM) targets listeners of 50 years of age and older with its adult
standards format, broadcasting musical hits of the past five decades from big
band hits to soft contemporary classics.
WOBM (AM), known as "Wonderful Memories," broadcasts an adult standards
format, targeting listeners 50 years of age and older in Ocean County, New
Jersey. The station also focuses heavily on local information and news. We
believe that this format will continue to be successful in Ocean County, in
which approximately one-third of the population is over 55 years of age.
Competition; Changes in the Broadcasting Industry
Overview. The radio broadcasting industry is highly competitive. The
success of each of our stations depends largely upon its audience ratings and
its share of the overall advertising revenue within its market. Our stations
compete for listeners and advertising revenue directly with other radio
stations within their respective markets. Radio stations compete for listeners
primarily on the basis of program content that appeals to a particular
demographic group. By building a strong listener base consisting of specific
demographic groups in each of our markets, we are able to attract advertisers
seeking to reach those listeners.
The following are some of the factors that are important to a radio
station's competitive position:
. management experience;
. the station's local audience rank in its market;
. transmitter power;
. assigned frequency;
. audience characteristics;
. local program acceptance; and
. the number and characteristics of other radio stations and other
advertising media in the market area.
In addition, we attempt to improve our competitive position with
promotional campaigns aimed at the demographic groups targeted by our stations
and by sales efforts designed to attract advertisers.
55
Main competitors. Our stations compete for audiences and advertising
revenues within their respective markets directly with other radio stations, as
well as with other media such as newspapers, magazines, network and cable
television, outdoor advertising and direct mail. In addition, the radio
broadcasting industry is subject to competition from new media technologies
that are being developed or introduced such as:
. cable television operators have introduced a service commonly
referred to as "cable radio" which provides cable television
subscribers with several high-quality channels of music, news and
other information;
. direct satellite broadcast television companies are supplying
subscribers with several high quality music channels;
. the Internet offers new and diverse forms of program distribution;
. satellite digital audio radio technology, initially developed for
automotive applications, could result in new high quality satellite
radio services; and
. the introduction of in-band on-channel digital radio and new low-
power FM radio could provide radio services in the same bandwidth
currently occupied by traditional FM and AM radio services.
The FCC has adopted rules for the establishment of low-powered FM
stations that are designed to serve small localized areas. 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 discs. A
growing population and greater availability of radios, particularly car and
portable radios, have contributed to this growth. We cannot assure you,
however, that this historical growth will continue or that the development or
introduction in the future of any new media technology or low-powered FM
stations will not have an adverse effect on the radio broadcasting industry.
The FCC has adopted licensing and operating rules for satellite delivered
audio and awarded two licenses for this service in April 1997. Satellite
delivered audio may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and/or
national audiences. Digital technology also may be used in the future by
terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, the FCC has
authorized an additional 100 kHz of bandwidth for the AM band and has allotted
frequencies in this new band to certain existing AM station licensees that
applied for migration to the expanded AM band. Those licensees will be required
to return to the FCC either the license for their existing AM band station or
the license for the expanded AM band station at the end of a transition period.
We cannot predict what other matters might be considered in the future by
the FCC, nor can we assess in advance what impact, if any, the implementation
of any of these proposals or changes might have on our business.
On-air talent. We employ a number of on-air personalities and generally
enter into employment agreements with these personalities to protect our
interests in those relationships. The loss of some of these personalities could
result in a short-term loss of audience share, but we do not believe that the
loss would have a material adverse effect on our business.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation of, among other things, program content, advertising content,
technical operations and business and employment practices. The
56
ownership, operation and sale of radio stations are subject to the jurisdiction
of the FCC. 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; and
. adopts and implements regulations and policies that directly affect
the ownership, operation and employment practices of stations.
The FCC has the power to impose penalties for violations of its rules or
the Communications Act, including the imposition of monetary forfeitures, the
issuance of short-term licenses, the imposition of a condition on the renewal
of a license, nonrenewal of licences and the revocation of operating authority.
The following is a brief summary of some provisions of the Communications
Act and of specific FCC regulations and policies. The summary is not a
comprehensive listing of all of the regulations and policies affecting radio
stations. For further information concerning the nature and extent of federal
regulation of radio stations, you should refer to the Communications Act, FCC
rules and FCC public notices and rulings.
FCC Licenses. Radio stations operate pursuant to renewable broadcasting
licenses that are ordinarily granted by the FCC for maximum terms of eight
years. A station may continue to operate beyond the expiration date of its
license if a timely filed license renewal application is pending. During the
periods when renewal applications are pending, petitions to deny license
renewals can be filed by interested parties, including members of the public.
The FCC is required to hold hearings on a station's renewal application if a
substantial or material question of fact exists as to whether the station has
served the public interest, convenience and necessity. If, as a result of an
evidentiary hearing, the FCC determines that the licensee has failed to meet
certain requirements and that no mitigating factors justify the imposition of a
lesser sanction, then the FCC may deny a license renewal application. Only
after a license renewal application is denied will the FCC accept and consider
competing applications for the vacant frequency. Historically, the FCC has
generally renewed licenses. We have no reason to believe that our licenses will
not be renewed in the ordinary course, although we cannot assure you that any
or all of our licenses will be renewed. The non-renewal of one or more of our
licenses could have a material adverse effect on our business.
The FCC classifies each AM and FM station. An AM station operates on
either a clear channel, regional channel or local channel. A clear channel is
one on which AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as either: Class A stations, which operate on an
unlimited time basis and are designated to render primary and secondary service
over an extended area; Class B stations, which operate on an unlimited time
basis and are designed to render service only over a primary service area; or
Class D stations, which operate either during daytime hours only, during
limited times only or on an unlimited time basis with low night-time power. A
regional channel is one on which Class B and Class D AM stations may operate
and serve primarily a principal center of population and the rural areas
contiguous to it. A local channel is one on which AM stations operate on an
unlimited time basis and serve primarily a community and the immediately
contiguous suburban and rural areas. Class C AM stations operate on a local
channel and are designed to render service only over a primary service area
that may be reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial
FM stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
57
The following table sets forth the metropolitan market served, call
letters, FCC license classification, frequency, power and FCC license
expiration date of each of the stations that we will own and/or operate upon
the completion of all pending acquisitions. Our licenses are held by our
wholly-owned subsidiary. Pursuant to FCC rules and regulations, many AM radio
stations are licensed to operate at a reduced power during the nighttime
broadcasting hours, which results in reducing the radio station's coverage
during the nighttime hours of operation. Both power ratings are shown. For FM
stations, the maximum effective radiated power in the main lobe is given.
[Enlarge/Download Table]
Daytime Nighttime Expiration
FCC Power Power Date of
Market Station Class Frequency (in watts) (in watts) FCC License
------------------------ -------- ----- ----------- ---------- ---------- ------------
Northern
Westchester, NY......... WFAS (FM) A 103.9 MHz 600 600 June, 2006
WFAF (FM) A 106.3 MHz 1,400 1,400 June, 2006
WFAS (AM) C 1,230.0 kHz 1,000 1,000 June, 2006
Bridgeport, CT.......... WEBE (FM) B 107.9 MHz 50,000 50,000 April, 2006
WICC (AM) B 600.0 kHz 1,000 500 April, 2006
Danbury, CT............. WRKI (FM) B 95.1 MHz 29,500 29,500 April, 2006
WAXB (FM) A 105.5 MHz 900 900 June, 2006
WINE (AM) B 940.0 kHz 680 4 April, 2006
WPUT (AM) B 1,510.0 kHz 1,000 1,000 June, 2006
Northwestern
Sussex, NJ.............. WNNJ (FM) B1 103.7 MHz 2,300 2,300 June, 2006
WSUS (FM) A 102.3 MHz 590 590 June, 2006
WHCY (FM) A 106.3 MHz 430 430 June, 2006
WNNJ (AM) B 1,360.0 kHz 2,000 2,000 June, 2006
Newburgh-Middletown,
NY..................... WTSX (FM) A 96.7 MHz 890 890 June, 2006
WDLC (AM) C 1,490.0 kHz 1,000 1,000 June, 2006
Wilkes Barre-Scranton,
PA..................... WSBG (FM) A 93.5 MHz 550 550 August, 2006
WVPO (AM) B 840.0 kHz 250 0 August, 2006
WILT (AM) B 960.0 kHz 1,000 24 August, 2006
Allentown, PA........... WODE (FM) B 99.9 MHz 50,000 50,000 August, 2006
WEEX (AM) C 1230.0 kHz 1,000 1,000 August, 2006
Central
Trenton, NJ............. WPST (FM) B 97.5 MHz 50,000 50,000 June, 2006
WNJO (FM) B 94.5 MHz 50,000 50,000 June, 2006
WHWH (AM) B 1,350.0 kHz 5,000 5,000 June, 2006
WJHR (AM) B 1,040.0 kHz 4,700 1,000 June, 2006
WTTM (AM) B 1,680.0 kHz 10,000 1,000 (1)
WCHR (AM) B 920.0 kHz 1,400 1,000 June, 2006
Shore
Monmouth-Ocean, NJ...... WBBO (FM) A 98.5 MHz 6,000 6,000 June, 2006
WJLK (FM) A 94.3 MHz 1,300 1,300 June, 2006
WOBM (FM) A 92.7 MHz 1,400 1,400 June, 2006
WCHR (FM) B 105.7 MHz 25,000 25,000 N/A
WADB (AM) B 1,310.0 kHz 2,500 1,000 June, 2006
WOBM (AM) B 1,160.0 kHz 5,000 8,900 June, 2006
--------
(1) We are currently operating this station under temporary authority from the
FCC. We are awaiting the issuance of a formal license, which will expire
five years after the date of issuance.
58
Transfer or Assignment of License. The Communications Act prohibits the
assignment of broadcast licenses 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
and proposed licensee, including:
. compliance with the various rules limiting common ownership of media
properties in a given market;
. the character of the licensee and those persons holding attributable
interests in the licensee; and
. history of compliance with the Communications Act's limitations on
alien ownership as well as compliance with other FCC regulations and
policies.
To obtain FCC consent to assign or transfer control of a broadcast
license, appropriate applications must be filed with the FCC. If the
application involves a substantial change in ownership or control, for example,
the transfer or acquisition of more than 50.0% of the voting stock, the
application must be placed on public notice for not less than 30 days during
which time petitions to deny or other objections against the application may be
filed by interested parties, including members of the public. These types of
petitions are filed from time to time with respect to proposed acquisitions. If
the FCC grants an assignment or transfer application, interested parties have
30 days from public notice of the grant to seek reconsideration of that grant.
The FCC usually has an additional ten days to set aside the grant on its own
motion. If the application does not involve a substantial change in ownership
or control, it is a pro forma application, which is not subject to the public
notice and 30-day petition to deny procedure. The pro forma application is
nevertheless subject to informal objections that may be filed against it at any
time until the FCC acts on the application. When ruling on an assignment or
transfer application, the FCC is prohibited from considering whether the public
interest might be served by an assignment or transfer of control of the
broadcast license to any party other than the assignee or transferee specified
in the application.
Multiple Ownership Rules. The Communications Act and FCC rules impose
specific limits on the number of commercial radio stations an entity can own in
a single market. These rules may preclude us from acquiring certain stations we
might otherwise seek to acquire. The rules also effectively prevent us from
selling stations in a market to a buyer that has reached its ownership limit in
the market unless that buyer divests other stations. The local radio ownership
rules are as follows:
. in markets with 45 or more commercial radio stations, ownership is
limited to eight commercial stations, no more than five of which can
be either AM or FM;
. in markets with 30 to 44 commercial radio stations, ownership is
limited to seven commercial stations, no more than four of which can
be either AM or FM;
. in markets with 15 to 29 commercial radio stations, ownership is
limited to six commercial stations, no more than four of which can be
either AM or FM; and
. in markets with 14 or fewer commercial radio stations, ownership is
limited to five commercial stations or no more than 50.0% of the
market's total, whichever is lower, and no more than three of which
can be either AM or FM.
The FCC is also reportedly considering proposing a policy that would give
special review to a proposed transaction if it would enable a single owner to
attain a high degree of revenue concentration in a market. In connection with
this, the FCC, in its public notices, has invited comment on the impact of
concentration of media voices in proposed transactions, and has delayed or
refused its consent in some cases because of revenue concentration.
The FCC recently revised its radio/television cross-ownership rule to
allow for greater common ownership of television and radio stations. The
revised radio/television cross-ownership rule permits a single
59
owner to own up to two television stations, consistent with the FCC's rules on
common ownership of television stations, together with one radio station in all
markets. In addition, an owner will be permitted to own additional radio
stations, not to exceed the local ownership limits for the market, as follows:
. in markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one
television station, an additional six radio stations; and
. in markets where 10 media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently owned, full-power television
and radio station and each daily newspaper that has a circulation exceeding
5.0% of the households in the market, plus one voice for all cable television
systems operating in the market.
In addition to the limits on the number of radio stations and radio/
television combinations that a single owner may own, the FCC's
broadcast/newspaper cross-ownership rule prohibits the same owner from owning a
broadcast station and a daily newspaper in the same geographic market.
The FCC generally applies its ownership limits to attributable interests
held by an individual, corporation, partnership or other association. In the
case of corporations 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 voting stock are generally attributable. In addition,
certain passive investors are attributable if they hold 20.0% or more of the
corporation's voting stock. If a single individual or entity controls more than
50.0% of a corporation's voting stock, however, the interests of other
stockholders are generally not attributable unless the stockholders are also
officers or directors of the corporation. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media related activities of the partnership.
The FCC currently treats limited liability companies like limited partnerships
for purposes of attribution.
The FCC recently adopted a new rule, known as the equity-debt-plus rule,
that causes certain creditors or investors to be attributable owners of a
station, regardless of whether there is a single majority stockholder. Under
this new rule, a major programming supplier or a same-market owner will be an
attributable owner of a station if the supplier or owner holds debt or equity,
or both, in the station that is greater than 33.0% of the value of the
station's total debt plus equity. A major programming supplier includes any
programming supplier that provides more than 15.0% of the station's weekly
programming hours. A same-market owner includes any attributable owner of a
media company, including broadcast stations, cable television and newspapers,
located in the same market as the station, but only if the owner is
attributable under an FCC attribution rule other than the equity-debt-plus
rule. If attribution under the equity-debt-plus rule results in a violation of
the FCC's multiple ownership rules, each affected party must come into
compliance with those rules, by reducing or eliminating the party's interest in
the affected media outlets or obtaining a waiver from the FCC, no later than
August 5, 2000. The attribution rules limit the number of radio stations we may
acquire or own in any market.
Alien Ownership Rules. The Communications Act prohibits the issuance or
holding of broadcast licenses by persons who are not U.S. citizens, whom the
FCC rules refer to as "aliens," including any corporation if more than 20.0% of
its capital stock is owned or voted by aliens. In addition, the FCC may
prohibit any corporation from holding a broadcast license if the corporation is
controlled by any other corporation of which more than 25.0% of the capital
stock is owned of record or voted by aliens, if the FCC finds that the
prohibition is in the public interest. Our certificate of incorporation
prohibits the ownership, voting and transfer of our capital stock in violation
of the FCC restrictions, and prohibits the issuance of capital stock or the
voting rights such capital stock represents to or for the account of aliens or
corporations otherwise subject to domination or control by aliens in excess of
the FCC limits. The certificate of incorporation authorizes our board of
directors to enforce these prohibitions. For example, the certificate of
incorporation provides for the redemption of shares of our capital stock by
action of the board of directors to the extent necessary to comply with these
alien ownership restrictions.
60
Local Marketing Agreements. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as local
marketing agreements. While these agreements may take varying forms, under a
typical local marketing agreement, separately owned and licensed radio stations
agree to enter into cooperative arrangements of varying sorts, subject to
compliance with the requirements of antitrust laws and with FCC's rules and
policies. Under these arrangements, separately owned stations could agree to
function cooperatively in programming, advertising sales and similar matters,
subject to the requirement that the licensee of each station maintain
independent control over the programming and operations of its own station. One
typical type of local marketing agreement is a programming agreement between
two separately-owned radio stations serving a common service area, whereby the
licensee of one station provides substantial portions of the broadcast
programming for airing on the other licensee's station, subject to ultimate
editorial and other controls being exercised by the latter licensee, and sells
advertising time during those program segments.
The FCC's rules provide that a radio station that brokers more than 15.0%
of the weekly broadcast time on another station serving the same market will be
considered to have an attributable ownership interest in the brokered station
for purposes of FCC's local radio ownership limits. As a result, in a market
where we own a radio station, we would not be permitted to enter into a local
marketing agreement with another radio station in the same market if we could
not own the brokered station under the multiple ownership rules, unless our
programming on the brokered station constituted 15% or less of the brokered
station's programming time on a weekly basis. FCC rules also prohibit a
broadcast station from duplicating more than 25.0% of its programming on
another station in the same broadcast service, that is AM-AM or FM-FM, through
a local marketing agreement where the brokered and brokering stations which it
owns or programs serve substantially the same area.
Programming and Operations. 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 types 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 community problems, needs and
interests and to maintain records demonstrating this responsiveness. Complaints
from listeners concerning a station's programming often will be considered by
the FCC when it evaluates renewal applications of a licensee, but listener
complaints may be filed at any time. Complaints are required to be maintained
in the station's public file and generally may be considered by the FCC at any
time. Stations also must pay regulatory and application fees and follow various
rules promulgated under the Communications Act. Those rules regulate, among
other things, political advertising, sponsorship identifications, the
advertisement of contests and lotteries, obscene and indecent broadcasts and
technical operations, including limits on human exposure to radio frequency
radiation.
In January 2000, the FCC adopted new rules prohibiting employment
discrimination by broadcast stations on the basis of race, religion, color,
national origin and gender; and requiring broadcasters to implement programs to
promote equal employment opportunities at their stations. The rules generally
require broadcast stations to disseminate information about job openings widely
so that all qualified applicants, including minorities and women, have an
adequate opportunity to compete for the job. Broadcasters may fulfill this
requirement by sending the station's job vacancy information to organizations
that request it, participating in community outreach programs or designing an
alternative recruitment program. Broadcasters with five or more full-time
employees must place in their public files annually a report detailing their
recruitment efforts and must file a statement with the FCC certifying
compliance with the rules every two years. Broadcasters with ten or more full-
time employees must file their annual reports with the FCC midway through their
license term. Broadcasters also must file employment information with the FCC
annually for statistical purposes. These new equal employment opportunity rules
are designed to replace the FCC's prior rules, some of which were ruled
unconstitutional by the U.S. Court of Appeals for the District of Columbia
Circuit.
Proposed and Recent Changes. Congress and the FCC may in the future
consider and adopt new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the
61
operation, ownership and profitability of our radio stations, including the
loss of audience share and advertising revenues for our radio stations, and an
inability to acquire additional radio stations or to finance those
acquisitions. These matters may include:
. changes in the FCC's cross-interest, multiple ownership and
attribution policies;
. regulatory fees, spectrum use fees or other fees on FCC licenses;
. foreign ownership of broadcast licenses;
. restatement in revised form of the FCC's equal employment opportunity
rules and revisions to the FCC's rules relating to political
broadcasting;
. technical and frequency allocation matters; and
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages on radio.
The FCC currently is considering standards for evaluating, authorizing,
and implementing terrestrial digital audio broadcasting technology, including
in-band on-channel technology for FM radio stations. Digital audio
broadcasting's advantages over traditional analog broadcasting technology
include improved sound quality and the ability to offer a greater variety of
auxiliary services. In-band on-channel technology would permit an FM station to
transmit radio programming in both analog and digital formats, or in digital
only formats, using the bandwidth that the radio station is currently licensed
to use. It is unclear what regulations the FCC will adopt regarding digital
audio broadcasting or in-band on-channel technology and what effect such
regulations would have on our business or the operations of our radio stations.
In January 2000, the FCC voted to adopt rules creating a new low-power FM
radio service. The new low-power stations will operate at a maximum power of
between 10 and 100 watts in the existing FM commercial and noncommercial band.
Low-power stations may be used by governmental and nonprofit organizations to
provide noncommercial educational programming or public safety and
transportation radio services. No existing broadcaster or other media entity,
including us, will be permitted to have an ownership interest or enter into any
program or operating agreement with any low-power FM station. During the first
two years of the new service, applicants must be based in the area that they
propose to serve. Applicants will not be permitted to own more than one station
nationwide during the initial two-year period. After the initial two-year
period, entities will be allowed to own up to five stations nationwide, and
after three years, the limit will be raised to ten stations nationwide. A
single person or entity may not own two low-power stations whose transmitters
are less than seven miles from each other. The authorizations for the new
stations will not be transferable. The FCC has stated that it intends to begin
accepting applications for new stations during the next several months.
At this time, it is difficult to assess the competitive impact of these
new stations. The new low-power stations must comply with certain technical
requirements aimed at protecting existing FM radio stations from interference,
although we cannot be certain of the level of interference that low-power
stations will cause after they begin operating. Moreover, if low-power FM
stations are licensed in the markets in which we operate our stations, the low-
power stations may compete for listeners. The low-power stations may also limit
our ability to obtain new licenses or to modify our existing facilities,
although FCC engineers have conducted interference testing and have concluded
that the new 10-watt power FM stations will not produce unacceptable levels of
interference to existing FM stations, such as those owned by us.
Finally, the FCC has adopted procedures for the auction of broadcast
spectrum in circumstances where two or more parties have filed for new or major
change applications which are mutually exclusive. Such procedures may limit our
efforts to modify or expand the broadcast signals of our stations.
62
We cannot predict what other matters might be considered in the future by
the FCC or Congress, nor can we judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on our business.
Federal Antitrust Laws. The agencies responsible for enforcing the
federal antitrust laws, the Federal Trade Commission or the Department of
Justice, may investigate certain acquisitions. We cannot predict the outcome of
any specific FTC or Department of Justice investigation. Any decision by the
FTC or the Department of Justice to challenge a proposed acquisition could
affect our ability to consummate an acquisition or to consummate it on the
terms acceptable to us.
For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Act requires the parties to file Notification and Report Forms concerning
antitrust issues with the FTC and the Department of Justice and to observe
specified waiting period requirements before consummating the acquisition. If
the investigating agency raises substantive issues in connection with a
proposed transaction, then the parties frequently engage in lengthy discussions
or negotiations with the investigating agency concerning possible means of
addressing those issues, including restructuring the proposed acquisition or
divesting assets. In addition, the investigating agency could file suit in
federal court to enjoin the acquisition or to require the divestiture of
assets, among other remedies. Acquisitions that are not required to be reported
under the Hart-Scott-Rodino Act may be investigated by the FTC or the
Department of Justice under the antitrust laws before or after consummation. In
addition, private parties may under certain circumstances bring legal actions
to challenge an acquisition under the antitrust laws.
As part of its increased scrutiny of radio station acquisitions, the
Department of Justice has stated publicly that it believes that local marketing
agreements, joint sales agreements and other similar agreements customarily
entered into in connection with radio station transfers could violate the Hart-
Scott-Rodino Act if such agreements take effect prior to the expiration of the
waiting period under the Hart-Scott-Rodino Act. Furthermore, the Department of
Justice has noted that joint sales agreements may raise antitrust concerns
under Section 1 of the Sherman Act and has challenged joint sales agreements in
certain locations. The Department of Justice also has stated publicly that it
has established certain revenue and audience share concentration benchmarks
with respect to radio station acquisitions, above which a transaction may
receive additional antitrust scrutiny. However, to date, the Department of
Justice has also investigated transactions that do not meet or exceed these
benchmarks and has cleared transactions that do exceed these benchmarks.
Employees
On March 31, 2000, we had a staff of 236 full-time employees and 78 part-
time employees. We believe that our relations with our employees are good.
Environmental
As the owner, lessee or operator of various real properties and
facilities, we are subject to various federal, state and local environmental
laws and regulations. Historically, compliance with these laws and regulations
has not had a material adverse effect on our business. There can be no
assurance, however, that compliance with existing or new environmental laws and
regulations will not require us to make significant expenditures of funds.
63
Properties And Facilities
The types of facilities required to support each of our radio stations
include offices, studios and transmitter and antenna sites. We typically lease
our studio and office space with lease terms that expire in six months to ten
years. Our principal executive offices are located at 619 Alexander Road,
Princeton, New Jersey 08540. We lease the majority of our main transmitter and
antenna sites. The transmitter and antenna site for each station is generally
located so as to provide maximum market coverage, consistent with the station's
FCC license. After completion of our acquisition of Aurora Communications, we
will own some additional antenna sites and studio and office space.
No single facility is material to us. We believe that our facilities are
generally in good condition and suitable for our operations. However, we
continually look for opportunities to upgrade our facilities and may do so in
the future. Substantially all of our properties and equipment serve as
collateral for our obligations under our new credit facility.
Seasonality
We expect that our operations and revenues will be seasonal in nature,
with generally lower revenue generated in the first quarter of the year and
generally higher revenue generated in the fourth quarter of the year. The
seasonality of our business causes, and is likely to continue to cause, a
significant variation in our quarterly operating results.
Legal Proceedings
From time to time, we are involved in litigation incidental to the
conduct of our business, but we are not currently a party to any lawsuit or
proceeding.
64
MANAGEMENT
Directors, executive officers and senior officers
The names of our executive officers, directors and senior officers and
their respective ages and positions are as follows:
[Download Table]
Name Age Position
---- --- --------
Louis F. Mercatanti, Jr. ........ 43 President, Chief Executive Officer and
Director
Michael S. Libretti.............. 36 Executive Vice President, Chief Financial
Officer and Director
Joan E. Gerberding............... 50 President of Jersey Radio Network
G. Daniel Henrickson, Jr. ....... 48 Executive Vice President and General
Manager
Peter D. Tonks................... 49 Executive Vice President and Director of
Accounting & Human Resources
Anthony A. Gervasi, Jr. ......... 32 Senior Vice President of Engineering &
Technology
Michelle Stankowski.............. 31 Senior Vice President of Programming
Donald E. Dalesio................ 38 Vice President and General Manager
Reuel H. Musselman, Jr. ......... 50 Vice President and General Manager
Brion B. Applegate............... 46 Director
William B. Collatos.............. 46 Director
Stuart D. Frankel................ 52 Director
There are no family relationships between any persons identified above.
The following are brief biographies of the persons identified above.
Louis F. Mercatanti, Jr., our founder, is our President and Chief
Executive Officer and a director and had until our reorganization held those
positions at our general partner since its inception in early 1995. Mr.
Mercatanti acquired all of our equity from Nassau Broadcasting Company in
December 1986 and operated the stations prior to the founding of the limited
partnership. In 1995, Mr. Mercatanti co-founded the partnership with Brion B.
Applegate and William B. Collatos of Spectrum Equity Investors, L.P. and Stuart
D. Frankel of Grotech Capital Group. Since the founding of the partnership, Mr.
Mercatanti has devoted substantially all of his time to the management of the
partnership. He has been responsible for formulating our annual operating
budgets and managing all of our financing requirements. Mr. Mercatanti was
actively involved in several other successful entrepreneurial activities prior
to his founding of the partnership.
Michael S. Libretti is our Executive Vice President, Chief Financial
Officer and Director and had until our reorganization held those positions at
our general partner since December 1997. Mr. Libretti joined our general
partner in November 1996 and served as its Senior Vice President of Operations
from then until December 1997. From 1986 to November 1996, Mr. Libretti worked
in various capacities for AT&T Capital Corporation. During his last three years
at AT&T Capital he served as a Director of the Capital Markets Division
responsible for providing financing to the media industry. From 1990 to 1993,
Mr. Libretti was actively involved in providing project financing for the
energy industry, as well as leveraged lease financing to the aircraft industry.
Prior to 1990, Mr. Libretti was involved in a variety of projects in
accounting, systems, acquisition analysis, sales and budgeting. During his
career with AT&T Capital, he was involved in numerous financings with an
aggregate value in excess of $1.0 billion.
Joan E. Gerberding has served as President of our Jersey Radio Network
since March 1997. She had been Executive Vice President of the limited
partnership from 1995 to 1997. Prior to that, she served in various management
capacities with Nassau Broadcasting Company since 1981.
G. Daniel Henrickson, Jr. is our Executive Vice President and General
Manager and had until our reorganization held those positions at our general
partner since March 1995. His duties include the management of our stations in
the Central Region. Prior to being named Executive Vice President of our
general partner, he served in various management capacities with Nassau
Broadcasting Company since 1990.
65
Peter D. Tonks is our Executive Vice President and Director of Accounting
& Human Resources and had until our reorganization held those positions at our
general partner since March 1995. From 1980 to March 1995, he served as
President and Chief Executive Officer of Tonks & Company, CPAs.
Anthony A. Gervasi, Jr. is our Senior Vice President of Engineering &
Technology and had until our reorganization held those positions at our general
partner since December 1998. Prior to that, he had been Director of Engineering
from 1995 to 1997 and Vice President of Engineering from 1997 to 1998, of our
general partner. From September 1992 through October 1995, Mr. Gervasi was
Director of Engineering of a radio station at Chancellor Media.
Michelle Stankowski is our Senior Vice President of Programming and
manages our programming division for all our stations. She had until our
reorganization held various positions at our general partner since 1987. Ms.
Stankowski is the Chairperson of the Programming Committee for the National
Association of Broadcasters 2000 Radio Show and the Chairperson of the New
Jersey Broadcasters' Association and Mid- Atlantic States Annual Convention.
Donald E. Dalesio is our Vice President and General Manager and had until
our reorganization held those positions at our general partner since September
1996. Prior to that, Mr. Dalesio had been General Sales Manager of Clear
Channel Communications, Inc. from May 1995 to August 1996. From 1991 through
1995, he was Vice President of Group Operations at H&D Broadcast Group.
Reuel H. Musselman, Jr. is our Vice President and General Manager and had
until our reorganization held those positions at our general partner since
1996. Prior to that, Mr. Musselman had been general manager of Clearview
Broadcasting Company from September 1992 to October 1996.
Brion B. Applegate is a director and had until our reorganization served
as a director of our general partner since 1995. Mr. Applegate has been a
general partner of Spectrum Equity Associates, L.P., the managing general
partner of Spectrum Equity Associates, L.P., since 1993. Mr. Applegate is also
the President and a shareholder and director of Applegate & Collatos, Inc., a
company which provides management services to Spectrum. From 1982 through 1993,
Mr. Applegate was a partner with Burr, Egan & Deleage & Co., a venture capital
firm, in which he supervised the company's investments in numerous broadcasting
companies. Mr. Applegate serves on the boards of directors of Network Access
Solutions, Inc. and Tut Systems, Inc.
William B. Collatos is a director and had until our reorganization served
as a director of our general partner since 1995. Mr. Collatos is currently a
general partner of Spectrum Equity Associates, L.P. Mr. Collatos is also an
officer, director and shareholder of Applegate & Collatos, Inc., a company
which provides management services to Spectrum. Mr. Collatos serves on the
boards of directors of ITXC Corporation and Jazztel, PLC.
Stuart D. Frankel is a director and had until our reorganization served
as a director of our general partner since 1995. Mr. Frankel currently serves
as a Managing Director and the Secretary of Grotech Capital Group IV, LLC, the
general partner of Grotech Partners IV, L.P., supervising certain of Grotech's
venture capital investments. Mr. Frankel has also served as a Managing Director
and the Secretary of Grotech Management Company, the provider of management
services to Grotech. Mr. Frankel serves as a principal for several other
venture capital funds and as the general partner of several real estate
partnerships.
Election of Directors
Directors are elected at our annual meeting of stockholders and hold
office until the next annual meeting of stockholders and until his or her
successor is duly elected and qualified or until his or her resignation or
removal, if earlier.
66
Indemnification of Directors
Section 145 of the Delaware General Corporation Law allows us to
indemnify officers, directors and any corporate agents under certain
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act. Our certificate of incorporation and our by-
laws provide for indemnification of our directors, officers, employees and
other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. We expect to enter into agreements with our
directors and executive officers that require us, among other things, to
indemnify them to the fullest extent permitted by Delaware law against certain
liabilities that may arise because of their status or service as directors and
executive officers. We also intend to purchase directors and officers liability
insurance, which provides coverage against liabilities, including liabilities
under the Securities Act.
Compensation of Directors
Directors who are also employees of our company will receive no
additional compensation for service as a director. We reimburse directors for
their reasonable expenses incurred in connection with attending board or
committee meetings. We expect that each outside director (a director who is not
an employee of our company and who owns, together with his or her affiliates,
less than 1% of our voting power) will automatically be granted stock options
under our stock incentive plan. These grants are described under "Stock Plans--
Stock Incentive Plan."
Committees of the Board of Directors
Prior to or immediately following the consummation of this offering, we
will establish an executive committee consisting of , , and . The
executive committee will have the authority to approve our acquisition and
divestiture of business entities for a price of up to $ million, the
appointment of our senior officers or those of our affiliates and termination
of their employment, the preparation and approval of short-term and long-term
budgets, and other material policy-level decisions.
Prior to or immediately following the consummation of this offering, we
will establish an audit committee of the board of directors which will consist
solely of three or more independent directors. In addition, we will adopt an
audit committee charter. The audit committee will review, act on and report to
the board of directors with respect to various auditing and accounting matters,
including the selection of our auditors, the scope of the annual audits, fees
to be paid to the auditors, the performance of our independent auditors and our
accounting practices.
Prior to or immediately following the consummation of this offering, we
will establish a compensation committee of the board of directors which will
consist of at least two independent directors. The compensation committee will
determine the salaries and incentive compensation of our officers and provide
recommendations for the salaries and incentive compensation of our other
employees and consultants. The compensation committee will also administer our
stock incentive plan.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1999, our general partner had no
compensation committee. The equivalent function for 1999 was performed by the
board of directors of our general partner. Following the completion of the
offering, compensation decisions will be made by a newly established
compensation committee of our board of directors.
67
Executive Compensation
The following table sets forth, for the years ended December 31, 1999,
1998 and 1997 the compensation paid to the chief executive officer and the
other four most highly paid executives in 1999, all of whom continued to serve
as executive officers of our general partner and all of whom serve as executive
officers of our corporation.
Summary Compensation Table
[Download Table]
Long-Term
Compensation
------------
Annual
Compensation Shares
----------------- Indirectly All Other
Name and Principal Position Year Salary Bonus Owned (1) Compensation
--------------------------- ---- -------- -------- ------------ ------------
Louis F. Mercatanti, Jr. .... 1999 $275,000 $150,000 -- $12,263 (2)
President and Chief 1998 275,000 125,000 -- 25,299
Executive Officer
1997 275,000 188,000 -- 24,197
Michael S. Libretti.......... 1999 140,000 91,515 75,000 8,225 (3)
Executive Vice President and 1998 130,000 61,000 350,000 14,460
Chief Financial Officer 1997 130,000 30,000 175,000 13,113
Joan E. Gerberding........... 1999 150,000 45,000 15,000 3,380 (4)
President, Jersey Radio 1998 150,000 35,000 45,000 5,981
Network
1997 150,000 27,000 215,000 6,006
G. Daniel Henrickson, Jr. ... 1999 150,000 20,500 25,000 7,515 (5)
Executive Vice President and 1998 130,000 35,000 25,000 12,773
General Manager
1997 130,000 26,000 225,000 13,101
Peter D. Tonks............... 1999 135,000 31,000 10,000 5,990 (6)
Executive Vice President and 1998 130,000 6,500 25,000 16,551
Director of
Accounting & Human Resources 1997 127,000 6,000 15,000 16,671
--------
(1) As we describe more fully below under the heading "--Indirect Ownership of
Stock," options were granted by one of our stockholders, Nassau
Broadcasting Company. Upon exercise, at $0.15 per share, these employees
will indirectly own some of our shares.
(2) Consists of a $2,083 matching contribution made by Nassau Broadcasting
Partners, L.P. to the Nassau Broadcasting Partners, L.P. 401(k) plan and
$10,180 in respect of term life and disability premiums paid by Nassau
Broadcasting Partners, L.P.
(3) Consists of a $2,272 matching contribution made by Nassau Broadcasting
Partners, L.P. to the Nassau Broadcasting Partners, L.P. 401(k) plan and
$5,953 in respect of term life and disability premiums paid by Nassau
Broadcasting Partners, L.P.
(4) Consists of a $1,940 matching contribution made by Nassau Broadcasting
Partners, L.P. to the Nassau Broadcasting Partners, L.P. 401(k) plan and
$1,440 in respect of term life and disability premiums paid by Nassau
Broadcasting Partners, L.P.
(5) Consists of a $2,172 matching contribution made by Nassau Broadcasting
Partners, L.P. to the Nassau Broadcasting Partners, L.P. 401(k) plan and
$5,343 in respect of term life and disability premiums paid by Nassau
Broadcasting Partners, L.P.
(6) Represents premiums paid by Nassau Broadcasting Partners, L.P. in respect
of term life and disability insurance.
Indirect Ownership of Stock
Some of our employees have been granted options by one of our
stockholders, Nassau Broadcasting Company or NBC, to acquire stock of NBC at an
exercise price of $0.15 per share. NBC granted these options to these employees
as additional compensation for services provided by these employees to Nassau
Broadcasting Partners, L.P. We expect that these employees will exercise all of
their options prior to this offering. Accordingly, by reason of their ownership
of NBC stock, these employees will indirectly own approximately 5.0% of our
company.
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The following table sets forth, with respect to the chief executive
officer of our general partner and the four other most highly compensated
executive officers, information concerning their indirect ownership of our
stock as a result of their ownership of the stock of Nassau Broadcasting
Company.
[Download Table]
Percent of
Shares Value of
Shares Indirectly Shares
Indirectly Owned by Indirectly
Name Owned Employees Owned *
---- ---------- ---------- ----------
Louis F. Mercatanti, Jr........................ -- --
Michael S. Libretti............................ 600,000 0.49%
Joan E. Gerberding............................. 275,000 0.22%
G. Daniel Henrickson, Jr....................... 275,000 0.22%
Peter D. Tonks................................. 87,000 0.07%
* Based on $ per share, the mid-point of the range.
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Stock and Option Ownership of Executive Officers
Messrs. Mercatanti, Libretti, Henrickson and Tonks and Ms. Gerberding
together own shares of our class A common stock and shares of our class B
common stock. We will grant all of our executive officers and directors
additional options to purchase shares of our class A common stock at the time
of the completion of the offering. In addition, some or all of our executive
officers may purchase shares of our class A common stock in the offering from
the shares reserved for our employees, directors, affiliates, and other
individuals whom we feel have contributed to the success of our company.
69--1
Employment Agreements
We intend to enter into employment agreements with Louis J. Mercatanti,
Jr., our President and Chief Executive Officer, Michael S. Libretti, our
Executive Vice President and Chief Financial Officer and Peter D. Tonks, our
Executive Vice President and Director of Accounting & Human Resources. The
terms of these agreements have not yet been established.
Stock Incentive Plan
We intend to adopt a stock incentive plan. The purpose of the plan will
be to promote our long-term growth and profitability by providing key people
with incentives to improve stockholder value and to contribute to our growth
and financial success and by enabling us to attract, retain and reward the best
available persons for positions of substantial responsibility. We expect that
the following will generally describe the terms of the plan once adopted.
General. We have reserved for issuance up to % of the number of
shares of our outstanding common stock outstanding from time to time, on a
fully diluted basis, subject to equitable adjustment upon the occurrence of any
stock dividend or other distribution, stock split, merger, consolidation,
combination, share repurchase or exchange or similar corporate transaction or
event. If an award granted under the plan expires or is terminated for any
reason, the shares of common stock underlying the award will again be available
for purposes of the plan. No individual may be granted awards relating to more
than % of the common stock outstanding on a fully diluted basis, in any
12-month period.
Types of Awards. The following awards may be granted under the plan:
. stock options, including incentive and nonqualified stock options;
. restricted stock;
. phantom stock;
. stock bonuses; and/or
. other stock based awards.
Administration. The plan will be administered by our board of directors.
In the alternative, the board of directors may appoint a committee consisting
of not less than two members of the board of directors to administer the plan
on behalf of the board of directors, subject to the terms and conditions as the
board of directors may prescribe, and for this purpose, the body administering
the plan will be referred to as the committee. The committee will be organized
in a manner so as to satisfy the provisions of Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934 and Section 162(m) of the
Internal Revenue Code, and the plan will be interpreted in a manner consistent
with the requirements of those rules and regulations.
The committee has full authority, subject to the provisions of the plan,
among other things, to determine the persons to whom awards will be granted, to
determine the type of award to be granted, the number of shares to be made
subject to awards, the exercise price and other terms and conditions of the
awards, and to interpret the plan and prescribe, amend and rescind rules and
regulations relating to the plan. The board of directors or the committee may
delegate to any of our senior management the authority to make grants of awards
to our employees who are not our executive officers or directors.
Eligibility. Awards may be granted under the plan to employees,
directors, including directors who are not employees, and consultants of our
company or any of our affiliates, as selected by the committee.
Terms and Conditions of Options. Options may be either incentive stock
options, as that is defined in Section 422 of the Internal Revenue Code, or
nonqualified stock options. The exercise price of a stock option granted under
the plan is determined by the committee at the time the option is granted, but
the exercise
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price of an incentive stock option may not be less than the fair market value
per share of common stock on the date of grant. Stock options are exercisable
at the times and upon the conditions that the committee may determine, as
reflected in the applicable option agreement. Generally, the exercise period
will be determined by the committee, but in the case of any incentive stock
option, the exercise period may not exceed ten years from the date of grant.
The option exercise price must be paid in full at the time of exercise,
and is payable by any one of the following methods or a combination thereof:
. in cash or cash equivalents;
. the surrender of previously acquired shares of common stock that have
been held by the participant for at least six months prior to the
date of surrender;
. if so determined by the committee as of the grant date, authorization
for us to withhold a number of shares otherwise payable upon the
exercise of an option; or
. through a broker cashless exercise procedure approved by us.
The committee may, in its sole discretion, authorize us to make or
guarantee loans to a participant to assist the participant in exercising
options.
The committee may provide at the time of grant of an option that the
participant may elect to exercise all or part of the option before it becomes
vested and exercisable. If the participant elects to exercise all or part of a
non-vested option, the participant will be issued shares of restricted stock
which will become vested in accordance with the vesting schedule set forth in
the original option agreement. The stock will be subject to our repurchase
option if the optionee's employment or service terminates prior to its vesting.
Outside Director Options. Outside directors, which are non-employee
directors who own, together with their affiliates, less than 1% of the voting
power of our company will be eligible for automatic grants of non-qualified
options under the plan. Each outside director has been granted an option to
purchase shares of common stock. Following this offering, each outside
director will be granted upon his or her first election or appointment to the
board of directors, an option to purchase shares of common stock. In
addition, immediately following each annual meeting of stockholders after the
initial public offering, each outside director then serving who has been re-
elected or re-appointed at such stockholder meeting may be granted, in the sole
discretion of our board, an option to purchase shares of common stock.
Each option granted under the plan to an outside director will have an exercise
price equal to the fair market value of the common stock on the date of grant
and will become exercisable in three equal parts on the date of grant, the
first anniversary of the date of grant and the second anniversary of the date
of grant, provided that the director is still serving as an outside director as
of the date of vesting of the option. Each option granted to an outside
director will expire on the tenth anniversary of the date of grant of the
option. The other terms of the options granted to outside directors will be
consistent with the terms of options granted to employees.
Restricted Stock. The plan provides for awards of common stock that are
subject to restrictions on transferability and other restrictions imposed by
the committee. Except to the extent restricted under the awarded agreement
relating to the restricted stock, a participant granted restricted stock will
have all of the rights of a stockholder.
Phantom Stock. The plan provides for the award of phantom stock which,
upon vesting, entitles the participant granted the award to receive an amount
in cash equal to the fair market value of the number of shares subject to the
award. Vesting of all or a portion of a phantom stock award may be subject to
various conditions established by the committee.
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Stock Bonuses; Other Awards. The plan provides that awards of shares of
common stock may be made to employees in the discretion of the committee. In
addition, other awards valued in whole or in part by reference to, or otherwise
based on, common stock may be granted either alone or in addition to other
awards under the plan, in the committee's discretion.
Termination of Employment. Unless otherwise determined by the committee,
the unvested portion of awards granted under the plan will immediately be
cancelled upon termination of a participant's employment or service with us. If
a participant's employment or service terminates other than because of death,
disability or retirement, all options that are exercisable at the time of
termination may be exercised by the participant for no longer than 90 days
after the date of termination. If a participant's employment or service
terminates for cause, all options held by the participant will immediately
terminate. If a participant's employment or service terminates as a result of
death, all options that are exercisable at the time of death may be exercised
by the participant's heirs or distributees for one year. If a participant's
employment or service terminates because of disability or retirement, all
options that are exercisable at the time of termination may be exercised for a
period of one year immediately following termination. In no case may an option
be exercised after it expires in accordance with its terms.
In the event that, within months following a change in control, an
optionee's employment terminated by us without cause or by the optionee for
good reason, the unvested portion of the optionee's options will become fully
vested and exercisable on the date of termination.
Amendment, Termination of Plan. The board of directors may modify or
terminate the plan or any portion of the plan at any time, except that an
amendment that requires stockholder approval in order for the plan to continue
to comply with any law, regulation or stock exchange requirement will not be
effective unless approved by the requisite vote of our stockholders. Amendment
or termination of the plan cannot adversely affect an outstanding awarded
without the awarded holder's consent. No options may be granted under the plan
after the date immediately preceding the tenth anniversary of its adoption
date.
Since the amount of benefits to be received by any plan participant who
is out employee or an employee of any of our affiliates is determined by the
committee, the amount of future benefits to be allocated by any employee or
group of employees under the plan in any particular year is not determinable.
Management Incentive Plan
We intend to adopt a management incentive plan. The purposes of the
management incentive plan will be to reinforce corporate business goals and to
promote the achievement of annual and long-range financial, business and other
objectives by providing for the payment of cash bonuses to our officers and
other key employees. We expect that the following will generally describe the
terms of the plan once adopted. The plan will be administered by the
compensation committee of our board of directors. The compensation committee
will have the authority to determine who will participate in the plan and to
determine the terms and conditions of incentive awards granted under the plan.
The payment of bonuses under the management incentive plan will be based on the
achievement during a performance period determined by the compensation
committee of specific performance goals set by the compensation committee,
which may include any, all or none of the following:
. pre-tax income or after tax income;
. operating profits;
. return on equity, assets, capital or investments;
. earnings or book value per share;
. sales or revenue;
. operating expenses;
72
. increases in the market price of common stock;
. implementation or completion or critical projects or processes;
. comparison of actual performance during a performance period against
budget for that period;
. growth of revenue; or
. reduction in expenses.
Minimum bonuses will be based on achievement of 80.0% of the performance
goals, target bonuses will be based on the achievement of 100.0% of the
performance goals and maximum bonuses will be based on achievement of 125.0% of
the performance goals. A bonus will be paid only if the participant is employed
by us or our affiliates on the date the bonus is to be paid. Under the plan, no
payment may be made to one of our executive officers that exceeds 150.0% of the
officer's annual base salary. Any successor of ours will be required to assume
the plan at the time of a change in control, and will be obligated to honor the
terms of the plan during the performance period during which the change in
control occurs.
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RELATED PARTY TRANSACTIONS
Registration Rights Agreements
On May , 2000, we entered into a registration rights agreement with most
of our existing stockholders, in which we granted them registration rights in
respect of % of our currently outstanding common stock. We have also agreed
to enter into a registration rights agreement with the sellers of Aurora
Communications, who will receive our common stock as partial consideration
towards the purchase price, once we complete this acquisition. Under these
registration rights agreements, beginning 180 days after this offering until
, 2006, the holders of the registrable securities will have the right to
demand three registrations. Under each demand registration right, holders
owning at least 17.5% of the outstanding registrable securities can require us
to effect a registration of their shares, and the holders of the other shares
subject these registration rights can also require us to register their shares
at the same time. The holders of these registrable securities will also have
"piggy-back" registration rights. Under these piggy-back registration rights,
if we propose to register any other common stock under the Securities Act, we
will generally have to register the registrable securities whose holders
exercise these piggy-back rights. In addition, once we become eligible to file
registration statements on Form S-3, holders of registrable securities
generally can require us at any time to register their shares on a Form S-3
registration statement so long as no registration is for less than $5.0 million
of registrable securities. All of these registration rights are subject to
limitations and conditions, including, in the case of the piggy-back
registration rights, the right of underwriters of an offering to limit the
number of shares to be included in a registration. We would bear all
registration expenses incurred in connection with these registrations, except
for any underwriting discounts and selling commissions.
In addition, on May 4, 2000, we entered into a registration rights
agreement with holders of the shares of our class A common stock that
were issued upon conversion of the limited partnership units issued with our
senior discount notes. Under this registration rights agreement beginning 180
days after this offering, the holders of these registrable securities have the
right to demand two registrations. Under each of these demand registration
rights, holders owning at least 10.0% of these shares can require us to effect
a registration of their shares, and the holders of the other shares subject
these registration rights can also require us to register their shares at the
same time. The holders of these registrable securities will also have "piggy-
back" registration rights. Under these piggy-back rights, if we propose to
register any other common stock under the Securities Act, we will generally
have to register the registrable securities whose holders exercise these piggy-
back rights. Both the demand and piggy-back registration rights are subject to
limitations and conditions, including, in the case of the piggy-back
registration rights, the right of underwriters of an offering to limit the
number of shares to be included in a registration. We would bear all
registration expenses incurred in connection with these registrations, except
for any underwriting discounts and selling commissions.
Sale of Tower-Related Assets
In February 2000, we completed the sale of our tower-related assets to
affiliated entities controlled by Louis F. Mercatanti, Jr., our President and
Chief Executive Officer, for $10.0 million. These affiliated entities then
immediately transferred the bulk of these assets to Pinnacle Towers Inc., which
has in turn leased required tower space back to us. In addition, some of our
affiliates have leased assets to us. Our lease payments to affiliated entities
controlled by Mr. Mercatanti are expected to be approximately $250,000 this
year.
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Subordinated Discount Notes, Redemption and Preferred Distributions
From 1995 to 1997, we issued 8.0% subordinated discount notes to some of
our existing stockholders. On May 4, 2000, we fully repaid all of these
subordinated discount notes with a portion of the proceeds from the sale of
units consisting of our senior discount notes and limited partnership units, as
follows.
[Download Table]
Issuer Amount Repaid
------ -------------
(in millions)
Spectrum Equity Investors, L.P.................................... $18.1
Spectrum Equity Investors II, L.P. ............................... 9.5
Grotech Partners IV, L.P.......................................... 7.7
Toronto Dominion Capital (U.S.A.), Inc............................ 7.1
-----
Total........................................................... $42.4
=====
We used an aggregate of $5.4 million of the proceeds from the sale of the
units described above to redeem some equity interests of, and to make a
preferred distribution to, Louis F. Mercatanti Jr., pursuant to the Nassau
Broadcasting partnership agreement.
Loans to Stockholder and Employee
In 1998, and November, 1999, we advanced an aggregate of $100,000, with
an interest rate of 8.0% per annum, due and payable on or prior to November 30,
2001, to Joan E. Gerberding, our President of Jersey Radio Network, to purchase
a residence.
In December, 1999 we loaned an aggregate of $590,000 to Louis F.
Mercatanti, Jr., one of our existing stockholders, to finance a portion of the
purchase price of a communications tower. This loan accrued interest at a rate
of 8.0% per annum and was repaid in full by Mr. Mercatanti in March, 2000.
In March 2000, we loaned $200,000 interest-free to Mr. Mercatanti to
enable him to purchase some real property. Mr. Mercatanti repaid this loan in
full in May, 2000.
74--1
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock upon our incorporation and as adjusted to reflect
the sale of the shares of common stock offered hereby by:
. each person who we know owns beneficially more than 5.0% of our
common stock;
. each of our directors, including our chief executive officer;
. our four most highly compensated executive officers, other than our
chief executive officer, who were serving as executive officers of
our general partner at the end of 1999; and
. all of our directors and executive officers as a group.
[Enlarge/Download Table]
Common Stock
-----------------------------------------------
Class A Class B Class C
--------------- --------------- --------------- % of Total % of Total
% of % of % of Economic Voting
Number Class Number Class Number Class Interest Power
of Post- of Post- of Post- Post- Post-
Stockholder Shares Offering Shares Offering Shares Offering Offering Offering
----------- ------ -------- ------ -------- ------ -------- ---------- ----------
Spectrum Equity
Investors,
L.P. (1)...............
Spectrum Equity
Investors II,
L.P. (1)...............
Grotech Partners IV,
L.P. (2)...............
Toronto Dominion Capital
(U.S.A.), Inc. (3).....
Louis F. Mercatanti, Jr.
(4)....................
Michael S. Libretti
(4)....................
Joan E. Gerberding (4)..
G. Daniel Henrickson,
Jr. (4)................
Peter D. Tonks (4)......
Brion B. Applegate......
William B. Collatos.....
Stuart D. Frankel.......
All directors and
executive officers as a
group (12 persons).....
(1) The address of both Spectrum Equity Investors, L.P. and Spectrum Equity
Investors II, L.P. is 333 Middlefield Road, Suite 200, Menlo Park, CA
94025.
(2) The address of Grotech Partners IV, L.P. is 9690 Deerco Road, Timonium, MD
21093.
(3) The address of Toronto Dominion Capital (U.S.A.), Inc. is c/o TD
Securities USA, Inc., 31 West 52nd Street, New York, NY 10019.
(4) The address of Mr. Mercatanti, Mr. Libretti, Ms. Gerberding, Mr.
Henrickson and Mr. Tonks is c/o Nassau Broadcasting Corporation, 619
Alexander Road, Princeton, New Jersey 08540.
The table above does not give effect to the million shares of class
C common stock to be issued to BancAmerica Capital Investors SBIC I, L.P. and
several individuals in connection with the Aurora Communications acquisition.
We will issue these shares on the closing date of that acquisition.
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Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
common stock. The number of shares beneficially owned includes shares of common
stock issuable upon the exercise of options or warrants that are currently
exercisable or exercisable within 60 days of the date of this prospectus.
Percentage of beneficial ownership is based on shares of common stock
outstanding as of the date of this prospectus and shares of common stock
outstanding after completion of this offering.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
certificate of incorporation and by-laws is only a summary. For a more detailed
description, see our certificate of incorporation and by-laws, copies of which
we have filed as exhibits to our registration statement.
Our capital stock consists of shares of class A common stock, par
value $0.01 per share, shares of class B common stock, par value $0.01 per
share, shares of class C common stock, par value $0.01 per share, and
shares of preferred stock, par value $0.01 per share.
Common Stock
On the closing date of this offering, there will be shares of class A
common stock issued and outstanding, excluding shares to be issued if
underwriters and international managers exercise their over-allotment options,
shares of class B common stock and shares of class C common stock.
Voting rights. Each share of class A common stock will be entitled to one
vote and each share of class B common stock will be entitled to ten votes,
while shares of class C common stock will generally not be entitled to any
votes. Except as otherwise provided by law, and subject to any voting rights
granted to holders of any outstanding shares of preferred stock, the holders of
our outstanding shares of class A common stock and the holders of our
outstanding shares of class B common stock will vote on all matters on which
stockholders are entitled to vote. Except as otherwise provided by law, and
subject to any voting rights granted to holders of any outstanding preferred
stock, amendments to the certificate of incorporation must be approved by a
majority of votes entitled to be cast by all holders of class A common stock
and class B common stock, voting together as a single class. However,
amendments to the certificate of incorporation that would alter or change the
powers, preferences or special rights of the class A common stock, class B
common stock or class C common stock so as to affect them adversely also must
be approved by a majority of the votes entitled to be cast by the holders of
the shares affected by the amendment, voting as a separate class. Any amendment
to our certificate of incorporation to increase or decrease the authorized
shares of any class requires the approval of the holders of a majority of the
common stock, voting together as a single class.
Dividends. Holders of class A common stock, class B common stock and
class C common stock will share equally on a per share basis, based on the
number of shares of common stock held, in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends consisting of shares of class A common stock, class B common
stock and class C common stock may be paid only as follows: (1) shares of class
A common stock may be paid only to holders of shares of class A common stock,
shares of class B common stock may be paid only to holders of class B common
stock and shares of class C common stock may be paid only to holders of shares
of class C common stock; and (2) shares will be paid proportionally with
respect to each outstanding share of class A common stock, class B common stock
and class C common stock. We may not subdivide or combine shares of either
class of common stock without at the same time proportionally subdividing or
combining shares of the other class.
Conversion of class A common stock. Class A common stock is convertible
into shares of class C common stock at any time on a one-for-one basis.
Conversion of class B common stock. Class B common stock is convertible
into shares of class A common stock or class C common stock at any time on a
one-for-one basis. In addition, upon a transfer to anyone other than a
permitted class B transferee, shares of class B common stock automatically
convert into shares of class A common stock on a one-for-one basis.
77
Conversion of class C common stock. Class C common stock is convertible
into shares of class A or class B common stock at the option of the holder, at
any time on a one-for-one basis, so long as the holder would not have an
attributable interest in radio stations pursuant to the FCC's multiple
ownership rules as a result of such conversion.
Other rights. In the event of any merger or consolidation with or into
another company in connection with which shares of common stock are converted
into or exchangeable for shares of stock, other securities or property
(including cash), all holders of common stock, regardless of class, will be
entitled to receive the same kind and amount of shares of stock and other
securities and property, including cash.
On liquidation, dissolution or winding up, after payment in full of the
amounts required to be paid to holders of preferred stock, if any, all holders
of common stock, regardless of class, are entitled to share ratably in any
assets available for distribution to holders of shares of common stock.
No shares of any class of common stock are subject to redemption or have
preemptive rights to purchase additional shares of common stock.
Upon consummation of the offering, all the outstanding shares of our
class A common stock will be legally issued, fully paid and nonassessable.
Preferred Stock
The board of directors will be authorized, without stockholder approval,
to issue from time to time up to million shares of preferred stock in one
or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series.
The specific matters that our board may determine include the following:
. the designation of each series;
. the number of shares of each series;
. the rate of any dividends;
. whether any dividends will be cumulative or noncumulative;
. the terms of any redemption;
. the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of our company;
. rights and terms of any conversion or exchange;
. restrictions on the issuance of shares of the same series or any
other series; and
. any voting rights.
Upon the closing of the offering, there will be no shares of preferred
stock outstanding. We have no present plans to issue any shares of preferred
stock. See "--Anti-takeover Effects of Provisions of Delaware law and Our
Certificate of Incorporation and By-Laws" for more information.
Options
As of the date of this prospectus, options to purchase a total of
shares of class A common stock were outstanding, of which are subject to
lockup agreements entered into with the underwriters.
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The total of shares of class A common stock that may be subject to the
granting of options under our stock incentive plan will be equal to shares
of common stock. We refer you to "Management--Executive Compensation--Stock
Incentive Plan" and "Shares Eligible for Future Sale."
Limitation on Liability of Directors
Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability imposed by law, as in effect
from time to time:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for any act or omission not in good faith or which involved
intentional misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper
personal benefit.
The inclusion of this provision in our certificate of incorporation may
have the effect of reducing the likelihood of derivative litigation against or
directors and may discourage or deter stockholders or us from bringing a
lawsuit against our directors for breach of their duty of care, even though
such an action, if successful, might otherwise have benefitted us and our
stockholders.
Foreign Ownership
Our certificate of incorporation restricts the ownership, voting and
transfer of our capital stock, including the class A common stock, in
accordance with the Communications Act and the rules of the FCC, which prohibit
the issuance of more than 25% of our outstanding capital stock, or more than
25% of the voting rights such stock represents, to or for the account of
aliens, as defined by the FCC, or corporations otherwise subject to domination
or control by aliens. Our certificate of incorporation prohibits any transfer
of our capital stock that would cause a violation of this prohibition. The
certificate of incorporation authorizes the board of directors to take action
to enforce these prohibitions, including restricting the transfer of shares of
capital stock to aliens and placing a legend restricting foreign ownership on
the certificates representing the class A common stock. In addition, the
certificate of incorporation provides for the redemption of shares of our
capital stock by action of the board of directors to the extent necessary to
comply with alien ownership restrictions.
Anti-takeover Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and By-Laws
Some of the provisions of our certificate of incorporation and by-laws
and Section 203 of the Delaware General Corporation Law could have the
following effects, among others:
. delaying, deferring or preventing a change in control;
. delaying, deferring or preventing the removal of our existing
management;
. deterring potential acquirors from making an offer to our
stockholders; and
. limiting our stockholders' opportunity to realize premiums over
prevailing market prices of our class A common stock in connection
with offers by potential acquirors.
This could be the case, notwithstanding that a majority of our stockholders
might benefit from such a change in control or offer. The following is a
summary of these provisions.
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A classified board of directors. We have a classified board of directors,
which means that our board is divided into three classes with three-year terms
with only one class elected at each annual meeting of stockholders. As a
result, a holder of a majority of our common stock will need two annual
meetings of stockholders to gain control of the board.
Directors, and not stockholders, fix the size of our board of
directors. Our certificate of incorporation and by-laws provide that the number
of directors shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of our board of directors, but in no event
shall it consist of less than one nor more than six members.
Board vacancies to be filled by remaining directors, and not
stockholders. Our certificate of incorporation and by-laws provide that any
vacancies on our board of directors will be filled by the affirmative vote of
the majority of the remaining directors, even if less than a quorum, or by a
sole remaining director. In any event, no vacancy shall be filled by our
stockholders.
Advance notice for stockholder proposals. Our by-laws contain provisions
requiring that advance notice be delivered to us of any business to be brought
by a stockholder before an annual meeting and providing for procedures to be
followed by stockholders in nominating persons for election to our board of
directors. Generally, such advance notice provisions require that the
stockholder must give written notice to us not less than 120 calendar days
before the date our proxy statement was released to stockholders in connection
with our previous year's annual meeting. Our by-laws provide that the notice
must set forth specific information regarding the stockholder and each director
nominee by the stockholder or other business proposed by the stockholder.
Section 203 of the Delaware General Corporation Law. Nassau is a Delaware
corporation and subject to Section 203 of the Delaware General Corporation Law.
Generally, Section 203 prohibits a publicly held Delaware company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the time such stockholder became an interested stockholder
unless, as described below, specified conditions are satisfied. Thus, it may
make acquisition of control of our company more difficult. The prohibitions in
Section 203 of the Delaware General Corporation Law do not apply if:
. prior to the time the stockholder became an interested stockholder,
the board of directors of the corporation approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction, which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85.0% of the voting stock of the
corporation outstanding at the time the transaction commenced; and
. at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3%
of the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203 of the Delaware General Corporation Law, a "business
combination" includes:
. any merger or consolidation of the corporation with the interested
stockholder;
. any sale, lease, exchange or other disposition, except
proportionately as a stockholder of such corporation, to or with the
interested stockholder of assets of the corporation having an
aggregate market value equal to 10.0% or more of either the aggregate
market value of all the assets of the corporation or the aggregate
market value of all the outstanding stock of the corporation;
. transactions resulting in the issuance or transfer by the corporation
of stock of the corporation to the interested stockholder;
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. transactions involving the corporation, which have the effect of
increasing the proportionate share of the corporation's stock of any
class or series that is owned by the interested stockholder; and
. transactions in which the interested stockholder receives financial
benefits provided by the corporation.
Under Section 203 of the Delaware General Corporation Law, an "interested
stockholder" generally is:
. any person that owns 15.0% or more of the outstanding voting stock of
the corporation;
. any person that is an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether or
not such person is an interested stockholder; or
. the affiliates or associates of either of the above-stated categories
person.
Under some circumstances, Section 203 of the Delaware General Corporation
Law makes it more difficult for an "interested stockholder" to effect various
business combinations with us for a three-year period, although our
stockholders may elect to exclude us from the restrictions imposed thereunder.
Registration Rights
All of our current stockholders have, or will have, registration rights
for their securities. Registration of these securities under the Securities Act
would result in those shares becoming freely tradeable by persons not
affiliated with us. For a more complete explanation of these registration
rights, you should read "Related Party Transactions--Registration Rights
Agreement" and "Shares Eligible for Future Sale--Registration Rights."
Transfer Agent and Registrar
The transfer agent and registrar for our class A common stock is American
Stock Transfer & Trust Company.
Nasdaq Stock Market Listing
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "NBCR."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common
stock. Although we can make no prediction as to the effect, if any, that sales
of shares of common stock by our existing stockholders would have on the market
price of our class A common stock prevailing from time to time, sales of
substantial amounts of common stock or the availability of the shares for sale
could adversely affect prevailing market prices.
Upon completion of the offering, we will have outstanding shares of
class A common stock, shares of class B common stock and shares of
class C common stock. If the underwriters exercise their over-allotment options
in full, we will have a total of shares of class A common stock
outstanding, shares of class B common stock outstanding and shares of
class C common stock outstanding. All of the shares of class A common stock to
be sold in the offering will be freely tradable without restrictions or further
registration under the Securities Act, except that shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act will be subject to
the resale limitations of Rule 144. The shares of class A common stock, class B
common stock and class C common stock owned by our existing stockholders are
"restricted securities" within the meaning of Rule 144 and may not be sold in
the absence of registration under the Securities Act other than pursuant to
Rule 144 under the Securities Act or another exemption from registration under
the Securities Act.
Shares of our class A common stock, class B common stock and class C
common stock outstanding prior to this offering and any shares of common stock
acquired by any of our affiliates will be subject to the resale limitations of
Rule 144 of the Securities Act. Rule 144 defines an affiliate as a person that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the issuer.
In general, beginning 90 days after the date of this prospectus, a
stockholder who has beneficially owned shares of our common stock for at least
one year may, within any three-month period, sell up to the greater of:
. 1.0% of the total number of shares of class A common stock then
outstanding; or
. the average weekly trading volume of the shares of class A common
stock during the four calendar weeks preceding the stockholder's
required filing of notice of sale.
Rule 144 requires stockholders to aggregate their sales with other
stockholders with which it is affiliated for purposes of complying with this
volume limitation. A stockholder who has owned shares of our common stock for
at least two years, and who has not been our affiliate for at least three
months, may sell shares of our common stock free from the volume limitation and
notice requirements of Rule 144.
The shares of class A common stock authorized for issuance pursuant to
options that may be granted under the stock incentive plan may be either
authorized but unissued shares or treasury shares obtained by us through market
or private purchases. See "Management--Executive Compensation--Stock Incentive
Plan." We intend to register under the Securities Act the shares of common
stock issuable upon the exercise of options granted pursuant to the stock
incentive plan.
We and our executive officers and directors and most of our existing
stockholders have agreed, with limited exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc. Specifically, we and these other
individuals have agreed not to directly or indirectly
. offer, pledge, sell or contract to sell any common stock, other than
common stock issued by us in connection with our purchase of Aurora
Communications;
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. sell any option or contract to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock,
other than pursuant to our stock incentive plan;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
any common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
As a result of contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rule 144 promulgated under the
Securities Act, which are summarized above, shares subject to lockup agreements
will not be saleable until the agreements expire.
Registration Rights
We have granted registration rights to most of our stockholders pursuant
to the registration rights agreement described in "Related Party Transactions--
Registration Rights Agreement."
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following is a general summary of the material United States federal
income and estate tax consequences of the purchase, ownership, and sale or
other taxable disposition of our class A common stock by any person or entity
(a "non-U.S. Holder") other than:
. a citizen or individual resident of the United States;
. a partnership, corporation or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
. a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or the trust has a valid election
in effect under applicable U.S. Treasury regulations to be treated as
a United States person; and
. an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source.
This summary does not address all tax considerations that may be relevant
to non-U.S. Holders in light of their particular circumstances or to certain
non-U.S. Holders that may be subject to special treatment under United States
federal income or estate tax laws. This summary is based upon the Internal
Revenue Code of 1986, as amended, existing, temporary and proposed Treasury
regulations promulgated thereunder, and administrative and judicial decision
thereof, all as in effect on the date of this prospectus and all of which are
subject to change, possibly with retroactive effect. In addition, this summary
does not address the effect of any state, local or foreign tax laws. Each
prospective purchaser of class A common stock should consult its tax advisor
with respect to the tax consequences of purchasing, owning and disposing of the
class A common stock.
Dividends
Dividends paid to a non-U.S. Holder of class A common stock generally
will be subject to a withholding of United States federal income tax at a 30
percent rate or such lower rate as may be specified by an applicable income tax
treaty unless:
. the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States; or
. if an income tax treaty applies, it is attributable to a United
States permanent establishment of the non-U.S. Holder,
in which case the dividend will be taxed at ordinary United States federal
income tax rates. If the non-U.S. Holder is a corporation, such effectively
connected income may also be subject to an additional "branch profits tax"
equal to 30.0% of its effectively connected earnings and profits for the
taxable year, as adjusted for certain items, unless an applicable income tax
treaty provides otherwise. A non-U.S. Holder generally is required to satisfy
certain certification requirements in order to claim treaty benefits or
otherwise claim a reduction of, or exemption from, the withholding described
above.
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Sale or Other Disposition of Common Stock
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of class A common stock unless one of the following applies:
. the gain is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States; and, if an
income treaty applies, is attributable to a U.S. permanent
establishment of the non-U.S. Holder. Unless an applicable income tax
treaty provides otherwise, the non-U.S. Holder will be taxed on its
net effectively connected gain derived from the sale under the
regular graduated United States federal income tax rates. If the non-
U.S. Holder is a foreign corporation, it may be subject to an
additional branch profits tax equal to 30.0% of its effectively
connected earnings and profits for the taxable year, as adjusted for
certain items, unless an applicable income tax treaty provides
otherwise;
. in the case of a non-U.S. Holder who is an individual and holds the
class A common stock as a capital asset, the holder is present in the
United States for 183 or more days in the taxable year of the sale or
other taxable disposition and certain other tests are met; in this
case, the non-U.S. Holder will be subject to a flat 30.0% tax on the
gain derived from the sale, which may be offset by certain United
States capital losses;
. the non-U.S. Holder is subject to tax pursuant to the provisions of
United States federal income tax law applicable to certain United
States expatriates; or
. we are or have been a "United States real property holding
corporation" at any time during the five-year period ending on the
date of disposition (or, if shorter, the non-U.S. Holder's holding
period), unless both (i) the non-U.S. Holder held, actually or
constructively, no more than 5.0% of our outstanding class A common
stock and (ii) our stock is "regularly traded on an established
securities market," for purpose of these rules. We believe that we
will not constitute a United States real property holding corporation
immediately after the offering and we do not expect to become a
United States real property holding corporation.
Estate Tax
Class A common stock owned or treated as owned by an individual non-U.S.
Holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate
treaty provides otherwise, and may be subject to United States federal estate
tax.
Backup Withholding
Under the backup withholding rules, dividends payable to a non-U.S.
holder and the proceeds from any disposition of class A common stock by a non-
U.S. holder may be subject to backup withholding at the rate of 31.0% unless
the non-U.S. holder (i) is a corporation or comes within certain other exempt
categories and demonstrates that fact when required or (ii) provides a current
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules.
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UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc. and Banc of
America Securities LLC are acting as U.S. representatives of the U.S.
underwriters named below. Subject to the terms and conditions described in a
U.S. purchase agreement among us and the U.S. underwriters, and concurrently
with the sale of shares to the international managers, we have agreed
to sell to the U.S. underwriters, and the U.S. underwriters severally have
agreed to purchase from us, the number of shares listed opposite their names
below.
[Download Table]
Number
U.S. Underwriter of Shares
---------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Salomon Smith Barney Inc. .......................................
Banc of America Securities LLC ..................................
----
Total.......................................................
====
We have also entered into an international purchase agreement with the
international managers, for whom Merrill Lynch International and Salomon
Brothers International Limited are acting as lead managers, for sale of the
shares outside the U.S. and Canada. Subject to the terms and conditions in the
international purchase agreement, and concurrently with the sale of
shares to the U.S. underwriters pursuant to the U.S. purchase agreement,
we have agreed to sell to the international managers, and the international
managers severally have agreed to purchase shares from us. The
initial public offering price per share and the total underwriting discount per
share are identical under the U.S. purchase agreement and the international
purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults,
the U.S. and international purchase agreements provide that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings for the sale of shares to be
purchased by the U.S. underwriters and the international managers are
conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.
Commissions and Discounts
The U.S. representatives have advised us that the U.S. underwriters
propose initially to offer the shares to the public at the initial public
offering price on the cover page of this prospectus and to dealers at that
price less a concession not in excess of $ per share. The U.S. underwriters
may allow, and the dealers may reallow, a discount not in excess of $ per
share to other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
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The following table shows the public offering price, underwriting
discount and proceeds before expenses to Nassau. In addition, the table
includes certain other items considered by the NASD to be underwriting
compensation for purposes of the NASD's Conduct Rules. The information assumes
either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.
[Download Table]
Per Share Without Option With Option
--------- -------------- -----------
Public offering price.................. $ $ $
Underwriting discount.................. $ $ $
Proceeds, before expenses, to Nassau... $ $ $
Other items............................ $ $ $
Merrill Lynch Capital Corporation, an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, owns shares of our class A common stock
which were received upon conversion of limited partnership units acquired in
connection with our recapitalization. The compensation in the table above in
the line titled "other items" was computed based on the difference between the
$ offering price and $ , the price deemed to be paid for the shares of
class A common stock held by Merrill Lynch Capital Corporation.
The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by us, as set forth in the following
table.
[Download Table]
SEC registration fee...................................................... $
NASD filing fee...........................................................
Nasdaq National Market listing fee........................................
Printing and engraving expenses...........................................
Legal fees and expenses...................................................
Accounting fees and expenses..............................................
Blue sky fees and expenses (including legal fees).........................
Transfer agent and registrar fees and expenses............................
Premiums for director and officer insurance...............................
Miscellaneous.............................................................
----
Total................................................................... $
====
Over-allotment Options
We have granted an option to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise this option for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.
We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to
additional shares to cover any over-allotments on terms similar to those
granted to the U.S. underwriters.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the U.S. underwriters and the
international managers may sell shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the U.S. underwriters and any
dealer to whom they sell shares will not offer to sell or sell shares to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or
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non-Canadian persons, except in the case of transactions under the
intersyndicate agreement. Similarly, the international managers and any dealer
to whom they sell shares will not offer to sell or sell shares to U.S. persons
or Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the intersyndicate
agreement.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus for sale to
some of our directors, officers, employees and business associates. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
Purchasers of shares pursuant to the reserved share program generally
will not be subject to lock-up agreements in respect of the shares so purchased
unless required by the Conduct Rules of the NASD. The NASD's Conduct Rules will
require that some purchasers of shares who are affiliated or associated with
NASD members or who hold senior positions at financial institutions or members
of their immediate families be subject to three-month lock up agreements.
No Sales of Similar Securities
We and our executive officers and directors and most of our existing
stockholders have agreed, with limited exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc. Specifically, we and these other
individuals have agreed not to directly or indirectly
. offer, pledge, sell or contract to sell any common stock, other than
common stock issued by us in connection with our purchase of Aurora
Communications;
. sell any option or contract to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock,
other than pursuant to our stock incentive plan;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
any common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
87--1
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "NBCR."
Before this offering, there has been no public market for our class A
common stock. The initial public offering price will be determined through
negotiations among us and the U.S. representatives and lead managers. In
addition to prevailing market conditions, the primary factors to be considered
in determining the initial public offering price are
. the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us;
. our financial information;
. the history of, and the prospects for, our company and the industry
in which we compete;
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development;
. the general condition of the securities market at the time of this
offering; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
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Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
class A common stock. However, the U.S. representatives may engage in
transactions that stabilize the price of the class A common stock, such as bids
or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the class A common stock
in connection with the offering, i.e., if they sell more shares than are listed
on the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the over-
allotment options described above. Purchases of the class A common stock to
stabilize its price or to reduce a short position may cause the price of the
class A common stock to be higher than it might be in the absence of such
purchases.
The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriters' short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the class A common stock. In addition,
neither we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
These transactions may be effected on the Nasdaq National Market, in the over-
the-counter market or otherwise.
Other Relationships
Merrill Lynch, Pierce, Fenner & Smith Incorporated has acted as our
financial advisor in connection with our pending acquisition of Aurora
Communications and our reorganization. In addition, Merrill Lynch has acted as
sole placement agent with respect to our units consisting of senior discount
notes and limited partnership units, and as sole lead arranger, book running
manager and syndication agent with respect to our new credit facility. Merrill
Lynch has received customary fees and commissions for these transactions.
Merrill Lynch Capital Corporation, an affiliate of Merrill Lynch, owns $20.0
million aggregate principal amount of our senior discount notes and shares
of our class A common stock. Merrill Lynch Capital Corporation is also a lender
under our new credit facility. We expect to issue shares of class C
common stock to BancAmerica Capital Investors SBIC I, L.P., an affiliate of
Banc of America Securities LLC, in connection with the Aurora Communications
acquisition. Merrill Lynch Capital Corporation has agreed that it will not,
with limited exceptions, sell, transfer, assign, pledge or hypothecate any
shares of class A common stock for one year after the date of this prospectus.
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LEGAL MATTERS
The validity of the class A common stock offered in this prospectus and
certain other legal matters will be passed upon for us by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain legal matters will be passed
upon for the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
Our historical financial statements at December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999 appearing in
this prospectus and registration statement were audited by Grant Thornton LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
in this prospectus, and are included in reliance upon such report given on
their authority as experts in accounting and auditing.
The consolidated financial statements of Aurora Communications, LLC at
December 31, 1999, and for the period January 20, 1999 (commencement of
operations) to December 31, 1999 appearing in this prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this prospectus, and are included in reliance
upon such report given on their authority as experts in accounting and
auditing.
This historical financial statements of WEBE and WICC Radio Stations
(divisions of ML Media Partners, L.P.) at December 31, 1997 and 1998 and for
each of the three years in the period ended December 31, 1998 appearing in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in its reports appearing herein and elsewhere in this prospectus, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The historical financial statements of (i) Capstar Trust, at December 31,
1998 and at October 26, 1999 and for the period May 29, 1998 to October 26,
1999; (ii) Westchester Radio, LLC at December 31, 1998 and October 26, 1999 and
for the period April 2, 1998 to October 26, 1999; (iii) Commodore Media of
Westchester, Inc. at December 31, 1996 and 1997 and at April 1, 1998 and for
the period from January 1, 1996 to April 1, 1998, and (iv) WRKI, WAXB, WPVT,
WZZN and WINE (operating divisions of Commodore Media of Norwalk, Inc.) at
December 31, 1996 and 1997 and at May 29, 1998 and for the period from January
1, 1996 to May 29, 1998, appearing in this prospectus were audited by Weeks
Holderbaum Huber & DeGraw, LLP, independent auditors, as set forth in their
report thereon appearing elsewhere in this prospectus, and are included in
reliance upon such report given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC covering
our class A common stock. For further information about us and the class A
common stock, you should refer to our registration statement and its exhibits.
This prospectus summarizes material provisions of contracts and other documents
to which we refer you. Since the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.
After the offering, we will be subject to the reporting requirements of
the Securities Exchange Act of 1934. We will fulfill these requirements by
filing periodic reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
consolidated financial statements certified by an independent accounting firm.
Our SEC filings will be available over the internet at the SEC's website at
http://www.sec.gov. You may also read, without charge, or copy, at prescribed
rates, any document we filed at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for more information about the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at Nasdaq's
website at http://www.nasdaq.com.
90
INDEX TO FINANCIAL STATEMENTS
[Download Table]
Page
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Nassau Broadcasting Partners, L.P.--Audited Financial Statements
Report of Independent Certified Public Accountants................... F-4
Balance Sheets as of December 31, 1999 and 1998...................... F-5
Statements of Operations and Comprehensive Loss for the years ended
December 31, 1999, 1998 and 1997.................................... F-6
Statement of Partners' Capital (Deficit) for the years ended December
31, 1999, 1998 and 1997............................................. F-7
Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997............................................................ F-8
Notes to Financial Statements........................................ F-9
Nassau Broadcasting Partners, L.P.--Unaudited Interim Financial
Statements
Balance Sheets as of March 31, 2000 and 1999......................... F-21_1
Statements of Operations for the three months ended March 31, 2000
and 1999............................................................ F-21_2
Statements of Cash Flows for the three months ended March 31, 2000
and 1999............................................................ F-21_3
Notes to Financial Statements........................................ F-21_4
Aurora Communications, LLC (A Limited Liability Company)--Audited
Consolidated Financial Statements
Report of Independent Auditors....................................... F-24
Consolidated Balance Sheet as of December 31, 1999................... F-25
Consolidated Statement of Operations for the period January 20, 1999
(commencement of operations) to December 31, 1999................... F-26
Consolidated Statement of Members' Capital for the period January 20,
1999 (commencement of operations) to December 31, 1999.............. F-27
Consolidated Statement of Cash Flows for the period January 20, 1999
(commencement of operations) to December 31, 1999................... F-28
Notes to Consolidated Financial Statements........................... F-29
WEBE and WICC Radio Stations (Divisions of MLMedia Partners, L.P.)--
Audited Combined Financial Statements
Independent Auditors' Report......................................... F-38
Balance Sheets as of December 31, 1998 and 1997...................... F-39
Statements of Operations and Accumulated Earnings (Deficit) for the
years ended December 31, 1998, 1997 and 1996........................ F-40
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996............................................................ F-41
Notes to Combined Financial Statements............................... F-42
Capstar Trust (A Trust)--Audited Financial Statements
Independent Auditors' Report......................................... F-46
Balance Sheet as of October 26, 1999................................. F-47
F-1
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Page
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Statement of Operations and Beneficiaries' Equity for the period of
January 1, 1999
to October 26, 1999............................................... F-47--1
Statement of Cash Flows for the period of January 1, 1999 to
October 26, 1999.................................................. F-47--2
Notes to Financial Statements...................................... F-47--3
Capstar Trust (A Trust)--Audited Financial Statements
Independent Auditors' Report....................................... F-47--7
Balance Sheet as of December 31, 1998.............................. F-47--8
Statement of Operations and Beneficiaries' Equity for the period
from May 29, 1998
(date of inception) to December 31, 1998.......................... F-47--9
Statement of Cash Flows for the period from May 29, 1998 (date of
inception) to December 31, 1998................................... F-47--10
Notes to Financial Statements...................................... F-47--11
Westchester Radio, LLC--Audited Financial Statements
Independent Auditors' Report....................................... F-48
Balance Sheet as of October 26, 1999............................... F-49
Statement of Operations and Members' Deficiency for the period
January 1, 1999 to
October 26, 1999.................................................. F-50
Statement of Cash Flows for the period January 1, 1999 to October
26, 1999.......................................................... F-51
Notes to Financial Statements...................................... F-52
Westchester Radio, LLC--Audited Financial Statements
Independent Auditors' Report....................................... F-61
Balance Sheet as of December 31, 1998.............................. F-62
Statement of Operations and Members' Deficiency for the period
April 2, 1998
(date of inception) to December 31, 1998.......................... F-63
Statement of Cash Flows for the period April 2, 1998 (date of in-
ception) to December 31, 1998..................................... F-64
Notes to Financial Statements...................................... F-65
Commodore Media of Westchester, Inc.--Audited Financial Statements
Independent Auditors' Report....................................... F-74
Balance Sheet as of April 1, 1998.................................. F-75
Statement of Operations and Retained Earnings for the period of
January 1, 1998 to April 1, 1998.................................. F-76
Statement of Cash Flows for the period of January 1, 1998 to April
1, 1998........................................................... F-77
Notes to Financial Statements...................................... F-78
Commodore Media of Westchester, Inc.--Audited Financial Statements
Independent Auditors' Report....................................... F-84
Balance Sheet as of December 31, 1997.............................. F-85
Statement of Operations and Retained Earnings for the year ended
December 31, 1997................................................. F-86
F-1--1
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Statement of Cash Flows for the year ended December 31, 1997......... F-87
Notes to Financial Statements........................................ F-88
Commodore Media of Westchester, Inc.--Audited Financial Statements
Independent Auditors' Report......................................... F-94
Balance Sheet as of December 31, 1996................................ F-95
Statement of Operations and Accumulated Deficit for the year ended
December 31, 1996................................................... F-96
Statement of Cash Flows for the year ended December 31, 1996......... F-97
Notes to Financial Statements........................................ F-98
WRKI/WAXB/WPVT/WINE (Operating Divisions of Commodore Media of Norwalk,
Inc.)--Audited Combined Financial Statements
Independent Auditors' Report......................................... F-124
Combined Balance Sheet as of May 29, 1998............................ F-125
Combined Statement of Operations and Division Equity for the period
of January 1, 1998 to May 29, 1998.................................. F-126
Combined Statement of Cash Flows for the period of January 1, 1998 to
May 29, 1998........................................................ F-127
Notes to Financial Statements........................................ F-128
WRKI/WAXB/WPVT/WINE (Operating Divisions of Commodore Media of Norwalk,
Inc.)--Audited Combined Financial Statements
Independent Auditors' Report......................................... F-134
Combined Balance Sheet as of December 31, 1997....................... F-135
Combined Statement of Operations and Division Equity for the year
ended December 31, 1997............................................. F-136
Combined Statement of Cash Flows for the year ended December 31,
1997................................................................ F-137
Notes to Financial Statements........................................ F-138
WRKI/WAXB/WPVT/WZZN/WINE (Operating Divisions of Commodore Media of
Norwalk, Inc.)--Audited Combined Financial Statements
Independent Auditors' Report......................................... F-144
Combined Balance Sheet as of December 31, 1996....................... F-145
Combined Statement of Operations and Division Equity for the year
ended December 31, 1996............................................. F-146
Combined Statement of Cash Flows for the year ended December 31,
1996................................................................ F-147
Notes to Financial Statements........................................ F-148
F-1--2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Nassau Broadcasting Partners, L.P.
We have audited the accompanying balance sheets of Nassau Broadcasting
Partners, L.P. as of December 31, 1999 and 1998 and the related statements of
operations and comprehensive loss, partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Nassau Broadcasting
Partners, L.P. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Grant Thornton LLP
Edison, New Jersey
March 1, 2000
F-4
NASSAU BROADCASTING PARTNERS, L.P.
BALANCE SHEETS
[Download Table]
December 31,
--------------------------
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 587,362 $ 7,050,051
Marketable securities............................ 2,201,080 1,779,788
Due from broker.................................. -- 762,710
Accounts receivable (net of allowance for
doubtful accounts of $316,000 and $331,000 in
1999 and 1998, respectively).................... 6,645,514 5,257,065
Prepaid expenses and other current assets........ 223,664 206,308
Note receivable--officer......................... 590,000 90,000
------------ ------------
Total current assets........................... 10,247,620 15,145,922
PROPERTY AND EQUIPMENT, NET........................ 11,792,237 11,316,879
OTHER ASSETS
Certificates of deposit--restricted.............. 77,586 39,913
Deferred costs................................... 805,436 1,230,923
Cost in excess of net assets acquired............ 26,504,288 27,253,280
Deposits......................................... 25,100,484 15,599,133
Note receivable--officer......................... 100,000 36,000
Other assets..................................... 140,129 72,331
------------ ------------
$ 74,767,780 $ 70,694,381
============ ============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses............ $ 1,683,042 $ 1,082,145
Loan payable--broker............................. 805,270 769,846
Mortgages payable--current....................... 127,340 115,824
Capitalized lease obligations--current........... 354,057 320,709
------------ ------------
Total current liabilities...................... 2,969,709 2,288,524
SENIOR DEBT........................................ 47,938,871 43,994,812
SUBORDINATED NOTES PAYABLE......................... 39,099,013 35,091,620
MORTGAGES PAYABLE, LONG-TERM....................... 2,099,363 2,226,703
CAPITALIZED LEASE OBLIGATIONS, LONG-TERM........... 826,376 1,058,754
DEFERRED INCOME.................................... 282,000 --
DEFERRED GAIN...................................... 1,062,000 1,629,000
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT.................................. (19,509,552) (15,595,032)
------------ ------------
$ 74,767,780 $ 70,694,381
============ ============
The accompanying notes are an integral part of these statements.
F-5
NASSAU BROADCASTING PARTNERS, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
[Download Table]
Year ended December 31,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
Gross revenues......................... $ 34,295,261 $27,349,044 $20,891,079
Less agency and outside commissions.... 2,893,603 2,352,913 1,811,723
------------ ----------- -----------
Net revenues....................... 31,401,658 24,996,131 19,079,356
------------ ----------- -----------
Operating expenses, excluding
depreciation, amortization, corporate
general and administrative expenses,
and local marketing agreement fees.... 20,793,685 17,226,676 13,437,147
Depreciation and amortization expense.. 2,634,479 2,363,711 2,138,981
Corporate general and administrative
expenses.............................. 2,280,157 1,825,305 1,995,151
Local marketing agreement fees......... 2,516,718 2,271,176 1,665,990
------------ ----------- -----------
28,225,039 23,686,868 19,237,269
------------ ----------- -----------
Operating income (loss)............ 3,176,619 1,309,263 (157,913)
------------ ----------- -----------
Other income (expenses)
Interest and dividend income......... 26,634 65,336 210,709
Realized gains on marketable
securities.......................... 2,536,577 926,531 319,269
Gain on sale of radio stations....... 567,000 3,176,496 --
Interest expense..................... (10,946,358) (8,781,184) (6,367,215)
Special management fee............... -- -- (744,140)
------------ ----------- -----------
(7,816,147) (4,612,821) (6,581,377)
------------ ----------- -----------
Loss before extraordinary item..... (4,639,528) (3,303,558) (6,739,290)
Extraordinary loss on early retirement
of debt............................... -- (676,514) --
------------ ----------- -----------
NET LOSS........................... (4,639,528) (3,980,072) (6,739,290)
------------ ----------- -----------
Unrealized gain on marketable
securities
Unrealized holding gains arising
during the year..................... 1,213,318 488,310 --
Less reclassification adjustment for
gains included in net income........ (488,310) -- --
------------ ----------- -----------
Other comprehensive income............. 725,008 488,310 --
------------ ----------- -----------
Comprehensive loss................. $ (3,914,520) $(3,491,762) $(6,739,290)
============ =========== ===========
The accompanying notes are an integral part of these statements.
F-6
NASSAU BROADCASTING PARTNERS, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
Years ended December 31, 1997, 1998 and 1999
[Download Table]
Accumulated
other Total
Accumulated comprehensive partners'
deficit income deficit
------------ ------------- ------------
Balances, January 1, 1997........... $ (7,792,845) -- $ (7,792,845)
Net loss............................ (6,739,290) -- (6,739,290)
Increase attributable to
subordinated debt option........... 5,500,000 -- 5,500,000
------------ ---------- ------------
Balances, December 31, 1997......... (9,032,135) -- (9,032,135)
Net loss............................ (3,980,072) -- (3,980,072)
Unrealized gain on marketable
securities......................... -- $ 488,310 488,310
Distributions....................... (3,071,135) -- (3,071,135)
------------ ---------- ------------
Balances, December 31, 1998......... (16,083,342) 488,310 (15,595,032)
Net loss............................ (4,639,528) -- (4,639,528)
Unrealized gain on marketable
securities, net of reclassification
adjustment......................... -- 725,008 725,008
------------ ---------- ------------
Balances, December 31, 1999......... $(20,722,870) $1,213,318 $(19,509,552)
============ ========== ============
The accompanying notes are an integral part of this statement.
F-7
NASSAU BROADCASTING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
[Download Table]
Year ended December 31,
---------------------------------------
1999 1998 1997
----------- ------------ ------------
Cash flows from operating activities
Net loss............................. $(4,639,528) $ (3,980,072) $ (6,739,290)
Adjustments to reconcile net loss to
net cash used in operating
activities..........................
Extraordinary loss on early
retirement of debt................. -- 676,514 --
Depreciation........................ 1,192,000 1,090,478 660,554
Amortization of deferred costs...... 560,487 495,073 755,578
Amortization of subordinated debt
discount........................... 901,896 1,100,004 642,000
Amortization of costs in excess of
net assets acquired................ 881,992 778,160 722,849
Subordinated debt interest.......... 3,105,497 3,422,028 2,821,432
Deferred senior debt interest....... 1,459,059 494,812 --
Gain on sale of radio stations...... (567,000) (3,176,496) --
Gain on sale of marketable
securities......................... (2,536,577) (926,531) (319,269)
Changes in operating assets and
liabilities
Accounts receivable................. (1,388,449) (1,192,491) (940,486)
Prepaid expenses and other current
assets............................. (17,356) (92,545) (42,406)
Prepaid management fee.............. -- -- 50,000
Accounts payable and accrued
expenses........................... 600,896 (96,459) (1,004,000)
Deferred income..................... 282,000 -- --
----------- ------------ ------------
Net cash used in operating
activities....................... (165,083) (1,407,525) (3,393,038)
----------- ------------ ------------
Cash flows from investing activities
Purchase of certificates of
deposit--restricted, net........... (37,673) (1,913) (38,000)
Purchases of property and
equipment.......................... (1,667,364) (911,579) (3,204,608)
Acquisition of radio stations....... -- -- (5,052,220)
Sale of radio stations, net of
selling costs...................... -- 6,778,716 --
Deposits for stations to be acquired
and other costs.................... (9,634,351) (4,292,721) (8,769,153)
Sale (purchase) of marketable
securities, net.................... 3,603,008 2,088,789 (1,270,083)
Repayment of prepaid management
fee................................ -- 400,000 --
Loans to president and officer...... (564,000) (126,000) --
Increase in other assets............ (67,798) (33,499) (207,141)
----------- ------------ ------------
Net cash (used in) provided by
investing activities............. (8,368,178) 3,901,793 (18,541,205)
----------- ------------ ------------
Cash flows from financing activities
Proceeds from senior debt........... 2,485,000 43,500,000 --
Payment of senior debt.............. -- (25,000,000) --
(Payments on) proceeds from
subordinated debt.................. -- (9,890,597) 17,500,000
Payments of other debt.............. (358,852) (384,499) (377,738)
Proceeds from other debt............ 79,424 -- 50,000
Increase in deferred costs.......... (135,000) (1,307,265) --
Distribution to Partners............ -- (3,071,135) --
----------- ------------ ------------
Net cash provided by financing
activities....................... 2,070,572 3,846,504 17,172,262
----------- ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS............. (6,462,689) 6,340,772 (4,761,981)
Cash and cash equivalents at
beginning of year................... 7,050,051 709,279 5,471,260
----------- ------------ ------------
Cash and cash equivalents at end of
year................................ $ 587,362 $ 7,050,051 $ 709,279
=========== ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for
Interest........................... $ 4,952,226 $ 3,916,497 $ 2,621,972
=========== ============ ============
Supplemental information on noncash investing and financing activities:
(1) Capital lease obligations of $1,016,594 and $50,000 were incurred during
the years ended December 31, 1998 and 1997, respectively. The Company
entered into leases for new broadcast equipment.
(2) Mortgage obligations of $2,575,000 were incurred in 1998.
The accompanying notes are an integral part of these statements.
F-8
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. Business
Nassau Broadcasting Partners, L.P. (the "Company") is principally engaged
in the management and operation of radio broadcast stations in suburban markets
located between the New York and Philadelphia metropolitan areas. As of
December 31, 1999, the Company owns and/or operates nineteen radio stations.
Following are descriptions of the partners in the Company and certain
affiliates:
Nassau Broadcasting Company, Inc. ("NBC")--Limited partner which,
on a fully diluted basis, holds a 79% equity interest in the
Company. NBC is wholly owned by Nassau Broadcast Holdings, Inc.
("NBH"), in which the Company's President and Chief Executive
Officer of the Company, has a 90% interest. The remaining 10% of
NBH is owned by an affiliate related to the President and Chief
Executive Officer of the Company.
Nassau Holdings, Inc. ("NHI")--Limited partner, which, on a fully
diluted basis, holds a 20% equity interest in the Company. NHI is
wholly owned by the President and Chief Executive Officer of the
Company.
Nassau Broadcasting Partners, Inc. ("NBPI")--General partner
which, on a fully diluted basis, holds a 1% equity interest and
100% of the voting rights in the Company. The President and Chief
Executive Officer of the Company has a 52.4% equity interest and
33.4% voting interest in NBPI.
2. Revenue Recognition
Revenues for commercial broadcasting advertisements are recognized when
the commercial is broadcast.
3. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on
a straight-line basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Depreciation for tax purposes is based
upon the original cost basis of all assets using accelerated methods.
4. Marketable Securities
The Company has evaluated its investment policies consistent with
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities," and
determined that its investment securities, all of which are equity securities,
are to be classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses reported as a
component of partners' capital. The cost of securities sold is based on the
specific identification method.
5. Cost in Excess of Net Assets Acquired
The excess of cost over fair value of the net tangible assets acquired
consists of FCC licenses and goodwill, which are being amortized by the
straight-line method over twenty-five to forty years. Accumulated amortization
is $2,468,000 and $1,719,000 at December 31, 1999 and 1998, respectively.
F-9
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Deferred Costs
Deferred costs consist of legal and financing fees incurred in connection
with the issuance of the senior and subordinated notes and are being amortized
over the terms of the respective debt instruments.
7. Income Taxes
The Partnership does not pay income taxes on income; rather, the partners
are taxed on their share of partnership income. Accordingly, the Partnership
does not make any provisions in its accounts for income taxes.
8. Partners Distribution
On August 28, 1998, the Company entered into a senior loan agreement from
which a portion of the proceeds was used to repay subordinated notes held by
the Company and for distributions to the Company's Partners.
9. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. These funds are
insured by the Federal Deposit Insurance Corporation up to an aggregate maximum
of $100,000 per institution. At various times throughout the year, the Company
maintains cash balances at banks in excess of $100,000.
10. Local Marketing Agreements
The Company enters into local marketing agreements ("LMAs") with respect
to certain radio stations it intends to acquire. The Company operates the
stations under the LMA whereby the Company agrees to purchase from the
broadcast station licensee certain broadcast time and provide programming to
and sell advertising on the stations during the purchased time. Fees incurred
pursuant to various local marketing are recognized as station operating
expenses in the period the services received occur. The Company's financial
statements include broadcasting revenues and station operating expenses of
stations marketed under LMAs. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. When applicable, the LMA terminates upon the closing of the
acquisition of the station. The Company operated up to nine stations under such
agreements in 1999 and eight stations under such agreements in 1998 and 1997.
11. Impairment of Long Lived Assets and Identifiable Intangibles
The Company reviews long-lived assets, identifiable intangibles and
goodwill and will reserve for impairment whenever events or changes in
circumstances indicate the carrying amount of assets may not be fully
recoverable.
12. Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when commercials are broadcast, and
merchandise or services received are charged to expense when received or used.
Barter valuation is based upon management's estimates of fair value of goods or
services received. Barter revenue was approximately $1,353,000, $1,184,000 and
$1,075,000 for the years
F-10
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
ended December 31, 1999, 1998 and 1997, respectively. Available barter credits
as of December 31, 1999 and 1998 are not material to the Company's financial
statements.
13. Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments, marketable securities and accounts receivable. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number of customers comprising the Company's customer base.
14. Corporate General and Administrative Expenses
Corporate general and administrative expenses consist of corporate
overhead costs not specifically allocable to any of the Company's individual
stations.
15. Special Management Fee
The special management fee incurred in 1997, as approved by the Board of
Directors and in accordance with the management consulting agreement with NBH,
was in recognition of the successful completion of an acquisition plan
initiated in 1995.
16. Comprehensive (Income) Loss
Comprehensive income (loss) encompasses net income (loss) and other
comprehensive income (loss). The only item of other comprehensive income
presently applicable to the Company is the unrealized gain on the fair value of
marketable securities available for sale. Where applicable, reclassification
adjustments are made for realized gains or losses on such marketable securities
that were included in comprehensive income in prior years.
17. Advertising Expenses
Costs associated with advertising are expensed as incurred and amounted
to approximately $1.4 million, $1.0 million, and $700,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
18. Certificates of Deposit--Restricted
The Company purchased a $75,000 certificate of deposit in April 1999
which secures a standby letter of credit (see Note F-3). The certificate of
deposit bears interest at a rate of 4.93% and matures April 2001. The balance
at December 31, 1999, including accrued interest, is $77,586.
In December 1997, the Company purchased a $38,000 certificate of deposit
which secured a standby letter of credit. The letter of credit expired in March
1999, at which time the certificate of deposit was redeemed for approximately
$40,000.
19. Deferred Income
In 1999, the Company received $350,000 pursuant to an agreement with an
advertising representation firm. This amount was recorded as deferred income
and is being recognized as a reduction of agency fees over thirty-six months.
The amount recognized in 1999 was $68,000.
F-11
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
20. Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
21. Significant New Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," which requires
entities to recognize all derivatives in their financial statements as either
assets or liabilities measured as fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met to
qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The Company is
evaluating the impact that this statement will have on its results of
operations, financial position and related disclosures.
In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 99-17, "Accounting for Advertising Barter
Transactions," to be effective for transactions entered into after January 20,
2000. The consensus states that advertising barter transactions should be
accounted for at fair value and that the fair value recognized be disclosed in
the financial statements, if there is verifiable objective evidence provided
by sufficient cash transactions received by the seller of the advertising or
similar advertising. EITF No. 99-17 is not expected to have a material effect
on the Company's financial statements.
22. Use of Estimates
In preparing the Company's financial statements in conformity with
accounting principles generally accepted in the United States, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999
and 1998:
[Download Table]
Depreciable life 1999 1998
----------------------- ----------- -----------
Broadcast equipment........... 7 years $ 8,805,832 $ 7,868,697
Land and improvements......... 3,566,737 3,500,145
Buildings and improvements.... 10-31.5 years 1,803,423 1,397,643
Office equipment.............. 7 years 670,692 641,519
Computers..................... 5 years 528,094 463,163
Vehicles...................... 3 years 246,545 183,598
Lesser of term of
Leasehold improvements........ lease or life of assets 1,193,448 1,100,958
----------- -----------
16,814,771 15,155,723
Less accumulated
depreciation................. 5,022,534 3,838,844
----------- -----------
$11,792,237 $11,316,879
=========== ===========
F-12
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE C--SENIOR DEBT
Senior debt represents notes payable to a financial institution in the
amounts of $43.5 and $2.485 million. The loans bear interest at 11% current
plus 3.25% deferred interest and are collateralized by all of the assets of the
Company. In addition, the partners, all of which are corporations, have pledged
their corporate stock as a guarantee. All principal and deferred interest are
due in full August 28, 2001.
The Company has $47 million available pursuant to these agreements, of
which $45.985 million has been borrowed.
Senior debt payable at December 31, 1999 and 1998 consists of the
following:
[Download Table]
1999 1998
----------- -----------
Original proceeds.................................... $43,500,000 $43,500,000
Additional proceeds.................................. 2,485,000 --
Deferred interest.................................... 1,953,871 494,812
----------- -----------
$47,938,871 $43,994,812
=========== ===========
The term notes require that the Company achieve certain minimum annual
net revenues and broadcasting cash flows. The agreements also limit capital
expenditures, operating leases, corporate overhead expenses, and certain
acquisitions or loans. The Company obtained a waiver, dated February 22, 2000,
for the capital expenditure and corporate overhead limitations with which the
Company was not in compliance at December 31, 1999. The next compliance date
for these covenants is December 31, 2000.
NOTE D--SUBORDINATED DEBT
Subordinated debt represents 8% subordinated notes payable to an investor
group, due and payable in full, including all accrued interest, on March 27,
2002.
The subordinated debt holders have an option to purchase a majority
partnership interest. This option can be exercised at any time prior to the
expiration of the option on June 30, 2010. Subordinated debt discount in the
amount of $5,500,000 has been allocated to the value of the option based on the
relative fair values of the underlying debt and the option and is being
accreted over the term of the debt. In 1998, a portion of the subordinated debt
was repaid thereby giving rise to an extraordinary loss in writing off a pro
rata share of the subordinated debt discount.
F-13
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of subordinated debt as of December 31, are as follows:
[Download Table]
1999 1998
----------- -----------
Balance at beginning of year, including accrued
interest........................................... $38,173,102 $44,641,675
Accrued interest.................................... 3,105,497 3,422,024
----------- -----------
41,278,599 48,063,699
Repayment........................................... -- (9,890,597)
----------- -----------
Subordinated debt................................... 41,278,599 38,173,102
----------- -----------
Subordinated debt discount
Original amount................................... 5,500,000 5,500,000
Amortization through end of year.................. (3,320,414) (1,742,004)
Write-off attributable to repayment............... -- (676,514)
----------- -----------
2,179,586 3,081,482
----------- -----------
Subordinated debt, net of discount.................. $39,099,013 $35,091,620
=========== ===========
NOTE E--MORTGAGES PAYABLE
Mortgages payable at December 31, 1999 and 1998 are summarized below:
[Download Table]
1999 1998
---------- ----------
Mortgage payable to a financial institution at 300 basis
points per annum in excess of weekly average yield on
US Treasury securities, fixed for five years,
collateralized by real property, guaranteed by the
President of the Company, and due June 1, 2013.
Principal and interest are payable monthly............. $1,035,702 $1,078,430
Mortgage payable to seller bearing interest at 10%,
collateralized by real property and due February 1,
2008. Principal and interest are payable monthly....... 876,801 944,006
Mortgage payable to sellers bearing interest at 10%,
collateralized by real property and due January 23,
2003. Principal and interest are payable monthly. The
mortgage was paid in full in February 2000............. 314,200 320,091
---------- ----------
2,226,703 2,342,527
Less current maturities................................. 127,340 115,824
---------- ----------
Mortgages payable--long-term portion.................... $2,099,363 $2,226,703
========== ==========
Maturities of mortgages payable as of December 31, 1999 are as follows:
[Download Table]
2000.............................................................. $ 127,340
2001.............................................................. 139,842
2002.............................................................. 153,611
2003.............................................................. 168,744
2004.............................................................. 160,905
Thereafter........................................................ 1,476,261
----------
Total........................................................... $2,226,703
==========
F-14
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE F--COMMITMENTS
1. Leases
The Company leases office, studio and tower space under noncancellable
operating leases expiring through 2018. The Company has an option to renew its
corporate office lease for four consecutive five-year periods commencing July
1, 2001. Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $610,000, $450,000 and $220,000, respectively. Future minimum
lease commitments are as follows:
[Download Table]
2000............................................................. $1,021,000
2001............................................................. 986,000
2002............................................................. 783,000
2003............................................................. 770,000
2004............................................................. 766,000
Thereafter....................................................... 4,145,000
----------
Total minimum lease commitments................................ $8,471,000
==========
The Company leases certain broadcast equipment under capitalized lease
agreements. The cost of leased equipment included in property and equipment was
approximately $1,697,000 and $1,675,000 at December 31, 1999 and 1998,
respectively, and the accumulated amortization was approximately $530,000 and
$330,000 at December 31, 1999 and 1998, respectively. Future minimum lease
payments for assets under capital leases at December 31, 1999 are as follows:
[Download Table]
2000.............................................................. $ 380,444
2001.............................................................. 302,112
2002.............................................................. 12,405
2003.............................................................. 364,788
2004.............................................................. --
Thereafter........................................................ 467,689
---------
Total minimum lease payments.................................... 1,527,438
Less amount representing interest................................. 347,005
---------
Present value of net minimum lease payments....................... 1,180,433
Less current maturities........................................... 354,057
---------
Long-term obligation.............................................. $ 826,376
=========
NHI and NBC have guaranteed a lease obligation of approximately $500,000.
2. Stock Option Plan
The Board of Directors of NBC has approved a stock option plan for
employees of the Company to secure options in NBC. The plan is effective upon
the issuance of final FCC approval for the transfer of the licenses of WNJO
(FM) and WCHR (AM) to the Company. These options have the effect of diluting
the equity holdings in NBC of the Company's President and Chief Executive
Officer. As of December 31, 1999, there were 1.2 million options contingently
issued to officers of the Company at an exercise price of $0.15 per share.
F-15
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Letter of Credit
The Company has a $75,000 standby letter of credit, which relates to a
payment obligation to a vendor. The standby letter of credit is secured by a
certificate of deposit. (Note A-18.)
4. Employment Agreements
The Company has entered into employment agreements with its President and
Chief Executive Officer and its Executive Vice President of Operations and
Finance. The minimum compensation to be paid in 2000 pursuant to these
agreements is $425,000. In addition, pursuant to the employment agreements,
these employees are eligible for bonuses based on results of operations. The
agreements expire on December 31, 2000.
NOTE G--ACQUISITIONS
WOBM (FM) and WOBM (AM)
On July 1, 1996, the Company entered into an agreement to purchase all of
the issued and outstanding capital stock of Seashore Broadcasting Inc. and
Northshore Broadcasting Inc. ("Seashore") for $16 million. Seashore owns and
operates WOBM (FM) and WOBM (AM) located in the Toms River area in New Jersey.
The Company paid a $2 million deposit and final closing is scheduled for July
1, 2000, pending FCC approval.
In a related transaction, the Company entered into an LMA effective July
1, 1996 with Seashore pursuant to which the Company programs all of the
broadcast time of the stations and sells all of the commercial time during its
programming. Also, the Company retains certain revenues of the licensee and has
agreed to make monthly LMA payments of $83,333, increasing in annual increments
to maximum monthly payments of $108,333, through the later of June 30, 2000 or
the closing, and reimburse certain operating expenses incurred during the term
of the agreement. The agreement expires on closing.
WSUS (FM)
On May 30, 1997, the Company acquired substantially all of the net
operating assets of WSUS Communications, Inc., which operated one radio
station, WSUS (FM), located in Franklin, New Jersey, for a purchase price of
approximately $5 million.
The above acquisition has been accounted for by the purchase method of
accounting. The purchase price has been allocated to the assets acquired,
principally intangible assets, and the liabilities assumed based on their
estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the net assets acquired has been
recorded as costs in excess of net assets acquired. The operating results of
this acquisition are included in the Company's results of operations from the
date of acquisition. Pro forma results of operations have not been included as
the amounts are not material to the Company's financial statements.
WNJO (FM) and WCHR (AM)
On June 1, 1997, the Company entered into an agreement, as amended, with
Great Scott Broadcasting ("Great Scott") to purchase substantially all of the
assets of WNJO (FM) and WCHR (AM), located in the
F-16
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Trenton, New Jersey area, for a purchase price of $20,000,000. At December 31,
1999, the entire purchase price had been paid and is reflected as deposits on
the balance sheet.
The FCC has not yet approved the transaction. If the FCC fails to approve
the transaction and the Company is unsuccessful in appealing that decision, the
stations would be remarketed for a period of three years. Depending upon the
ultimate sales price to a third-party purchaser, the Company may or may not be
made whole in recovering its deposits.
Concurrently, the Company entered into an LMA with Great Scott pursuant
to which the Company has the right to program all of the broadcast time of the
stations and sell all of the commercial time during its programming beginning
June 1, 1997. The Company pays $75,000 per month pursuant to this agreement.
Effective February 8, 1999, the $75,000 per month payment was applied to the
final payment due under the Asset Purchase Agreement. These payments are
included in deposits on the accompanying balance sheet.
Upon a reduction of the payments pursuant to the LMA agreement in
September 1999, the Company continues to recognize revenues and expenses in
accordance with the terms of the LMA, and has commenced amortizing the deposits
on these stations over a period of 25 years. The amount amortized in 1999 was
approximately $130,000.
WTSX (FM) and WDLC (AM)
On August 7, 1998, the Company entered into an option agreement to
acquire the assets of Port Jervis Broadcasting Co., Inc. ("Port Jervis"), which
operates WTSX (FM) and WDLC (AM), licensed to broadcast in Port Jervis, New
York, for a purchase price of approximately $2,700,000. The option agreement
calls for an option payment of $550,000 plus monthly option payments of $12,500
and extends for a period of 36 months. Concurrently, the Company entered into
an LMA with Port Jervis for the operation of the stations requiring monthly
payments ranging from $10,000 at the outset to $25,000 commencing August 1,
2000.
WILT (AM)
In 1998, NBH submitted a Chapter 11 Plan of Reorganization for Tiab
Communications Corporation which owns the FCC license for WILT (AM) in Mt.
Pocono, Pennsylvania. An agreement between NBH and the Company provides that in
exchange for the funding of the bankruptcy plan and associated legal costs, the
Company has received an option to purchase TIAB or the FCC license from NBH for
a nominal amount. On February 12, 1999, the Plan of Reorganization was
confirmed and funded by the Company in the amount of $110,000. At December 31,
1999, WILT (AM) was not yet on the air and all amounts disbursed to date are
reflected as deposits on the accompanying balance sheet.
WJHR (AM)
On January 21, 1999, the Company entered into an agreement to purchase
all of the assets of WJHR-AM in Flemington, New Jersey for $2,500,000. Final
closing is scheduled for November 18, 2001. Concurrent with this transaction,
the Company entered into an LMA for the operation of the radio station until
November 18, 2001. The agreement calls for quarterly payments of $50,000 for
the term of the agreement. The Company has already irrevocably deposited
$130,000 toward the purchase of this station, which is included in deposits on
the accompanying balance sheet.
F-17
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
WCHR (FM)
On August 18, 1999, the Company exercised its option to purchase for
$4,675,000 the stock of a corporation which owns the permit to construct an FM
radio station in Ocean County, New Jersey. The Company has paid approximately
$2 million of the purchase price as of the date of this report. Such amounts
have been included in deposits on the accompanying balance sheet. The closing
on this acquisition is pending FCC approval.
NOTE H--OTHER LOCAL MARKETING AGREEMENTS
On November 12, 1998, the Company sold all of the assets associated with
WSBG (FM) and WVPO (AM) in Stroudsburg, Pennsylvania for approximately $6.8
million. Concurrent with that transaction, the Company entered into an LMA for
its operation of the stations for a period of 36 months. The agreement requires
the Company to make quarterly payments in the amount of $175,000, which are
recorded as operating expenses of the radio stations. The Company has accounted
for these transactions as a sale-leaseback arrangement whereby $1,700,000 of
the gain on sale of the radio stations is being deferred and credited to gain
on sale of radio stations over the thirty-six months of that agreement. The
deferred gain recognized in 1999 and 1998 was $567,000 and $71,000,
respectively.
NOTE I--MARKETABLE SECURITIES
The following is a summary of marketable securities at December 31:
[Download Table]
1999 1998
---------- ----------
Equity securities:
Fair value........................................... $2,201,080 $1,779,788
Cost................................................. 987,762 1,291,478
---------- ----------
Unrealized gain.................................... $1,213,318 $ 488,310
========== ==========
At December 31, 1999 and 1998, the Company had loans from its broker
totaling $805,270 and $769,846, respectively. At December 31, 1999 and 1998,
the interest rate on the loans was 8.5% and 7.75%, respectively. The loans are
secured by the Company's marketable securities in the Company's investment
account.
NOTE J--SEGMENT INFORMATION
The Company manages and operates radio stations in the New York and
Philadelphia metropolitan areas. The Company considers its business to consist
of one reportable operating segment, based on radio stations operated, sharing
similar economic characteristics in the nature of the advertising sold, method
of broadcasting and listener base. All the Company's revenue is earned within
the Northeastern United States.
NOTE K--RELATED PARTY TRANSACTIONS
Certain investors in NBPI have purchased from the principal shareholder
in the majority partner, NBC ("Grantor"), an option to purchase a majority
partnership interest. The option is exercisable at any time at an exercise
price of $500,000 and expires June 10, 2010. The investors have the right to
require the Grantor to repurchase the unexercised option units upon the sale,
transfer, assignment or other disposition of all or
F-18
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
substantially all of the Company's assets. The repurchase price of the
unexercised option units varies based on terms specified in the partnership
agreement.
In 1997, a special management fee of $744,140 was paid to NBH, as
approved by the Company's partners.
On January 23, 1998, NBH purchased twenty-five percent of the stock of a
corporation which owns an AM radio station license. In the same transaction,
NBH also acquired the real estate and broadcasting towers of the AM station and
an FM station. On February 1, 1998, NBH assigned, at cost, all rights and title
under the aforementioned transaction to the Company.
In 1996, the Company advanced $450,000 to NBH as a prepayment of a then
existing consulting agreement. $50,000 of the prepayment was expensed in 1997,
with the remaining $400,000 being repaid to the Company in 1998 upon
termination of the consulting agreement.
In 1998, the Company acquired a parcel of real property for approximately
$1 million that was owned by a partnership in which the president of the
Company was a partner.
At December 31, 1999 and 1998, the President and Chief Executive Officer
of the Company was indebted to the Company in the amount of $590,000 and
$90,000, respectively. These amounts bear interest at the rate of 8% and were
repaid in full, with interest, in February 2000 and March 1999, respectively.
At December 31, 1999 and 1998, the Company had notes receivable from an
officer totaling $100,000 and $36,000, respectively, which bear interest at 8%
per annum. Principal and interest are due in full on November 30, 2001.
NOTE L--EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan covering all employees
who have one year of service and are age twenty-one or older. Under the
provisions of the plan, the Company matches 25% of the first 8% of the
participant's compensation contributed as elective deferrals. The Company's
contribution in 1999, 1998 and 1997 amounted to $100,706, $76,497 and $87,350,
respectively.
NOTE M--ACCOUNTS PAYABLE AND ACCRUED EXPENSE
Accounts payable and accrued expenses consist of the following at
December 31,
[Download Table]
1999 1998
---------- ----------
Accounts payable...................................... $ 767,519 $ 644,020
Accrued commissions................................... 281,875 268,891
Accrued interest...................................... 435,580 --
Other accrued expenses................................ 198,068 169,234
---------- ----------
$1,683,042 $1,082,145
========== ==========
F-19
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to determine
such amounts:
Limitations
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instruments; they are subjective in nature and involve uncertainties and
matters of judgment, and, therefore, cannot be determined with precision.
These estimates do not reflect any premium or discounts that could result from
offering for sale at one time the Company's entire holdings of a particular
instrument. Changes in assumptions could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1999 and 1998, the
amounts that will actually be realized or paid at settlement or maturity of
the instruments could be significantly different.
Cash Equivalents and Certificates of Deposit
The carrying amount is assumed to be the fair value because of the
liquidity of the instruments.
Marketable Securities
The carrying amount represents fair value based on quoted market price.
Accounts Receivable and Notes Receivable
The carrying amount is assumed to be the fair value because of the
short-term maturity of the portfolio. The carrying amount of the noncurrent
note receivable is assumed to be the fair value because the note receivable
earns interest at prevailing rates.
Long-term Obligations
The fair values of the Company's notes payable, mortgages payable,
senior debt and other long-term obligations approximate the terms in the
marketplace at which they could be replaced in the aggregate. Therefore, the
fair value approximates the carrying value of these financial instruments in
the aggregate.
NOTE O--SUBSEQUENT EVENTS
On February 24, 2000, the Company sold its tower related broadcasting
assets and real property to affiliated entities controlled by the Company's
President and Chief Executive Officer for $10.0 million. These affiliated
entities then immediately sold the bulk of these assets to a third party, who
has leased tower space back to the Company.
On February 29, 2000, the Company entered into an asset purchase
agreement with Clear Channel Communications Inc. ("Clear Channel") to purchase
two Allentown, Pennsylvania stations for total
F-20
NASSAU BROADCASTING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
consideration of $30 million payable in cash. In March 2000, the Company has
irrevocably deposited $6 million toward the purchase of these stations.
Unaudited
On March 24, 2000, the Company entered into a purchase and exchange
agreement with the owners of Aurora Communications, LLC ("Aurora") to purchase
all of their stock, and thereby acquire the nine stations owned by Aurora for
total consideration of $185 million, consisting of $35 million in common stock
of the Company, $85 million in cash and $65 million in assumption of debt. The
cash amount is subject to a working capital adjustment. In March 2000, the
Company irrevocably deposited $7 million toward the purchase of Aurora.
On March 1, 2000, the Company entered into an additional $10 million term
loan agreement with its Senior Lender. The proceeds from this loan were used
for deposits on the Aurora and Clear Channel acquisitions.
The Company's equity investors have committed financing for the Aurora
and Clearview Channel acquisitions.
The Company intends to conduct an initial public offering ("IPO") for a
yet to be determined number of shares of Class A common stock. Prior to the
IPO, the Company plans to issue $60 million aggregate principal of senior
discount notes due 2010. The Company has also entered into a commitment letter
with a lender for the arrangement of senior credit facilities in an amount of
up to $144 million. There is no assurance that these transactions will occur,
or that they will occur under the terms and amounts noted above.
Prior to the consummation of the IPO, the Company intends to convert to a
corporation, which will result in the Company being subject to Federal, state
and local corporate income taxes.
In connection with the transactions discussed above, the President and
Chief Executive Officer of the Company is eligible to receive $7.5 million for
a redemption of a partial equity interest as well as receiving approximately $3
million as a distribution in accordance with the terms of the Company's
partnership agreement.
Certain marketable equity securities held by the Company as of December
31, 1999 declined by approximately $800,000 as of April 25, 2000. Management of
the Company believes this decline is to be temporary.
F-21
Nassau Broadcasting Partners, L.P.
BALANCE SHEETS
[Download Table]
March 31, December
2000 31, 1999
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 2,396,819 $ 587,362
Marketable securities.............................. 2,099,734 2,201,080
Accounts receivable (net of allowance for doubtful
accounts of $353,000 and $316,000 in 2000 and
1999, respectively)............................... 5,456,265 6,645,514
Prepaid expenses and other current assets.......... 450,848 223,664
Due from officer................................... 201,306 590,000
----------- -----------
Total current assets............................. 10,604,972 10,247,620
PROPERTY AND EQUIPMENT, NET.......................... 5,672,422 11,792,237
OTHER ASSETS
Certificates of deposit-restricted -- 77,586
Deferred costs..................................... 1,039,596 805,436
Cost in excess of net assets acquired.............. 26,317,040 26,504,288
Deposits........................................... 38,902,228 25,100,484
Note receivable-officer............................ 100,000 100,000
Other assets....................................... 50,250 140,129
----------- -----------
$82,686,508 $74,767,780
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses.............. $ 1,705,265 $ 1,683,041
Loan payable-broker................................ -- 805,270
Mortgages payable-current.......................... -- 127,341
Capitalized lease obligations-current.............. 471,665 354,057
----------- -----------
Total current liabilities........................ 2,176,930 2,969,709
SENIOR DEBT.......................................... 56,138,603 47,938,871
SUBORDINATED NOTES PAYABLE........................... 40,159,232 39,099,013
MORTGAGES PAYABLE, LONG-TERM......................... 2,099,363
CAPITALIZED LEASE OBLIGATIONS, LONG-TERM............. 642,484 826,376
DEFERRED INCOME...................................... 252,834 282,000
DEFERRED GAIN........................................ 4,805,250 1,062,000
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT.................................... (21,488,825) (19,509,552)
----------- -----------
$82,686,508 $74,767,780
=========== ===========
The accompanying notes are an integral part of these statements.
F-21--1
Nassau Broadcasting Partners, L.P.
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
[Download Table]
Three months ended
March 31,
------------------------
2000 1999
----------- -----------
(unaudited)
Gross revenues....................................... $ 7,893,311 $ 6,810,687
Less agency and outside commissions.................. 611,533 543,884
----------- -----------
Net revenues..................................... 7,281,778 6,266,803
----------- -----------
Operating expenses, excluding depreciation,
amortization, corporate general and administrative
expenses, and local marketing agreement fees........ 5,318,209 4,569,762
Depreciation and amortization expense................ 822,093 602,832
Corporate general and administrative expenses........ 587,050 500,435
Local marketing agreement fees....................... 639,571 725,261
----------- -----------
7,366,923 6,398,290
----------- -----------
Operating loss................................... (85,145) (131,487)
----------- -----------
Other income (expense)
Interest and dividend income....................... 11,099 --
Realized gains on marketable securities............ 441,457 153,665
Gain on sale of radio stations and tower assets.... 1,632,536 141,750
Interest expense................................... (3,024,268) (2,718,400)
----------- -----------
(939,176) (2,422,985)
----------- -----------
NET LOSS......................................... (1,024,321) (2,554,472)
----------- -----------
Unrealized gain on marketable securities
Unrealized holding gains (losses) arising during
the period........................................ (513,495) (335,332)
Less reclassification adjustment for gains included
in net income..................................... (441,457) (153,665)
----------- -----------
Other comprehensive loss............................. (954,952) (488,997)
----------- -----------
Comprehensive loss............................... $(1,979,273) $(3,043,469)
=========== ===========
The accompanying notes are an integral part of these statements.
F-21--2
NASSAU BROADCASTING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
[Download Table]
Three months ended
March 31,
------------------------
2000 1999
----------- -----------
(unaudited)
Cash flows from operating activities
Net loss........................................... $(1,024,321) $(2,554,472)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization..................... 320,725 301,464
Amortization of deferred costs.................... 114,120 114,120
Amortization of subordinated debt discount........ 225,474 275,001
Amortization of costs in excess of net assets
acquired......................................... 387,248 187,248
Subordinated debt interest........................ 834,745 772,648
Deferred senior debt interest..................... 377,779 353,438
Gain on sale of radio stations and tower assets... (1,632,536) (141,750)
Gain on sale of securities........................ (441,457) (153,665)
Changes in operating assets and liabilities.......
Accounts receivable.............................. 1,189,249 714,025
Prepaid expenses and other current assets........ (227,184) (196,767)
Accounts payable and accrued expenses............ 22,224 433,041
Deferred income.................................. (29,166) --
----------- -----------
Net cash provided by operating activities....... 116,900 104,331
----------- -----------
Cash flows from investing activities
Purchases of property and equipment................ (234,614) (178,260)
Sale of tower assets............................... 9,890,000 --
Deposits for radio stations to be acquired and
other costs....................................... (14,123,021) (4,596,260)
Sale (purchase) of marketable securities, net...... (407,663) (2,130,123)
Payments received on due from officer, net......... 388,694 --
(Increase) decrease in other assets................ (89,969) 12,863
----------- -----------
Net cash used in investing activities........... (4,576,573) (6,891,780)
----------- -----------
Cash flows from financing activities
Proceeds from senior debt, net..................... 7,821,955 --
Proceeds (principal payments) of other debt........ (1,204,815) 585,704
Increase in deferred costs......................... (348,280) (50,000)
----------- -----------
Net cash provided by (used in) financing
activities..................................... 6,268,860 535,704
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS.................................... 1,809,187 (6,251,745)
Cash and equivalents at beginning of period.......... 587,632 7,050,051
----------- -----------
Cash and equivalents at end of period................ $ 2,396,819 $ 798,306
=========== ===========
The accompanying notes are an integral part of these statements.
F-21--3
Nassau Broadcasting Partners, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE A--GENERAL
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly Nassau
Broadcasting Partners, L.P.'s (the "Company") financial position at March 31,
2000 and the results of operations and cash flows for the three months ended
March 31, 2000 and 1999.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has been
condensed or omitted. The accompanying financial statements need to be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus.
Any adjustments that have been made to the financial statements are of a
normal recurring nature.
Significant New Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," which requires
entities to recognize all derivatives in their financial statements as either
assets or liabilities measured as fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met to
qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The Company is
evaluating the impact that this statement will have on its results of
operations, financial position and related disclosures.
In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 99-17, "Accounting for Advertising Barter
Transactions," to be effective for transactions entered into after January 20,
2000. The consensus states that advertising barter transactions should be
accounted for at fair value and that the fair value recognized be disclosed in
the financial statements, if there is verifiable objective evidence provided
by sufficient cash transactions received by the seller of the advertising or
similar advertising. Adoption of EITF No. 99-17 did not have a material effect
on the Company's financial statements.
F-21--4
Nassau Broadcasting Partners, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000 and 1999
NOTE B--RELATED PARTY TRANSACTIONS
On February 24, 2000, the Company sold its tower-related broadcasting
assets and real property, net of liabilities to Nassau Tower Holdings, LLC
("NTH"), an entity controlled by the Company's President and Chief Executive
Officer for $10 million. These affiliated entities then immediately sold the
bulk of these assets to a third party.
In connection with the above transaction, the Company entered leases for
tower space with NTH for certain assets the Company sold to NTH. In addition,
the Company is also leasing tower space from the third party who purchased the
assets from NTH. The Company paid approximately $20,000 rent to NTH for the
three months ended March 31, 2000.
The initial terms of the leases are for ten years with options to renew
for four consecutive five-year periods. For the portion of the assets not
leased back, the Company has recorded a gain of $1,475,870. In addition, a
portion of the assets have been accounted for as sales leaseback arrangements
and accordingly, the gain, approximately which amounted to $1.8 million, has
been deferred and will be amortized over the lease terms. The remainder of the
realized gain which amounted to approximately $2.1 million, will be recognized
when the Company fulfills its obligations. The gain recognized on the sales
lease back assets was $15,000 for the three months ended March 31, 2000.
During the first quarter of 2000, the Company advanced its President and
Chief Executive Officer approximately $200,000. This advance, which was
noninterest-bearing, was repaid in full in May 2000.
NOTE C--ACQUISITIONS AND DISPOSITION
On February 29, 2000, the Company entered into an asset purchase
agreement with Clear Channel Communications Inc. ("Clear Channel") to purchase
two Allentown, Pennsylvania, stations for total consideration of $30 million
payable in cash. In March 2000, the Company deposited $6 million toward the
purchase of these stations.
On March 24, 2000, the Company entered into a purchase and exchange
agreement with the owners of Aurora Communications, LLC ("Aurora") to purchase
all of their stock, and thereby acquire the nine stations owned by Aurora for
total consideration of $185 million, consisting of $35 million in common stock
of the Company, $85 million in cash and $65 million in assumption of debt. The
cash amount is subject to a working capital adjustment. In March 2000, the
Company deposited $7 million toward the purchase of Aurora.
F-21--5
Nassau Broadcasting Partners, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000 and 1999
NOTE D--SENIOR AND OTHER DEBT
Senior Debt
On March 1, 2000, the Company entered into an additional $10 million
term loan agreement with its Senior Lender. The proceeds from this loan were
used for deposits on the Aurora and Clear Channel acquisitions.
The loan bears interest at the rate of 11% current plus 3.25% deferred
interest. All principal and deferred interest are due in full on August 28,
2001.
In connection with the loan, the Company paid approximately $348,000 in
financing costs, which were deferred and are being amortized over the term of
the loan.
Mortgage Payable
In connection with the Tower sale, NTH assumed certain mortgage
obligations of the Company.
NOTE E--SUBSEQUENT EVENTS
Senior Credit Facility
In May 2000, the Company entered into a senior credit facility for
approximately $144 million.
The credit facility consists of the following:
$33.0 million A1 term loan, which will finance a portion of the purchase
price of Aurora Communications in the form of repayment of debt of Aurora
Communications. This loan will amortize on a quarterly basis and matures on
June, 2006.
$26.0 million A2 term loan, $5 million of which will be used to repay
part of current senior credit facilities and the remainder of which will
finance part of the purchase price of stations we currently operate under
local marketing agreements. This loan will amortize on a quarterly basis and
matures on June, 2006.
F-21--6
Nassau Broadcasting Partners, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000 and 1999
NOTE E (continued)
$40.0 million B term loan, which will be used to repay borrowings under
the current senior credit facility and fund an equity redemption. This loan
will have minimal amortization over its life and matures on June, 2007, at
which time a balloon payment will be due.
$25.0 million C term loan, which will pay part of the purchase price of
Aurora Communications in the form of repayment of debt of Aurora
Communications. This loan will have minimal amortization over its life and
matures on June, 2008, at which time a balloon payment will be due.
$20.0 million revolving credit facility, of which the Company has drawn
$4.6 million to date, which matures on June, 2006.
All of the above loans bear interest at an alternative base rate or
LIBOR, as more fully described in the Senior Credit Facility Agreement.
The credit facility contains events of default typical for these types of
facilities (subject in each case to certain grace periods and materiality
thresholds), including, without limitation, (i) nonpayment of amounts under the
credit facility, (ii) material misrepresentations, (iii) covenant defaults,
(iv) cross-defaults to their indebtedness, (v) judgment defaults, (vi)
bankruptcy and (vii) a change of control.
Senior Discount Notes
In 2000, the Company issued $60.0 million aggregate principal amount of
13% senior discount notes due 2010, along with warrants to purchase equity
interests to several institutions.
In May 2000, the Company repaid $58.0 million in then-outstanding
borrowings under its current senior secured credit facility from borrowings
under the new credit facility and from proceeds of the senior discount notes.
Subordinated Notes, Preferred Distribution and Redemption of Equity Interest
In May 2000, the Company repaid all outstanding subordinated notes
payable, which amounted to $42.4 million, and made a preferred distribution to
the President and Chief Executive Officer of the Company under the partnership
agreement, in an amount of $2.9 million. In addition, the Company's President
and Chief Executive Officer is eligible to receive $7.5 million for a
redemption of a partial equity interest, of which he has received $2.5 million.
F-21--7
Nassau Broadcasting Partners, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000 and 1999
NOTE E (continued)
The Company intends to conduct an initial public offering ("IPO") for a
yet to be determined number of shares of Class A common stock. There is no
assurance that this transaction will occur.
Prior to the consummation of the IPO, the Company intends to convert to a
corporation, which will result in the Company being subject to Federal, state
and local corporate income taxes.
F-21--8
REPORT OF INDEPENDENT AUDITORS
The Members
Aurora Communications, LLC
We have audited the accompanying consolidated balance sheet of Aurora
Communications, LLC as of December 31, 1999, and the related consolidated
statements of operations, members' capital and cash flows for the period
January 20, 1999 (commencement of operations) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Aurora Communications, LLC at December 31, 1999 and the consolidated results
of its operations and its cash flows for the period January 20, 1999
(commencement of operations) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST AND YOUNG, LLP
New York, New York
February 25, 2000
F-24
AURORA COMMUNICATIONS, LLC
(A Limited Liability Company)
CONSOLIDATED BALANCE SHEET
December 31, 1999
[Download Table]
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 1,096,594
Accounts receivable, less allowance for doubtful accounts of
$43,789...................................................... 3,694,071
Prepaid expenses and other current assets..................... 164,477
------------
Total current assets........................................ 4,955,142
Property and equipment, at cost, less accumulated depreciation
of $157,829.................................................... 5,713,402
FCC licenses and goodwill, net of accumulated amortization of
$666,779....................................................... 92,012,735
Deferred financing costs, net of accumulated amortization of
$119,772....................................................... 2,179,283
------------
Total assets................................................ $104,860,562
============
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses......................... $ 1,105,550
Accrued wages and sales commissions........................... 277,897
Accrued interest payable...................................... 807,359
------------
Total current liabilities................................... 2,190,806
Long-term debt.................................................. 64,256,250
Other noncurrent liabilities.................................... 383,005
Commitments and contingencies................................... --
Members' capital:
Members interests............................................. 38,605,270
Accumulated deficit........................................... (574,769)
------------
Total members' capital...................................... 38,030,501
------------
Total liabilities and members' capital...................... $104,860,562
============
See accompanying notes.
F-25
AURORA COMMUNICATIONS, LLC
(A Limited Liability Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period January 20, 1999 (commencement of operations) to December 31,
1999
[Download Table]
Net revenues....................................................... $6,204,731
Operating expenses:
Selling.......................................................... 1,111,258
Programming and promotion........................................ 1,198,369
Technical........................................................ 113,594
General and administrative....................................... 682,963
Depreciation and amortization.................................... 824,608
Corporate expenses............................................... 743,766
----------
Total operating expenses....................................... 4,674,558
----------
Operating income................................................... 1,530,173
Interest income.................................................... 32,345
Interest expense................................................... 2,137,287
----------
Net loss........................................................... $ (574,769)
==========
See accompanying notes.
F-26
AURORA COMMUNICATIONS, LLC
(A Limited Liability Company)
CONSOLIDATED STATEMENT OF MEMBERS' CAPITAL
[Enlarge/Download Table]
Total
Preferred Units Common Units Additional
--------------------- --------------- Paid-in Accumulated
Units Value Units Value Capital Deficit Total
--------- ----------- --------- ----- ---------- ----------- -----------
Balance at January 20,
1999................... -- $ -- -- $ -- $ -- $ -- $ --
Issued in connection
with May 3, 1999
capitalization......... 52,500 525,000 2,743,678 -- -- -- 525,000
Issued in connection
with August 31, 1999
capitalization......... 3,807,500 38,075,000 1,898,572 -- -- -- 38,075,000
Other issuance.......... -- -- -- -- 5,270 5,270
Net loss................ -- -- -- -- -- (574,769) (574,769)
--------- ----------- --------- ----- ------ --------- -----------
Balance at December 31,
1999................... 3,860,000 $38,600,000 4,642,250 $ -- $5,270 $(574,769) $38,030,501
========= =========== ========= ===== ====== ========= ===========
See accompanying notes.
F-27
AURORA COMMUNICATIONS, LLC
(A Limited Liability Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period January 20, 1999 (commencement of operations) to December 31,
1999
[Download Table]
Cash flows from operating activities
Net loss......................................................... $ (574,769)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 824,608
Non-cash interest expense...................................... 502,777
Non-cash compensation expense.................................. 5,270
Changes in current assets and current liabilities:
Increase in accounts receivable.............................. (3,694,071)
Increase in prepaid expenses and other current assets........ (164,477)
Increase in accounts payable and accrued expenses............ 1,105,550
Increase in accrued wages and sales commissions.............. 277,897
Increase in accrued interest payable......................... 807,359
-----------
Total adjustments............................................ (335,087)
-----------
Net cash used in operating activities............................ (909,856)
-----------
Cash flows from investing activities
Payments for business acquisitions............................... (98,343,310)
Capital expenditures............................................. (207,435)
-----------
Net cash used in investing activities............................ (98,550,745)
-----------
Cash flows from financing activities
Proceeds from issuance of long-term debt, net.................... 64,256,250
Proceeds from issuance of membership interests................... 38,600,000
Debt issuance costs.............................................. (2,299,055)
-----------
Net cash provided by financing activities........................ 100,557,195
-----------
Net increase in cash and cash equivalents........................ 1,096,594
Cash and cash equivalents at beginning of period................. --
-----------
Cash and cash equivalents at end of period....................... $ 1,096,594
===========
See accompanying notes.
F-28
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Nature of Business and Organization
Aurora Communications, LLC (the "Company") is a limited liability company
formed in January 1999 and is engaged in the acquisition and operation of radio
stations throughout the United States. The Company is a subsidiary of Aurora
Management, Inc., its majority owner and managing member. Pursuant to its
limited liability company agreement, the Company shall continue until the
earlier of its dissolution by its members or December 31, 2049.
2. Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All material intercompany items and
transactions have been eliminated.
Depreciation
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, as follows:
[Download Table]
Buildings......................................................... 39 years
Furniture and fixtures............................................ 5-7 years
Broadcasting equipment............................................ 3-15 years
Transportation equipment.......................................... 5 years
Expenditures for maintenance and repairs are charged to operations as
incurred.
Intangible Assets
Deferred financing costs of $2.2 million are amortized over the term of
the related debt on a straight-line basis, which approximates the interest
method. FCC licenses and goodwill, in the amount of $92.0 million, represent
the excess of acquisition cost over the amounts assigned to other assets
acquired in the Company's acquisitions, and is amortized on a straight-line
basis over a 40-year period.
It is the Company's policy to account for FCC licenses, goodwill and all
other intangible assets at the lower of amortized cost or estimated realizable
value. As part of an ongoing review of the valuation and amortization of
intangible assets of the Company and its subsidiaries, management assesses the
carrying value of the intangible assets if facts and circumstances suggest that
there may be impairment. If this review indicates that the intangibles will not
be recoverable as determined by a non-discounted cash flow analysis of the
operating assets over the remaining amortization period, the carrying value of
the intangible assets would be reduced to estimated realizable value.
Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized when advertisements are broadcast, and
merchandise or services received are charged to expense (or
F-29
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
capitalized as appropriate) when received or used. Barter revenue and expense
reflected in the consolidated statement of operations for the period ended
December 31, 1999 was $490,791 and $412,269, respectively.
Revenue
The primary source of revenue is the sale of advertising to local,
regional and national customers. Revenue is presented net of advertising
commissions of $719,134, and is recognized when advertisements are broadcast.
Cash Equivalents
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.
Advertising and promotion
Expenditures for advertising and promotion are charged to expense as
incurred and totaled $430,000 in 1999.
Income Taxes
No provision for federal, state or local income taxes or credits has been
reflected in the accompanying financial statements because such obligations or
credits are liabilities or benefits of the members.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results may differ from those estimates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is derived primarily from local broadcast advertisers who are
impacted by the local economy. The Company routinely assesses the credit
worthiness of its customers and generally does not require collateral or other
security to support customer receivables.
3. Acquisitions
At December 31, 1999, the Company owned and operated five FM and four AM
radio stations.
On August 31, 1999, the Company acquired substantially all the assets of
radio stations WEBE-FM/WICC-AM, Bridgeport, Connecticut for $66.0 million plus
transaction costs.
On October 27, 1999, the Company acquired substantially all the assets of
radio stations WFAS-AM/WFAS-FM/WFAF-FM (formerly WZZN-FM), Westchester County,
New York for $20.25 million plus transaction costs.
F-30
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On October 27, 1999, the Company acquired substantially all the assets of
radio stations WRKI-FM/WINE-AM, Danbury, Connecticut and WAXB-FM/WPUT-AM,
Patterson, New York for $11.25 million plus transaction costs.
All of the acquisitions have been accounted for using the purchase method
of accounting. Accordingly, the purchase price of each acquisition has been
allocated to the assets based upon their respective estimated fair values at
the date of acquisition. The results of operations of the properties acquired
are included in the Company's consolidated results of operations from the
respective dates of acquisition. The aggregate purchase prices have been
allocated to the assets acquired and liabilities assumed as follows:
[Download Table]
Current assets.................................................. $ 63,507
Property and equipment.......................................... 5,663,796
FCC licenses and goodwill....................................... 92,679,514
-----------
98,406,817
-----------
Current liabilities........................................... (237,921)
-----------
$98,168,896
===========
4. Pro Forma Financial Information (Unaudited)
[Download Table]
Year ended December 31, 1999
Net revenues.................................................. $ 21,495,573
Net loss...................................................... $ (2,055,385)
The unaudited pro forma information for the year ended December 31, 1999
assumes that the acquisitions described in Note 3, had occurred on January 1,
1999. The pro forma information is not necessarily indicative either of the
results of operations that would have occurred had these transactions been made
at the beginning of the period, or of future results of operations.
5. Long-Term Debt
A summary of long-term debt as of December 31, 1999 is as follows:
[Download Table]
Term loan at the LIBOR rate plus 3.5%; interest payable
monthly; quarterly commitment reductions from March 31, 2000
through December 31, 2005 (A)(C)............................. $20,000,000
Revolving loan at the LIBOR rate plus 3.5%; interest payable
monthly; matures November 30, 2005 (A)(C).................... 30,756,250
Subordinated debentures; cash interest payable quarterly at
8%; payment-in-kind interest compounds quarterly at 9%;
principal due in September 2006 (B)(C)....................... 13,500,000
-----------
64,256,250
Less current portion.......................................... --
-----------
$64,256,250
===========
(A) On August 31, 1999, Aurora Holding, LLC ("Holding"), a wholly-owned
subsidiary of the Company entered into credit facilities totaling $75.0 million
with Heller Financial, Inc. and Union Bank of California, N.A., as agents (the
"Senior Loans"). The Senior Loans consist of a $20.0 million term loan and a
$55.0 million revolving loan. The initial borrowings under the Senior Loans
were used to partially fund the
F-31
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's acquisitions, pay transaction costs and provide working capital. The
Senior Loans contain covenants which require, among other things, that Holding
and its subsidiaries maintain certain financial levels, principally with
respect to EBITDA (earnings before interest, income tax, depreciation and
amortization) and leverage ratios, and limit the amount of capital
expenditures. The Senior Loans also restrict the payment of cash dividends. The
Senior Loans are collateralized by pledges of the tangible and intangible
assets of Holding and its subsidiaries, as well as the membership interests of
Holding and its subsidiaries. At December 31, 1999, the Company has additional
availability under the revolving credit facility of $24.2 million, of which
$5.4 million may currently be borrowed. No amounts due under the term loan are
classified as current liabilities on the consolidated balance sheet at December
31, 1999 because the availability under the revolving facility is sufficient to
pay amounts scheduled to be repaid in 2000 under the term loan. The Company
pays an annual commitment fee of 0.5% of the unused commitment.
(B) On September 10, 1999, Holding entered into a subordinated loan
agreement with Allied Capital Corporation and Allied Investment Corporation
which provides for subordinated debentures totaling $13.5 million. Proceeds
from the debentures were used to partially fund the Company's acquisitions and
to pay transaction costs. The subordinated debentures mature in September 2006
and bear interest at 17%. From the date of issuance through the first
anniversary, interest is paid quarterly in cash at a rate of 8% per year. From
the first anniversary to the second anniversary, interest is paid quarterly in
cash at a rate of 9% per year. From the second anniversary through maturity,
interest is paid quarterly in cash at a rate of 10% per year. Deferred interest
accrues and compounds quarterly equal to the difference between 17% and the
cash pay rate and is payable at the maturity date. The subordinated loan
agreement contains covenants which require, among other things, that Holding
and its subsidiaries maintain certain financial levels, principally with
respect to EBITDA (earnings before interest, income tax, depreciation and
amortization) and leverage ratios, and limit the amount of capital
expenditures. The subordinated loan agreement also restricts the payment of
cash dividends. Payment of amounts owed under the debentures is guaranteed by
the Company and Holdings' subsidiaries.
(C) In the event of a default under the Senior Loans or the subordinated
debentures prior to June 29, 2000, upon notice by a lender, the members of the
Company shall be required to make additional capital contributions of an amount
up to 75% of the trailing twelve month broadcast cash flow of the Company's
radio stations measured at the date of acquisition. The proceeds from such
contributions shall be used to repay a portion of the Senior Loans' principal.
The obligation to make such additional capital contributions shall terminate
when certain conditions are met, principally with respect to completing
additional radio station acquisitions that provide greater geographic
diversity.
At December 31, 1999, exclusive of the Revolving loan, the aggregate
amounts of long-term debt due scheduled during the next five years are as
follows:
[Download Table]
Year: Amount
----- -----------
2000............................................................. $ 2,000,000
2001............................................................. 2,500,000
2002............................................................. 3,000,000
2003............................................................. 3,500,000
2004............................................................. 4,000,000
Thereafter....................................................... 18,500,000
Cash paid for interest during 1999 was approximately $827,000. The fair
value of the debt approximates net book value.
F-32
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property and Equipment
Property and equipment at December 31, 1999 consists of the following:
[Download Table]
Land............................................................. $1,107,644
Buildings........................................................ 1,238,520
Equipment........................................................ 3,525,067
----------
5,871,231
Less accumulated depreciation.................................... (157,829)
----------
$5,713,402
==========
At December 31, 1999, all property and equipment is pledged as collateral
for the debt disclosed in Note 5.
7. Commitments
The Company leases office and broadcast tower space, vehicles and office
equipment. Rental expense amounted to approximately $159,000 for the period
from commencement of operations through December 31, 1999.
The minimum aggregate annual rentals under non-cancelable operating
leases are payable as follows:
[Download Table]
Year: Amount
----- ----------
2000.............................................................. $ 576,000
2001.............................................................. 261,000
2002.............................................................. 231,000
2003.............................................................. 184,000
2004.............................................................. 147,000
Thereafter........................................................ 219,000
----------
$1,618,000
==========
8. Related Party Transactions
The Company pays Aurora Management, Inc., its managing member, a
management and monitoring fee at the annual rate of $150,000 per year.
Under the long-term debt agreements described in Note 5, the Company
borrowed funds from certain members of the Company or their affiliates.
Interest on the outstanding principal amounts and certain other fees are paid
to such members or their affiliates.
On October 27, 1999, the Company acquired substantially all the assets of
radio stations WFAS-AM/WFAS-FM/WFAF-FM (formerly WZZN-FM), Westchester County,
New York from Westchester Radio, LLC (see Note 3). At the time of the
acquisition, Frank G. Washington, a member of the Company, was a member of
Westchester Radio, LLC.
F-33
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Members' Capital
The classes of the Company's membership interests consist of Preferred
Units and Common Units (which are further designated as Invested Common Units,
Callable Common Units and Promoted Common Units).
Preferred equity interests
The Company may issue Preferred Units, no par value, which are non-
convertible. During 1999, the Company had issued 3,860,000 preferred units for
an aggregate $38.6 million. The holders of Preferred Units are entitled to a
preferred return at the annual rate of 10%, compounded quarterly, cumulative to
the extent not distributed. Undistributed preferred dividends as of December
31, 1999 were approximately, $1,293,000.
Common equity interests
The Company may issue Common Units, no par value, which represent a
common profits percentage. Each holder of Preferred Units received an equal
number of Invested Common Units. At December 31, 1999, issued and outstanding
Invested Common Units, Callable Common Units, Promoted Common Units and Total
Common Units were 3,860,000; 255,238; 527,012; and 4,642,250, respectively.
Allocation of profits and losses/liquidation preference
After giving effect to tax distributions, if any, paid to the members,
the Company's net income is allocated to the members' capital accounts in the
following priority: (i) to the Preferred Unit holders until the aggregate net
income allocated equals the aggregate net losses previously allocated to the
Preferred Unit holders; (ii) to the Preferred Unit holders in an amount equal
to the cumulative preferred return; and (iii) to the members in accordance with
their respective common profits percentages.
Net losses of the Company, after giving effect to tax distributions, if
any, paid to the members, are allocated to the members' capital accounts in the
following priority: (i) to the members until the aggregate net losses allocated
to the members' Common Units equals the aggregate net income previously
allocated to the members with respect to their Common Units; (ii) to the
members in proportion to their respective adjusted common capital account
balances until the adjusted common account balances of all members have been
reduced to zero; (iii) to the Preferred Unit holders until the aggregate net
losses allocated to the Preferred Unit holders equals the excess, if any, of
the sum of aggregate net income allocated to the Preferred Units over the
amount of aggregate tax distributions and preferred return distributions made
to the Preferred Unit holders; and (iv) to the Preferred Unit holders in
proportion to their respective adjusted capital account balances until the
adjusted capital account balances of all Preferred Unit holders have been
reduced to zero.
Upon a liquidation of the Company, after all the Company's liabilities
have been paid, remaining proceeds shall be distributed as follows: (i) to the
Preferred Unit holders in an amount equal to the lesser of such Preferred Unit
holder's adjusted preferred capital contribution, and such Preferred Unit
holders positive capital account balance; (ii) to the Common Unit holders in
proportion to their positive capital account balances.
Optional equity contributions
On or prior to April 3, 2000, a member of the Company and director of
Aurora Management, Inc., may at his option make additional capital
contributions with an aggregate value of up to $900,000. During the first
quarter of 2000, the capital contribution was made by the member.
F-34
AURORA COMMUNICATIONS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On or prior to May 3, 2004, the Company's President, Chief Executive
Officer and member, may make additional capital contributions at his option
with an aggregate value of up to approximately $1,652,000.
10. Impact of Year 2000 (Unaudited)
In late 1999, the Company completed its remediation and testing of
systems. As a result of its planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. Costs incurred by the
Company in connection with remediating its systems were immaterial. The Company
is not aware of any material problems resulting from Year 2000 issues, either
with the programming of its radio stations, its internal systems, or the
products and services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its significant
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
11. Subsequent Event (Unaudited)
On March 24, 2000, the Company's members entered into an agreement to
sell all the ownership interests in the Company to Nassau Broadcasting
Partners, L.P. for approximately $185.0 million less long-term debt, consisting
of approximately $150.0 million plus an ownership interest in Nassau
Broadcasting Partners, L.P. The transaction is subject to various regulatory
approvals.
F-35
INDEPENDENT AUDITORS' REPORT
WEBE and WICC Radio Stations
(Divisions of ML Media Partners, L.P.)
We have audited the accompanying combined balance sheets of WEBE and WICC
Radio Stations (Divisions of ML Media Partners, L.P.) (collectively, the
"Combined Group") as of December 31, 1998 and 1997, and the related combined
statements of operations and accumulated earnings (deficit), and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Combined Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of WEBE and WICC Radio Stations
(Divisions of ML Media Partners, L.P.) at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
August 27, 1999
F-38
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
COMBINED BALANCE SHEETS
December 31, 1998 and 1997
[Download Table]
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,920,462 $ 555,002
Accounts receivable--trade, less allowance for
doubtful accounts of $115,841 in 1998 and $78,572 in
1997................................................ 2,203,635 1,902,249
Prepaid barter expense............................... 49,776 84,342
Other current assets................................. 28,209 21,329
----------- -----------
Total current assets............................... 6,202,082 2,562,922
----------- -----------
PROPERTY:
Building............................................. 76,368 76,368
Towers and antennas.................................. 751,881 750,096
Broadcasting equipment............................... 1,250,000 1,314,502
Furniture, fixtures and office equipment............. 388,981 385,457
Leasehold improvements............................... 155,232 155,232
Vehicles............................................. -- 20,790
----------- -----------
Total.............................................. 2,622,462 2,702,445
Less accumulated depreciation and amortization....... 2,521,037 2,597,617
----------- -----------
PROPERTY--Net.......................................... 101,425 104,828
----------- -----------
OTHER ASSETS:
Goodwill............................................. 14,777,376 14,777,376
Other intangible assets.............................. 761,624 761,624
----------- -----------
Total.............................................. 15,539,000 15,539,000
Less accumulated amortization........................ 4,356,407 3,972,745
----------- -----------
OTHER ASSETS--Net...................................... 11,182,593 11,566,255
----------- -----------
TOTAL ASSETS........................................... $17,486,100 $14,234,005
=========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 31,278 $ 15,982
Deferred barter revenue.............................. 94,175 147,207
Accrued liabilities--other........................... 327,920 450,736
Payable to affiliates................................ 1,688,693 2,874,228
----------- -----------
Total current liabilities.......................... 2,142,066 3,488,153
----------- -----------
COMMITMENTS (Note 4)
DIVISIONAL EQUITY:
Division capital..................................... 4,500,000 4,500,000
Payable to affiliates................................ 5,244,248 4,869,581
Accumulated earnings................................. 5,599,786 1,376,271
----------- -----------
Total.............................................. 15,344,034 10,745,852
----------- -----------
TOTAL LIABILITIES AND DIVISIONAL EQUITY................ $17,486,100 $14,234,005
=========== ===========
See notes to combined financial statements.
F-39
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS (DEFICIT)
Years Ended December 31, 1998, 1997 and 1996
[Download Table]
1998 1997 1996
----------- ----------- -----------
REVENUE:
Local................................ $ 9,496,654 $ 9,063,957 $ 7,467,180
National............................. 2,777,925 2,194,956 1,753,774
Trades............................... 445,752 614,201 572,519
Other................................ 571,863 426,240 443,473
----------- ----------- -----------
Total.............................. 13,292,194 12,299,354 10,236,946
Less commissions of agencies......... 1,632,323 1,478,419 1,223,346
----------- ----------- -----------
NET REVENUE............................ 11,659,871 10,820,935 9,013,600
----------- ----------- -----------
OPERATING EXPENSES BEFORE DEPRECIATION
AND AMORTIZATION:
Direct............................... 602,410 590,407 494,376
Technical............................ 240,970 231,854 247,733
Programming.......................... 990,498 994,339 816,721
News................................. 259,388 248,508 273,873
Selling.............................. 2,052,515 1,994,603 1,701,447
Promotion............................ 610,757 717,685 455,956
General and administrative........... 1,334,684 1,401,451 1,337,873
Corporate administrative............. 271,218 298,284 327,868
Management fee....................... 450,488 1,068,552 650,965
----------- ----------- -----------
Total.............................. 6,812,928 7,545,683 6,306,812
----------- ----------- -----------
OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION...................... 4,846,943 3,275,252 2,706,788
DEPRECIATION AND AMORTIZATION.......... (410,373) (538,887) (561,945)
----------- ----------- -----------
OPERATING INCOME....................... 4,436,570 2,736,365 2,144,843
INTEREST EXPENSE....................... (213,055) (204,363) (458,369)
----------- ----------- -----------
NET INCOME............................. 4,233,515 2,532,002 1,686,474
ACCUMULATED EARNINGS (DEFICIT),
BEGINNING OF YEAR..................... 1,376,271 (1,155,731) (2,842,205)
----------- ----------- -----------
ACCUMULATED EARNINGS (DEFICIT), END OF
YEAR.................................. $ 5,599,786 $ 1,376,271 $(1,155,731)
=========== =========== ===========
See notes to combined financial statements.
F-40
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
[Download Table]
1998 1997 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $4,223,515 $2,532,002 $1,686,474
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 26,711 95,760 118,104
Amortization........................... 383,662 443,127 443,841
Bad debt expense....................... 56,026 45,336 64,633
Changes in operating assets (increase)
decrease:
Accounts receivable.................. (357,412) (248,784) (269,555)
Prepaid barter expense............... 34,566 43,014 (126,011)
Other current assets................. (6,880) 18,937 (9,605)
Changes in operating liabilities
increase (decrease):
Accounts payable and other accrued
liabilities......................... (107,519) (116,776) (40,514)
Deferred barter revenue.............. (53,032) 22,766 124,258
---------- ---------- ----------
Net cash provided by operating
activities........................ 4,199,637 2,835,382 1,991,625
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures..................... (23,309) (29,663) (16,419)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES--
Net decrease in payable to parent and
affiliates.............................. (810,868) (3,135,510) (1,332,044)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 3,365,460 (329,791) 643,162
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR...................................... 555,002 884,793 241,631
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR..... $3,920,462 $ 555,002 $ 884,793
========== ========== ==========
See notes to combined financial statements.
F-41
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1988, 1997 and 1996
1. ORGANIZATION, OWNERSHIP AND OPERATIONS
WEBE and WICC radio stations (collectively, the "Combined Group") are
divisions of ML Media Partners, L.P. ("ML"). Both of the radio stations are
located in Fairfield County, Connecticut. Based upon regular assessments of the
Combined Group's operations performed by key management, the Combined Group has
determined that is reportable segment is commercial radio broadcasting. The
economic characteristics, services, production process, customer type and
distribution methods for the Combined Group's two radio statements are
substantially similar and have therefore been aggregated as one reportable
segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination--The accompanying combined financial statements
include the accounts of the Combined Group. All significant intercompany
balances and transactions have been eliminated in combination.
Property--Property is stated at cost less accumulated depreciation and
amortization. Leasehold improvements are amortized over their estimated useful
lives or the length of the lease, whichever is shorter. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets as follows:
[Download Table]
Years
-----
Buildings............................................................ 20-30
Towers and antennas.................................................. 7-20
Broadcasting equipment............................................... 7-8
Furniture, fixtures, and office equipment............................ 3-7
Vehicles............................................................. 5
Asset Impairment--The individual entities within the Combined Group
assess the impairment of their respective long-lived assets on a regular basis
or immediately upon the occurrence of a significant event in the marketplace or
an event that directly impacts such assets. The methodology varies depending on
the type of asset but typically consists of comparing the net book value of the
asset to either: (1) the undiscounted expected future cash flows generated by
the asset, and/or (2) the current market values obtained from industry sources.
If the net book value of a particular asset is materially higher than the
estimated net realizable value, and the asset is considered to be permanently
impaired, the radio stations will write down the net book value of the asset
accordingly. The Combined Group relies on industry sources and its experience
in the particular marketplace to determine whether an asset impairment is other
than temporary. As of December 31, 1998, based on the opinion of management, no
such impairments had occurred.
Intangible Assets--Intangible assets consist of advertiser lists,
favorable market area, favorable program format, permits, agreements,
contracts, goodwill and organizational costs which are stated at cost, less
accumulated amortization, as determined by management for WICC and by
independent appraisals for WEBE. These intangible assets are being amortized
over the shorter of their respective expiration dates for 40 years.
Revenue Recognition--Local and national advertising revenues are recorded
when the corresponding commercials spots are aired.
F-42
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
Barter Transactions--As is customary in the broadcasting industry, the
Combined Group engages in the bartering of commercial air time for various
goods and services. The goods and services are capitalized or expensed as
appropriate, when received or utilized. Revenues are recognized when the
commercial spots are aired. At December 31, 1998 and 1997, the Combined Group
had deferred barter revenue (net of prepaid barter expense) of $44,399 and
$62,865, respectively. During 1998, 1997 and 1996 the Combined Group had
expenses of $424,287, $676,288 and $597,548, respectively, and revenues of
$445,752, $614,201 and $572,519, respectively, in connection with barter
transactions.
Cash Equivalents--Cash equivalents represent liquid investments with an
original maturity of 90 days or less.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. ALLOCATED BORROWINGS
On July 19, 1989, ML and Wincom Broadcasting Corporation and its wholly-
owned subsidiary Win Communications, Inc. (collectively, "Wincom" which is
wholly-owned by ML) entered into an amended and restated credit, security and
pledge agreement (the "Wincom-WEBE-WICC Loan") with Chemical Bank (currently
doing business as Chase Manhattan Bank and subsequently referred to herein as
"Chase") which was used to replace and repay other debt agreements and finance
the acquisition of WICC. The Combined Group has been allocated a portion of the
Wincom-WEBE-WICC Loan based on each station's percentage of broadcast cashflow
to the total broadcast cash flow of Wincom Communications and WEBE and WICC.
The Combined Group's allocated portion of the related obligations was
$1,688,693 and $2,874,228 at December 31, 1998 and 1997, respectively and is
included in payable to affiliates--current on the combined balance sheets.
The Wincom-WEBE-WICC Loan was structured as a revolving credit line that
provided for borrowings of up to $35,000,000 through December 31, 1990. The
Wincom-WEBE-WICC Loan converted to a term loan on December 31, 1990. Principal
payments were scheduled to commence on March 31, 1991 and to continue quarterly
through June 30, 1997. ML, if no event of default had occurred, had options to
elect to pay interest on the Wincom-WEBE-WICC Loan based upon the bank's
reference rate or London Interbank Offered Rates, plus applicable margins. As a
result of defaults under the Wincom-WEBE-WICC Loan, the lender has restricted
interest rate options to reference rate only.
The Wincom-WEBE-WICC Loan required that the Wincom-WEBE-WICC group
maintain minimum covenant levels of certain ratios such as debt to operating
profit and debt service coverage, and restrict such items as: cash
disbursements; the payment of management fees; distributions or dividends;
additional indebtedness; or asset sales by or at Wincom, WEBE or WICC. The
Wincom-WEBE-WICC Loan also included other standard and usual loan covenants.
Borrowings under the Wincom-WEBE-WICC Loan were nonrecourse to ML and are
collateralized with substantially all of the assets of the Wincom-WEBE-WICC
Group.
F-43
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
On July 30, 1993, ML and Chase executed a Second Amendment to the Wincom-
WEBE-WICC Loan (the "Restructuring Agreement"), effective January 1, 1993,
which cured all previously outstanding defaults pursuant to the Wincom-WEBE-
WICC Loan. In addition, as part of the restructuring process, ML agreed to sell
substantially all of the assets of Indianapolis Stations owned by Wincom, WRZX-
FM and WCKN-AM. Such sale was consummated on October 1, 1993.
The Restructuring Agreement provided for the outstanding principal and
interest due Chase as of December 31, 1992 (approximately $24.7 million and
$2.0 million, respectively) to be divided into three notes as follows: a Series
A Term Loan in the amount of $13 million; a Series B Term Loan in the amount of
approximately $11.7 million; and a Series C Term Loan in the amount of
approximately $2.0 million.
As a result of the payment of the Series B Term Loan from the net
proceeds of the sale of the Indianapolis Stations exceeding $6 million
(described above), the full principal amount of the Series C Term Loan was
forgiven by Chase on October 1, 1993 pursuant to the terms of the Restructuring
Agreement.
The Series A Term Loan was paid in full as of December 31, 1998. On
January 28, 1999, the remaining principal and interest of the Series B term
loan was paid in full. The Combined Group's allocated portion of this loan is
included in payable to affiliates - current on the combined balances sheets.
4. OPERATING LEASES
The Combined Group leases broadcast facilities and certain other
equipment under operating lease agreements. Several of the leases contain
renewal options and require payment for real estate taxes and other operating
costs. Minimum future rental commitments at December 31, 1998 under all
noncancelable operating leases in excess of one year, are as follows:
[Download Table]
Year Amount
---- --------
1999.............................................................. $205,656
========
Total rent expense for the years ended December 31, 1998, 1997 and 1996
was $210,906, $256,902 and $355,232, respectively.
5. INCOME TAXES
As operating divisions of ML, WEBE, and WICC are included in the tax
returns of ML. ML is not subject to income taxes because all income and
expenses are allocated to the individual partners of ML for inclusion in their
respective tax returns. Accordingly, no income tax provision is recorded for
WEBE and WICC in the accompanying combined statements of operations.
6. RELATED PARTY TRANSACTIONS
The payable to affiliates represents the amount payable by the Combined
Group, principally to ML. ML does not assess interest to the Combined Group on
its outstanding intercompany balances.
F-44
WEBE AND WICC RADIO STATIONS
(Divisions of ML Media Partners, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1998, 1997 and 1996
The Combined Group is charged management fees by ML. These fees amounted
to $450,488, $1,068,552 and $650,965 in 1998, 1997 and 1996, respectively. The
Combined Group also incurred corporate administrative fees to RP Radio LLC.,
(which took over management of the radio station in 1996). Amounts incurred in
1998, 1997 and 1996 were $271,218, $298,284 and $327,868, respectively.
The activity in the payable to affiliates account for the years ended
December 31, 1998, 1997, and 1996 is as follows:
[Download Table]
1998 1997 1996
---------- ---------- ----------
Balance, beginning of year............... $4,869,581 $3,579,610 $3,044,486
Transfers from ML and affiliates--net.... 374,667 1,289,971 535,124
---------- ---------- ----------
Balance, end of year..................... $5,244,248 $4,869,581 $3,579,610
========== ========== ==========
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires companies to report the fair value of certain on- and off-balance-
sheet assets and liabilities which are defined as financial instruments.
Assets, including cash and cash equivalents and accounts receivable, and
liabilities, such as accounts payable and amounts payable to parent and
affiliates, are carried at amounts which approximate fair value.
8. SUBSEQUENT EVENT
On April 22, 1999, ML Media Partners L.P. entered into an asset purchase
agreement to sell the assets of WEBE and WICC for $66 million. The effective
closing date for this transaction is August 31, 1999.
F-45
INDEPENDENT AUDITORS' REPORT
To the Trustee
Capstar Trust
We have audited the accompanying balance sheet of Capstar Trust (a trust)
as of October 26, 1999, and the related statements of operations and
beneficiaries' equity and cash flows for the period of January 1, 1999 to
October 26, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Capstar Trust as of
October 26, 1999, and the results of its operations and its cash flows for the
period of January 1, 1999 to October 26, 1999 in conformity with generally
accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
January 21, 2000
F-46
CAPSTAR TRUST
BALANCE SHEET
October 26, 1999
[Download Table]
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 567,697
Accounts receivable, less allowance for doubtful accounts of
$71,838........................................................ 585,355
Other current assets............................................ 31,350
------------
Total Current Assets.......................................... 1,184,402
Property, Plant and Equipment--Net................................ 1,943,749
Intangible Assets--Net............................................ 7,464,336
Security Deposits................................................. 2,005
------------
Total assets...................................................... $ 10,594,492
============
LIABILITY AND BENEFICIARIES' EQUITY
Current Liability:
Accounts payable and accrued expenses........................... $ 247,834
Beneficiaries' Equity........................................... 10,346,658
------------
Total liabilities and beneficiaries' equity................... $ 10,594,492
============
The Notes to Financial Statements are an Integral Part of this Statement
F-47
CAPSTAR TRUST
STATEMENT OF OPERATIONS AND BENEFICIARIES' EQUITY
For the period of January 1, 1999 to October 26, 1999
[Download Table]
Revenues:
Broadcast revenue................................................ $ 3,578,756
Less: agency commissions......................................... (249,121)
-----------
Net Broadcast Revenue.......................................... 3,329,635
Other Non-broadcast Revenue...................................... 7,734
-----------
Total Revenue.................................................. 3,337,369
Expenses:
Programming and technical........................................ 638,370
Sales and advertising............................................ 1,096,967
Administrative................................................... 640,153
-----------
Total Expenses................................................. 2,375,490
-----------
Income from Operations............................................. 961,879
Other (Income) Expenses:
Depreciation..................................................... 144,592
Amortization..................................................... 172,174
Other expenses................................................... 47,693
Interest income.................................................. (13,731)
-----------
Total Other (Income) Expenses.................................. 350,728
-----------
Net Income......................................................... 611,151
Beneficiaries' Equity at Beginning of Period....................... 10,485,507
Distributions to Beneficiary....................................... (750,000)
-----------
Beneficiaries' Equity at End of Period............................. $10,346,658
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-47--1
CAPSTAR TRUST
STATEMENT OF CASH FLOWS
For the period of January 1, 1999 to October 26, 1999
[Download Table]
Cash Flows From Operating Activities:
Net income....................................................... $ 611,151
Adjustments to Reconcile Net income to Net Cash Provided by
Operating Activities:
Depreciation and amortization.................................... 316,766
Bad debt (recovery).............................................. (41,519)
Increase in accounts receivable.................................. (74,106)
Decrease in other current asset.................................. 6,553
Increase in accounts payable..................................... 158,874
---------
Total Adjustments.............................................. 366,568
---------
Net cash provided by operating activities.......................... 977,719
Cash Flows From Investing Activities:
Purchase of property and equipment............................... (159,953)
Cash Flows from Financing Activities:
Distributions to beneficiary..................................... (750,000)
---------
Net Increase in Cash and Cash Equivalents.......................... 67,766
Cash and Cash Equivalents at Beginning of Period................... 499,931
---------
Cash and Cash Equivalents at End of Period......................... $ 567,697
=========
The Notes to Financial Statements are an Integral Part of this Statement
F-47--2
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Capstar Trust (the Company) operates several radio stations in the
Danbury, Connecticut area. The Company commenced operations on May 29, 1999
upon the contribution of the assets by the grantor. The Company derives its
revenue primarily from the sale of radio advertising.
Contribution of Assets
On May 29, 1999, Capstar Broadcasting Corporation (the Grantor)
contributed all of the rights, title, interest and obligations in all of the
assets, properties, contracts, leases and agreements of four radio stations
known by the call letters WRKI, WAXB, WPUT and WINE to the Trust.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of
program time and commercial announcements to local, regional and national
advertisers. Revenue is recognized when the program and commercial
announcements are broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Company maintains balances in a money market fund. Such balances are
not FDIC insured.
The Company periodically maintains cash balances in excess of the FDIC
insurance limit in its financial institution.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivable are maintained.
F-47--3
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight-line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment.............................................. 3-7 years
Studio equipment.............................................. 7-10 years
Leasehold improvements........................................ 10-20 years
Buildings and broadcast tower................................. 20 years
Income Taxes
The Company is treated as a grantor trust for tax purposes. Accordingly,
the items of income, loss and credit are taxed directly to the beneficiary.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
There were no cash payments for interest and income taxes.
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast,
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows:
[Download Table]
Trade sales....................................................... $ 484,938
Trade expense..................................................... (526,372)
---------
Net Trade Out................................................... $ (41,434)
=========
F-47--4
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at October 26, 1999:
[Download Table]
Land, building and improvements.................................. $ 999,636
Vehicles......................................................... 3,290
Studio and transmission equipment................................ 1,206,141
Office equipment and fixtures.................................... 193,599
----------
Total.......................................................... 2,402,666
Less: accumulated depreciation (458,917)
----------
Net Property and Equipment....................................... $1,943,749
==========
Depreciation expense changed to operations amounted to $144,592 for the
period.
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at October 26, 1999:
[Download Table]
Amortization
Period
------------
FCC license......................................... 40 years $8,003,448
Goodwill............................................ 40 years 32,000
Favorable lease..................................... 9 years 56,108
-------- ----------
Total............................................... 8,091,556
Less: accumulated amortization...................... (627,220)
-------- ----------
Net Intangible Assets............................... $7,464,336
======== ==========
Amortization expense changed to operations amounted to $172,174 for the
period.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
NOTE 4--COMMITMENTS
Operating Leases
The Company leases office equipment under an operating lease expiring in
2003.
The Company also leases various tower facilities under operating leases
which do not currently have a definitive expiration date.
F-47--5
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company also contracts for a variety of services and equipment
through short term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended October 26,
2000............................................................ $ 233,765
2001............................................................ 144,928
2002............................................................ 141,832
2003............................................................ 150,066
2004............................................................ 50,793
---------
Total Minimum Lease Payments.................................. $ 721,384
=========
NOTE 6--PENSION PLAN
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employees contributions up to six percent of compensation. For the
period ended October 26, 1999, the Company contributed $14,148.
NOTE 7--SUBSEQUENT SALE OF CAPSTAR TRUST
On October 27, 1999, the assets, excluding cash, and equivalents, and
accounts receivable, of the Capstar Trust were purchased by Aurora
Communications, LLC. The gross proceeds from the sale were $11,273,787.
F-47--6
INDEPENDENT AUDITORS' REPORT
To the Trustee
Capstar Trust
We have audited the accompanying balance sheet of Capstar Trust (a trust)
as of December 31, 1998, and the related statements of operations and
beneficiaries' equity and cash flows for the period May 29, 1998 (date of
inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Capstar Trust as of
December 31, 1998, and the results of its operations and its cash flows for the
period of May 29, 1998 (date of inception) to December 31, 1998 in conformity
with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
February 11, 1999
(except for Note 7, as to
which the date is October
27, 1999)
F-47--7
CAPSTAR TRUST
BALANCE SHEET
December 31, 1998
[Download Table]
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 499,931
Accounts receivable, less allowance for doubtful accounts of
$113,357........................................................ 469,730
Other current assets............................................. 37,903
-----------
Total Current Assets........................................... 1,007,564
Property, Plant and Equipment--Net................................. 1,927,705
Intangible Assets--Net............................................. 7,637,193
Security Deposits.................................................. 2,005
-----------
TOTAL ASSETS..................................................... $10,574,467
===========
LIABILITY AND BENEFICIARIES' EQUITY
Current Liability:
Accounts payable and accrued expenses............................ 88,960
Beneficiaries' Equity............................................ 10,485,507
-----------
TOTAL LIABILITIES AND BENEFICIARIES' EQUITY.................... $10,574,467
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-47--8
CAPSTAR TRUST
STATEMENT OF OPERATIONS AND BENEFICIARIES' EQUITY
For the period of May 29, 1998 (date of inception) to December 31, 1998
[Download Table]
Revenues:
Broadcast revenue................................................ $ 2,329,270
Less: agency commissions......................................... (155,879)
-----------
Net Broadcast Revenue.......................................... 2,173,391
Other Non-broadcast Revenue...................................... 6,016
Total Revenue.................................................. 2,179,407
Expenses:
Programming and technical........................................ 398,393
Sales and advertising............................................ 807,306
Administrative................................................... 420,998
-----------
Total Expenses................................................. 1,626,697
-----------
Income from Operations............................................. 552,710
Other (Income) Expenses:
Corporate Expense................................................ 33,112
Depreciation..................................................... 87,606
Amortization..................................................... 121,236
Interest income.................................................. (8,348)
-----------
Total Other (Income) Expenses.................................. 233,606
-----------
Net Income......................................................... 319,104
Beneficiaries' Equity at Beginning of Period....................... --
Contributed Capital................................................ 10,416,403
Distributions to Beneficiary....................................... (250,000)
-----------
Beneficiaries' Equity at End of Period............................. $10,485,507
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-47--9
CAPSTAR TRUST
STATEMENT OF CASH FLOWS
For the period May 29, 1998 (date of inception) to December 31, 1998
[Download Table]
Cash Flows From Operating Activities:
Net income....................................................... $ 319,104
Adjustments to Reconcile Net income to Net Cash Provided by
Operating Activities:
Depreciation and amortization.................................. 208,842
Bad debt provision (recovery).................................. 20,009
Decrease in accounts receivable................................ 173,358
Increase in other current assets............................... (22,785)
Payment of security deposits................................... (380)
Increase in accounts payable................................... 88,960
-----------
Total Adjustments............................................ 468,004
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... 787,108
Cash Flows From Investing Activities:
Organization costs............................................. (3,442)
Purchase of property and equipment............................. (34,535)
-----------
NET CASH USED BY INVESTING ACTIVITIES........................ (37,977)
Cash Flows from Financing Activities:
Payment of distribution to beneficiary......................... (250,000)
-----------
Net Increase in Cash and Cash Equivalents...................... 499,131
Cash and Cash Equivalents at Beginning of Period............... 800
-----------
Cash and Cash Equivalents at End of Period..................... $ 499,931
===========
Summary of Noncash Financing Activities:
Contribution of assets by grantor.............................. $10,416,403
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-47--10
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Capstar Trust (the Company) operates several radio stations in the
Danbury, Connecticut area. The Company commenced operations on May 29, 1998
upon the contribution of the assets by the grantor. The Company derives its
revenue primarily from the sale of radio advertising.
Contribution of Assets
On May 29, 1998, Capstar Broadcasting Corporation (the Grantor)
contributed all of the rights, title, interest and obligations in all of the
assets, properties, contracts, leases and agreements of four radio stations
known by the call letters WRKI, WAXB, WPUT and WINE to the Trust.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of
program time and commercial announcements to local, regional and national
advertisers. Revenue is recognized when the program and commercial
announcements are broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Company maintains balances in a money market fund. Such balances are
not FDIC insured.
The Company periodically maintains cash balances in excess of the FDIC
insurance limit in its financial institution.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivable are maintained.
F-47--11
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight-line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 3-7 years
Studio equipment................................................. 7-10 years
Leasehold improvements........................................... 10-20 years
Buildings and broadcast tower.................................... 20 years
Income Taxes
The Company is treated as a grantor trust for tax purposes. Accordingly,
the items of income, loss and credit are taxed directly to the beneficiary.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
Cash paid for interest and income taxes are as follows:
[Download Table]
Interest............................................................... $ --
Income taxes........................................................... --
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast,
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows:
[Download Table]
Trade sales....................................................... $ 359,909
Trade expense..................................................... (423,317)
---------
Net Trade Out................................................... $ (63,408)
=========
F-47--12
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
[Download Table]
Land, building and improvements.................................. $ 992,917
Vehicles......................................................... 3,290
Studio and transmission equipment................................ 1,124,535
Office equipment and fixtures.................................... 121,971
----------
Total.......................................................... 2,242,713
Less: accumulated depreciation................................... (315,008)
----------
Net Property and Equipment....................................... $1,927,705
==========
Depreciation charged to operations amounted to $87,606.
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1998:
[Download Table]
FCC license...................................................... $8,003,448
Goodwill......................................................... 32,000
Favorable lease.................................................. 56,108
Organization costs............................................... 3,442
----------
Total.......................................................... 8,094,998
Less: accumulated amortization................................... (457,805)
----------
$7,637,193
==========
Amortization charged to operations amount to $121,236.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
Note 4--Commitments
Operating Leases
The Company leases office equipment under an operating lease expiring in
2003.
The Company also leases various tower facilities under operating leases
which do not currently have a definitive expiration date.
F-47--13
CAPSTAR TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company also contracts for a variety of services and equipment
through short term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Note 3--Intangible Assets
Intangible assets consisted of the following at December 31, 1998:
[Download Table]
FCC license...................................................... $8,003,448
Goodwill......................................................... 32,000
Favorable lease.................................................. 56,108
Organization costs............................................... 3,442
----------
Total.......................................................... 8,094,998
Less: accumulated amortization................................... (457,805)
----------
Net Intangible Assets............................................ $7,637,193
==========
Amortization charged to operations amounted to $121,236.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
Note 4--Commitments
Operating Leases
The Company leases office equipment under an operating lease expiring in
2003.
The Company also leases various tower facilities under an operating lease
which do not currently have a definitive expiration date.
The Company also contracts for a variety of services and equipment
through short term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
F-47--14
INDEPENDENT AUDITORS' REPORT
To the Members
Westchester Radio, LLC
We have audited the accompanying balance sheet of Westchester Radio, LLC
(a limited liability company) as of October 26, 1999, and the related
statements of operations and members' deficiency and cash flows for the period
of January 1, 1999 to October 26, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Westchester Radio,
LLC as of October 26, 1999, and the results of its operations and its cash
flows for the period of January 1, 1999 to October 26, 1999 in conformity with
generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
January 4, 2000
F-48
WESTCHESTER RADIO, LLC
BALANCE SHEET
October 26, 1999
[Download Table]
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 256,496
Accounts receivable, less allowance for doubtful accounts of
$55,000....................................................... 836,822
Other current assets........................................... 20,428
------------
Total current assets......................................... 1,113,746
PROPERTY, PLANT AND EQUIPMENT--NET............................... 2,440,304
Intangible assets--net......................................... 18,178,136
Security deposits.............................................. 7,732
------------
Total assets................................................. $ 21,739,918
============
LIABILITY AND MEMBERS' DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt........................... $ 1,963,873
Accounts payable and accrued expenses.......................... 406,761
------------
Total current liabilities.................................... 2,370,634
LONG-TERM DEBT................................................... 38,167,660
MEMBERS' DEFICIENCY.............................................. (18,798,376)
------------
TOTAL LIABILITIES AND MEMBERS' DEFICIENCY.................... $ 21,739,918
============
The Notes to Financial Statements are an Integral Part of this Statement
F-49
WESTCHESTER RADIO, LLC
STATEMENT OF OPERATIONS AND MEMBERS' DEFICIENCY
For the Period of January 1, 1999 to October 26, 1999
[Download Table]
Revenues:
Broadcast revenue.............................................. $ 4,228,178
Less: agency commissions....................................... (396,621)
------------
Net broadcast revenue........................................ 3,831,557
Other non broadcast revenue...................................... 120,071
------------
Total revenue................................................ 3,951,628
Expenses:
Programming and technical...................................... 623,392
Sales and advertising.......................................... 1,133,766
Administrative................................................. 899,211
------------
Total expenses............................................... 2,656,369
------------
Income from operations........................................... 1,295,259
Other (income) expenses:
Partnership administration..................................... 204,584
Depreciation................................................... 124,838
Amortization................................................... 783,090
Loss on impairment of intangible assets........................ 13,250,000
Interest expense............................................... 3,376,846
Interest income................................................ (6,851)
------------
Total other (income) expenses................................ 17,732,507
------------
NET LOSS..................................................... (16,437,248)
Members' deficiency at beginning of period....................... (2,361,128)
------------
Members' deficiency at end of period............................. $(18,798,376)
============
The Notes to Financial Statements are an Integral Part of this Statement
F-50
WESTCHESTER RADIO, LLC
STATEMENT OF CASH FLOWS
For the Period of January 1, 1999 to October 26, 1999
[Download Table]
Cash flows from operating activities:
Net loss........................................................ $(16,437,248)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................. 907,928
Loss on impairment of intangible assets....................... 13,250,000
Noncash interest accrued on long-term obligations............. 1,740,921
Decrease in accounts receivable............................... 135,340
Decrease in other current assets.............................. 25,590
Increase in accounts payable.................................. 97,699
Recovery of security deposits................................. 695
------------
Total adjustments........................................... 16,158,173
------------
Net cash used by operating activities....................... (279,075)
Cash flows from investing activities:
Purchase of property and equipment............................ (81,496)
Cash flows from financing activities:
Proceeds from member loans.................................... 1,359,548
Repayment of bank loans....................................... (937,500)
Principle payments on installment obligation.................. (2,952)
------------
Net cash provided by financing activities................... 419,096
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 58,525
Cash and cash equivalents at beginning of period................ 197,971
------------
Cash and cash equivalents at end of period...................... $ 256,496
============
The Notes to Financial Statements are an Integral Part of this Statement
F-51
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Westchester Radio, LLC (the Company) operates several radio stations in
Westchester County, New York. The Company commenced operations on April 2, 1999
with the contribution of the assets of WFAS-FM, WFAS-AM and WZZN-FM from
Commodore Media of Westchester, Inc. The Company derives its revenue primarily
from the sale of radio advertising.
Acquisition of Assets
On April 2, 1999, the Company acquired the net assets and FCC license of
WFAS-FM, WFAS-AM and WZZN-FM (the Stations) from Commodore Media of
Westchester, Inc. in a business combination accounted for as a purchase. The
total cost of the acquisition was $35,500,000, which exceeded the fair value of
the net assets of the stations by $32,332,961, which has been allocated to the
stations FCC license and goodwill. The excess is being amortized on the
straight line method over forty years. (See note 3 and 9)
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
In the ordinary course of business, the Company maintains cash balances
in a money market fund. Such balances are not FDIC insured.
The Company periodically maintains cash balances with financial
institutions in excess of the $100,000 FDIC insurance limit.
The Company's business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its
F-52
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
customers' financial condition and generally requires no collateral from its
customers. Credit losses have been within management's expectations and
adequate allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Debt Acquisition Costs
Legal and banking fees and other expenses associated with acquisition of
the bank financing are being amortized using the interest method over the term
of the underlying note. Amortization expense charged to operations for the
period was $109,487.
Income Taxes
The Company, a limited liability company, has elected to be treated as a
partnership for income tax purposes. Accordingly, the items of income, loss and
credit are taxed directly to the members.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
Cash paid for interest and income taxes are as follows:
[Download Table]
Interest.......................................................... $1,458,846
Income taxes...................................................... --
F-53
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows for the period of January 1, 1999 to October 26,
1999:
[Download Table]
Trade sales...................................................... $ 753,875
Trade expense.................................................... (809,810)
---------
Net Trade Out Transactions....................................... $ (55,935)
=========
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at October 26, 1999:
[Download Table]
Land............................................................. $ 573,900
Buildings and leasehold improvements............................. 975,469
Studio and transmission equipment................................ 827,714
Music library.................................................... 3,500
Office equipment and fixtures.................................... 235,120
Property held under capital lease................................ 21,215
----------
Total.......................................................... 2,636,918
Less: accumulated depreciation................................... (196,614)
----------
Net Property and Equipment....................................... $2,440,304
==========
Depreciation charged to operations amounted to $124,838 for the period.
Property and equipment are pledged as collateral for bank loans (See Note
4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at October 26, 1999:
[Download Table]
FCC license..................................................... $16,832,961
Goodwill........................................................ 2,250,000
Debt acquisition costs.......................................... 580,500
-----------
Total......................................................... 19,663,461
Less: accumulated amortization.................................. (1,485,325)
-----------
Net Intangible Assets........................................... $18,178,136
===========
Amortization charged to operations amounted to $783,090 for the period.
F-54
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact.
During the period, certain intangible assets (Goodwill) that was acquired
in 1998 were deemed to be impaired. This impairment arouse due to the
subsequent sale of the stations assets, which is more fully described in note
9. As a result, Goodwill has been written down by $13,250,000. The write off of
Goodwill is included in the Financial Statement as Loss on Impairment.
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following at October 26, 1999:
[Download Table]
Line of credit--bank
Interest payable quarterly in arrears at 10%, matures April
2004, Secured by all assets of the company and guaranteed by
the parent corporation of a member; maximum available credit
$1,000,000..................................................... $ 397,500
Term obligation--bank
Interest at 10% payable quarterly in arrears, quarterly payments
of principal which are currently $312,500. Matures April 2004,
secured by all assets of the company and guaranteed by the
parent corporation of a member................................. 23,125,000
Loan payable
This obligation is the result of the payments by the guarantor
of the bank obligations above of interest and principle on
behalf of the Company. This obligation has no stated interest
and no maturity date (see note 7).............................. 3,290,241
Note payable--This note has a face value in the amount of
$56,884,769 due April 2008. Interest accrues on this obligation
at 18% per annum through April 2008. (See Note 7)................ 13,302,279
Capital Lease Obligation.......................................... 16,513
-----------
Total Long-term Debt.......................................... 40,131,533
Less: Current Portion......................................... (1,963,873)
-----------
Long-term Debt................................................ $38,167,660
===========
The following are the maturities of long-term debt for each of the next
five years:
[Download Table]
Year Ending October 26,
2000............................................................ $ 1,960,000
2001............................................................ 1,875,000
2002............................................................ 2,187,500
2003............................................................ 9,375,000
2004............................................................ 8,125,000
-----------
$23,522,500
===========
At October 26, 1999, the Company had $602,500 of unused lines of credit
with a bank to be drawn upon as needed.
F-55
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
On October 27, 1999 the bank obligations were repaid from the proceeds of
the sale (Note 9) and payments by a member under their guarantee obligation.
The bank loan agreements contain various covenants pertaining to the
maintenance of various record keeping, reporting and ratio requirements.
Specifically, at October 26, 1999, the Company was in default of the
covenants related to the maintenance of its leverage ratio, interest coverage
ratio, and net broadcast earnings.
Under the terms of the agreement, the bank may call the loan if the
Company is in violation of any restrictive covenant. However, the obligations
have subsequently been fully repaid.
Capital Lease
The Company is the lessee of office equipment under capital leases
expiring in various years through 2003. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are depreciated over
the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation expense
for the period.
Depreciation on assets under capital leases charged to expense for the
period was $4,690.
Following is a summary of property held under capital leases:
[Download Table]
Phone System...................................................... $21,215
Less: Accumulated depreciation.................................... (6,205)
-------
Net............................................................... $15,010
=======
Minimum future lease payments under capital leases as of October 26, 1999
for each of the next five years and in the aggregate are:
[Download Table]
Year Ended October 26, 1999:
2000............................................................ $ 5,352
2001............................................................ 5,352
2002............................................................ 5,352
2003............................................................ 3,122
-------
Total minimum lease payments.................................. 19,178
Less: Amount representing interest................................ (2,665)
-------
Present value of net minimum lease payments....................... $16,513
=======
Interest rates on this capitalized lease is 14.35% and is imputed based
on the lower of company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return.
F-56
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--COMMITMENTS
Guarantee of Indebtedness
The Company has guaranteed the 13 1/4% senior subordinated notes dated
April 2, 1995 which have a principal value of $76,808,000 of Capstar Radio
Broadcasting Partners, Inc., the parent corporation of the Company's nonvoting
member.
Employment Contract
The Company has entered into an employment contract with its managing
member through April 2000 that provides for a minimum annual salary. At
October 26, 1999, the total commitment was $150,000 per annum.
Operating Leases
The Company leases various tower facilities under operating leases which
have various expiration dates.
The Company also contracts for a variety of services and equipment
through short term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term
at the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended October 26,
2000............................................................ $ 7,500
2001............................................................ 7,500
2002............................................................ 7,500
2003............................................................ 7,500
2004............................................................ 7,500
-------
Total Minimum Lease Payments.................................. $37,500
=======
NOTE 6--PENSION PLAN
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employees contributions up to six percent of compensation. For the
period ended October 26, 1999, the Company contributed $15,052.
NOTE 7--RELATED PARTIES
As part of the acquisition of the stations, the Company borrowed from the
parent corporation of one of its members, moneys to complete the acquisition.
The note has a face value of $56,884,769 and is due in April 2008. The note
has been discounted to its present value at the rate of 18% and was,
accordingly, assigned a value of $10,150,000 and is subordinate to the bank
obligations.
The Company, subsequent to the contribution of the net assets of
Commodore Media of Westchester Inc., refinanced those assets and distributed
$35,000,000 of the proceeds to its member.
F-57
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The note including accumulated interest is convertible at the option of
the holder at any time, into a maximum of 13,000 member interests in the
company based on a prescribed formula (See Note 8).
The Company, as a result of its inability to cover principal and interest
payments on its bank lines as they came due, relied on the guarantee of a
member to meet the obligations. At October 26, 1999, the member had advanced a
total of $3,290,241 to the Company to meet its obligations.
NOTE 8--MEMBERS' EQUITY
The members of the Company have liability for the debts, obligations and
liabilities of the Company up to the amount of capital contributed to the
Company.
The Company is authorized to issue up to 14,000 limited liability company
interests which may be designated as voting interests or nonvoting interests
upon issuance. Subject to obtaining necessary consent, outstanding nonvoting
interests are convertible, at any time, upon the election of the holder into a
like number of voting interests.
At October 26, 1999, the Company had a total of 1,000 interests
outstanding, of which 700 were voting interests.
NOTE 9--SUBSEQUENT SALE OF THE COMPANY
On October 27, 1999, the tangible assets, FCC license and goodwill of the
company were purchased by Aurora of Westchester L.L.C. The total selling price
was $20,250,000.
F-58
INDEPENDENT AUDITORS' REPORT
To the Members
Westchester Radio, LLC
We have audited the accompanying balance sheet of Westchester Radio, LLC
(a limited liability company) as of December 31, 1998, and the related
statements of operations and members' deficiency and cash flows for the period
April 2, 1998 (date of inception) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Westchester Radio,
LLC as of December 31, 1998, and the results of its operations and its cash
flows for the period of April 2, 1998 (date of inception) to December 31, 1998
in conformity with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
February 19, 1999
(except for Note 9, as to which the date is October 27, 1999)
F-61
WESTCHESTER RADIO, LLC
BALANCE SHEET
December 31, 1998
[Download Table]
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 197,971
Accounts receivable, less allowance for doubtful accounts of
$111,673....................................................... 972,162
Other current assets............................................ 46,018
-----------
Total current assets.......................................... 1,216,151
PROPERTY, PLANT AND EQUIPMENT--NET................................ 2,483,646
Intangible assets--net............................................ 32,211,227
Security deposits................................................. 8,427
-----------
Total assets.................................................. $35,919,451
===========
LIABILITY AND MEMBERS' DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt............................ $ 1,253,479
Accounts payable and accrued expenses........................... 309,062
-----------
Total current liabilities..................................... 1,562,541
LONG-TERM DEBT.................................................... 36,718,038
MEMBERS' DEFICIENCY............................................... (2,361,128)
-----------
Total liabilities and members' deficiency..................... $35,919,451
===========
The notes to financial statements are an integral part of this statement.
F-62
WESTCHESTER RADIO, LLC
STATEMENT OF OPERATIONS AND MEMBERS' DEFICIENCY
For the Period of April 2, 1998 (date of inception) to December 31, 1998
[Download Table]
Revenues:
Broadcast revenue............................................... $ 4,036,192
Less: agency commissions........................................ (385,014)
-----------
Net broadcast revenue......................................... 3,651,178
-----------
Other non broadcast revenue....................................... 118,873
-----------
Total revenue................................................. 3,770,051
-----------
Expenses:
Programming and technical....................................... 605,440
Sales and advertising........................................... 1,009,839
Administrative.................................................. 777,257
-----------
Total expenses................................................ 2,392,536
-----------
Income from operations............................................ 1,377,515
Other (income) expenses:
Reorganization/start up cost.................................... 67,246
Depreciation.................................................... 71,776
Amortization.................................................... 702,234
Interest expense................................................ 3,248,178
Interest income................................................. (791)
-----------
Total other (income) expenses................................. 4,088,643
-----------
NET LOSS...................................................... (2,711,128)
Members' equity at beginning of period............................ --
Contributed capital............................................... 350,000
-----------
Members' deficiency at end of period.............................. $(2,361,128)
===========
The notes to financial statements are an integral part of this statement.
F-63
WESTCHESTER RADIO, LLC
STATEMENT OF CASH FLOWS
For the Period April 2, 1998 (date of inception) to December 31, 1998
[Download Table]
Cash Flows From Operating Activities:
Net Loss....................................................... $(2,711,128)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 774,010
Bad debt provision (recovery).................................. (19,173)
Noncash interest accrued on long-term obligations.............. 1,411,358
Increase in accounts receivable................................ (135,834)
Increase in other current assets............................... (22,935)
Increase in accounts payable................................... 116,236
-----------
Total adjustments............................................ 2,123,662
-----------
Net cash used by operating activities........................ (587,466)
Cash flows from investing activities:
Acquisition of stations........................................ (35,500,000)
Purchase of property and equipment............................. (23,417)
-----------
Net cash used by investing activities........................ (35,523,417)
-----------
Cash flows from financing activities:
Proceeds from bank loans....................................... 25,580,000
Proceeds from member loans..................................... 12,080,778
Proceeds from capital contributions............................ 350,000
Repayment of bank loans........................................ (1,120,500)
Principle payments on installment obligation................... (1,624)
Payment of debt acquisition costs.............................. (580,000)
-----------
Net cash provided by financing activities.................... 36,308,654
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 197,771
Cash and cash equivalents at beginning of period................. 200
-----------
Cash and cash equivalents at end of period....................... $ 197,971
===========
Noncash financing activities:
Financing under capital lease.................................. $ 21,215
===========
The notes to financial statements are an integral part of this statement.
F-64
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Westchester Radio, LLC (the Company) operates several radio stations in
Westchester county, New York. The Company commenced operations on April 2, 1998
with the contribution of the assets of WFAS-FM, WFAS-AM and WZZN-FM from
Commodore Media of Westchester, Inc. The Company derives its revenue primarily
from the sale of radio advertising.
Contribution of Assets
On April 2, 1998, the Company acquired the net assets and FCC license of
WFAS-FM, WFAS-AM and WZZN-FM (the Stations) from Commodore Media of
Westchester, Inc. in a business combination accounted for as a purchase. The
results of operations of the acquired stations are included in the accompanying
financial statements since the date of acquisition. The total cost of the
acquisition was $35,500,000, which exceeded the fair value of the net assets of
the stations by $32,332,961, which has been allocated to the stations FCC
license and goodwill. The excess is being amortized on the straight line method
over forty years.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
In the ordinary course of business, the Company maintains cash balances
in a money market fund. Such balances are not FDIC insured.
The Company periodically maintains cash balances with financial
institutions in excess of the $100,000 FDIC insurance limit.
The Company's business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
F-65
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Debt Acquisition Costs
Legal and banking fees and other expenses associated with acquisition of
the bank financing are being amortized using the interest method over the term
of the underlying note. Amortization expense charged to operations in 1998 was
$95,991.
Income Taxes
The Company, a limited liability company, has elected to be treated as a
partnership for income tax purposes. Accordingly, the items of income, loss and
credit are taxed directly to the members.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
Cash paid for interest and income taxes are as follows:
[Download Table]
Interest.......................................................... $1,836,820
Income taxes...................................................... --
F-66
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows for the period of April 2, 1998 to December 31,
1998:
[Download Table]
Trade sales...................................................... $ 650,240
Trade expense.................................................... (712,658)
---------
Net trade out transactions..................................... $ (62,418)
=========
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
[Download Table]
Land............................................................. $ 573,900
Buildings and leasehold improvements............................. 954,623
Studio and transmission equipment................................ 802,518
Music library.................................................... 3,500
Office equipment and fixtures.................................... 199,666
Property held under capital lease................................ 21,215
----------
Total.......................................................... 2,555,422
Less: accumulated depreciation................................... (71,776)
----------
Net property and equipment....................................... $2,483,646
==========
Depreciation charged to operations amounted to $71,776 for the period
April 2, 1998 to December 31, 1998.
Property and equipment are pledged as collateral for bank loans (See Note
4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1998:
[Download Table]
FCC license..................................................... $16,832,961
Goodwill........................................................ 15,500,000
Debt acquisition costs.......................................... 580,500
-----------
Total......................................................... 32,913,461
Less: accumulated amortization.................................. (702,234)
-----------
Net intangible assets........................................... $32,211,227
===========
Amortization charged to operations amounted to $702,234 for the period
April 2, 1998 to December 31, 1998.
F-67
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
[Download Table]
Line of credit--bank
Interest payable quarterly in arrears at 8.0625%, matures April
2004, Secured by all assets of the company and guaranteed by
the parent corporation of a member; maximum available credit
$1,000,000..................................................... $ 397,500
Term obligation--bank
Interest at 8.0625% payable quarterly in arrears, quarterly
payments of principal which are currently $312,500. Matures
April 2004, secured by all assets of the company and guaranteed
by the parent corporation of a member.......................... 24,062,500
Loan payable
This obligation is the result of the payments by the guarantor
of the bank obligations above of interest and principle on
behalf of the Company. This obligation has no stated interest
and no maturity date (see note 7).............................. 1,930,693
Note payable--This note has a face value in the amount of
$56,884,769 due April 2008. Interest accrues on this obligation
at 18% per annum through April 2008. (See Note 7)................ 11,561,358
-----------
Total long-term debt.......................................... 37,952,051
Less: Current Portion......................................... (1,250,000)
-----------
Long-term Debt................................................ $36,702,051
===========
The following are the maturities of long-term debt for each of the next
five years:
[Download Table]
Year Ending December 31,
1999........................................................... $ 1,250,000
2000........................................................... 1,718,750
2001........................................................... 1,875,000
2002........................................................... 2,343,750
2003........................................................... 12,812,125
-----------
$19,999,625
===========
At December 31, 1998, the Company had $602,500 of unused lines of credit
with a bank to be drawn upon as needed.
The bank loan agreements contain various covenants pertaining to the
maintenance of various record keeping, reporting and ratio requirements.
F-68
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Specifically, at December 31, 1998, the Company was in default of the
covenants related to the maintenance of its leverage ratio, interest coverage
ratio, and net broadcast earnings.
Under the terms of the agreement, the bank may call the loan if the
Company is in violation of any restrictive covenant. As of February 19, 1999,
the bank had not waived the requirement.
Capital Lease
The Company is the lessee of office equipment under capital leases
expiring in various years through 2003. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are depreciated over
the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation expense
for 1998.
Depreciation on assets under capital leases charged to expense in 1998
was $1,515.
Following is a summary of property held under capital leases:
[Download Table]
Phone System........................................................ $21,215
Less: Accumulated depreciation...................................... (1,515)
-------
Net................................................................. $19,700
=======
Minimum future lease payments under capital leases as of December 31,
1998 for each of the next five years and in the aggregate are:
[Download Table]
Year Ended December 31:
1999.............................................................. $ 5,352
2000.............................................................. 5,352
2001.............................................................. 5,352
2002.............................................................. 5,352
2003.............................................................. 2,230
-------
Total minimum lease payments.................................... 23,638
Less: Amount representing interest.................................. (4,257)
-------
Present value of net minimum lease payments......................... $19,381
=======
Interest rates on this capitalized lease is 14.35% and is imputed based
on the lower of company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return.
NOTE 5--COMMITMENTS
Guarantee of Indebtedness
The Company has guaranteed the 13 1/4% senior subordinated notes dated
April 2, 1995 which have a principal value of $76,808,000 of Capstar Radio
Broadcasting Partners, Inc., the parent corporation of the Company's nonvoting
member.
F-69
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Employment Contract
The Company has entered into an employment contract with its managing
member through April 2000 that provides for a minimum annual salary. At
December 31, 1998, the total commitment was $150,000 per annum.
Operating Leases
The Company leases various tower facilities under operating leases which
does not currently have various expiration dates.
The Company also contracts for a variety of services and equipment
through short term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended December 31,
1999.............................................................. $16,182
2000.............................................................. 7,500
2001.............................................................. 7,500
2002.............................................................. 7,500
2003.............................................................. 7,500
-------
Total minimum lease payments.................................... $46,182
=======
NOTE 6--PENSION PLAN
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employees contributions up to six percent of compensation. For the
period ended December 31, 1998, the Company contributed $7,674.
NOTE 7--RELATED PARTIES
As part of the acquisition of the stations, the Company borrowed from the
parent corporation of one of its members, moneys to complete the acquisition.
The note has a face value of $56,884,769 and is due in April 2008. The note has
been discounted to its present value at the rate of 18% and was, accordingly,
assigned a value of $10,150,000 and is subordinate to the bank obligations.
The Company subsequent to the contribution of the net assets of Commodore
Media of Westchester Inc. refinanced those assets and distributed $35,000,000
of the proceeds to its member.
The note including accumulated interest is convertible at the option of
the holder at any time, into a maximum of 13,000 member interests in the
company based on a prescribed formula (See Note 8).
The Company, as a result of its inability to cover principal and interest
payments on its bank lines as they came due, relied on the guarantee of a
member to meet the obligations. At December 31, 1998, the member had advanced
$1,930,693 to the Company to meet its obligations.
F-70
WESTCHESTER RADIO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 8--MEMBERS' EQUITY
The members of the Company have liability for the debts, obligations and
liabilities of the Company up to the amount of capital contributed to the
Company.
The Company is authorized to issue up to 14,000 limited liability company
interests which may be designated as voting interests or nonvoting interests
upon issuance. Subject to obtaining necessary consent, outstanding nonvoting
interests are convertible, at any time, upon the election of the holder into a
like number of voting interests.
At December 31, 1998, the Company had a total of 1,000 interests
outstanding, of which 700 were voting interests.
NOTE 7--SUBSEQUENT SALE OF THE COMPANY
On October 27, 1999, the tangible assets, FCC license and goodwill of the
company were purchased by Aurora of Westchester L.L.C. The total cost of the
acquisition was $22,250,000.
F-71
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Commodore Media of Westchester, Inc.
We have audited the accompanying balance sheet of Commodore Media of
Westchester, Inc. as of April 1, 1998 and the related statements of operations
and retained earnings and cash flows for the period of January 1, 1998 to April
1, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Commodore Media of
Westchester, Inc. as of April 1, 1998, and the results of its operations and
its cash flows for the period of January 1, 1998 to April 1, 1998 in conformity
with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw, LLP
July 29, 1999
F-74
COMMODORE MEDIA OF WESTCHESTER, INC.
BALANCE SHEET
April 1, 1998
[Download Table]
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 9,681
Accounts receivable, less allowance for doubtful accounts of
$130,846........................................................ 817,154
Other current assets............................................. 17,306
-----------
Total Current Assets........................................... 844,141
Property, Plant and Equipment--Net................................. 1,683,789
Intangible Assets--Net............................................. 31,979,119
Security Deposits.................................................. 8,427
-----------
Total Assets................................................... $34,515,476
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liability:
Accounts payable and accrued expenses............................ $ 179,554
Due to Parent Corporation and Affiliates......................... 9,029,851
Stockholders Equity:
Common stock, 100 shares authorized, issued, and outstanding..... 100
Additional paid-in-capital....................................... 23,596,134
Retained earnings................................................ 1,709,837
-----------
Total Stockholders Equity...................................... 25,306,071
-----------
Total Liabilities and Stockholders' Equity..................... $34,515,476
===========
Notes to Financial Statements are an Integral Part of this Statement
F-75
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For the period of January 1, 1998 to April 1, 1998
[Download Table]
Revenues:
Broadcast revenue................................................ $ 1,163,673
Less: agency commissions......................................... (101,200)
-----------
Net Broadcast Revenue.......................................... 1,062,473
Other non-broadcast revenue...................................... 44,684
-----------
Total Revenue.................................................. 1,107,157
Expenses:
Programming and technical........................................ 193,364
Sales and advertising............................................ 283,875
Administrative................................................... 285,088
-----------
Total Expenses................................................. 762,327
-----------
Income from Operations............................................. 344,830
Other Expenses:
Depreciation..................................................... 30,000
Amortization..................................................... 208,489
-----------
Total Other Expenses........................................... 238,489
-----------
Net Income......................................................... 106,341
Retained Earnings at Beginning of Period........................... 1,603,496
-----------
Retained Earnings at End of Period................................. $ 1,709,837
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-76
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF CASH FLOWS
For the period of January 1, 1998 to April 1, 1998
[Download Table]
Cash Flows from Operating Activities:
Net Income....................................................... $ 106,341
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization.................................... 238,489
Bad debt provision (recovery).................................... (34,184)
Decrease in accounts receivable.................................. 437,821
Decrease in other current assets................................. 48,894
Decrease in security deposits.................................... 480
Decrease in accounts payable..................................... (201,611)
---------
Total Adjustments.............................................. 489,889
---------
Net cash provided by operating activities...................... 596,230
Cash Flows From Investing Activities:
Purchase of property and equipment............................... (44,502)
Cash Flows from Financing Activities:
Net repayment of advances to parent corporation and affiliates... (625,614)
---------
Net Decrease in Cash and Cash Equivalents........................ (73,886)
Cash and Cash Equivalents at Beginning of Period................. 83,567
---------
Cash and Cash Equivalents at End of Period....................... $ 9,681
=========
The Notes to Financial Statements are an Integral Part of this Statement
F-77
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1--Significant Accounting Policies
Organization and Nature of Business
Commodore Media of Westchester, Inc. (the Company) operates several radio
stations in Westchester county, New York. The signals licensed by the Federal
Communications Commission (FCC) include WFAS-FM, WFAS-AM and WZZN-FM (the
Stations). The Company derives its revenue primarily from the sale of radio
advertising. Commodore Media of Westchester, Inc. is a wholly owned subsidiary
of Capstar Broadcasting Corporation.
Sale of Stations
On April 2, 1998, the Company contributed all of its net assets and its
related licenses to Westchester Radio, LLC. in exchange for a 100% membership
interest. The company's membership interest was comprised of 700 voting and 300
nonvoting shares.
Westchester Radio, LLC. subsequently refinanced the assets of the station
and made a distribution back to the company in the amount of $35,000,000.
The company subsequently sold its voting interests and retained its 30%
nonvoting interest of the Limited Liability Company.
The business combination has been accounted for as a purchase. This
financial statement contains the results of operations and the financial
position of the company immediately before the contribution of assets to
Westchester Radio, LLC.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Company's business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
F-78
COMMODORE MEDIA OF WESTCHESTER,INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and double declining balance for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Income Taxes
The Company files a consolidated income tax return with its corporate
parent.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
There was no cash paid for interest and income taxes.
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
F-79
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows:
[Download Table]
Trade sales...................................................... $ 245,893
Trade expense.................................................... (163,592)
---------
Net Trade Transactions......................................... $ 82,301
=========
Note 2--Property, Plant and Equipment
Property and equipment consisted of the following at April 1, 1998:
[Download Table]
Land............................................................. $ 420,000
Buildings and leasehold improvements............................. 685,762
Studio and transmission equipment................................ 565,797
Music library.................................................... 2,556
Office equipment and fixtures.................................... 151,396
----------
Total.......................................................... 1,825,511
Less: accumulated depreciation................................... (141,722)
----------
Net Property and Equipment....................................... $1,683,789
==========
Depreciation charged to operations amounted to $30,000.
Property and equipment are pledged as collateral for various obligations
of the company's corporate parent. (See Note 4).
Note 3--Intangible Assets
Intangible assets consisted of the following at April 1, 1998:
[Download Table]
FCC license..................................................... $33,157,140
Goodwill........................................................ 32,000
-----------
Total......................................................... 33,189,140
Less: accumulated amortization.................................. (1,210,021)
-----------
Net Intangible Assets........................................... $31,979,119
===========
Amortization charged to operations amounted to $208,489.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
F-80
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 4--Related Parties
The company receives advances from and pays advances to its parent
corporation and other related affiliated companies. In addition the Parent
Corporation allocates expenses, based on revenue, to the company, which are
related to corporate overhead and other costs related to the management and
operation of the stations.
The company has pledged substantially all of its assets as a cross
guarantor on a variety of corporate obligations.
Note 5--Commitments
Operating Leases
The Company leases various tower facilities under operating leases, which
do not currently have expiration dates.
The Company also contracts for a variety of services and equipment
through short-term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended April 1,
1999............................................................. $ 16,182
2000............................................................. 7,500
2001............................................................. 7,500
2002............................................................. 7,500
2003............................................................. 7,500
--------
Total Minimum Lease Payments................................... $ 46,182
========
Note 6--Pension Plan
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employee's contributions up to six percent of compensation. For the
period ended April 1, 1998, the Company contributed $8,760.
F-81
INDEPENDENT AUDITORS' REPORT
To the Stockholders:
Commodore Media of Westchester, Inc.
We have audited the accompanying balance sheet of Commodore Media of
Westchester, Inc. as of December 31, 1997, and the related statements of
operations, retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Commodore Media of
Westchester, Inc. as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
July 29, 1999
F-84
COMMODORE MEDIA OF WESTCHESTER, INC.
BALANCE SHEET
December 31, 1997
[Download Table]
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 83,567
Accounts receivable, less allowance for doubtful accounts of
$165,030....................................................... 1,220,791
Other current assets............................................ 66,200
------------
Total Current Assets.......................................... 1,370,558
PROPERTY, PLANT AND EQUIPMENT--NET................................ 1,669,287
Intangible Assets--Net............................................ 32,187,608
Security Deposits................................................. 8,907
------------
Total Assets.................................................. $ 35,236,360
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY:
Accounts payable and accrued expenses........................... $ 381,165
Due to Parent Corporation and Affiliates.......................... 9,655,465
Stockholders' Equity:
Common stock, 100 shares authorized, issued, and outstanding.... 100
Additional paid-in-capital...................................... 23,596,134
Retained earnings............................................... 1,603,496
------------
Total Stockholders' Equity.................................... 25,199,730
------------
Total Liabilities and Stockholders' Equity.................... $ 35,236,360
============
The Notes to Financial Statements are an Integral Part of this Statement
F-85
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For the year ended December 31, 1997
[Download Table]
Revenues:
Broadcast
revenue........ $ 6,142,742
Less: agency
commissions.... (596,167)
-----------
Net Broadcast
Revenue...... 5,546,575
Other non-
broadcast
revenue........ 156,398
-----------
Total
Revenue...... 5,702,973
Expenses:
Programming and
technical...... 1,000,691
Sales and
advertising.... 830,649
Administrative.. 1,258,264
-----------
Total
Expenses..... 3,089,604
-----------
Income from
Operations....... 2,613,369
Other Expenses:
Depreciation.... 103,640
Amortization.... 829,729
-----------
Total Other
Expenses..... 933,369
-----------
Net Income........ 1,680,000
Accumulated
Deficit at
beginning of
year, as
previously
reported......... (96,656)
Contribution of
net assets of
station WZZN by
parent company... 20,152
-----------
Accumulated
Deficit at
beginning of
year, as
restated......... (76,504)
-----------
Retained Earnings
at End of Year... $ 1,603,496
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-86
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
[Download Table]
Cash Flows from Operating Activities:
Net Income....................................................... $ 1,680,000
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization.................................. 933,369
Bad debt provision (recovery).................................. (11,980)
Increase in accounts receivable................................ (240,722)
Increase in other current assets............................... (66,200)
Increase in security deposits.................................. (793)
Increase in accounts payable................................... 56,683
-----------
Total Adjustments............................................ 670,357
-----------
Net cash provided by operating activities.................... 2,350,357
Cash Flows from Investing Activities:
Purchase of property and equipment............................. (76,948)
Cash Flows from Financing Activities:
Net repayment of advances from parent corporation and
affiliates.................................................... (2,228,542)
-----------
Net Increase in Cash and Cash Equivalents........................ 44,867
Cash and Cash Equivalents at Beginning of Period................. 38,700
-----------
Cash and Cash Equivalents at End of Period....................... $ 83,567
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-87
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Commodore Media of Westchester, Inc. (the Company) operates several radio
stations in Westchester county, New York. The signals licensed by the Federal
Communications Commission (FCC) include WFAS-FM, WFAS-AM and WZZN-FM (the
Stations). The Company derives its revenue primarily from the sale of radio
advertising. The company is a wholly owned subsidiary of Capstar Broadcasting.
Purchase and Sale of Stations
On January 1, 1997 the net assets of WZZN-FM were transferred to the
company by its parent corporation.
In April 1998, the Company was sold to Westchester Radio LLC., who
acquired the net assets and FCC license of the Stations from Commodore Media of
Westchester, Inc. in a business combination accounted for as a purchase.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Company's business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
F-88
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on straight line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment............................................... 5-7 years
Studio equipment............................................... 7 years
Building, leasehold improvements and tower..................... 10-40 years
Income Taxes
The Company files a consolidated income tax return with its corporate
parent.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
There was no cash paid for interest and income taxes.
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows:
[Download Table]
Trade sales..................................................... $ 792,021
Trade expense................................................... (725,383)
---------
Net Trade Revenue............................................. $ 66,638
=========
F-89
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1997:
[Download Table]
Land............................................................. $ 420,000
Buildings and leasehold improvements............................. 669,900
Studio and transmission equipment................................ 565,797
Music library.................................................... 2,556
Office equipment and fixtures.................................... 122,755
----------
Total.......................................................... 1,781,008
Less: accumulated depreciation................................... (111,721)
----------
Net Property and Equipment....................................... $1,669,287
==========
Depreciation charged to operations amounted to $103,640.
Property and equipment are pledged as collateral for various obligations
of the company's corporate parent. (See Note 4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1997:
[Download Table]
FCC license..................................................... $33,157,140
Goodwill........................................................ 32,000
-----------
Total......................................................... 33,189,140
Less: accumulated amortization.................................. (1,001,532)
-----------
Net Intangible Assets........................................... $32,187,608
===========
Amortization charged to operations amounted to $829,729.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
NOTE 4--RELATED PARTIES
The company receives advances from and pays advances to its parent
corporation and other related affiliated companies. In addition the Parent
Corporation allocates expenses, based on revenue, to the company, which are
related to corporate overhead and other costs related to the management and
operation of the stations.
The company has pledged substantially all of its assets as a cross
guarantor on a variety of corporate obligations.
F-90
COMMODORE MEDIA OF WESTCHESTER,INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--COMMITMENTS
Operating Leases
The Company leases various tower facilities under operating leases, which
do not currently have expiration dates.
The Company also contracts for a variety of services and equipment
through short-term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended December 31,
1998............................................................... $16,152
1999............................................................... 16,182
2000............................................................... 7,500
2001............................................................... 7,500
2002............................................................... 7,500
-------
Total Minimum Lease Payments..................................... $54,834
=======
NOTE 6--PENSION PLAN
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employee's contributions up to six percent of compensation.
F-91
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Commodore Media of Westchester, Inc.
We have audited the accompanying balance sheet of Commodore Media of
Westchester, Inc. as of December 31, 1996, and the related statements of
operations and accumulated deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Commodore Media of
Westchester, Inc. as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
July 29, 1999
F-94
COMMODORE MEDIA OF WESTCHESTER, INC.
BALANCE SHEET
December 31, 1996
[Download Table]
ASSETS
CURRENT ASSETS:
Cash............................................................ $ 38,700
Accounts receivable, less allowance for doubtful accounts of
$153,050....................................................... 968,089
-----------
Total current assets.......................................... 1,006,789
PROPERTY, PLANT AND EQUIPMENT--NET................................ 1,695,979
INTANGIBLE ASSETS--NET............................................ 33,017,337
SECURITY DEPOSITS................................................. 8,114
-----------
Total assets.................................................. $35,728,219
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY:
Accounts payable and accrued expenses........................... $ 324,482
DUE TO PARENT CORPORATION AND AFFILIATES.......................... 11,904,159
STOCKHOLDERS' EQUITY:
Common stock, 100 shares authorized, issued, and outstanding.... 100
Additional paid in capital...................................... 23,596,134
Accumulated deficit............................................. (96,656)
-----------
Total stockholders' equity.................................... 23,499,578
-----------
Total liabilities and stockholders' equity.................... $35,728,219
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-95
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For the year ended December 31, 1996
[Download Table]
REVENUES:
Broadcast revenue................................................ $4,684,186
Less: agency commissions......................................... (413,135)
----------
Net broadcast revenue.......................................... 4,271,051
Other non-broadcast revenue...................................... 132,530
----------
Total revenue.................................................. 4,403,581
EXPENSES:
Programming and technical........................................ 730,283
Sales and advertising............................................ 1,214,288
Administrative................................................... 749,771
----------
Total expenses................................................. 2,694,342
----------
INCOME FROM OPERATIONS............................................. 1,709,239
OTHER EXPENSES:
Corporate management and overhead allocation..................... 1,146,542
Depreciation..................................................... 103,085
Amortization..................................................... 266,502
Interest expense................................................. 921,757
----------
Total other expenses........................................... 2,437,886
----------
NET LOSS........................................................... (728,647)
RETAINED EARNINGS AT BEGINNING OF YEAR............................. 631,991
----------
ACCUMULATED DEFICIT AT END OF YEAR................................. $ (96,656)
==========
The Notes to Financial Statements are an Integral Part of this Statement
F-96
COMMODORE MEDIA OF WESTCHESTER, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
[Download Table]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $(728,647)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING
ACTIVITIES:
Depreciation and amortization.................................... 369,586
Bad debt provision (recovery).................................... (29,850)
Decrease in accounts receivable.................................. 90,290
Decrease in other current assets................................. 21,948
Increase in accounts payable..................................... 60,419
---------
Total adjustments.............................................. 512,393
---------
Net cash used by operating activities.......................... (216,254)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................... (139,917)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from parent corporation and affiliates.............. 366,402
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................... 10,231
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... 28,469
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $ 38,700
=========
The Notes to Financial Statements are an Integral Part of this Statement
F-97
COMMODORE MEDIA OF WESTCHESTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Commodore Media of Westchester, Inc. (the Company) operates several radio
stations in Westchester County, New York. The signals licensed by the Federal
Communications Commission (FCC) included in this presentation, operate by the
call letters of WFAS-FM and WFAS-AM. The Company derives its revenue primarily
from the sale of radio advertising.
Sale of Stations
In October 1996 the stations were purchased by Capstar Broadcasting in a
business combination which was accounted for as a purchase. The result of the
transaction is that the company is a wholly owned subsidiary of Capstar
Broadcasting.
The results of operations of the acquired stations are included in the
accompanying financial statements for the entire period. The total cost of the
acquisition, exceeded the fair value of the net assets of the stations by
approximately $33,200,000 which has been allocated to the stations FCC license
and goodwill. The excess in being amortized on the straight-line method over
forty years.
On April 2, 1998, the Company was sold to Westchester Radio LLC. who
acquired the net assets and FCC license of WFAS-FM, WFAS-AM and WZZN-FM (the
Stations) from Commodore Media of Westchester, Inc. in a business combination
accounted for as a purchase.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Company's business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
F-98
COMMODORE MEDIA OF WESTCHESTER,INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Company.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on straight line method for financial
reporting purposes and double declining balance method for income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Income Taxes
The Company files its income tax return on a consolidated basis with its
parent company.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less.
Cash paid for interest and income taxes are as follows:
[Download Table]
Interest........................................................... $ 921,757
Income taxes....................................................... --
Barter Transactions
The Company barters unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
F-99
COMMODORE MEDIA OF WESTCHESTER,INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows:
[Download Table]
Trade sales....................................................... $ 671,622
Trade expense..................................................... (566,740)
---------
Net Trade Revenue Transactions.................................. $ 104,882
=========
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
[Download Table]
Land............................................................. $ 420,000
Buildings and leasehold improvements............................. 639,766
Studio and transmission equipment................................ 536,162
Music library.................................................... 2,556
Office equipment and fixtures.................................... 118,862
----------
Total.......................................................... 1,717,346
Less: accumulated depreciation................................... (21,367)
----------
Net Property and Equipment....................................... $1,695,979
==========
Depreciation charged to operations amounted to $103,085.
Property and equipment are pledged as collateral for various obligation
of the company's corporate parent. (See Note 4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996:
[Download Table]
FCC license..................................................... $33,157,140
Goodwill........................................................ 32,000
-----------
Total......................................................... 33,189,140
Less: accumulated amortization.................................. (171,803)
-----------
Net Intangible Assets........................................... $33,017,337
===========
Amortization charged to operations amounted to $266,502.
The Company periodically evaluates intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Company's stations, as well as
by comparing them to their competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
F-100
COMMODORE MEDIA OF WESTCHESTER,INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--RELATED PARTIES
The company receives advances from and pays advances to its parent
corporation and other related affiliated companies. In addition the parent
corporation allocates expenses, based on revenue, to the company, which are
related to corporate overhead and other costs related to the management and
operation of the stations. During 1996 these allocations amounted to
approximately $834,000.
The company has pledged substantially all of its assets as a cross
guarantor on a variety of corporate obligations.
NOTE 5--COMMITMENTS
Operating Leases
The Company leases various tower facilities under operating leases, which
do not currently have expiration dates.
The Company also contracts for a variety of services and equipment
through short-term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended December 31,
1997.............................................................. $11,710
1998.............................................................. 16,152
1999.............................................................. 16,182
2000.............................................................. 7,500
2001.............................................................. 7,500
-------
Total Minimum Lease Payments...................................... $59,044
=======
NOTE 6--PENSION PLAN
The Company has a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employee's contributions up to six percent of compensation.
F-101
INDEPENDENT AUDITORS' REPORT
To the Division Manager of WRKI, WAXB, WPUT, WINE
We have audited the accompanying combined balance sheet of WRKI, WAXB,
WPUT, and WINE (Operating Divisions of Commodore Media of Norwalk, Inc.) (the
Divisions) as of May 29, 1998, and the related combined statements of
operations and division equity and cash flows for the period of January 1, 1998
to May 29, 1998. These financial statements are the responsibility of the
Divisions' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of WRKI,
WAXB, WPUT, and WINE as of May 29, 1998, and the results of their combined
operations and their combined cash flows for the period of January 1, 1998 to
May 29, 1998 in conformity with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw, LLP
August 11, 1999
(except for Note 7, as to
which the date is October
27, 1999)
F-124
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED BALANCE SHEET
May 29, 1998
[Download Table]
ASSETS
Current Assets:
Cash............................................................. $ 800
Accounts receivable, less allowance for doubtful accounts of
$129,800........................................................ 663,099
-----------
Total Current Assets........................................... 663,899
Property, Plant and Equipment, net................................. 1,980,776
Intangible Assets, net............................................. 7,754,987
Other Assets....................................................... 16,743
-----------
Total Assets..................................................... $10,416,405
===========
LIABILITIES AND DIVISION EQUITY
Accounts payable and accrued expenses.............................. $ 129,385
Division Equity.................................................... 10,287,020
-----------
Total Liabilities and Division Equity.......................... $10,416,405
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-125
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF OPERATIONS AND DIVISION EQUITY
For the period of January 1, 1998 to May 29, 1998
[Download Table]
Revenues:
Broadcast revenue................................................ $ 1,466,199
Less: agency commissions......................................... (102,647)
-----------
Net Broadcast Revenue.......................................... 1,363,552
Other non-broadcast revenue...................................... 11,894
-----------
Total Revenue.................................................. 1,375,446
Expenses:
Programming and technical........................................ 172,226
Sales and advertising............................................ 573,055
Administrative................................................... 322,743
-----------
Total Expenses................................................. 1,068,024
-----------
Income from Operations............................................. 307,422
Other Expenses:
Depreciation..................................................... 60,515
Amortization..................................................... 86,300
-----------
Total Other Expenses........................................... 146,815
-----------
Net Income..................................................... 160,607
Division Equity at Beginning of Period............................. 10,346,902
Net Advances to Parent & Affiliates................................ (220,489)
-----------
Division Equity at End of Period................................... $10,287,020
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-126
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF CASH FLOWS
For the period of January 1, 1998 to May 29, 1998
[Download Table]
Cash Flows from Operating Activities:
Net Income........................................................ $160,607
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization..................................... 146,473
Bad debt provision................................................ (102,102)
Decrease in accounts receivable................................... 32,689
Decrease in other current assets.................................. 25,653
Decrease in accounts payable...................................... (40,785)
--------
Total Adjustments................................................. 61,928
--------
Net Cash Provided by Operating Activities....................... 222,535
Cash Flows from Investing Activities:
Purchase of property and equipment................................ (2,046)
Cash Flows from Financing Activities:
Net repayment of advances from parent corporation................. (220,489)
--------
Net Decrease in Cash and Cash Equivalents......................... --
Cash and Cash Equivalents at Beginning of Period.................. 800
--------
Cash and Cash Equivalents at End of Period........................ $ 800
========
The Notes to Financial Statements are an Integral Part of this Statement
F-127
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Commodore Media of Norwalk, Inc. (the Company) operates several radio
stations in Connecticut and New York. The signals licensed by the FCC included
in this presentation operate under the call letters of WRKI, WAXB, WPUT, and
WINE (the Divisions). The Divisions derive their revenue primarily from the
sale of radio advertising. Commodore Media of Norwalk, Inc. is a wholly owned
subsidiary of Capstar Broadcasting.
Contributions of Station Assets to Grantor Trust
On May 29, 1998, Capstar Broadcasting Corporation contributed all of the
rights, title, interest and obligations in all of the assets, properties,
contracts, leases and agreements of the Divisions to the Capstar Trust. The
company is the sole beneficiary of the trust.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Divisions incur various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Divisions' business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
The Divisions' revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas. The Divisions' perform ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Divisions.
F-128
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and the double-declining balance method for income tax
purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Income Taxes
The Divisions' file their income tax return on a consolidated basis with
their parent company.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less. The Divisions incurred no
interest expense or income taxes in the reporting period.
Barter Transactions
The Divisions barter unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations were as follows for the period of January 1, 1998 to January 29,
1998:
[Download Table]
Trade sales...................................................... $ 256,669
Trade expense.................................................... (258,173)
---------
Net trade expense transactions................................. $ (1,504)
=========
F-129
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at May 29, 1998:
[Download Table]
Land............................................................. $ 339,214
Buildings and leasehold improvements............................. 644,746
Studio and transmission equipment................................ 1,117,583
Music library.................................................... 2,283
Office equipment and fixtures.................................... 101,998
----------
Total.......................................................... 2,205,824
Less: accumulated depreciation................................... (225,048)
----------
Net Property and Equipment....................................... $1,980,776
==========
Property and equipment are pledged as collateral for various obligation
of the divisions' corporate parent. (See Note 4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at May 29, 1998:
[Download Table]
FCC license...................................................... $8,003,448
Transmitter Site Lease........................................... 56,108
Goodwill......................................................... 32,000
----------
Total.......................................................... 8,091,556
Less: accumulated amortization................................... (336,569)
----------
Net Intangible Assets............................................ $7,754,987
==========
The Divisions periodically evaluate intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Divisions, as well as by
comparing them to their competitors. The Divisions also take into consideration
recent acquisition patterns within the broadcast industry, the impact of
recently enacted or potential FCC rules and regulations and any other events or
circumstances which might indicate potential impact. At this time, in the
opinion of management, no impairment has occurred.
NOTE 4--RELATED PARTIES
The Divisions receive advances from and pays advances to its parent
corporation and other related affiliated companies. In addition, the parent
corporation allocates expenses to the divisions based on revenue, which are
related to corporate overhead and other costs related to the management and
operation of the stations.
The net assets of the station have been pledged on guarantees of various
obligations of the corporate parent.
F-130
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--COMMITMENTS
Operating Leases
The Divisions lease various tower facilities under operating leases,
which do not currently have expiration dates.
The Divisions also contract for a variety of services and equipment
through short-term agreements and leases under cash or barter arrangements.
These agreements and leases are renewed or replaced at the end of their term at
the discretion of management.
Total rent expense for the period of January 1, 1998 to May 29, 1998 was
approximately $16,000. Minimum future rentals under noncancelable operating
leases having remaining terms in excess of one year for each of the next five
years and in the aggregate are as follows:
[Download Table]
Year ended December 31,
1999............................................................. $ 40,427
2000............................................................. 41,017
2001............................................................. 42,029
2002............................................................. 43,094
2003............................................................. 43,605
--------
Total Minimum Lease Payments................................... $210,172
========
NOTE 6--PENSION PLAN
The Divisions have a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employee's contributions up to six percent of compensation.
NOTE 7--SUBSEQUENT SALE OF CAPSTAR TRUST
On October 27, 1999, the tangible assets, FCC license and goodwill of
Capstar Trust were purchased by Aurora of Danbury, L.L.C. The total cost of the
acquisition was $11,250,000.
F-131
INDEPENDENT AUDITORS' REPORT
To the Division Manager of WRKI, WAXB, WPUT, WINE
We have audited the accompanying combined balance sheet of WRKI, WAXB,
WPUT, and WINE (Operating Divisions of Commodore Media of Norwalk, Inc.) as of
December 31, 1997, and the related combined statements of operations and
division equity and cash flows for the year then ended. These financial
statements are the responsibility of the Divisions' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of WRKI,
WAXB, WPUT, and WINE as of December 31, 1997, and the results of their combined
operations and their combined cash flows for the year then ended in conformity
with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
August 11, 1999
(except for Note 7, as to
which the date is October
27, 1999)
F-134
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED BALANCE SHEET
December 31, 1997
[Download Table]
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 800
Accounts receivable, less allowance for doubtful accounts of
$231,902........................................................ 593,685
-----------
Total current assets........................................... 594,485
PROPERTY, PLANT AND EQUIPMENT, NET................................. 2,038,905
INTANGIBLE ASSETS, NET............................................. 7,841,285
OTHER ASSETS....................................................... 42,397
-----------
Total assets................................................... $10,517,072
===========
LIABILITIES AND DIVISION EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES.............................. $ 170,170
DIVISION EQUITY.................................................... 10,346,902
-----------
Total liabilities and division equity.......................... $10,517,072
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-135
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF OPERATIONS AND DIVISION EQUITY
For the year ended December 31, 1997
[Download Table]
Revenues:
Broadcast revenue................................................ $ 3,975,767
Less: agency commissions......................................... (275,662)
-----------
Net broadcast revenue.......................................... 3,700,105
Other non-broadcast revenue...................................... 15,754
-----------
Total revenue.................................................. 3,715,859
Expenses:
Programming and technical........................................ 833,852
Sales and advertising............................................ 1,161,616
Administrative................................................... 1,069,475
-----------
Total expenses................................................. 3,064,943
-----------
Income from operations............................................. 650,916
Other expenses:
Depreciation..................................................... 137,724
Amortization..................................................... 207,120
-----------
Total other expenses........................................... 344,844
-----------
Net income......................................................... 306,072
Division equity at beginning of year............................... 10,891,563
Net advances to parent and affiliates.............................. (850,733)
-----------
Division equity at end of year..................................... $10,346,902
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-136
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
[Download Table]
Cash flows from operating activities:
Net income......................................................... $ 306,072
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 344,745
Bad debt provision............................................... 11,384
Decrease in accounts receivable.................................. 190,802
Increase in other current assets................................. (11,778)
Decrease in accounts payable..................................... (19,796)
---------
Total adjustments.............................................. 515,357
---------
Net cash provided by operating activities...................... 821,429
Cash flows from investing activities:
Purchase of property and equipment............................... (97,118)
Cash flows from financing activities:
Net repayment of advances to parent and affiliates............... (850,733)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................... (126,422)
Cash and cash equivalents at beginning of period................... 127,222
---------
Cash and cash equivalents at end of period......................... $ 800
=========
The Notes to Financial Statements are an Integral Part of this Statement
F-137
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Commodore Media of Norwalk, Inc. (the Company) operates several radio
stations in Connecticut and New York. The signals licensed by the FCC included
in this presentation operate under the call letters of WRKI, WAXB, WPUT, and
WINE (the Divisions). The Divisions derive their revenue primarily from the
sale of radio advertising. Commodore Media of Norwalk, Inc. is a wholly owned
subsidiary of Capstar Broadcasting.
Transfer of Signals and Assets to Grantor Trust
On January 1, 1997, the net assets of WZZN were transferred by the parent
corporation to Commodore Media of Westchester, Inc.
On May 29, 1998, Capstar Broadcasting Corporation contributed all of the
rights, title, interest and obligations in all of the assets, properties,
contracts, leases and agreements of the Divisions to the Capstar Trust. The
company is the sole beneficiary of the trust.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Divisions incur various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
Concentration of Credit Risk
The Divisions' business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
The Divisions' revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast
areas. The Divisions perform ongoing credit evaluations of its customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
F-138
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Divisions.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and the double declining balance method for income tax
purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment................................................. 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Income Taxes
The Divisions file their income tax return on a consolidated basis with
their parent company.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less. The Divisions incurred no
interest expense or income taxes in the reported period.
Barter Transactions
The Divisions barter unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations for the year ended December 31, 1997 were as follows:
[Download Table]
Trade sales....................................................... $ 514,208
Trade expense..................................................... (482,143)
---------
Net Trade Revenue Transactions.................................. $ 32,065
=========
F-139
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1997:
[Download Table]
Land............................................................. $ 339,214
Buildings and leasehold improvements............................. 644,746
Studio and transmission equipment................................ 1,115,975
Music library.................................................... 2,283
Office equipment and fixtures.................................... 101,560
----------
Total.......................................................... 2,203,778
Less: accumulated depreciation................................... (164,873)
----------
Net Property and Equipment....................................... $2,038,905
==========
Property and equipment are pledged as collateral for various obligation
of the divisions' corporate parent. (See Note 4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1997:
[Download Table]
FCC license...................................................... $8,003,448
Transmitter site lease........................................... 56,108
Goodwill......................................................... 32,000
----------
Total.......................................................... 8,091,556
Less: accumulated amortization................................... (250,271)
----------
Net Intangible Assets............................................ $7,841,285
==========
The Divisions periodically evaluate intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Divisions, as well as by
comparing them to their competitors. The Divisions also take into consideration
recent acquisition patterns within the broadcast industry, the impact of
recently enacted or potential FCC rules and regulations and any other events or
circumstances which might indicate potential impact. At this time, in the
opinion of management, no impairment has occurred.
NOTE 4--RELATED PARTIES
The divisions receive advances from and pays advances to its parent
corporation and other related affiliated companies. In addition the parent
corporation allocates expenses to the divisions based on revenue, which are
related to corporate overhead and other costs related to the management and
operation of the stations.
The net assets of the Station have been pledged on guarantees of various
obligations of the corporate parent.
F-140
WRKI/WAXB/WPUT/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--COMMITMENTS
Operating Leases
The Divisions lease various tower facilities under operating leases,
which do not currently have expiration dates.
Total rent expense for 1997 was approximately $35,500. The Divisions also
contract for a variety of services and equipment through short-term agreements
and leases under cash or barter arrangements. These agreements and leases are
renewed or replaced at the end of their term at the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended December 31,
1998............................................................. $ 37,625
1999............................................................. 40,427
2000............................................................. 41,017
2001............................................................. 42,029
2002............................................................. 43,094
--------
Total Minimum Lease Payments................................... $204,192
========
NOTE 6--PENSION PLAN
The Divisions have a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Company matches fifty percent
of the employee's contributions up to six percent of compensation.
NOTE 7--SUBSEQUENT SALE OF CAPSTAR TRUST
On October 27, 1999, the tangible assets, FCC license and goodwill of
Capstar Trust were purchased by Aurora of Danbury, L.L.C. The total cost of the
acquisition was $11,250,000.
F-141
INDEPENDENT AUDITORS' REPORT
To the Division Manager of
WRKI, WAXB, WPUT, WZZN, WINE
We have audited the accompanying combined balance sheet of WRKI, WAXB,
WPUT, WZZN and WINE (Operating Divisions of Commodore Media of Norwalk, Inc.)
(the Divisions) as of December 31, 1996, and the related combined statements of
operations and division equity and cash flows for the year then ended. These
financial statements are the responsibility of the Divisions' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of WRKI,
WAXB, WPUT, WZZN, and WINE as of December 31, 1996, and the results of their
combined operations and their combined cash flows for the year then ended in
conformity with generally accepted accounting principles.
Weeks Holderbaum Huber & DeGraw LLP
August 11, 1999
(except for Note 7, as to
which the date is October
27, 1999)
F-144
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED BALANCE SHEET
December 31, 1996
[Download Table]
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 127,222
Accounts receivable, less allowance for doubtful accounts of
$220,518........................................................ 795,871
-----------
Total current assets........................................... 923,093
PROPERTY, PLANT AND EQUIPMENT, NET................................. 2,079,411
INTANGIBLE ASSETS, NET............................................. 8,048,406
OTHER ASSETS....................................................... 30,619
-----------
Total assets................................................... $11,081,529
===========
LIABILITIES AND DIVISION EQUITY
Accounts payable and accrued expenses.............................. $ 189,966
Division equity.................................................... 10,891,563
-----------
Total liabilities and division equity.......................... $11,081,529
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-145
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF OPERATIONS AND DIVISION EQUITY
For the year ended December 31, 1996
[Download Table]
Revenues:
Broadcast revenue................................................ $ 4,151,424
Less: agency commissions......................................... (304,903)
-----------
Net broadcast revenue.......................................... 3,846,521
Other non-broadcast revenue...................................... 41,410
-----------
Total revenue.................................................. 3,887,931
Expenses:
Programming and technical........................................ 925,407
Sales and advertising............................................ 1,436,296
Administrative................................................... 1,098,778
-----------
Total expenses................................................. 3,460,481
-----------
Income from operations............................................. 427,450
Other expenses:
Depreciation..................................................... 137,724
Amortization..................................................... 207,120
-----------
Total other expenses........................................... 344,844
-----------
Net income......................................................... 82,606
Division equity at beginning of year............................... 10,808,957
-----------
Division equity at end of year..................................... $10,891,563
===========
The Notes to Financial Statements are an Integral Part of this Statement
F-146
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
[Download Table]
Cash flows from operating activities:
Net income......................................................... $ 82,606
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 344,844
Bad debt provision............................................... 162,696
Increase in accounts receivable.................................. (489,817)
Increase in other current assets................................. (29,081)
Increase in accounts payable..................................... 138,875
---------
Total adjustments.............................................. 127,517
---------
Net cash provided by operating activities...................... 210,123
Cash flows from investing activities:
Purchase of property and equipment............................... (10,879)
Cash flows from financing activities:
Net repayment of advances from equity holder..................... (231,407)
---------
Net decrease in cash and cash equivalents.......................... (32,163)
Cash and cash equivalents at beginning of period................... 159,385
---------
Cash and cash equivalents at end of period......................... $ 127,222
=========
The Notes to Financial Statements are an Integral Part of this Statement
F-147
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Commodore Media of Norwalk, Inc. (the Company) operates several radio
stations in Connecticut and New York. The signals licensed by the FCC included
in this presentation operate under the call letters of WRKI, WAXB, WPUT, WZZN,
and WINE (the Divisions). The Divisions derive their revenue primarily from the
sale of radio advertising.
Sale of Stations
In October 1996, Commodore Media of Norwalk, Inc. was purchased by
Capstar Broadcasting in a business combination which was accounted for as a
purchase. Pursuant to this transaction the Company became a wholly owned
subsidiary of Capstar Broadcasting.
During 1997, the net assets of WZZN were transferred by the parent
corporation to Commodore Media of Westchester, Inc., an entity affiliated by
common ownership.
The results of operations of the acquired Divisions are included in the
accompanying financial statements for the entire year. The total cost of the
acquisition, exceeded the fair value of the net assets of the stations by
approximately $8,100,000, which has been allocated to the stations FCC license
and goodwill. The excess is being amortized on the straight-line method over
forty years.
On May 29, 1998, Capstar Broadcasting contributed all of the rights,
title, interest and obligations in all of the assets, properties, contrasts,
leases and agreements of the Divisions to Capstar Trust.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the program and commercial announcements are
broadcast.
Advertising Costs
The Divisions incur various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from those estimates.
F-148
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
The Divisions' business activity is with customers located within the
immediate geographic area. Blocks of advertising time are generally sold on
credit on standard business terms.
The Divisions' revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas. The Divisions perform ongoing credit evaluations of their customers'
financial condition and, generally requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible accounts receivables are maintained.
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would
not have a material impact upon the Divisions.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed on the straight line method for financial
reporting purposes and the double-declining balance method for income tax
purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
The useful lives of property and equipment for purposes of computing
depreciation are:
[Download Table]
Office equipment and fixtures.................................... 5-7 years
Studio equipment................................................. 7 years
Building, leasehold improvements and tower....................... 10-40 years
Income Taxes
The Divisions file their income tax return on a consolidated basis with
their parent company.
Cash Flows
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less. The Divisions incurred no
interest or income taxes in the reporting period.
Barter Transactions
The Divisions barter unsold advertising time for products and services.
Such transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is used.
F-149
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of barter and trade-out transactions is included in
broadcasting revenue and broadcasting expense. Barter transactions charged to
operations for the period ended December 31, 1996 were as follows:
[Download Table]
Trade sales....................................................... $ 484,265
Trade expense..................................................... (413,279)
---------
Net trade revenue transactions.................................. $ 70,986
=========
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
[Download Table]
Land............................................................. $ 339,214
Buildings and leasehold improvements............................. 642,306
Studio and transmission equipment................................ 1,026,649
Music library.................................................... 2,217
Office equipment and fixtures.................................... 96,274
----------
Total.......................................................... 2,106,660
Less: accumulated depreciation................................... (27,249)
----------
Net property and equipment....................................... $2,079,411
==========
Property and equipment are pledged as collateral for various obligation
of the divisions' corporate parent. (See Note 4).
NOTE 3--INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996:
[Download Table]
FCC license...................................................... $8,003,448
Goodwill......................................................... 32,000
Transmitter site lease........................................... 56,108
----------
Total.......................................................... 8,091,556
Less: accumulated amortization................................... (43,150)
----------
Net intangible assets............................................ $8,048,406
==========
The Divisions periodically evaluate intangible assets for potential
impairment by analyzing the operating results, future cash flows on an
undiscounted basis, trends and prospects of the Divisions stations, as well as
by comparing them to their competitors. The Divisions also take into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently enacted or potential FCC rules and regulations and any other
events or circumstances which might indicate potential impact. At this time, in
the opinion of management, no impairment has occurred.
F-150
WRKI/WAXB/WPUT/WZZN/WINE
(Operating Divisions of Commodore Media of Norwalk, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--RELATED PARTIES
The Divisions receive advances from and pay advances to their parent
corporation and other related affiliated companies. In addition the parent
corporation allocates expenses to the divisions based on revenue, which are
related to corporate overhead and other costs related to the management and
operation of the stations.
The net assets of the stations have been pledged as guarantees of various
obligations of the corporate parent.
NOTE 5--COMMITMENTS
Operating Leases
The Divisions lease various tower facilities under operating leases,
which do not currently have expiration dates.
Total Rent expense for 1996 was approximately $30,000. The Divisions also
contracts for a variety of services and equipment through short-term agreements
and leases under cash or barter arrangements. These agreements and leases are
renewed or replaced at the end of their term at the discretion of management.
Minimum future rentals under noncancelable operating leases having
remaining terms in excess of one year for each of the next five years and in
the aggregate are as follows:
[Download Table]
Year ended December 31,
1997............................................................. $ 35,453
1998............................................................. 37,625
1999............................................................. 40,427
2000............................................................. 41,017
2001............................................................. 42,029
--------
Total minimum lease payments................................... $196,551
========
NOTE 6--PENSION PLAN
The Divisions have a 401(k) Profit Sharing Plan covering all full time
employees meeting eligibility requirements. The Divisions matches fifty percent
of the employee's contributions up to six percent of compensation.
NOTE 7--SUBSEQUENT SALE OF CAPSTAR TRUST
On October 27, 1999, the tangible assets, FCC license and goodwill of
Capstar Trust were purchased by Aurora of Danbury, L.L.C. The total cost of the
acquisition was $11,250,000.
F-151
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
Nassau Broadcasting Corporation
Class A Common Stock
-----------------
PROSPECTUS
-----------------
Merrill Lynch & Co.
Salomon Smith Barney
Banc of America Securities LLC
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Alternative Page for International Prospectus
Subject to Completion
Preliminary Prospectus dated May 9, 2000
P R O S P E C T U S
Shares
Nassau Broadcasting Corporation
Class A Common Stock
-----------
This is Nassau's initial public offering. Nassau is selling all of the
shares. The international managers are offering shares outside the U.S.
and Canada and the U.S. underwriters are offering shares in the U.S. and
Canada.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "NBCR."
Investing in the class A common stock involves risks that are described in
the "Risk Factors" section beginning on page 13 of this prospectus.
-----------
[Download Table]
Per Share Total
--------- -----
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to Nassau.............. $ $
The international managers may also purchase up to an additional
shares from Nassau at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments. The U.S. underwriters may similarly purchase up to an additional
shares from Nassau.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of class A common stock will be ready for delivery on or about
, 2000.
-----------
Merrill Lynch International Schroder Salomon Smith Barney
-----------
The date of this prospectus is , 2000.
A-1
Alternative Page for International Prospectus
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S.
underwriters. Merrill Lynch International and Salomon Brothers International
Limited are acting as lead managers for the international managers named below.
Subject to the terms and conditions described in an international purchase
agreement among us and the international managers, and concurrently with the
sale of shares to the U.S. underwriters, we have agreed to sell to the
international managers, and the international managers severally have agreed to
purchase from us, the number of shares listed opposite their names below.
[Download Table]
Number
International Manager of Shares
--------------------- ---------
Merrill Lynch International.....................................
Salomon Brothers International Limited..........................
----
Total......................................................
====
We have also entered into a U.S. purchase agreement with the U.S.
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney Inc. and Banc of America Securities LLC are acting as U.S.
representatives, for sale of the shares in the U.S. and Canada. Subject to the
terms and conditions in the U.S. purchase agreement, and concurrently with the
sale of shares to the international managers pursuant to the international
purchase agreement, we have agreed to sell to the U.S. underwriters, and the
U.S. underwriters severally have agreed to purchase shares from us. The
initial public offering price per share and the total underwriting discount per
share are identical under the international purchase agreement and the U.S.
purchase agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults,
the international and U.S. purchase agreements provide that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings for the sale of shares to be
purchased by the international managers and the U.S. underwriters are
conditioned on one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the international managers and
U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.
Schroders is a trademark of Schroders Holdings plc and is used under
license by Salomon Smith Barney.
Commissions and Discounts
The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the initial public offering
price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $ per share. The international managers may
allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
A-2
Alternative Page for International Prospectus
The following table shows the public offering price, underwriting
discount and proceeds before expenses to Nassau. In addition, the table
includes certain other items considered by the NASD to be underwriting
compensation for purposes of the NASD's Conduct Rules. The information assumes
either no exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.
[Download Table]
Per Share Without Option With Option
--------- -------------- -----------
Public offering price.................. $ $ $
Underwriting discount.................. $ $ $
Proceeds, before expenses, to Nassau... $ $ $
Other items............................
Merrill Lynch Capital Corporation, an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, owns shares of our class A common stock which
were received upon conversion of limited partnership units acquired in
connection with our recapitalization. The compensation in the table above in
the line titled "other items" was computed based on the difference between the
$ offering price and $ , the price deemed to be paid for the shares of
class A common stock held by Merrill Lynch Capital Corporation.
The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by us, as set forth in the following
table.
[Download Table]
SEC registration fee...................................................... $
NASD filing fee...........................................................
Nasdaq National Market listing fee........................................
Printing and engraving expenses...........................................
Legal fees and expenses...................................................
Accounting fees and expenses..............................................
Blue sky fees and expenses (including legal fees).........................
Transfer agent and registrar fees and expenses............................
Premiums for director and officer insurance...............................
Miscellaneous.............................................................
----
Total................................................................... $
====
Over-allotment Option
We have granted an option to the international managers to purchase up to
additional shares at the public offering price less the underwriting
discount. The international managers may exercise this option for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international managers exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that international manager's initial amount
reflected in the above table.
We have also granted an option to the U.S. underwriters, exercisable for
30 days from the date of this prospectus, to purchase up to additional
shares to cover any over-allotments on terms similar to those granted to the
international managers.
Intersyndicate Agreement
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the international managers and
the U.S. underwriters may sell shares to each other for purposes of resale at
the initial public
A-3
Alternative Page for International Prospectus
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the international managers and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are U.S.
or Canadian persons or to persons they believe intend to resell to persons who
are U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to
whom they sell shares will not offer to sell or sell shares to non-U.S. persons
or non-Canadian persons or to persons they believe intend to resell to non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus for sale to
some of our directors, officers, employees and business associates. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
Purchasers of shares pursuant to the reserved share program generally
will not be subject to lock-up agreements in respect of the shares so purchased
unless required by the Conduct Rules of the NASD. The NASD's Conduct Rules will
require that some purchasers of shares who are affiliated or associated with
NASD members or who hold senior positions at financial institutions or members
of their immediate families be subject to three-month lock-up agreements.
No Sales of Similar Securities
We and our executive officers and directors and most of our existing
stockholders have agreed, with limited exceptions, not to sell or transfer any
common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc. Specifically, we and these other
individuals have agreed not to directly or indirectly
. offer, pledge, sell or contract to sell any common stock, other than
common stock issued by us in connection with our purchase of Aurora
Communications;
. sell any option or contract to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock,
other than pursuant to our stock incentive plan;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
any common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "NBCR."
A-4
Alternative Page for International Prospectus
Before this offering, there has been no public market for our class A
common stock. The initial public offering price will be determined through
negotiations among us and the U.S. representatives and lead managers. In
addition to prevailing market conditions, the primary factors to be considered
in determining the initial public offering price are
. the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us;
. our financial information;
. the history of, and the prospects for, our company and the industry
in which we compete;
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development;
. the general condition of the securities market at the time of this
offering; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
UK Selling Restrictions
Each international manager has agreed that
. it has not offered or sold and will not offer or sell any shares of
shares of our class A common stock to persons in the United Kingdom,
except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise
in circumstances which do not constitute an offer to the public in
the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the class A common stock in, from or otherwise involving
the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of class A common stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 as amended by the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1997 or is a person to whom such document may otherwise
lawfully be issued or passed on.
No Public Offering Outside the United States
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of class A
common stock, or the possession, circulation or distribution of this prospectus
or any other material relating to us or shares of our class A common stock in
any jurisdiction where action for that purpose is required. Accordingly, the
shares of our class A common stock may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of our class A common stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of that country or
jurisdiction.
A-5
Alternative Page for International Prospectus
You may be required to pay stamp taxes and other charges in accordance
with the laws and practices of the country of purchase in addition to the
offering price on the cover of this prospectus.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
class A common stock. However, the U.S. representatives may engage in
transactions that stabilize the price of the class A common stock, such as bids
or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the class A common stock
in connection with the offering, i.e., if they sell more shares than are listed
on the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the over-
allotment options described above. Purchases of the class A common stock to
stabilize its price or to reduce a short position may cause the price of the
class A common stock to be higher than it might be in the absence of such
purchases.
The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriters' short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the class A common stock. In addition,
neither we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
These transactions may be effected on the Nasdaq National Market, in the over-
the-counter market or otherwise.
Other Relationships
Merrill Lynch, Pierce, Fenner & Smith Incorporated has acted as our
financial advisor in connection with our pending acquisition of Aurora
Communications and our reorganization. In addition, Merrill Lynch has acted as
sole placement agent with respect to our units consisting of 13% senior
discount notes due 2010 and limited partnership units, and as sole lead
arranger, book running manager and syndication agent with respect to our new
credit facility. Merrill Lynch has received customary fees and commissions for
these transactions. Merrill Lynch Capital Corporation, an affiliate of Merrill
Lynch, owns $20.0 million aggregate principal amount of our senior discount
notes and shares of our class A common stock. Merrill Lynch Capital
Corporation is also a lender under our new credit facility. We expect to issue
shares of class C common stock to BancAmerica Capital Investors SBIC I,
L.P., an affiliate of Banc of America Securities LLC, in connection with the
Aurora Communications acquisition. Merrill Lynch Capital Corporation has agreed
that it will not, with limited exceptions, sell, transfer, assign, pledge or
hypothecate any shares of class A common stock for one year after the date of
this prospectus.
A-6
Alternative Page for International Prospectus
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
---------------
PROSPECTUS
---------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shares
Nassau Broadcasting Corporation
Class A Common Stock
Merrill Lynch International
Schroder Salomon Smith Barney
, 2000
A-7
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc., the listing fee for the Nasdaq National Market and estimates of
all other expenses to be incurred in connection with the issuance and
distribution of the securities described in this registration statement, other
than underwriting discounts and commissions:
[Download Table]
SEC registration fee................................................. $
NASD filing fee......................................................
Nasdaq National Market listing fee...................................
Printing and engraving expenses......................................
Legal fees and expenses..............................................
Accounting fees and expenses.........................................
Blue sky fees and expenses...........................................
Transfer agent and registrar fees and expenses.......................
Premiums for director and officer insurance..........................
Miscellaneous expenses...............................................
----
Total.............................................................. $
====
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities, including reimbursement for expenses incurred arising under the
Securities Act. Our certificate of incorporation and our by-laws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General
Corporation Law. We also expect to enter into agreements with our directors and
executive officers that require, among other things, that we indemnify them
against certain liabilities that may arise by reason of their status or service
as directors and executive officers to the fullest extent permitted by Delaware
law. We expect to purchase directors and officers liability insurance, which
provides coverage against certain liabilities, including liabilities under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, we have issued and sold securities to
accredited investors or qualified institutional buyers on the dates and for the
consideration set forth below in transactions exempt from registration under
the Securities Act of 1933, as amended.
1. From 1995 to 1997, we issued 8.0% subordinated discount notes
to our existing stockholders, all of whom are accredited investors. On
May 4, 2000, we repaid all of these subordinated discount notes for
aggregate consideration of $42.4 million.
2. On May 4, 2000, we issued and sold units consisting of senior
discount notes and limited partnership units to qualified institutional
buyers for gross proceeds of $60.0 million.
3. Immediately prior to this offering, we effected a
reorganization in which all the equity interests in Nassau Broadcasting
Partners, L.P., were exchanged for shares of our common stock. See the
section "Reorganization" in the prospectus.
4. As part of our expected acquisition of Aurora Communications,
LLC, the holders of equity interests in Aurora Communications will
receive $35.0 million of our class C common stock.
II-1
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
[Download Table]
Exhibit
No. Description
------- -----------
1.1** Form of U.S. purchase agreement.
1.2** Form of international purchase agreement.
2.1 Purchase and Exchange Agreement dated March 24, 2000 relating to the
acquisition of Aurora Communications, LLC.
2.2** Amendment No. 1 to the Purchase and Exchange Agreement dated May 4,
2000.
2.3 Asset Purchase Agreement dated February 29, 2000 among Nassau
Broadcasting Partners, L.P. and Clear Channel Communications, Inc. and
Clear Channel Broadcasting Licenses, Inc.
2.4** Stock Purchase Agreement dated July 1, 1996 between Nassau
Broadcasting Partners, L.P. and Joseph E. Buckelew, Jean M. Kvistad,
Steven V. Lane, Edward Levy and Roy G. Simmons.
2.5 Asset Purchase Agreement dated January 21, 1999 between Nassau
Broadcasting Partners, L.P. and Multicultural Radio Broadcasting, Inc.
2.6** Asset Purchase Agreement dated August 30, 1996 between Nassau
Broadcasting Partners, L.P. and Great Scott Broadcasting Ltd.
2.7 Asset Purchase Agreement dated August 7, 1998 between Nassau
Broadcasting Partners, L.P. and Port Jarvis Broadcasting Co., Inc.
2.8** Stock Purchase Agreement dated June , 1999 among Nassau Broadcasting
Partners L.P., Jersey Devil Broadcasting Co., Southern Ocean
Broadcasting, Inc., Great American Communications Co. and Manahawkin
Communications Corporation.
3.1** Certificate of incorporation of the registrant.
3.2** By-laws of the registrant.
4.1** Specimen certificate for shares of class A common stock.
4.2** Specimen certificate for shares of class B common stock.
4.3** Specimen certificate for shares of class C common stock.
4.4** Units Purchase Agreement, dated May 4, 2000 relating to $60,000,000
senior discount notes.
4.5** Form of senior discount note (see Exhibit 4.4).
4.6** Credit agreement, dated May 4, 2000 among Nassau Broadcasting
Partners, L.P., Merrill Lynch Capital Corporation and the other
lenders.
5.1** Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality
of the securities being offered.
10.1** Time Brokerage Agreement dated July 1, 1996 among North Shore
Broadcasting Corporation and Seashore Broadcasting Corporation and
Nassau Broadcasting Partners, L.P.
10.2 Time Brokerage Agreement dated January 21, 1999 between Multicultural
Radio Broadcasting, Inc. and Nassau Broadcasting Partners, L.P.
10.3** Time Brokerage Agreement dated November 12, 1998 between Multicultural
Radio Broadcasting, Inc. and Nassau Broadcasting Partners, L.P.
10.4** Local Marketing Agreement dated June 1, 1997 between Great Scott
Broadcasting, Ltd. and Nassau Broadcasting Partners, L.P.
10.5** Time Brokerage Agreement dated August 1, 1998 between Port Jarvis
Broadcasting Co., Inc. and Nassau Broadcasting Partners, L.P.
II-2
[Download Table]
Exhibit
No. Description
------- -----------
10.6** Time Brokerage Agreement dated February 12, 1997 among Manahawkin
Communications Corporation, Jersey Devil Broadcasting, Inc., Southern
Ocean Broadcasting, Inc., Great American Communications Co. and Nassau
Broadcasting Partners, L.P.
10.7** Loan Agreement among Nassau Broadcasting Partners, L.P. and Amresco
Commercial Finance, Inc. and Lenders dated August 28, 1998.
10.8** Stock Incentive Plan
10.9** Employment agreement with Louis F. Mercatanti, Jr., dated , 2000.
10.10** Employment agreement with Michael S. Libretti, dated , 2000.
10.11** Employment agreement with Peter D. Tonks, dated , 2000.
10.12** Registration Rights Agreement dated May , 2000 among Nassau
Broadcasting Partners, L.P., Spectrum Equity Investors, L.P., Spectrum
Equity Investors II, L.P., Grotech Partners IV, L.P., Toronto Dominion
(U.S.A.), Inc, Nassau Holdings, Inc., Noel P. Rahn and Nassau
Broadcasting Company
10.13** Common Stock Registration Rights dated May 4, 2000 among Nasssau
Broadcasting Partners, L.P., Merrill Lynch Capital Corporation, Bank
of Montreal, The Bank of Nova Scotia, OZ Master Fund, Ltd. and Caisse
de Depot et Placement du Quebec.
10.14** Form of Registration Rights Agreement to be entered into among Nassau
Broadcasting Corporation and some of the selling holders of equity
interests of Aurora Communications, LLC.
10.15** Agreement dated January 31, 1999 by and between Nassau Broadcasting,
Inc. and Nassau Broadcasting Partners, L.P.
11.1** Statement regarding computation of per share earnings.
12.1** Statement regarding computation of ratios.
21.1 Subsidiaries of the registrant.
23.1* Consent of Grant Thornton LLP.
23.2* Consent of Ernst & Young LLP.
23.3* Consent of Deloitte & Touche LLP.
23.4* Consent of Weeks Holderbaum Huber & Degraw, LLP
23.5** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1).
24* Power of attorney (included on the signature pages to this
registration statement).
--------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules:
II-2--1
Report of Independent Certified Public Accountants on Schedule
The Partners of
Nassau Broadcasting Partners, L.P.
In connection with our audit of the financial statements of Nassau Broadcasting
Partners, L.P. referred to in our report dated March 1, 2000, which is included
in the Prospectus constituting Part I of this Registration Statement, we also
audited Schedule II for each of the three years in the period ended December
31, 1999. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
Grant Thornton LLP
Edison, NJ
March 1, 2000
Nassau Broadcasting Partners, L.P.
Schedule II--Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
[Download Table]
Balance at Charged
beginning to Costs Deductions Balance End
Description of Period and Expenses (A) of Period
----------- ---------- ------------ ---------- -----------
1999
Allowance for
doubtful accounts $331,000 $904,000 $(919,000) $316,000
======== ======== ========= ========
1998
Allowance for
doubtful accounts $135,000 $470,000 $(274,000) $331,000
======== ======== ========= ========
1997
Allowance for
doubtful accounts $169,000 $508,000 $(542,000) $135,000
======== ======== ========= ========
(A) Represents write-offs
II-3
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
The Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3--1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Princeton,
State of New Jersey, on May 9, 2000.
Nassau Broadcasting Corporation
/s/ Michael S. Libretti
By: _________________________________
Name: Michael S. Libretti
Title: Director
POWER OF ATTORNEY
Each of the undersigned officers and directors of Nassau, a Delaware
corporation, hereby constitutes and appoints Michael S. Libretti and Timothy R.
Smith and each of them, severally, as his attorney-in-fact and agent, with full
power of substitution and resubstitution, in his name and on his behalf, to
sign in any and all capacities this registration statement and any and all
amendments (including post-effective amendments) and exhibits to this
registration statement, any subsequent registration statement for the same
offering which may be filed under Rule 462(b) under the Securities Act of 1933,
as amended, and any and all amendments (including post-effective amendments)
and exhibits thereto, and any and all applications and other documents relating
thereto, with the Securities and Exchange Commission, with full power and
authority to perform and do any and all acts and things whatsoever which any
such attorney or substitute may deem necessary or advisable to be performed or
done in connection with any or all of the above-described matters, as fully as
each of the undersigned could do if personally present and acting, hereby
ratifying and approving all acts of any such attorney or substitute.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on May 9, 2000.
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Louis F. Mercatanti, Jr. President, Chief Executive May 9, 2000
______________________________________ Officer, Director and
Louis F. Mercatanti, Jr. Principal Executive
Officer
/s/ Michael S. Libretti Executive Vice President May 9, 2000
______________________________________ and Chief Financial
Michael S. Libretti Officer
/s/ Peter D. Tonks Director of Accounting & May 9, 2000
______________________________________ Human Resources and
Peter D. Tonks Principal Accounting
Officer
/s/ Brion B. Applegate Director May 9, 2000
______________________________________
Brion B. Applegate
II-4
[Download Table]
Signature Title Date
--------- ----- ----
/s/ William B. Collatos Director May 9, 2000
______________________________________
William B. Collatos
/s/ Stuart D. Frankel Director May 9, 2000
______________________________________
Stuart D. Frankel
II-5
EXHIBIT INDEX
[Download Table]
Exhibit
No. Description
------- -----------
1.1** Form of U.S. purchase agreement.
1.2** Form of international purchase agreement.
2.1 Purchase and Exchange Agreement dated March 24, 2000 relating to the
acquisition of Aurora Communications, LLC.
2.2** Amendment No. 1 to the Purchase and Exchange Agreement dated May 4,
2000.
2.3 Asset Purchase Agreement dated February 29, 2000 among Nassau
Broadcasting Partners, L.P. and Clear Channel Communications, Inc. and
Clear Channel Broadcasting Licenses, Inc.
2.4** Stock Purchase Agreement dated July 1, 1996 between Nassau
Broadcasting Partners, L.P. and Joseph E. Buckelew, Jean M. Kvistad,
Steven V. Lane, Edward Levy and Roy G. Simmons.
2.5 Asset Purchase Agreement dated January 21, 1999 between Nassau
Broadcasting Partners, L.P. and Multicultural Radio Broadcasting, Inc.
2.6** Asset Purchase Agreement dated August 30, 1996 between Nassau
Broadcasting Partners, L.P. and Great Scott Broadcasting Ltd.
2.7 Asset Purchase Agreement dated August 7, 1998 between Nassau
Broadcasting Partners, L.P. and Port Jarvis Broadcasting Co., Inc.
2.8** Stock Purchase Agreement dated June , 1999 among Nassau Broadcasting
Partners L.P., Jersey Devil Broadcasting Co., Southern Ocean
Broadcasting, Inc., Great American Communications Co. and Manahawkin
Communications Corp.
3.1** Certificate of incorporation of the registrant.
3.2** By-laws of the registrant.
4.1** Specimen certificate for shares of class A common stock.
4.2** Specimen certificate for shares of class B common stock.
4.3** Specimen certificate for shares of class C common stock.
4.4** Units Purchase Agreement, dated May 4, 2000 relating to $60,000,000
senior discount notes
4.5** Form of senior discount note (see Exhibit 4.4)
4.6** Credit agreement, dated May 4, 2000 among Nassau Broadcasting
Partners, L.P., Merrill Lynch Capital Corporation and the other
lenders.
5.1** Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality
of the securities being offered.
10.1** Time Brokerage Agreement dated July 1, 1996 among North Shore
Broadcasting Corporation and Seashore Broadcasting Corporation and
Nassau Broadcasting Partners, L.P.
10.2 Time Brokerage Agreement dated January 21, 1999 between Multicultural
Radio Broadcasting, Inc. and Nassau Broadcasting Partners, L.P.
10.3** Time Brokerage Agreement dated November 12, 1998 between Multicultural
Radio Broadcasting, Inc. and Nassau Broadcasting Partners, L.P.
10.4** Local Marketing Agreement dated June 1, 1997 between Great Scott
Broadcasting, Ltd. and Nassau Broadcasting Partners, L.P.
10.5** Time Brokerage Agreement dated August 1, 1998 between Port Jarvis
Broadcasting Co., Inc. and Nassau Broadcasting Partners, L.P.
[Download Table]
Exhibit
No. Description
------- -----------
10.6** Time Brokerage Agreement dated February 12, 1997 among Manahawkin
Communications Corporation, Jersey Devil Broadcasting, Inc., Southern
Ocean Broadcasting, Inc., Great American Communications Co. and Nassau
Broadcasting Partners, L.P.
10.7** Loan Agreement among Nassau Broadcasting Partners, L.P. and Amresco
Commercial Finance, Inc. and Lenders dated August 28, 1998.
10.8** Stock Incentive Plan
10.9** Employment agreement with Louis F. Mercatanti, Jr., dated , 2000.
10.10** Employment agreement with Michael S. Libretti, dated , 2000.
10.11** Employment agreement with Peter D. Tonks, dated , 2000.
10.12** Registration Rights Agreement dated May , 2000 among Nassau
Broadcasting Partners, L.P., Spectrum Equity Investors, L.P., Spectrum
Equity Investors II, L.P., Grotech Partners IV, L.P., Toronto Dominion
(U.S.A.), Inc, Nassau Holdings, Inc., Noel P. Rahn and Nassau
Broadcasting Company
10.13** Common Stock Registration Rights dated May 4, 2000 among Nasssau
Broadcasting Partners, L.P., Merrill Lynch Capital Corporation, Bank
of Montreal, The Bank of Nova Scotia, OZ Master Fund, Ltd. and Caisse
de Depot et Placement du Quebec.
10.14** Form of Registration Rights Agreement to be entered into among Nassau
Broadcasting Corporation and some of the selling stockholders in
Aurora Communications, LLC.
10.15** Agreement dated January 31, 1999 by and between Nassau Broadcasting,
Inc. and Nassau Broadcasting Partners, L.P.
11.1** Statement regarding computation of per share earnings.
12.1** Statement regarding computation of ratios.
21.1 Subsidiaries of the registrant.
23.1* Consent of Grant Thornton LLP.
23.2* Consent of Ernst & Young LLP.
23.3* Consent of Deloitte & Touche LLP.
23.4* Consent of Weeks Holderbaum Huber & Degraw, LLP
23.5** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1).
24* Power of attorney (included on the signature pages to this
registration statement).
--------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules:
Dates Referenced Herein
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